Category Archives: IRS Talk

What is the IRS Fresh Start Initiative?

Each sunrise is a fresh start, a new day, a brand new pencil on an empty page!

If you you have tax debt, you have undoubtedly heard a lot about the Fresh Start Initiative (FSI) in radio ads, TV advertisements, online and more. Many of these advertisements will make you think that the IRS has some “special program” or that it is some recent change the IRS made. Both of these facts could be further from the truth.

You see, many tax experts and consumer advocates had accused the IRS of failing to assist those who had significant tax debt, but were trying to pay it off. So in 2011 (yes, 8 years ago at the time of this writing), the IRS announced the creation of a new initiative known as the FSI. This was in response to the critics, law makers and the fact that people were still being impacted by the recession.

The primary objective of the FSI was to give taxpayers who owed substantial back taxes the opportunity to consolidate their tax bills and pay them off in a convenient and orderly fashion. The key thing to take away is that the IRS made it easier for one to pay their debt. Contrary to what the advertisements say, the FSI was not:

  • A program to forgive a persons tax debt
  • Some magical bullet to simply give the IRS a fraction of the tax debt or “pennies on the dollar” and call it good
  • A program at all

What Changes Did the IRS Make with the FSI?
The primary provisions of the program included the following:

Tax Lien Changes. The FSI increased the tax debt threshold at which the IRS will file a Notice of Federal Tax Lien (Letter 3172). The threshold amount increased from $5,000 to $10,000. This was a good thing because having a tax lien on your credit report can hinder several things (e.g. ability to get credit, a job, etc). But do keep in mind that the IRS (at its discretion) can still file a tax lien on someone if they have a debt that is below $10,000.

The IRS also made changes regarding the withdrawal of tax liens, which eliminates the Notice of a Tax Lien publicly. Specifically, it made it so a lien could be withdrawn via these situations:

  • The tax debt was paid off in full or the statute of limitations (CSED) was reached. Although IRS liens are generally self-releasing, they don’t always come off. Therefore, a taxpayer could now call the IRS and tell them to release the lien because they met either of the two qualifications.
  • If you have entered into OR converted your regular installment agreement to a Direct Debit installment agreement, the tax lien can be withdrawn if:
    • You are a qualifying taxpayer (i.e. individuals, businesses with income tax liability only, and out of business entities with any type of tax debt)
    • You owe $25,000 or less (If you owe more than $25,000, you may pay down the balance to $25,000 prior to requesting withdrawal of the Notice of Federal Tax Lien)
    • Your Direct Debit Installment Agreement must full pay the amount you owe within 60 months or before the Collection Statute expires, whichever is earlier
    • You are in full compliance with other filing and payment requirements
    • You have made three consecutive direct debit payments
    • You can’t have defaulted on your current, or any previous, Direct Debit Installment agreement.

Installment Agreement Changes. The FSI increased the threshold for which an individual can qualify for a Streamlined Installment Agreement from $25,000 to $50,000. It also expanded the tax debt amount threshold for small businesses to qualify for a Direct Debit Installment Agreement (DDIA) from $10,000 to $25,000. Furthermore, small businesses can pay down balances above $25,000 in order to qualify for a DDIA. The reason these increases are important is because they:

  • Require minimal, if any, financial disclosure to the IRS;
  • Don’t require an IRS manager to approve the payment terms;
  • Don’t require taxpayers to liquidate assets to pay the IRS; and,
  • Can be set up in one phone call or interaction with the IRS.

Offer in Compromise Changes. If a person qualifies, the OIC program allows a person to settle their debt for a “reduced” amount. The FSI made changes regarding the financial analysis component used to determine which taxpayers qualify for an OIC (or not). Specifically it made the following changes:

  • Lump Sum OIC Payment – The IRS now looks at only one year of future income versus four years (i.e. 12 vs 48 months).
  • Short-Term OIC Periodic Payment – The IRS now looks at two years of future income versus five years (i.e. 24 vs 60 months).

Currently Not Collectible Changes. When a taxpayer is in this IRS status, enforcement actions cease. To get into CNC, generally the taxpayer will need to provide sufficient documentation to justify this status with the IRS. The FSI made the process easier for individuals who owe $10,000 or less to qualify for a CNC by easing the documentation requirements.

Are YOU looking for a fresh start regarding your tax debt?

Look, we know that most with tax debt would love nothing more than for someone to waive a magic wand and make their debt disappear. While we can’t offer that, we can help you make your problem disappear if you engage us! For example, did you know that the IRS only has 10 years to collect on your tax debt? After that, it will vanish!

So take a look at the post above where we offer a product for only $75 where we will calculate your CSED. Or, you can visit this page and learn more about our IRS Debt Representation services. In either case, we encourage you to act NOW so that your fresh start can begin as soon as tomorrow!

IRS “Expanded” Installment Agreement

Complete this form to set up your IRS payment plan!

When a person owes the IRS money that they can’t pay in full, they typically will qualify to deal with the debt via a payment plan.  This payment plan is called an “installment agreement” in IRS terminology.  Simply stated, an installment agreement is a contract with the IRS to pay the taxes you owe within an extended time frame.  There are many types of installment agreements, but two of the most common are the guaranteed and streamlined variety.

Guaranteed & Streamlined Installment Agreements
We discuss the guaranteed installment agreement at length in this blog post.  But what exactly is a streamlined installment agreement?  For individual taxpayers who have filed all required returns and have an assessed balance of tax, penalties and interest of $50,000 or less, they can enter into an installment agreement with “relaxed” criteria.  Basically, they don’t have to go through as many hoops or submit as much documentation.  The following criteria apply to those who wish to apply for a streamlined installment agreement:

  • Payment Terms  Up to 72 months – or – the number of months necessary to satisfy the liability in full by the Collection Statute Expiration Date (CSED), whichever is less
  • Collection Information Statement (financials) Not required.
  • Payment Method Direct debit payments or payroll deduction is preferred, but not required.
  • Notice of Federal Tax Lien
    • Determination not required for assessed balances up to $25,000.
    • Determination is not required for assessed balances of $25,001 – $50,000 with the use of direct debit or payroll deduction agreement.  If taxpayer does not agree to direct debit or payroll deduction, then they still qualify for Streamlined IA over $25,000, but a Notice of Federal Tax Lien determination will be made.

The criteria discussed above also apply to business taxpayers, but only for income tax debts up to $25,000.

So what if you owe more than $50,000 as an individual or $25,000 as a business?  Well, this is where the “expanded installment agreement” comes into play.

Expanded Installment Agreements
From late 2016 through late Fall of 2018, the IRS tested “expanded” criteria for the streamlined processing of taxpayer requests for installment agreements.  During the test, taxpayers who owed more than $50,001 but less than $100,000 were allowed to use most of the criteria outlined under the streamlined installment agreement.  Well, based on test results, the expanded criteria for streamlined processing of installment agreement requests were made permanent.  If you are a practitioner, you can find the “new” criteria in IRM 5.19.1.6.4 under item “11” (09-26-18 update).

So, for individual taxpayers who have filed all required returns and have an assessed balance of tax, penalties and interest between $50,001 and $100,000, you can use the following criteria to apply for an expanded installment agreement:

  • Payment Terms Up to 84 months – or – the number of months necessary to satisfy the liability in full by the Collection Statute Expiration date, whichever is less
  • Collection Information Statement (financials) Not required if the taxpayer agrees to make payment by direct debit or payroll deduction
  • Payment Method Direct debit payments or payroll deduction is not required; however, if one of these methods is not used, then a Collection Information Statement is required.
  • Notice of Federal Tax Lien
    • Determination is required.

The criteria discussed above also applies to all out of business sole-proprietorship debts between $50,001 and  $100,000.

Do you owe the IRS and need to enter into a resolution option?
Check out this page of our website where you can receive our special report entitled 5 Questions To Ask Any Tax Resolution Firm Before Paying Them A Dime, a comprehensive 30-minute Tax Debt Settlement Analysis AND your personalized Tax Resolution Plan (a package valued at $175, but FREE to you for a limited time).  You can also visit this page to read about how you can find out the date (i.e. CSED) the IRS will write off your tax debt!

Can The IRS Revoke My Passport?

Don’t want to pay your taxes ehh? We’ll get your attention!

So the short answer to the question is yes, the IRS can revoke your passport if you have a “seriously delinquent” tax debt.  But what exactly does that mean?  More importantly, what can you do if your passport is at risk of being revoked?  Read on to learn more my friend!

Background
On December 4, 2015, President Obama signed the Fixing America’s Surface Transportation (FAST) Act (Pub. L. No. 114-94) into law—the first federal law in over a decade to provide long-term funding certainty for surface transportation infrastructure planning and investment.  But like all legislative bills/acts, other things that may appear unrelated often get inserted into them.  This act was no different.

Internal Revenue Code Sec. 7345 was enacted as part of the FAST Act.  A seriously delinquent tax debt is defined as an unpaid, legally enforceable, and assessed federal tax liability greater than $51,000 (adjusted annually for inflation) and for which:

  • The IRS has filed a notice of federal tax lien and the individual’s right to a hearing has been exhausted or lapsed, or
  • The IRS has issued a levy.

Generally speaking a federal tax debt is the sum of all current tax obligations, including penalties and interest.  However, a “seriously delinquent tax debt” does not include any of the following tax debt even if it meets the criteria stated above:

  • Being paid timely with an IRS-approved installment agreement (IA),
  • Being paid timely with an offer in compromise (OIC) accepted by the IRS, or a settlement agreement entered with the Justice Department,
  • For which a collection due process hearing is timely requested regarding a levy to collect the debt,
  • For which collection has been suspended because a request for innocent spouse relief under IRC § 6015 has been made

Furthermore, a passport won’t be at risk under this program for any taxpayer:

  • Who is in bankruptcy
  • Who is identified by the IRS as a victim of tax-related identity theft
  • Whose account the IRS has determined is currently not collectible (CNC) due to hardship
  • Who is located within a federally declared disaster area
  • Who has a request pending with the IRS for an installment agreement (IA)
  • Who has a pending offer in compromise (OIC) with the IRS
  • Who has an IRS accepted adjustment that will satisfy the debt in full

What the IRS does when you have a seriously delinquent tax debt
The IRS is required to notify you in writing at the time the IRS certifies seriously delinquent tax debt to the State Department. This is done via IRS notice CP 508C.  If you have been certified to the Department of State by the Secretary of the Treasury as having a seriously delinquent tax debt, you cannot be issued a U.S. passport and your current U.S. passport may be revoked.

How do you resolve the situation?
The IRS will reverse a certification when the tax debt no longer qualifies as a seriously delinquent tax debt.  This happens when:

    • The tax debt is fully satisfied or becomes legally unenforceable.
    • The tax debt is no longer seriously delinquent meaning:
      1. You and the IRS enter into an installment agreement allowing you to pay the debt over time.
      2. The IRS accepts an offer in compromise to satisfy the debt.
      3. The Justice Department enters into a settlement agreement to satisfy the debt.
      4. Collection is suspended because you request innocent spouse relief under IRC § 6015.
      5. You make a timely request for a collection due process hearing regarding a levy to collect the debt.
    • The certification is erroneous.

The IRS will make this reversal within 30 days and provide notification to the State Department as soon as practicable.

The IRS will not reverse certification where a taxpayer requests a collection due process hearing or innocent spouse relief on a debt that is not the basis of the certification.  Also, the IRS will not reverse the certification because the taxpayer pays the debt below $50,000.  So…if you have been notified that your tax debt has been certified, you should consider:

  1. paying the tax owed in full,
  2. entering into an installment agreement, or
  3. making an offer in compromise.

But what if the IRS made an error?
The State Department is held harmless in these matters and cannot be sued for any erroneous notification or failed decertification under IRC § 7345.  If you believe that the IRS certified your debt to the State Department in error, you can file suit in the U.S. Tax Court or a U.S. District Court to have the court determine whether the certification is erroneous or the IRS failed to reverse the certification when it was required to do so. If the court determines the certification is erroneous or should be reversed, it can order the IRS to notify the State Department that the certification was in error.

Can I contact the State Department to find out the status of my passport?
The State Department does not have any information about your seriously delinquent tax debt. For questions, or to resolve your seriously delinquent tax debt, they recommend that you contact the IRS via phone at 1-855-519-4965 (1-267-941-1004 international) of via mail at:

Department of the Treasury
Internal Revenue Service
Attn: Passport
PO Box 8208
Philadelphia, PA 19101-8208

How can we help?
As you can tell from above, the IRS will only really reverse the certification if the debt is no longer enforceable (i.e. collectable) or if you enter into a resolution option (i.e. payment plan, currently not collectible, etc).

With regards to enforceability, the IRS only has 10 years from the date of assessment to collect on unpaid taxes.  If you are getting letters, your debt is more than likely still active.  But do you know when it will expire?  This is called the CSED date.

While you could go through the hassle of calculating your CSED (see this blog post), do you really want to?  For a flat $75 fee, and us filing a few forms with the IRS (with your consent), we’ll look at however many years you want to analyze, and provide you with a comprehensive report that will include:

  • Total tax assessment, penalty, interest and accrual amounts for each year (so you know how much you really owe)
  • CSED calculations for each year requested (i.e. when your debt will expire)
  • Tolling events (if any) and the days your CSED has been extended
  • All IRS notices sent/received for each year
  • IRS account activity by year
  • And much, much more (we promise)

If your debt will not expire for some time, we are fully authorized to represent your before the IRS and can can help negotiate a resolution option (i.e. IA, OIC, CNC) that will satisfy the IRS conditions to have your certification revoked/lifted.  You can learn more about our representation services by visiting the IRS Debt Representation page or reading the IRS Talk post within our blog.

When you are ready to get started, simply call us at (773) 239-8850 or click our email address at the bottom of this screen.

Correcting An EIN (SS-4) Application

So here you are doing a newly formed company or partnership’s tax return for the first year.  Maybe you are about to file it.  Maybe you are just trying to put in an extension to buy you a little more time.  In either case, you press submit, wait a few minutes and then your long awaited IRS acknowledgement comes back.  But something’s not right.  Rejected?  How can this be?  Well, one of these reject codes is more than likely the reason:

R0000-922 – Error: Filer’s EIN and Name Control in the Return Header must match data in the e-File database, unless “Name Change” or “Name or Address Change” check box is checked, if applicable.

R0000-900 – The return type indicated in the return header must match the return type established with the IRS for the EIN.
 
R0000-901 – Filer’s EIN and Name Control (see this related blog post) in the Return Header must match data in the e-File database.

So what do all of the above codes mean?  Well, in layman’s terms it means that 1) the entity structure and the EIN on file don’t match what the IRS have one file and 2) that the Form SS-4 that was filled out may have been incorrect based on the preparers intentions.

Verifying what is on file with the IRS.
The first thing you may want to do is see what the IRS has on file for you.  Ask the IRS to search for your EIN by calling the Business & Specialty Tax Line at (800) 829-4933. The hours of operation are 7:00 a.m. – 7:00 p.m. local time, Monday through Friday. An assistor will ask you for identifying information about the entity (e.g. name, EIN, address, etc.) and can tell you what entity they have you classified as.  The can also provide you with instructions on how to correct it.

Just remember that the IRS will only speak to an “authorized person” with regards to the account.  Examples of an authorized person include, but are not limited to, a sole proprietor, a partner in a partnership, a corporate officer, a trustee of a trust, or an executor of an estate.

Changing the Information associated with the EIN.
The IRS doesn’t currently have a form in place to change the previously filed information associated with the business or entity’s EIN.  To change what the IRS has on file, one should submit a letter (on company letterhead if possible) to the appropriate IRS office with the following information:

  • The responsible party’s full legal name;
  • The responsible party’s Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN);
  • The business or entity’s full legal name;
  • The business or entity’s employer identification number (EIN);
  • The business or entity’s mailing address; and
  • The information associated with the EIN number that needs to be changed.

Where to mail your change request.
Where you send your request depends on where you live.  At the time of this post, these were the applicable addresses:

Connecticut, Delaware, District of Columbia, Florida, Georgia, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, West Virginia or Wisconsin

Send your letter to:
Internal Revenue Service
Stop 343G
Cincinnati, OH 45999

Alabama, Alaska, Arkansas, Arizona, California, Colorado, Hawaii, Idaho, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Texas, Utah, Washington, Wyoming, or any place outside of the United States

Send your letter to:
Internal Revenue Service
M/S 6273
Ogden, UT 84201

The IRS will send a letter confirming receipt of the updated information.  If the entity has not received a confirmation letter within 60 days, it should mail a copy of the original letter (annotated “Second Request”) to the same campus that they sent the first one.

What one should NOT do is fill out another Form SS-4 for the same company.  The IRS will not cancel the first EIN, but will simply issue another one, which can/will further complicate matters.

Need help getting your EIN corrected?  Not sure you’re cut out for doing your corporate tax return on your own?  Give us a call or send us an email via the information in the footer of this page and we’d be happy to assist you!

Name Changes and Income Taxes

Did you know that the IRS checks whether a Name/Taxpayer Identification Number (TIN) combination is correct by matching it against a file containing all social security numbers (SSN) issued by Social Security Administration (SSA)?   Specifically, the IRS is looking to match the Name Control.   What exactly is the Name Control?

A Name Control consists of up to four characters for individuals, corporations or trusts.   It generally consists of the first four characters of the surname (for individuals), disregards blanks between letters and omits punctuation marks, titles and suffixes.

When you file your individual income tax return keep in mind that:

      • All the names on your return must match those on file with the Social Security Administrations records.
      • A name mismatch can delay the acceptance of your return by the IRS as well as your refund.

As such, if you experience a name change, make sure you:

Inform the SSA and Get a New Card.   Did you get married and are now using your new spouse’s last name or hyphenated your last name?  Did you divorce and go back to using your former last name?  In either case, you should notify the SSA of your name change.  That way, your new name on your IRS records will match up with your SSA records.

Informing the SSA of a name change is easy; you’ll just need to file a Form SS-5Application for a Social Security Card at your local SSA office and provide a recently issued document as proof of your legal name change.  Form SS-5 is available via the link above or by calling 800-772-1213. Your new card will have the same number as your previous card, but will show your “new” name.

Notify the SSA of Dependent Name Changes.   Notify the SSA if your dependent had a name change.  For example, this could apply if you adopted a child and the child’s last name changed.  If you adopted a child who does not have a SSN, you may use an Adoption Taxpayer Identification Number (ATIN) on your tax return.  An ATIN is a temporary number.  You can apply for an ATIN by filing Form W7-A.

Report Changes To the Health Insurance Marketplace.   If you purchase health insurance coverage through the Health Insurance Marketplace, be sure to report changes to your Marketplace throughout the year.  These include changes in circumstances, name changes, a new address or a change in your income or family size

How Much Does IRS Representation Cost?

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Everyone knows “ballpark” how much it cost to have their taxes prepared annually.  Sure there will be some variation if you do it yourself, or if you go to a chain store or if you go to a solo practitioner.  But that variation will be within a certain range.

When one has debt with the IRS and needs to hire professional representation, one may find that the fees quoted between various companies/firms can vary drastically.  It’s not uncommon for a person with a simple 1040 case where all returns have been filed but there is a balance due, to get quotes from anywhere between $500 up to say $6,000!

Why The Difference?
While two different cars will get you to the same place (i.e. the destination) in pretty much the same fashion, the price you pay for each could vary.  This typically has to do with branding, production processes and other factors involved in getting the car to the consumer (e.g. overseas vs. domestic production).

In a similar manner, the fees each tax resolution company will quote you will vary because of their infrastructure, sales model, overhead costs, etc.  A “Big National” firm that uses outbound telemarketing to obtain its clients will have a very different overhead structure than Plain Jane, CPA who uses direct mail and a referral structure to find her customers.  Who pays for the differences?  The consumer of course!

What Is Reasonable?
While it is hard to come up with standardized prices for the multitude of resolution tracks one may go down (i.e. Installment Agreement, Offer In Compromise, Currently Not Collectible), not to mention that the cost of working a particular track can be more/less complicated depending on the individual, here are some general guidelines to consider as a “middle ground” so to speak:

Base Fee: $500 – $1,000.  Most companies will charge a certain “minimum fee” in order to analyze your case, review IRS records/transcripts and ultimately determine the extent of the tax matter.  While this may not be explicitly called out in their fee quote, realize that it is buried in there in some fashion.

Straightforward 1040 Case: $1,000 – $4,000.  This would be in addition to the fees mentioned above.  This type of case involves back taxes, doesn’t usually involve an audit and could be either in the Automated Collection System (ACS) or it could be assigned to a Revenue Officer (RO).  If the work involves interacting with an RO and potentially satisfying some of their request, expect to be towards the higher end of the range where those dealing with ACS would tend to be towards the lower end.

Business Payroll Tax (941) Case: $1,000 – $6,000.  The variation in fees primarily will center around if the business is still operating or is closed (or about to be), and if there are Trust Fund Recovery Penalties that are being assessed to various individuals.  The more periods/quarters that are involved, the more expensive it will tend to be.

While the prices listed in this post are a little dated, they provide yet another perspective on how much one should expect to pay.

Nasty Little Industry Practices
While the following isn’t publicly broadcast, most tax resolution practitioners know that it exists.  Many of the “Big National” firms using unlicensed sales people (illegal, by the way) to obtain their clients, will use a fee matrix to quote fees.  This matrix is usually broken into $5,000 or $10,000 increments, and the fees are given for negotiating an Installment Agreement based on the tax debt amount.  Further, fees are added (typically $2,000 to $4,000) on top of the fee on the matrix if the customer is being sold an OIC.

It is also known that these same firms will later tack on a “rewrite” once the client is well into the process.  If you’re not familiar with the practice, it’s the lowballing of a fee in order to make the sale, then “rewriting” the contract later in order to get more money out of the customer. This is a highly unethical way to operate.

Have A Problem?
A proper consultation, conducted by a competent, licensed tax professional, will yield a complete picture of the taxpayer’s situation and what they need.  We offer our clients “flat fee” representation services that are rather affordable and include all the fees necessary to complete your case.  Likewise, the fee you will be quoted will be based on the amount of work required, not the amount you owe.   Thus, if you owe $15K or $115K, the amount we’ll charge will be EXACTLY the same, every time, as long as the circumstances surrounding each are otherwise the same.

Ready To Stop Shopping?
If you are ready to get “around to it” then visit this link, complete your information and before you know it, you’ll have a licensed representative on your side working your case.

Until next time…

Is Your Tax Relief Company Reputable?

Scam-Poster

For those who are unaware, the tax relief industry is a highly fragmented one. Companies offering services to the public tend to be either one of the “Big Nationals” or smaller local practitioners. Well, in recent years, there have been some Big Nationals in the spotlight for reportedly violating consumer protection laws (e.g. TaxMasters, JK Harris and “Tax Lady” Roni Deutch). One other such company was American Tax Relief.

The FTC originally filed charges against American Tax Relief in September 2010. These charges included that the defendants falsely claimed they already had significantly reduced the tax debts of thousands of people and falsely told individual consumers they qualified for tax relief programs that would significantly reduce their tax debts. In the end, these clients paid in excess of $100 million for services and received minimal, if any, resolution to their tax problems.

Well, as a partial consolidation, the Federal Trade Commission said it is mailing more than $16 million in refund checks to 18,571 consumers who had paid money to American Tax Relief. All in all, these consumers will receive about 16% of the money the lost. The sad part is that many are still in hot water with the IRS; simply because they picked the wrong company to represent them before the IRS.

So how do you know if the company you are engaging to handle your case is reputable? Unfortunately, with loose regulation of the tax representation industry, you don’t. But here’s where we can help! If you visit our IRS Debt Representation page, you can receive our FREE whitepaper 5 Questions To Ask Any Tax Resolution Firm BEFORE Paying Them A Dime. On top of that, we’d also be happy to discuss your situation absolutely free of charge. Simply follow the instructions on the page and before you know it, you’ll have a professional representative on your side to help you stop your IRS worries for good!

For more details on the American Tax Relief case, check out Accounting Today’s article: Tax Relief Company Agrees to Turn over $16 Million to Bilked Consumers.

Employment Tax Penalties

When you hire employees to work in your business, you’ll quickly learn one of the unfortunate consequences; payroll taxes. These taxes not only include the amounts your employee asks you to withhold on their behalf, but your fair share of social security, Medicare and unemployment tax. If you make the payments on time, all will be well in the universe. Fail to pay timely, or not at all, expect the IRS will rain all over your parade.

If you have employees, you absolutely must deduct and withhold various taxes from their paychecks. Since you are deducting money from the employee’s paycheck, you are handling their funds. In fact, you are handling these funds in “trust,” meaning that they really don’t belong to you, they belong to the IRS.  This fact is very important to the IRS and it places great emphasis on any failure to deposit employment taxes.  We often tell clients, the IRS will take a few months/years to “come after” a taxpayer for late payment of income taxes. However, they will contact you and take “aggressive” collection action much sooner if the taxes in question are payroll related.

If you fail to pay employment taxes, you may be personally subjected to a 100% penalty. Yes, you read that right, 100%. Known as the “trust fund recovery penalty,” this penalty can be assessed against the person responsible for paying the taxes, not the entity. The person can be the owner, corporate officer or other “responsible person.” In short, a business entity is not going to protect you from the wrath of the IRS if you didn’t deposit your payroll taxes.  They will hold the “responsible person” 100% accountable for paying the taxes; even if the business is closed!

Cash flow crunches are an inevitable event for practically every business. So, what happens if you make a late payment for employment taxes?  Unless you can show reasonable cause for the delay, the IRS is going to penalize you.

Late payment penalties range in amount depending on the delay. If the delay is less than six days, the penalty is 2%. Delay for six to 15 days and you are looking at 5%. More than 15 days in delay is going to push the penalty to 15%. If you delay this long, the IRS will begin peppering you with penalty notices telling you where you stand.

The best solution to dealing with this is to get the money to the IRS as quickly as possible. If the amounts involved were significant and resulted in large penalties, you may want to consult with a tax professional to see if the penalties can be abated (i.e. forgiven). If you can’t pay the amounts owed, then you will definitely want to consult with a tax professional to review your options (i.e. installment agreement, offer in compromise, currently-not-collectible, etc.) and negotiate a “formal” resolution with the IRS.   Any of the above are matters that we can assist you with, so feel free to shoot as email or call us via the information listed below.

In closing, whatever you do, make sure you deposit employment taxes with the IRS in a timely fashion. Take a moment to think about the worst thing you have ever heard done by the IRS. If you fail to pay employment taxes, the actions taken by the IRS will be ten times worse and you will be the one telling the horror story!

Tax Debt and 10 Year Statute of Limitations

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Many taxpayers, and some practitioners, are unaware that the Internal Revenue Service (IRS) by law only has 10 years’ time to collect a tax debt.  This is referred to as the statute of limitations or in IRS speak, the Collection Statute Expiration Date or CSED for short. This post will talk about what the CSED is, how to obtain it, what can change its date and how to stop paying taxes once it expires.

How Long Can the IRS Collect a Debt?
Per Internal Revenue Code (IRC) Section 6502, the limit on the IRS’ ability to collect a debt is 10 years. However, as we discuss below, most of the “popular” legal methods used to deal with tax debt also stop the CSED “clock” from running. In some cases it actually makes more sense for the taxpayer to just let the clock run.

When Does the Clock Start?
The 10-year period begins to run with the date of the “assessment” of the tax, not the tax year for which taxes are due. For example, if a return for 2012 is not filed until 2014 and the tax is assessed in 2014, the 10-year period begins to run in 2014 and expires in 2024.

The date of assessment is the date the tax liability is assessed on a particular form at an IRS Service Center. When the applicable form is signed by an IRS official, the 10-year period for that tax liability starts to run. When interest and late payment penalties (as well as other penalties) related to that tax year are tacked onto the underlying tax debt, they too must be collected within the same 10-year period.

If you never filed a tax return, but the IRS filed one for you (i.e. using a Substitute for Return or SFR), then the statute of limitations began to run whenever that assessment was processed by the IRS on your behalf.

How Can I Find Out My CSED?
To determine when the CSED began for a particular liability, the best approach is to obtain a transcript of the taxpayer´s IRS account. Transcripts should exist for each tax year and provide basic information such as the date of assessment, date of filing, and tax liability.

Taxpayers can request account transcripts on their own behalf by filing IRS Form 4506-T or requesting them online.  You can then attempt to analyze the data, perform the necessary calculations and hope you arrive at the correct answer.

Another method of calculating the CSED is to look at the “Date of Assessment” for a particular tax period if you have received IRS Form 668 (Y)(c) – Notice of Federal Tax Lien.  You would then calculate out approximately 10 years from this date to see when the CSED expires.

My Tax Debt Is Older Than 10 Years But The CSED Hasn’t Elapsed. Why?
While the IRS only has ten years to collect a debt, there are certain factors that can extend or pause the CSED. This is known as “tolling the statute of limitations.” Events that stop or “toll” the statute of limitations include:

  • Filing Certain Appeals – in most cases, the statute also doesn’t run the entire time an IRS Appeal is pending.
  • Filing an Offer in Compromise (OIC) – the statute of limitations does not run the entire time your Offer is under review, including any Appeals that you exercise, plus an additional 30 days.
  • Filing a Lawsuit Against the IRS – the statute of limitations does not run while litigation against the IRS is pending.
  • Filing Bankruptcy – the statute of limitations does not run the entire time you are under the protection of the bankruptcy courts or for the six months following the discharge or dismissal of the bankruptcy.

If you exercised any of these options in the past, there was probably a period of time when the statute was not running.  Said another way, during any time period in which the IRS is legally unable to pursue you for collection of the debt, the statute of limitations is not running.  For a complete list of tolling events and the associated time, check out IRS Publication 594 and look at “How Long We Have To Collect Taxes.”

Will the IRS Notify Me Once the CSED Elapses?
No, the IRS is not required to notify you once the debt has expired.  However, they are not legally allowed to pursue collection of the debt.  Thus, you will usually just stop hearing from them if your debt has expired.

My CSED Has Elapsed – Now What?
If the CSED has elapsed, congratulations! All that remains is cleaning up the chaos that your tax problem left in your life. You will need to ensure that a TC 608 credit to zero out the debt has been entered into the IRS system. You should also ensure that a Release of Federal Tax Lien is filed so that you can begin the process of repairing your credit.

My CSED Has Not Elapsed – Now What?
If your CSED hasn’t elapsed, but it is getting close, the best thing to do might be to get a plan in place with the IRS to ensure you’re protected from aggressive collection action.  This may include entering into a monthly payment plan or negotiating for your account to be placed into currently not collectible status (a “temporarily” status where you aren’t required to pay the IRS).

Do YOU Need Help With Your IRS Debt?
While you could go through the hassle of calculating your CSED, do you really want to?  For a flat $75 fee, and us filing a few forms with the IRS (with your consent), we’ll look at however many years you want to analyze, and provide you with a comprehensive report that will include:

  • Total tax assessment, penalty, interest and accrual amounts for each year (so you know how much you really owe)
  • CSED calculations for each year requested
  • Tolling events (if any) and the days your CSED has been extended
  • All IRS notices sent/received for each year
  • IRS account activity by year
  • And much, much more (we promise)

Call us at (773) 239-8850 or click our email address at the bottom of this screen to get started.

By the way, this post (the one you’r reading) is by far the most viewed on our site.  Why?  Because many people have tax issues that they want to resolve.  If you have old tax returns that need to be filed or want to learn how a professional can help you with your situation, why not visit our sister site File Old Tax Returns?  You might be surprised to learn that we may be able to help you out for less than you are thinking.  Plus, hear some valuable information on your taxpayer rights from the IRS Commissioner himself!

Understanding IRS Collection Procedures

The U.S. Internal Revenue Service is the single largest collections agency in the world.  According to the most recent statistics available, in 2013 the IRS spent $11.6 billion and employed just under 87,000 to collect more than $2.8 trillion in tax revenue.  Of those 87,000 personnel, over 19,000 are directly involved in enforced collections against taxpayers that owe back taxes.

While the IRS is one bill collector that can have a serious impact on your life, it’s important to understand just how they work.  So the first thing to realize is that the IRS is a slow moving bureaucracy.  It is highly driven by forms, written procedures and is resistant to change.  Their playbook is public record and they are required to follow it.  While this may not bode well for you resolving your tax matters expeditiously, it does give you some comfort in that you can figure out what is coming next.  Below we break the IRS collections process down into the 1040 notice sequence and the collections system.

1040 Notice Sequence
The IRS doesn’t start collections against you simply because you file a return with a balance due.  The process actually begins when they issue a letter called a Statutory Notice of Deficiency or SNOD.  This letter informs you of the IRS’ intent to assess a tax deficiency and informs you of your rights to dispute the proposed adjustment.  From here, the notice sequence progresses like this if you fail to respond at each stage:

  • Request For Payment
  • Form 668 – Notice of Federal Tax Lien Filing (for balances over $10,000)
  • CP501 – Reminder Notice
  • CP503 – Immediate Action Required
  • CP504 – Notice of Intent to Levy
  • Letter 1058 – Finial Notice of Intent to Levy

The CP503 typically comes about 4-5 weeks after the first notice.  The remaining notices will each come around 30 days after one another so it can take about 4 months from the initial letter until it culminates with a Letter 1058.  While the CP504 language sounds nasty, one may choose to ignore it.  However, there are two things to note about the Letter 1058:

  1. It is the first opportunity you have to file an appeal
  2. Thirty days after the letter, the IRS can levy you.

Does this mean that the IRS will levy you?  Not necessarily; especially if they don’t know where your assets are.  However, it would be wise to pick up the phone at this point and call the IRS as well as file Form 12153, Request for Collection Due Process Hearing (i.e. appeal).

Collections System
Now you may ask why understanding the “system” is even important to this discussion.  Well, it’s because some of the notices you get aren’t being generated by humans.  They are done on an automated schedule.  Thus, until your case winds up with a dedicated “human” at some point (i.e. a Revenue Officer) it can be hard/frustrating trying to get the notices to stop.  Thus, collections enter into the following levels of the system at varying stages:

  1. Collection efforts on each account begin with computer notices from a Regional Compliance Center.
  2.  If the efforts of the Compliance Center  don’t yield payment, the account is then assigned to the Automated Collection System (ACS). ACS attempts to collect the tax liability by initiating telephone calls to the taxpayer and others. Unless your case has special circumstances, you will usually stay assigned to ACS even if you accumulate 2-3 years worth of tax debt as an individual or 3-4 quarters of payroll liability as a business.  But once you reach these levels or you simply fail to respond…
  3.  The account is eventually assigned to a Revenue Officer for a field investigation.

When you are assigned to a Revenue Officer, the course of your tax case can take a sudden shift. Having an experienced, trained human being looking at your tax case, and passing judgment on you based on what’s in a file and thereby determining how they are going to handle your tax case, means a lot.  Unfortunately, due to current economic times, the waiting line for assignment to an RO is many areas of the country is growing longer and longer.

Similar to above, having a trained representative on your side working the case with the IRS can mean a world of difference.  If you are interested in assistance or just want to discuss your situation, we’d be happy to speak with you.  Simply shoot us an email or give us a call.

Until next time…