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IRS Fresh Start Program – Who It Helps and How it Works

FRESH START PROGRAM

If you have a tax debt with the IRS you may have heard of the Fresh Start Program and been told that it can help you.  Lets take a closer look at the details of this program and break it down so you can fully understand if you could qualify.  For your consideration, i have provided a link to the IRS webpage detailing the program and provided the full text of the page at the end of this article.  I will reference specific language from this IRS webpage throughout the discussion and greater details on the program’s specifics can be researched at http://www.irs.gov.  Let’s get started.  We will break it down the same way the IRS has, into the following three categories: liens, installment agreements, and Offer In Compromise.

LIENS:

The first thing the Fresh Start program promotes is an increased liability total under which the IRS may choose to not file liens.  Basically, you can now accrue as much as $10,000, rather than the previous threshold of $5,000 before the IRS files a lien.  This is a nice gesture on behalf of the IRS and generally speaking we have found that they are willing to accommodate taxpayers by withdrawing liens if you can bring your balance down to below this figure.  Keep in mind however that this is not absolute, it is discretionary.

INSTALLMENT AGREEMENTS:

The next benefit promoted under this program is an expansion of the streamlined Installment Agreement program which the IRS has had for years.  Prior to the Fresh Start, individuals owing less than $25,000 were permitted to establish an Installment Agreement without providing full financial documentation for analysis.  Under Fresh Start, that figure has been expanded to $50,000.  This is an excellent opportunity for Individual taxpayers who have relatively small balances.  Nobody prefers turning over substantial financial documentation to anyone, including the IRS.  It is time consuming and scary.  We have had numerous clients pay down their balances to get within this threshold and take advantage of this option.  It establishes the payments over  a period of 6 years (72 months).  Again, there is some discretion so financial information may still be required if you situation warrants it or the IRS feels they need to see more.  It is important to recognize that this does not apply to businesses.  Generally, any balance over $10,000 for a business will require a full financial analysis and negotiation of payment terms.

OFFER IN COMPROMISE:

This program has always been difficult to pinpoint exactly what the IRS will consider and not consider to be reasonable in its determination of income and expenses and ultimately ability to pay.  Some taxpayer simply do not qualify while other will require a shrewd advocate to ensure that their expenses are being properly analyzed in determining a proper offer figure.  The Offer Program now allows payment plans extending up to 24 months in length to address the figure that is reached through the offer program and while in most cases strong advocacy is still necessary, the IRS has adjusted some of their methods in reaching a final number and made certain expenses automatic where they used to discretionary or outright unacceptable.  See this link for a little more detail on the changes; http://www.irs.gov/uac/IRS-Announces-More-Flexible-Offer-in-Compromise-Terms-to-Help-a-Greater-Number-of-Struggling-Taxpayers-Make-a-Fresh-Start

Overall, the Fresh Start Program does serve to streamline the process for individual taxpayers with smaller balances or those well suited to the Offer In Compromise program with an ability to pay their “settled” balance quickly.  The IRS has carefully drafted the language of the program to allow them to adjust their approach so there are no guarantees, and it doesn’t do much for those with larger balances, cash flowing businesses, or future income or equity on an individual level.  Still, its good to know all of your options and even if the first step is to determine you don’t qualify, take a look at the Fresh Start Program and see if it could apply to you.  If you’re unsure or want a more specific analysis of this option as it pertains to your specific facts, contact Nova at 800-337-929, ext. 315 or send us an email at info@novafinancialgroup.com

http://www.irs.gov/uac/Newsroom/IRS-Fresh-Start-Program-Helps-Taxpayers-Who-Owe-the-IRS

IRS Fresh Start Program Helps Taxpayers Who Owe the IRS

IRS Tax Tip 2013-57, April 17, 2013

The IRS Fresh Start program makes it easier for taxpayers to pay back taxes and avoid tax liens. Even small business taxpayers may benefit from Fresh Start. Here are three important features of the Fresh Start program:

• Tax Liens.  The Fresh Start program increased the amount that taxpayers can owe before the IRS generally will file a Notice of Federal Tax Lien. That amount is now $10,000. However, in some cases, the IRS may still file a lien notice on amounts less than $10,000.When a taxpayer meets certain requirements and pays off their tax debt, the IRS may now withdraw a filed Notice of Federal Tax Lien. Taxpayers must request this in writing using Form 12277, Application for Withdrawal.

  Some taxpayers may qualify to have their lien notice withdrawn if they are paying their tax debt through a Direct Debit installment agreement. Taxpayers also need to request this in writing by using Form 12277.

  If a taxpayer defaults on the Direct Debit Installment Agreement, the IRS may file a new Notice of Federal Tax Lien and resume collection actions.

• Installment Agreements.  The Fresh Start program expanded access to streamlined installment agreements. Now, individual taxpayers who owe up to $50,000 can pay through monthly direct debit payments for up to 72 months (six years). While the IRS generally will not need a financial statement, they may need some financial information from the taxpayer. The easiest way to apply for a payment plan is to use the Online Payment Agreement tool at IRS.gov. If you don’t have Web access you may file Form 9465, Installment Agreement, to apply.Taxpayers in need of installment agreements for tax debts more than $50,000 or longer than six years still need to provide the IRS with a financial statement. In these cases, the IRS may ask for one of two forms: either Collection Information Statement, Form 433-A or Form 433-F.
• Offers in Compromise.  An Offer in Compromise is an agreement that allows taxpayers to settle their tax debt for less than the full amount. Fresh Start expanded and streamlined the OIC program. The IRS now has more flexibility when analyzing a taxpayer’s ability to pay. This makes the offer program available to a larger group of taxpayers.Generally, the IRS will accept an offer if it represents the most the agency can expect to collect within a reasonable period of time. The IRS will not accept an offer if it believes that the taxpayer can pay the amount owed in full as a lump sum or through a payment agreement. The IRS looks at several factors, including the taxpayer’s income and assets, to make a decision regarding the taxpayer’s ability to pay. Use the Offer in Compromise Pre-Qualifier tool on IRS.gov to see if you may be eligible for an OIC.

My Revenue Officer Won’t Call Me Back – What are my options?

Normally, Nova uses this blog to provide information on trying to untangle the web of complicated IRS Code and Internal Revenue Manual Guidelines that govern the Collections Process and make it easier for the average taxpayer to understand their rights and options as they prepare to address their liability.  We find this information to be helpful and we hope it serves the purpose of encouraging those with a liability to take action to address their liability.  However, we often end up with new clients who are attempting to be proactive in addressing their liability but are having difficulty getting the IRS to respond.  This situation is unfortunately very common and poses a lot of dangers which may be challenging to overcome.

The first thing to keep in mind is that ultimately the IRS has a single mindset when it comes to your liability.  That is this:  Its your fault and your problem.  I can’t tell you how many conversations I have had with Revenue Officers who have dropped the ball in some way or another, who fall back to this position.  They will start repeating statements such as “they failed to pay their taxes”, “they stole from their employees”, or “the IRS is not a lending institution”.  The sad truth is that i typically hear this after a Revenue Officer has become non-responsive and begun a cycle of aggressive collection action with no communication or due diligence.

To put it simply, if you have a Revenue Officer who is not responding to you or who disappears for weeks and months at a time, you need to be very concerned that you may find yourself facing aggressive collections suddenly and with little recourse.  When you wake up one day to find your bank account frozen, your wages garnished, or an accounts receivable levied, you need to be able to reach your Revenue Officer.  If you do, you may find yourself hearing the mantras listed above.  You can plead with them, saying “but i left you a message last month” or “i sent you financial information when you asked for it back in March and was waiting to hear from you.”  The fact is, you making last contact doesn’t matter.  If you don’t have a formal hold in place or a verbal guarantee from the Revenue Officer that no action will be taken, you are at risk.

Many of our clients tell me that they thought they were ok and didn’t want to poke a sleeping bear but the fact of the matter is no news is not often good news when it comes to the IRS.  There are certain exceptions but ask yourself, Is the IRS the type of organization that forgets you owe it money.  The answer is No, it isn’t.  THE IRS COLLECTS TAXES.  If there is one line that sums up the driving force behind every action the IRS takes, that is it.  It is your responsibility to make sure that in your case that collection effort is conducted in a way that doesn’t put you out of business or otherwise intrude on your life.  That requires work and frankly is why people hire my company.  I have digressed a bit so lets get back to the primary topic.

If it is your responsibility to be in contact with the IRS, what should you do if your Revenue Officer is not getting back to you.  The simple answer is be aggressive and persistent.  My business partner and I like to say we pursue the IRS on behalf of our clients as if the IRS owed us money.  You should do the same.  Contact your agent frequently.  Leave messages.  Document your calls.  Request specific timelines for progress.  This is what’s required to ensure you are being properly taken care of and protected through this process.  Can it be exhausting…yes, excessive…yes, necessary…absolutely.  This is why Nova’s Services are so important and valuable for some.  The diligence required to keep the ball rolling in the right direction and maintain protection is substantial.  However, if a Revenue Officer takes sudden collection action and you want to be able to argue it was inappropriate, you need to show that you have been making every effort to maintain contact and address your liability in good faith.

You may also need to exercise your rights to appeal or speak with higher ups to ensure an agent’s negligence on your file isn’t being ignored to your detriment.  If you are facing this type of behavior from the IRS, don’t wait for it to get worse.  Give me a call at 800-337-9629 (Robert at extension 315) and we can discuss the steps necessary to get matters on the right track.  If you prefer, send an email.  I’m happy to provide whatever advice i can, but the important thing to remember is silence from the IRS often means a calm before the storm.  Don’t mistake it for them deciding to take it easy on you.

IRS Dirty Dozen Tax Scams for 2014

http://www.irs.gov/uac/Newsroom/IRS-Releases-the-%E2%80%9CDirty-Dozen%E2%80%9D-Tax-Scams-for-2014;-Identity-Theft,-Phone-Scams-Lead-List

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IRS Releases the “Dirty Dozen” Tax Scams for 2014; Identity Theft, Phone Scams Lead List

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IR-2014-16, Feb. 19, 2014

WASHINGTON — The Internal Revenue Service today issued its annual “Dirty Dozen” list of tax scams, reminding taxpayers to use caution during tax season to protect themselves against a wide range of schemes ranging from identity theft to return preparer fraud.

The Dirty Dozen listing, compiled by the IRS each year, lists a variety of common scams taxpayers can encounter at any point during the year. But many of these schemes peak during filing season as people prepare their tax returns.

“Taxpayers should be on the lookout for tax scams using the IRS name,” said IRS Commissioner John Koskinen. “These schemes jump every year at tax time. Scams can be sophisticated and take many different forms. We urge people to protect themselves and use caution when viewing e-mails, receiving telephone calls or getting advice on tax issues.”

Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shutdown scams and prosecute the criminals behind them.

The following are the Dirty Dozen tax scams for 2014:

Identity Theft

Tax fraud through the use of identity theft tops this year’s Dirty Dozen list. Identity theft occurs when someone uses your personal information, such as your name, Social Security number (SSN) or other identifying information, without your permission, to commit fraud or other crimes. In many cases, an identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund.

The agency’s work on identity theft and refund fraud continues to grow, touching nearly every part of the organization. For the 2014 filing season, the IRS has expanded these efforts to better protect taxpayers and help victims.

The IRS has a special section on IRS.gov dedicated to identity theft issues, including YouTube videos, tips for taxpayers and an assistance guide. For victims, the information includes how to contact the IRS Identity Protection Specialized Unit. For other taxpayers, there are tips on how taxpayers can protect themselves against identity theft.

Taxpayers who believe they are at risk of identity theft due to lost or stolen personal information should contact the IRS immediately so the agency can take action to secure their tax account. Taxpayers can call the IRS Identity Protection Specialized Unit at 800-908-4490. More information can be found on the special identity protection page.

Pervasive Telephone Scams

The IRS has seen a recent increase in local phone scams across the country, with callers pretending to be from the IRS in hopes of stealing money or identities from victims.

These phone scams include many variations, ranging from instances from where callers say the victims owe money or are entitled to a huge refund. Some calls can threaten arrest and threaten a driver’s license revocation. Sometimes these calls are paired with follow-up calls from people saying they are from the local police department or the state motor vehicle department.

Characteristics of these scams can include:

• Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.
• Scammers may be able to recite the last four digits of a victim’s Social Security Number.
• Scammers “spoof” or imitate the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.
• Scammers sometimes send bogus IRS emails to some victims to support their bogus calls.
• Victims hear background noise of other calls being conducted to mimic a call site.

After threatening victims with jail time or a driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.

In another variation, one sophisticated phone scam has targeted taxpayers, including recent immigrants, throughout the country. Victims are told they owe money to the IRS and it must be paid promptly through a pre-loaded debit card or wire transfer. If the victim refuses to cooperate, they are then threatened with arrest, deportation or suspension of a business or driver’s license. In many cases, the caller becomes hostile and insulting.

If you get a phone call from someone claiming to be from the IRS, here’s what you should do: If you know you owe taxes or you think you might owe taxes, call the IRS at 800-829-1040. The IRS employees at that line can help you with a payment issue – if there really is such an issue.

If you know you don’t owe taxes or have no reason to think that you owe any taxes (for example, you’ve never received a bill or the caller made some bogus threats as described above), then call and report the incident to the Treasury Inspector General for Tax Administration at 800-366-4484.

If you’ve been targeted by these scams, you should also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at FTC.gov.  Please add “IRS Telephone Scam” to the comments of your complaint.

Phishing

Phishing is a scam typically carried out with the help of unsolicited email or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. Armed with this information, a criminal can commit identity theft or financial theft.

If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report it by sending it to phishing@irs.gov.

It is important to keep in mind the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS has information online that can help you protect yourself from email scams.

False Promises of “Free Money” from Inflated Refunds

Scam artists routinely pose as tax preparers during tax time, luring victims in by promising large federal tax refunds or refunds that people never dreamed they were due in the first place.

Scam artists use flyers, advertisements, phony store fronts and even word of mouth to throw out a wide net for victims. They may even spread the word through community groups or churches where trust is high. Scammers prey on people who do not have a filing requirement, such as low-income individuals or the elderly. They also prey on non-English speakers, who may or may not have a filing requirement.

Scammers build false hope by duping people into making claims for fictitious rebates, benefits or tax credits. They charge good money for very bad advice. Or worse, they file a false return in a person’s name and that person never knows that a refund was paid.

Scam artists also victimize people with a filing requirement and due a refund by promising inflated refunds based on fictitious Social Security benefits and false claims for education credits, the Earned Income Tax Credit (EITC), or the American Opportunity Tax Credit, among others.

The IRS sometimes hears about scams from victims complaining about losing their federal benefits, such as Social Security benefits, certain veteran’s benefits or low-income housing benefits. The loss of benefits was the result of false claims being filed with the IRS that provided false income amounts.

While honest tax preparers provide their customers a copy of the tax return they’ve prepared, victims of scam frequently are not given a copy of what was filed. Victims also report that the fraudulent refund is deposited into the scammer’s bank account. The scammers deduct a large “fee” before cutting a check to the victim, a practice not used by legitimate tax preparers.

The IRS reminds all taxpayers that they are legally responsible for what’s on their returns even if it was prepared by someone else. Taxpayers who buy into such schemes can end up being penalized for filing false claims or receiving fraudulent refunds.

Taxpayers should take care when choosing an individual or firm to prepare their taxes. Honest return preparers generally: ask for proof of income and eligibility for credits and deductions; sign returns as the preparer; enter their IRS Preparer Tax Identification Number (PTIN); provide the taxpayer a copy of the return.

Beware: Intentional mistakes of this kind can result in a $5,000 penalty.

Return Preparer Fraud

About 60 percent of taxpayers will use tax professionals this year to prepare their tax returns. Most return preparers provide honest service to their clients. But, some unscrupulous preparers prey on unsuspecting taxpayers, and the result can be refund fraud or identity theft.

It is important to choose carefully when hiring an individual or firm to prepare your return. This year, the IRS wants to remind all taxpayers that they should use only preparers who sign the returns they prepare and enter their IRS Preparer Tax Identification Numbers (PTINs).

The IRS also has a web page to assist taxpayers. For tips about choosing a preparer, details on preparer qualifications and information on how and when to make a complaint, view IRS Fact Sheet 2014-5, IRS Offers Advice on How to Choose a Tax Preparer.

Remember: Taxpayers are legally responsible for what’s on their tax return even if it is prepared by someone else. Make sure the preparer you hire is up to the task.

IRS.gov has general information on reporting tax fraud. More specifically, you report abusive tax preparers to the IRS on Form 14157, Complaint: Tax Return Preparer. Download Form 14157 and fill it out or order by mail at 800-TAX FORM (800-829-3676). The form includes a return address.

Hiding Income Offshore

Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities and then using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.

The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas. The IRS works closely with the Department of Justice (DOJ) to prosecute tax evasion cases.

While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.

Since 2009, tens of thousands of individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations. And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore is increasingly more difficult.

At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The IRS works on a wide range of international tax issues with DOJ to pursue criminal prosecution of international tax evasion. This program will be open for an indefinite period until otherwise announced.

The IRS has collected billions of dollars in back taxes, interest and penalties so far from people who participated in offshore voluntary disclosure programs since 2009. It is in the best long-term interest of taxpayers to come forward, catch up on their filing requirements and pay their fair share.

Impersonation of Charitable Organizations

Another long-standing type of abuse or fraud is scams that occur in the wake of significant natural disasters.

Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Scam artists can use a variety of tactics. Some scammers operating bogus charities may contact people by telephone or email to solicit money or financial information. They may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds.

They may attempt to get personal financial information or Social Security numbers that can be used to steal the victims’ identities or financial resources. Bogus websites may solicit funds for disaster victims. The IRS cautions both victims of natural disasters and people wishing to make charitable donations to avoid scam artists by following these tips:

• To help disaster victims, donate to recognized charities.
• Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. IRS.gov has a search feature, Exempt Organizations Select Check, which allows people to find legitimate, qualified charities to which donations may be tax-deductible.
• Don’t give out personal financial information, such as Social Security numbers or credit card and bank account numbers and passwords, to anyone who solicits a contribution from you. Scam artists may use this information to steal your identity and money.
• Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.

Call the IRS toll-free disaster assistance telephone number (866-562-5227) if you are a disaster victim with specific questions about tax relief or disaster related tax issues.

False Income, Expenses or Exemptions

Another scam involves inflating or including income on a tax return that was never earned, either as wages or as self-employment income in order to maximize refundable credits. Claiming income you did not earn or expenses you did not pay in order to secure larger refundable credits such as the Earned Income Tax Credit could have serious repercussions. This could result in repaying the erroneous refunds, including interest and penalties, and in some cases, even prosecution.

Additionally, some taxpayers are filing excessive claims for the fuel tax credit. Farmers and other taxpayers who use fuel for off-highway business purposes may be eligible for the fuel tax credit. But other individuals have claimed the tax credit although they were not eligible. Fraud involving the fuel tax credit is considered a frivolous tax claim and can result in a penalty of $5,000.

Frivolous Arguments

Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous tax arguments that taxpayers should avoid. These arguments are wrong and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or disregard their responsibility to pay taxes.

Those who promote or adopt frivolous positions risk a variety of penalties.  For example, taxpayers could be responsible for an accuracy-related penalty, a civil fraud penalty, an erroneous refund claim penalty, or a failure to file penalty.  The Tax Court may also impose a penalty against taxpayers who make frivolous arguments in court.

Taxpayers who rely on frivolous arguments and schemes may also face criminal prosecution for attempting to evade or defeat tax. Similarly, taxpayers may be convicted of a felony for willfully making and signing under penalties of perjury any return, statement, or other document that the person does not believe to be true and correct as to every material matter.  Persons who promote frivolous arguments and those who assist taxpayers in claiming tax benefits based on frivolous arguments may be prosecuted for a criminal felony.

Falsely Claiming Zero Wages or Using False Form 1099

Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer may also submit a statement rebutting wages and taxes reported by a payer to the IRS.

Sometimes, fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any variations of this scheme. Filing this type of return may result in a $5,000 penalty.

Some people also attempt fraud using false Form 1099 refund claims. In some cases, individuals have made refund claims based on the bogus theory that the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS. In this ongoing scam, the perpetrator files a fake information return, such as a Form 1099 Original Issue Discount (OID), to justify a false refund claim on a corresponding tax return.

Don’t fall prey to people who encourage you to claim deductions or credits to which you are not entitled or willingly allow others to use your information to file false returns. If you are a party to such schemes, you could be liable for financial penalties or even face criminal prosecution.

Abusive Tax Structures

Abusive tax schemes have evolved from simple structuring of abusive domestic and foreign trust arrangements into sophisticated strategies that take advantage of the financial secrecy laws of some foreign jurisdictions and the availability of credit/debit cards issued from offshore financial institutions.

IRS Criminal Investigation (CI) has developed a nationally coordinated program to combat these abusive tax schemes. CI’s primary focus is on the identification and investigation of the tax scheme promoters as well as those who play a substantial or integral role in facilitating, aiding, assisting, or furthering the abusive tax scheme (e.g., accountants, lawyers).  Secondarily, but equally important, is the investigation of investors who knowingly participate in abusive tax schemes.

What is an abusive scheme? The Abusive Tax Schemes program encompasses violations of the Internal Revenue Code (IRC) and related statutes where multiple flow-through entities are used as an integral part of the taxpayer’s scheme to evade taxes.  These schemes are characterized by the use of Limited Liability Companies (LLCs), Limited Liability Partnerships (LLPs), International Business Companies (IBCs), foreign financial accounts, offshore credit/debit cards and other similar instruments.  The schemes are usually complex involving multi-layer transactions for the purpose of concealing the true nature and ownership of the taxable income and/or assets.

Form over substance are the most important words to remember before buying into any arrangements that promise to “eliminate” or “substantially reduce” your tax liability.  The promoters of abusive tax schemes often employ financial instruments in their schemes.  However, the instruments are used for improper purposes including the facilitation of tax evasion.

The IRS encourages taxpayers to report unlawful tax evasion. Where Do You Report Suspected Tax Fraud Activity?

Misuse of Trusts

Trusts also commonly show up in abusive tax structures. They are highlighted here because unscrupulous promoters continue to urge taxpayers to transfer large amounts of assets into trusts. These assets include not only cash and investments, but also successful on-going businesses. There are legitimate uses of trusts in tax and estate planning, but the IRS commonly sees highly questionable transactions. These transactions promise reduced taxable income, inflated deductions for personal expenses, the reduction or elimination of self-employment taxes and reduced estate or gift transfer taxes. These transactions commonly arise when taxpayers are transferring wealth from one generation to another. Questionable trusts rarely deliver the tax benefits promised and are used primarily as a means of avoiding income tax liability and hiding assets from creditors, including the IRS.

IRS personnel continue to see an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses, as well as to avoid estate transfer taxes. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering a trust arrangement.

The IRS reminds taxpayers that tax scams can take many forms beyond the “Dirty Dozen,” and people should be on the lookout for many other schemes. More information on tax scams is available at IRS.gov.

See also IRS Debunks Frivolous Tax Arguments.

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Page Last Reviewed or Updated: 23-Jan-2015

Trust Fund Assessment – Are you a responsible party?

If you have questions or comments, please post them here, email us  at rstevens@novafinancialgroup.com, or call us at 800.337.9629 x315.  If you call or email please let us know which blog post you’re calling about.  (Blog Post #54)  We also have a new chat feature on our company website, www.novafinancialgroup.com.  If you have a question and want an immediate answer, you can chat with us.  Take a look

I recently received a call from an individual who received a letter advising her that the IRS is looking at her for possible Trust Fund Assessment for liabilities accrued by a company she worked for more than 10 years ago.  She had a limited role with the company and needed help in getting the matter resolved.  This is a complicated situation with a lot of nuance but generally speaking, the post below should provide general guidance on the risks and concerns that face most individuals put in this kind of situation.  I invite anyone who may have questions to contact me directly at 800-337-9629 (ext. 315)

So, you just got a letter from the IRS inviting you to a meeting to discuss your duties and responsibilities as an officer/employee of  X Corporation and your potential liability for unpaid trust fund taxes due.  The letter then goes on to list years and years of 941 periods.  You may know exactly what this is about or you may be completely confused that you’re mentioned on a letter for a company you worked for briefly over 10 years ago.  Either way, you need to take action.

So, what does this letter mean for you?  How much money are we talking about and how likely are you to be found liable for that amount?  To answer these questions let’s start with the basics.  What is the Trust Fund Recovery Penalty and how is it collected by the IRS.

The most common Trust Fund tax that we encounter are taxes that are the employment taxes withheld from employees paychecks and “held in Trust” to be turned over to the government.  Other Trust Taxes and the returns from which they are accounted are provided under Internal Revenue Manual (IRM) Section 8.25.1.3  (12-07-2012)

The general premise of a Trust tax is that it has been collected and should have been paid but wasn’t.  When that happens, the IRS will pursue collection of that portion of the tax due, not only from the business that accrued it, but also from any and every individual that it deems to be responsible under IRM guidelines.  The IRM

8.25.1.2  (12-07-2012)
Trust Fund Recovery Penalty (TFRP) Authority

1. 1.       The TFRP is a penalty against any person required to collect, account for, and pay over taxes held in trust who willfully fails to perform any of these activities. The TFRP may be imposed for:

• Willful failure to collect tax,
• Willful failure to account for and pay tax, or
• Willful attempt in any manner to evade or defeat tax or the payment thereof.

1. 2.      According to IRC 6672, the TFRP is equal to the total amount of tax evaded, not collected, or not accounted for and paid over. IRC 6672 applies to the employees’ portion of employment tax, namely, the withheld income tax and employee’s portion of FICA. It does not apply to the employer’s portion of employment taxes. The TFRP also applies to “collected” excise taxes.

If you are operating a corporation, you may think you have protection from personal liability in regards to the business taxes that are due.  This is not the case for Trust Taxes and is in fact why the Trust Fund Recovery Penalty was created and is assessed to begin with.   The laws of the land have been written in such a way so that the IRS may pierce that corporate shield and assess individuals that they determine are “RESPONSIBLE”.  The IRS Manual provides some guidance on how this responsible person is supposed to be determined:

 

8.25.1.4.1  (12-07-2012)
Definition of a Responsible Person

1. 1.       A “responsible person” is one who has the duty to perform or the power to direct the act of collecting, accounting for, or paying over trust fund taxes. When evaluating responsibility, consider the factors established in cases in the same circuit, or a higher court, that most resemble your case. Cases with similar issues can be Shepardized to locate similar cases in the different circuits.
2. 2.       Most TFRP cases involve officers of corporations. However, a responsible person may be one or more of the following:
3. A.      an officer or employee of a corporation
4. B.      a member or employee of a partnership
5. C.      a corporate director or shareholder
6. D.     a related controlling corporation
7. E.      a Payroll Service Provider (PSP)

What it comes down to is whether or not you as an individual had any authority over the operations of or financial obligations of a business during the time frame it accrued taxes.  I have seen the IRS pursue trust fund assessment against book keepers who worked for companies 2 days a month but had check signing authority.  I have seen the IRS pursue assessment against every member of a 20 member board of directors that met once a year to discuss corporate policies but never had any control over the daily finances or tax payments.  The point is that while the IRS does have guidelines that it should be implementing in determining a responsible individual, it has become more and more common that the Trust Fund Assessment is presumed to be appropriate until proven otherwise.  If the IRS has your name as a possible responsible party, they found it on some document that points towards that conclusion and you need to fight to prevent it.

If you receive a letter indicating the IRS is looking at you for assessment and you don’t respond to address the matter, you will likely be assessed.  You may be thinking the IRS will do its due diligence and discover that you were only employed by X Corporation for a few days and signed one check at the owners instruction and therefor couldn’t possibly be responsible for the Trust Tax.  That could be a costly mistake.  A lack of response will most often result in an automatic assessment after you miss your opportunities to respond.  Now, you have a lien against your personally, a pile of debt you had little to no involvement with and very few remedies remaining.   As with all matters related to taxes, it is better to act now and get ahead of it.

So how much is the Trust Fund Penalty for each period.  It’s simple, sort of.  It is the total amount of employment tax due for any period less the company match and less any penalties and interest that have accrued.  Depending on how big your payroll is, this number could be a few hundred dollars or a few hundred thousand dollars…per payroll!

You may think that these periods are too old for you to possibly be determined to be responsible any longer.  After all 10 year old accruals must have run some sort of statute, right.  Maybe.  There is a statute of limitations.  It is 3 years from the date that the returns are considered filed.  Internal Revenue Code Section 6501(b)(2), employment tax returns filed for any period ending within a calendar year are considered filed on April 15 of the succeeding year. For example, employment tax returns filed for 2005 begin their statute of 3 years on April 15 of 2006, meaning the IRS has until 2009 to complete its investigation and assess Trust Fund.

Once you do get to a point where an investigation is open, which is the case if you the letter we inviting you to a meeting to discuss it, it is important that the information you provide be thorough and proper.  If you go to the interview requested unprepared you will be asked a serious of Yes or No Questions.  The more Yes answers you provide the more it will appear that you were responsible.  The Interview is structured in such a way that the taxpayer is not provided opportunity to qualify those Yes responses with information or explanation which might be helpful and therefore is designed to satisfy the investigator’s checklist for determining “responsible” without providing for the an analysis of the detail and nuance that are often very relevant to that analysis.

The important message we want to deliver to taxpayers dealing with possible Trust Fund Assessment is to get help in responding to the IRS as early as possible so that the IRS has the information needed to determine you are “not responsible” if that is the case.  If you are unquestionably a “responsible” party and there is no way around it, then you still have certain options and appeal rights which may allow this debt to be properly addressed before you are personally assessed and liened.  If a lien is unavoidable, arrangements can be made to deal with the debt via payment arrangements either exclusively through the business which initially accrued the liability or through a small payment of your own.  Hopefully, it doesn’t get to this point.

Latest changes to the IRS Offer in Compromise program

If you have questions or comments, please post them here, email us  at rstevens@novafinancialgroup.com, or call us at 800.337.9629 x315.  If you call or email please let us know which blog post you’re calling about.  (Blog Post #53)  We also have a new chat feature on our company website, www.novafinancialgroup.com.  If you have a question and want an immediate answer, you can chat with us.  Take a look.  

Original irs.gov link and full text here:  http://www.irs.gov/businesses/small/article/0,,id=239097,00.html

Streamlined Offer in Compromise Program

The expanded Streamlined Offer in Compromise program includes:

• Fewer requests for additional financial information–  This is a great improvement.  OIC’s are often derailed by missing the deadlines for additional financial information.  
• If necessary, requests for additional information by phone, not by mail-  Right now the IRS has up to 2 years to accept or reject an OIC.  This should speed things up considerably.  

What should I do if I owe back payroll taxes?

Novatax comments are in green.  If you have questions or comments, please post them here, email us at rstevens@novafinancialgroup.com, or call us at 800.337.9629 x315.  If you call or email be sure to included which blog post you are calling about.  (Blog Post #52)

These are great because they typically don’t require financial statements to be completed.  The requirements are listed below.  

Original irs.gov link and full text can be found here:  http://www.irs.gov/businesses/small/article/0,,id=239096,00.html

• You owe $25,000 or less at the time the agreement is established. If you owe more than $25,000, you may pay down the liability before entering into the agreement in order to qualify.  Be cautious if a Revenue Officer is pushing to come up with a lump sum amount to get you below the $25,000 threshold.  If it makes more sense for your cash flow to complete the financial statements, do so.  Don’t substitute a different problem to fix this one.  
• The debt must be full paid within 24-months or prior to the Collection Statute Expiration Date (CSED), whichever is earlier.  Again, cash flow is the consideration here.  If you know 24 months is too fast, don’t destabilize your business to accommodate this.  
• You must enroll in a Direct Debit installment agreement (DDIA) if the amount you owe is between $10,000 and $25,000.
• You must be compliant with all filing and payment requirements.  This means all filings have been completed, and the most recent tax period has been paid.  

To Request an In-Business Trust Fund Express Installment Agreement:

• Call the number on your bill or 1-800-829-4933
• Visit your local IRS office
• Complete IRS Form 9465, Installment Agreement Request (PDF), and send it to the address on your bill. If you do not have a bill, send the form to the address on page 2 of Form 9465

References/Related Topics

• Struggling with Paying Your Taxes? Let IRS Help You Get a Fresh Start
• Payment Plans, Installment Agreements

Are there any changes to IRS tax lien policies?

As always, all of our comments are in green.  If you have questions or comments, please post them here, email us at rstevens@novafinancialgroup.com, or call us at 800.337.9629 x315.  If you call or email, please let us know which blog post you are calling about.  (Blog post #51)

We get a lot of questions about IRS tax lien policy changes.  Here’s the latest as of 8/19/2011.  

Full text and original link here:  http://www.irs.gov/businesses/small/article/0,,id=239095,00.html

Adjustments to IRS Lien Policies

Increase in the lien filing threshold

The Fresh Start changes increase the IRS lien filing threshold from $5,000 to $10,000. Liens may still be filed on amounts less than $10,000 when circumstances warrant.  Evidently it’s warranted quite often because we still see a steady flow of liens below $10,000.  Same can be said for the $5,000 limit.  

Requesting a lien withdrawal after the lien has been released

The IRS may now issue a withdrawal of a filed Notice of Federal Tax Lien after the lien has been released. If you wish to have the Notice of Federal Tax Lien withdrawn, you must request the withdrawal in writing. Please use Form 12277, Application for Withdrawal, (PDF). In item 8, Reason for requesting withdrawal, check box d, the best interest provision.  As always, make sure you send the application via certified mail, so you can prove you sent it.  Make sure you get your release and keep it where you can find it.  You’ll need it for the credit reporting agencies.  

Lien withdrawal after entering into a Direct Debit installment agreement

If you are a qualifying taxpayer and meet the eligibility requirements, you may have your lien withdrawn after entering into a Direct Debit installment agreement. Your request for lien withdrawal must be in writing. Please use Form 12277, Application for Withdrawal (PDF). In item 8, “Reason for requesting withdrawal,” check box b, the “entered into an installment agreement” provision.  This is an enormous improvement over the old policy!  The lien wasn’t released until the debt was paid under the old policy.  

Qualifying taxpayers are:

• Individuals (Form 1040 tax)
• Businesses with income tax liability only
• Out of business entities with any type of tax debt

If you have questions or need assistance with the direct debit process, please call the applicable telephone number below.

Individuals (Wage & Salary Earners)	1-800-829-0922
Individuals (Self-Employed)	1-800-829-8374
Businesses	1-800-829-0115

What are my rights as a tax payer if I owe back taxes?

Novatax comments are in green.  As usual, if you have questions or comments, please post them here, or email us at rstevens@novafinancialgroup.com, or call us at 800.337.9629 x315.  If you call or email, please let us know which blog post you are calling about.  (Blog Post #50).  

Full text and original irs.gov link here:  http://www.irs.gov/publications/p1/ar02.html

Declaration of Taxpayer Rights

I. Protection of Your Rights

IRS employees will explain and protect your rights as a taxpayer throughout your contact with us.  You mean the same person that has sworn an oath to collect for the government? Intentional or not, there is a clear conflict of interest here.  They are evaluated on how much money the collect, not how well they explain rights to people.  Also, the less you understand, the more control the exercise.  If you’ve been subject to enforced collection via an IRS bank levy, had the Revenue Officer show up at your place of business and talk to your employees and clients, your place of employment and talk to your boss and coworkers, or at your house and begin talking to your spouse or children know what I mean.  

II. Privacy and Confidentiality

The IRS will not disclose to anyone the information you give us, except as authorized by law. You have the right to know why we are asking you for information, how we will use it, and what happens if you do not provide requested information.  The second half of last sentence sounds a little bit like a threat, no?  This paragraph sums up their approach perfectly.  First sentence:  Velvet glove.  First half of second sentence:  Velvet glove.  Second half of second sentence:  Iron fist.  

III. Professional and Courteous Service

If you believe that an IRS employee has not treated you in a professional, fair, and courteous manner, you should tell that employee’s supervisor. If the supervisor’s response is not satisfactory, you should write to your IRS District Director or Service Center Director.  Really?  Write a letter to an unknown person who has no knowledge of the events, who is the offender’s boss?  A better path may be the Taxpayer Advocate Service.  But only slightly.  Many employees in the Taxpayer Advocate’s office are ex Revenue Officers.  Interesting that there is no mention of the Group Manager or Territory Manager, which is usually the route we take.  

IV. Representation

Your representative must be a person allowed to practice before the IRS, such as an attorney, certified public accountant, or enrolled agent. These are actually the only ones.  If you are in an interview and ask to consult with such a person, then we must stop and reschedule the interview in most cases.  This is a right you should exercise.  There are no repercussions.  Don’t wait until it’s too late.  

You can have someone accompany you at an interview. You may make sound recordings of any meetings with our examination, appeal, or collection personnel, provided you tell us in writing 10 days before the meeting.  Great idea, always do this.  Make sure you get the notification done.  Send it certified.  If you fax it, keep the journal report.  

V. Payment of Only the Correct Amount of Tax

If you cannot pay all of your tax when it is due, you may be able to make monthly installment payments.  The reality is most people who owe back taxes can’t pay it off in full.  They end up in an installment agreement, or two other options they fail to mention.  1.  Offer in Compromise, and 2.  a Partial Payment Installment Agreement.  Funny how they don’t mention the two programs that most favor the tax payer.  

VI. Help With Unresolved Tax Problems

The National Taxpayer Advocate’s Problem Resolution Program can help you if you have tried unsuccessfully to resolve a problem with the IRS. Your local Taxpayer Advocate can offer you special help if you have a significant hardship as a result of a tax problem. For more information, call toll-free 1–877–777–4778 (1–800–829– 4059 for TTY/TDD users) or write to the Taxpayer Advocate at the IRS office that last contacted you.  Use them.  If they don’t work, use us.  We always work.  

VII. Appeals and Judicial Review

If you disagree with us about the amount of your tax liability or certain collection actions, you have the right to ask the Appeals Office to review your case. You may also ask a court to review your case.  A gross over-simplification.  First of all if you appeal, you can’t miss your deadlines, so note them in the IRS correspondence.  Typically known as a Collection Due Process Appeal.  We also use equivalency hearings and CAPs.  We also discourage the lawsuit idea.  ~80% of all tax court cases are lost by the tax payer, and then they add on their court costs to your tax liability.  Be very wary of representation that is advocating court as a primary resolution idea.  

VIII. Relief From Certain Penalties and Interest

The IRS will waive penalties when allowed by law if you can show you acted reasonably and in good faith or relied on the incorrect advice of an IRS employee. We will waive interest that is the result of certain errors or delays caused by an IRS employee.  This may be a bit misleading in our opinion.  First of all, it doesn’t tell you to use IRS form 843 Request for Abatement of Penalty, which you must use to invoke the formal process.  Second of all, they remove penalties for other reasons as well, but we have to prove that what happened was out of your control and unforeseeable.

The IRS provides a great deal of free information. The following are sources for forms, publications, and additional information.

• Tax Questions: 1-800-829-1040 (1-800-829-4059 for TTY/TDD users)
• Forms and Publications: 1-800-829-3676 (1-800-829-4059 for TTY/TDD users)
• Internet: http://www.irs.ustreas.gov
• TaxFax Service: From your fax machine, dial 703-368-9694.
• Small Business Ombudsman: If you are a small business entity, you can participate in the regulatory process and comment on enforcement actions of IRS by calling 1-888-REG-FAIR.
• Treasury Inspector General for Tax Administration: If you want to confidentially report misconduct, waste, fraud, or abuse by an IRS employee, you can call 1-800-366-4484 (1-800-877-8339 for TTY/TDD users). You can remain anonymous.

 

Can an IRS Offer in Compromise really help if I owe back taxes?

Maybe.  Read on.  If you’d like other options, contact us.  

As usual our comments are in green.  If you have questions or comments, please post them here, call us at 300.337.9629 x315, or email us at rstevens@novafinancialgroup.com.  If you call or email, please let us know which post you are contacting us about.  Thank you.  

Original link and full text from irs.gov are here:  http://www.irs.gov/taxtopics/tc204.html

Topic 204 – Offers In Compromise

An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles the taxpayer’s tax liabilities for less than the full amount owed.  Sounds great, right?  The problem is too many people treat this program like a lottery, overburdening the offices that review/approve them.  In order to sort through these frivolous offers, the IRS is seeking reasons to reject them rather than accept them.  Last year 76% of all offers were rejected.  If you thinking about doing an OIC for a business that’s still open, beware.  Less than 1% of those offers were accepted last year.  If you have an advocate recommending this route they may not have the experience you’re hoping they do.  

In most cases, the IRS will not accept an offer unless the amount offered by the taxpayer is equal to or greater than the reasonable collection potential (the RCP). The RCP is how the IRS measures the taxpayer’s ability to pay. The RCP includes the value that can be realized from the taxpayer’s assets, such as real property, automobiles, bank accounts, and other property. In addition to property, the RCP also includes anticipated future income, less certain amounts allowed for basic living expenses.

The IRS may accept an OIC based on three grounds. First, acceptance is permitted if there is doubt as to liability. This ground is only met when genuine doubt exists that the IRS has correctly determined the amount owed. Second, acceptance is permitted if there is doubt that the amount owed is collectible. This means that doubt exists in any case where the taxpayer’s assets and income are less than the full amount of the tax liability. This is the most common.  Even though it is owed, it cannot be paid.  Third, acceptance is permitted based on effective tax administration. An offer may be accepted based on effective tax administration when there is no doubt that the full amount owed can be collected, but requiring payment in full would either create an economic hardship or would be unfair and inequitable because of exceptional circumstances.  These are often granted for medical issues or people living on a fixed income.  

When submitting an OIC, taxpayers must use the most current version of Form 656 (PDF), Offer in Compromise. Except when an OIC is submitted based on doubt as to liability, taxpayers must also submit Form 433-A (PDF), Collection Information Statement for Wage Earners and Self-Employed Individuals, and/or Form 433-B (PDF), Collection Information Statement for Businesses. A taxpayer filing an OIC based on doubt as to liability must file a Form 656-L, Offer in Compromise (Doubt as to Liability), instead of Form 656 and Form 433-A and/or Form 433-B.  Please read our post about filling out the 433a & 433b.  It also has links to the allowable expenses tables.  

In general, a taxpayer must submit a $150 application fee along with the Form 656. There are two exceptions to this requirement. First, no application fee is required if the offer is based on doubt as to liability. Second, the fee is not required if the taxpayer is an individual (not a corporation, partnership, or other entity) who qualifies for the low-income exception. This means that the taxpayer’s total monthly income falls at or below 250 percent of the poverty guidelines published by the Department of Health and Human Services. If the total monthly income falls at or below the poverty guidelines, the taxpayer may submit a Form 656-A (PDF), Income Certification for Offer in Compromise Application Fee and Payment, instead of the $150 application fee. The Form 656 package contains a worksheet and the IRS OIC Low Income Guidelines table to assist taxpayers in determining whether they qualify for the low-income exception. The Form 656-A and the worksheet must be submitted with the Form 656.

Taxpayers may choose to pay the offer amount in a lump sum or in installment payments. The tax law provides rules for “lump sum offers” and “periodic payment offers” submitted on or after July 16, 2006. A lump sum offer is defined as an offer payable in 5 or fewer installments. If a taxpayer submits a lump sum offer, the taxpayer must include with the Form 656 a nonrefundable payment equal to 20 percent of the offer amount. There is a common misconception that offers must be paid  in a lump sum, or that 20% of the offer is required no matter what kind of offer you are submitting this is not the case, but the offer must be prepared properly to support the periodic payment option.  This payment is required in addition to the $150 application fee. The 20 percent amount is called “nonrefundable” because it cannot be returned to the taxpayer even if the offer is rejected or returned to the taxpayer without acceptance. The 20 percent amount will be applied to the taxpayer’s tax liability. The taxpayer has a right to specify the particular tax liability to which the IRS will apply the 20 percent amount.

The offer is called a “periodic payment offer” under the tax law if it is payable in 6 or more installments. When submitting a periodic payment offer, the taxpayer must include the first proposed installment payment along with the Form 656. This payment is required in addition to the $150 application fee. This amount is nonrefundable, just like the 20 percent payment required for a lump sum offer. Also, while the IRS is evaluating a periodic payment offer, the taxpayer must continue to make the installment payments provided for under the terms of the offer. These amounts are also nonrefundable. These amounts are applied to the tax liabilities and the taxpayer has a right to specify the particular tax liabilities to which the periodic payments will be applied.

Ordinarily, the statutory time within which the IRS may engage in collection activities is suspended during the period that the OIC is under consideration and is further suspended if the OIC is rejected by the IRS and the taxpayer appeals the rejection to the IRS Office of Appeals within 30 days from the date of the notice of rejection.  If the OIC is rejected penalty and interest will be added for the time between the submission of the OIC and it’s rejection.  This is another reason to be cautious when submitting an offer.  

If the IRS accepts the taxpayer’s offer, the IRS expects that the taxpayer will have no further delinquencies and will fully comply with the tax laws. If the taxpayer does not abide by all the terms and conditions of the OIC, the IRS may determine that the OIC is in default. To avoid a default, the taxpayer must timely file all tax returns and timely pay all taxes for 5 years or until the offered amount is paid in full, whichever period is longer. When an OIC is declared to be in default, the agreement is no longer in effect and the IRS may then collect the amounts originally owed, plus interest and penalties.

If the IRS rejects an OIC, then the taxpayer will be notified by mail. The letter will explain the reason that the IRS rejected the offer and will provide detailed instructions on how the taxpayer may appeal the decision to the IRS Office of Appeals. The appeal must be made within 30 days from the date of the letter. It is extremely important to not miss this deadline.  In some cases, an OIC is returned to the taxpayer, rather than rejected, because the taxpayer has not submitted necessary information, has filed for bankruptcy, has failed to include a required application fee or nonrefundable payment with the offer, or has failed to file tax returns or pay current tax liabilities while the offer is under consideration. A return is different from a rejection because there is no right to appeal the IRS’s decision to return the offer.

Additional information about the offer in compromise program can be found on Form 656 (PDF), Offer in Compromise, and in Publication 594 (PDF), The IRS Collection Process, or by visiting the http://www.irs.gov Offers in Compromise web page.

If I owe back taxes, how can I pay the IRS?

Novatax comments are in green.  As always, if you have any questions or comments about this post, please post here, email us at rstevens@novafinancialgroup.com, or call us at 800.337.9629 x315.  If you email or call be sure to tell us which blog post you are calling about.  

The original irs.gov link and full text is here:  http://www.irs.gov/taxtopics/tc202.html

There are many ways to pay an outstanding federal income tax liability. You may pay by check or money order, made out to “United States Treasury.” You may pay by transferring money electronically from your bank account. The Electronic Payment Options page on the IRS.gov website explains how to make an electronic payment. You may also pay by credit or debit card by calling Official Payments Corporation at 888-872-9829, Link2Gov Corporation at 888-729-1040, or RBS WorldPay, Inc. at 888-972-9829. A service provider, not the IRS, may charge a convenience fee for electronic payments from your bank account or for payments by credit or debit card. If you cannot pay in full, you should pay as much as possible to reduce the accrual of interest on your account. Please refer to Topic 158 for information needed to ensure that your payment is credited properly.

You should consider financing the full payment of your tax liability through loans, such as a home equity loan from a financial institution or a credit card cash advance. If a tax lien has already been filed, the option of getting a loan  or HELOC is usually eliminated.  The interest rate and any applicable fees charged by a bank or credit card company are usually lower than the combination of interest and penalties imposed by the Internal Revenue Code. This may not be true if you are a business owner considering taking a loan from your credit card processor.  An IRS installment agreement may be a better option. 

Installment Agreements

An installment agreement allows you to make a series of monthly payments over time. The IRS offers various options for making monthly payments, such as:

• Direct Debit from your bank account
• Payroll Deduction from your employer
• Payment via check or money order
• Payment by Electronic Federal Tax Payment System (EFTPS)
• Payment by credit card via phone or Internet, or
• Payment by Online Payment Agreement (OPA)

If you enter into an installment agreement, your monthly payment should be based on your ability to pay and should be an amount that you can pay each month to avoid defaulting.  Make sure you determine what you can truly afford independently from what the IRS tries to dictate.  The majority of the work we do is re-negotiating agreements that the IRS forced on the tax payer.  If you know your payment is guaranteed to fail, take action now.  Don’t wait until you have to default the agreement after you’ve been neglecting other responsibilities.  

• If you are not able to provide full payment when you file your tax return, you may request a pre-assessment installment agreement on current tax liabilities by using the Online Payment Agreement (OPA) application on the IRS.gov website. You may also submitForm 9465 (PDF), Installment Agreement Request, or attach a written request for a payment plan to the front of your return.  This option only applies to personal income tax.  The liability size must be less than $25,000 to use this option.  
• If you are not able to provide full payment after you have filed your tax return and received a bill from the IRS (a balance due notice), you may request an installment agreement using the Online Payment Agreement (OPA) application on the IRS.gov website. You also may submit Form 9465 (PDF), Installment Agreement Request, or attach a written request for a payment plan to the front of your return or bill.
• You may also request an installment agreement by calling the toll-free number on the bill.

Responding to your IRS Notice

It is important to respond to an IRS notice. If you do not pay your tax liability in full or make an alternative payment arrangement, the IRS is entitled to take collection action. You may refer to Topic 201 for information about “The Collection Process.”  Or go to the same topic here on the blog.  

If you are unable to make any payment at this time, please have financial information available (e.g., pay stubs, lease or rental agreement, mortgage statements, car lease/loan, utilities) and call the appropriate number below to receive assistance:

• Individual taxpayers: 800-829-1040
• Business taxpayers: 800-829-4933

You have rights and protections throughout the collection process. If you would like information on arrangements to pay your bill, installment agreements, and what happens when you take no action to pay, refer to Publication 594 (PDF), The IRS Collection Process, and Publication 1, Your Rights as a Taxpayer