Tax Debt Help – Got A Problem? Start With the Taxpayer Advocate Service
The Taxpayer Advocate Service is an independent organization within the IRS that assists taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should. Taxpayers may be eligible for assistance if:
• They are experiencing economic harm or significant cost (including fees for professional representation);
• They have experienced a delay of more than 30 days to resolve a tax issue; or
• They have not received a response or resolution to their problem by the date promised by the IRS.
The service is free, confidential, tailored to meet taxpayers’ needs, and available for businesses as well as individuals. There is at least one local taxpayer advocate in each state, the District of Columbia and Puerto Rico.
Taxpayers can contact the Taxpayer Advocate Service by calling the TAS toll-free case intake line at 1-877-777-4778 or TTY/TTD 1-800-829-4059 to determine whether they are eligible for assistance. They can also call or write to their local taxpayer advocate, whose phone number and address are listed in the local telephone directory and in Publication 1546, The Taxpayer Advocate Service of the IRS – How to Get Help With Unresolved Tax Problems, which is available on the IRS website at IRS.gov.
S. Raines, Sr. Financial Advisor/Tax Preparer
Tax Debt Help – Your Taxes A-Z
Doing your taxes is not as easy as ABC, but these alphabetical tips could make the process less difficult and save you some money, too. Here’s the start of some A-to-Z tax opportunities to take or pitfalls to avoid.
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As a subscriber to Kay Bell’s blog site, “Don’t Mess With Taxes”, I have found this list of A-Z tax terminology that is absolutely great and wanted to share it with everyone. You go Kay……………..
Above-the-line deduction — This special group of deductions is a great time and money saver for many taxpayers. Not only do you get to deduct things such as alimony paid, some college costs and some financial account penalties you paid, you don’t have to mess with Schedule A and itemizing to claim them. Technically, they are adjustments to your income. They help reduce your total earnings to the amount upon which you ultimately figure your tax bill — your adjusted gross income. The lower your AGI, the less tax you should owe. And the name? These dozen or so deductions are at the bottom of Page 1 of the long Form 1040, just above that page’s last line, so they are literally “above the line.”B
Basis — Before something can be taxed, you (and the Internal Revenue Service) must know its basis, or what it’s worth. Basis, which also is sometimes referred to as “cost basis,” comes into tax play when you sell an asset and you must determine if you owe any taxes on it. You get to adjust the asset’s basis, taking into account, for example, improvements and depreciation in the case of real property or transaction fees and previously paid taxes in the case of stocks or mutual funds. Figuring your correct basis is critical. Mess it up and you’ll come up with a basis that’s too low, and that means a bigger tax bill than necessary. C
Casualty loss — No one ever wants to suffer damage to their property. When it does happen, you might be able to at least get a bit of tax help from Uncle Sam. It doesn’t matter whether your loss is caused by a natural disaster, such as a hurricane, earthquake or flood, or at the hands of a thief or vandal. They all count as casualty losses as long as they’re sudden, unexpected or unusual. By itemizing your taxes, you might be able to write off a portion of your damage amount on your taxes.
Doing your taxes is not as easy as ABC, but these alphabetical tips could make the process less difficult and save you some money, too. Check out these D, E and F tax opportunities to take or pitfalls to avoid.
Dividends — These investment earnings are a great way to save for retirement or come up with a little extra spending money. The bad news: Dividends are taxable income. The good news: Thanks to a legislative change a few years ago, they are now taxed at a lower rate. In cases where the dividend payments meet IRS guidelines, they are taxed at 15 percent (or possibly just 5 percent for some lower-income investors) instead of your ordinary tax rate, which could be as high as 35 percent. When you get your account’s year-end tax statement, it will tell you whether any dividends qualify for the lower 15 percent rate.
Enrolled agent — If this is the year you decide to hand your taxes over to a professional preparer, one of your choices is an enrolled agent. This type of tax pro has a long history; the first enrolled agents started helping taxpayers claim legitimate losses they suffered in the Civil War. Today, they also can help you file your routine return and, more importantly, are officially authorized “agents” who can appear in your place to resolve a dispute with the IRS. Some other tax professionals can accompany you to IRS meetings to counsel you and help explain your tax issues, but EAs can go to these sessions in your place.
Filing status — Picking the proper filing status could make the difference between owing the IRS or getting a nice tax refund. When you fill out your return, you must choose from one of five filing status options: single, married filing jointly, married filing separately, head of household or qualifying widow or widower. Each one helps determine your standard deduction amount, as well as what additional tax deductions or credits you might be able to claim. Some filers might find they meet the requirements for more than one filing status. In that case, look over exactly what each offers and make sure you pick the one that gives you the best, least-costly, tax return.
Doing your taxes is not as easy as ABC, but these alphabetical tips could make the process less difficult and save you some money, too. Check out these G, H and I tax opportunities to take or pitfalls to avoid.
Gains — When you sell an asset and make money on it (after first determining your correct basis that we talked about earlier), you have a gain to report to the IRS. This profit is generally referred to as a capital gain. But just how much in taxes you owe depends on the type of capital gain you recognize, either long term or short term. And the tax laws reward sellers who hold onto their property for a longer period of time. When you sell an asset you owned for more than a year, even just a year and a day is fine, any profit on its sale is a long-term capital gain and is taxed at a more favorable rate: 15 percent for most taxpayers. By contrast, gain on assets you own for a year or less before selling will be taxed at ordinary tax rates, which could go as high as 35 percent. So if you have a choice on when to sell an asset, your patience could pay off at tax time.
Hobby — You really enjoy taking photographs and are good enough that you’ve socked away some extra spending money by accepting a small fee for snapping shots at your neighbor’s family reunion or a co-worker’s wedding. But beware, that money is taxable income — unless you can find a way to whittle down your net take. One way to do this is turn your hobby into a job. When you make your hobby into a legitimate income-producing effort, tax breaks follow.
IRA — Most of us have some form of this popular type of retirement savings plan. You can open a traditional individual retirement account, favored by some people because they then can deduct their contributions from their taxes. They will, however, have to pay taxes on the IRA money when they take it out at retirement. Other savers opt for a Roth IRA. You can’t deduct contributions to a Roth account, but when you make qualified withdrawals from your account, the money won’t be taxed. Each type of account has eligibility requirements, primarily based on income and age. With most IRAs, you have until April 15 (or the next business day if the 15th falls on a weekend or holiday) to pick an account and put your money in it so that it counts toward last year’s taxes.
Doing your taxes is not as easy as ABC, but these alphabetical tips could make the process less difficult and save you some money, too. Check out these J, K and L tax opportunities to take or pitfalls to avoid.
Jacuzzi — Are you still working with a physical therapist to recover from that compound fracture you suffered on the slopes of Aspen? Did your orthopedic surgeon prescribe a whirlpool bath to help that process along? Then you might be able to write off the cost of your new Jacuzzi. Taking all the medical deductions you are entitled to is important since you must come up with an amount that’s more than 7.5 percent of your adjusted gross income before the expenses are of any tax use.
Kiddie tax — This tax is officially known as the “Tax for Children Under Age 18 Who Have Investment Income of More Than $1,700.” It’s no wonder, then, that it’s usually referred to as the “kiddie tax.” This provision was created to keep parents from sheltering large amounts of income by putting financial accounts in the names, and lower tax brackets, of their kids. This used to be a relatively easy tax-saving technique, but in 2006 the law was changed. Now when investment accounts are held by someone younger than 18 and the earnings exceed the annual limit, adjusted each year for inflation, the young account owner must pay taxes at his or her parents’ higher tax rate. This is usually is taken care of by the parents adding the child’s income to the adult filing, which could produce other problems by pushing up the parental income level. In some instances, an investment plan for your children still might be good idea. Just make sure you understand all the tax implications of your youngster’s assets.
Las Vegas winnings — When you can no longer fight off the lure of Sin City’s casinos, just remember that the IRS will share in any of your good gambling luck. Gambling winnings, as well as the value of any prizes you win, are taxable. If your jackpot is big enough, the casino or horse track or lottery agent will take the taxes out first. You’ll also get an official tax statement; so will Uncle Sam, so don’t try to pretend at tax time that you didn’t pocket the winnings. Of course, there’s no way for the IRS to track all off-the-book wagers, such as the friendly office pool. Still, you’re supposed to report, and pay taxes on, all gambling winnings regardless of the source. (And knows you will faithfully comply.) The one bit of good news here is that you can subtract your losing bets from your windfall to lessen the tax bite just a bit.
Mortgage interest — This is probably the most well-known tax break: You can deduct the interest you pay on your home’s mortgage. Interest on a second mortgage or home equity loan or line of credit is generally deductible, too. The interest deduction is just one of many tax advantages afforded homeowners, and it is taken into consideration every day by prospective buyers trying to figure just how much house they can afford. Owning a house is not the only way to cut your taxes. Most homeowners also get a break when they sell their primary residence; up to $250,000 in profit (double that for married couples who file jointly) is exempt from taxation.
Nontaxable income — When you slog through your taxes, it sure seems like the IRS is taking a bite of every last penny you have. That’s not quite true. While the federal government does collect a lot from most of us, there actually is income that isn’t taxed. Senior citizens relying solely on Social Security income, for example, don’t have to pay on those benefits. Of course, if they’re supplementing it with other income, a portion of Social Security might be taxable. Other money that’s not federally taxed includes child support, gifts, bequests and inheritances, most life insurance proceeds, workers’ compensation payments, insurance and other reimbursements for casualty losses and certain Roth IRA distributions.
Offer in compromise — Most of us, however, find that the bulk of our income is taxable; sometimes, way too taxable. And occasionally, we find that we can’t handle the tax bill we face on April 15. If you find yourself in this position, don’t panic. You do have payment options, including an offer in compromise. This is a lump sum tax payment that you offer to pay; it’s less than the total amount of tax you owe, but in some cases the IRS will accept your offer in order to get some money from you sooner rather than more after years of costly collection efforts. The key here is to make a reasonable offer. There is a process the agency follows, and despite what those late-night cable TV commercials say, you can’t walk away from thousands in tax debt for mere pennies.
Payroll taxes — When you collect the bulk of your income via a regular check from your employer, payroll taxes are collected before you ever get your money. These amounts, subtracted from your earnings via withholding, include federal and state income taxes, as well as payments to the Social Security and Medicare systems. Your employer is required by law to collect payroll taxes and send the money to the federal government where it’s held in the appropriate accounts in your name. You get the details each year on your W-2 statement. But you also have a responsibility to ensure that the correct amount is withheld from your checks. Too much withholding means Uncle Sam gets free use of your money all year; too little, and you’ll owe at filing time. So check your withholding amount and adjust it if necessary.
Qualifying widow or widower — When you lose a spouse, taxes are not going to be among the first things that you worry about. However, there is a special filing status for widows or widowers who meet certain IRS guidelines, and it could help make the first couple of tax returns after your loss less costly. Tax law allows you to file a joint return for the tax year in which your spouse passed away. Then, for two years following the year that your spouse died, you might be eligible to file as a qualifying widow or widower if you are supporting a dependent child. If you meet the requirements to use this filing status, you’ll be able to use the same tax considerations given married joint filers, such as the largest possible standard deduction amount.
Rollover — When you leave your job, in addition to packing up your desk, you’ll probably want to take your company retirement savings account along with you, too. But be careful how you take possession of the account, or it could cost you. Although legally you can have your company give you the account in a lump sum, you must deposit the full amount into another qualified retirement account within 60 days or pay taxes on it. The easiest move, both from tax and administrative standpoints, is to directly roll over your company 401(k) into another qualified retirement plan. That way, you won’t lose any of the money’s tax-deferred earning power, you won’t owe the IRS anything and, most importantly, you won’t be tempted to spend your nest egg on something you don’t really need.
Standard deduction — Most people choose to claim the standard deduction amount when they file their taxes. It’s easy; the amount is right on your return near the line where it should be entered and there are no receipts to keep track of or threshold amounts to meet as is the case when you itemize your deductions. But don’t automatically take the easy, standard deduction route. Compare your standard versus itemized deduction amounts and take the one that’s larger. It will get you a smaller tax bill or a bigger refund.
Temple — If you gave to your temple, synagogue, church, mosque or other house of worship, it could help cut your tax bill. Religious organizations are generally classified as IRS-approved groups, meaning your donations to them are deductible as charitable contributions, as long as you choose to itemize rather than take the just-examined standard deduction. And don’t shortchange yourself when totaling your generosity. Remember to tally up the value of any goods you donated last year. Just make sure the items met the new tax rules requiring that they be in good or better condition or you could lose the deduction.
Unearned income — You’ve decided to venture into the investing world, putting your hard-earned salary to work producing more cash. But the added money you make from savings accounts, stocks and bonds, certificates of deposit or mutual funds have tax implications. As your nest egg grows, so do your taxes. The IRS calls these investment earnings unearned income and, in most cases, it is taxable. You might, however, get a bit of a break. Some earnings are taxed at a lower rate, typically 15 percent, than applied to your ordinary earned income (wages, tips, salaries, etc.), which could be taxed at a level as high as 35 percent. Just what type of unearned income you collect and where to report it will be detailed in the various 1099 forms you should get each January or early February. And while you’ll probably have to fill out a few more tax forms and run additional computations, it should pay off in a smaller tax bite into your unearned income.
Voluntary compliance — Since you’re visiting to get information on how to file and reduce your tax bill, it’s a pretty good bet that you’re committed to this basic tenet of the U.S. tax system. Basically, this is the philosophy upon which our tax system is based: that U.S. taxpayers voluntarily comply with the tax laws and report their income and other tax items honestly. Of course, if you try to shirk this duty, the IRS will try to “encourage” you to file, usually by sending you a notice alerting you to a mistake on your return or a balance you owe. If you choose to ignore IRS nudging, you’ll get slapped with penalties and interest charges, or worse, for unfiled forms or unpaid taxes.
“W” — This, of course, is the nickname for President George W. Bush, who has made revamping the U.S. tax code a key goal of his administration. During his tenure, W and Congress have tweaked existing laws: lowering tax rates, increasing some credits, easing the marriage penalty, lessening the tax bite on some investments and even reinstating the sales tax deduction, a welcome break for residents of states with no income taxes to write off. But the major changes the president sought will take a little longer to make, especially in light of the midterm election and subsequent Democratic takeover of Capitol Hill. And while the Presidential Advisory Panel on Federal Tax Reform presented recommendations in November 2005 on ways to restructure the tax code, the panel’s more controversial changes — such as eliminating the deductions for mortgage interest and property taxes — have met with political and public resistance.
Xerox copies — Did you make hundreds of Xerox copies of your resume as you searched for a new job? Uncle Sam might be able to help you defray that copying cost. In order to claim any job-hunting expenses, you must look for a position within your current field. You can’t ask the IRS to help you go from software programmer to songwriter, although a good deal of creativity is required for both. Your career change costs also will have to be pretty substantial; they are included as part of miscellaneous deductions, meaning all these expenses must total more than 2 percent of your adjusted gross income before you can claim them. To help you reach that threshold, you also can count employment agency fees, want-ad placement costs and even out-of-town job-hunting trips. Just be sure to save your receipts.
Youngsters — Children can add a lot to your life, and at tax time you can actually put a dollar sign on your youngsters’ value. There are many tax joys of parenthood, from the child tax credit to write-offs for some care costs to help paying for school, from kindergarten through college. Plus, every son or daughter is an added exemption on your tax return. But if you have a really large family, you might end up owing the alternative minimum tax. This parallel tax system was created to make sure wealthy taxpayers paid their fair share. Now, however, since the AMT does not take inflation into account, it is snaring more middle-income taxpayers, some of them because they legitimately claim a large number of personal deductions for children.
And finally, we have reached the end of our tax alphabet with:
Zilch — If you didn’t take all the legitimate tax breaks that you’re eligible for, this could be the amount you have left after paying your taxes. But here’s hoping that these alphabetical tips mean that zilch is the amount that the IRS will get from you this tax-filing season.
S. Raines, Sr. Financial Advisor/Tax Preparer
Tax Debt Help – Tax bill too big? IRS offers payment options
If this year’s tax filing deadline will be a “pay” day for you and you don’t have the cash, the Internal Revenue Service gives you several payment options.
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First, even if you can’t pay your tax bill, go ahead and file your return on time. This way you’ll avoid the IRS’s failure-to-file penalty of 5 percent per month (up to a maximum of 25 percent) of your balance due. You’ll still face the failure-to-pay penalty each month your bill is outstanding, but it’s only 0.5 percent of the amount you owe.
Paying with plastic
Now take a look at what you owe.
Some taxpayers find they can pay part or all of their tax bill by putting it on a credit card. The IRS has awarded contracts to two companies to accept credit card charges: Official Payments and Link2Gov. Both accept payments from electronic as well as paper filers, either via phone or the Internet. They take American Express, Discover, MasterCard or VISA.
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Remember, however, that while this may get you off the hook with Uncle Sam, it will cost you in other ways. Each company has its own fee schedule (generally 2.49 percent of your tax bill or a minimum $1) connected with charged payments.
And if you don’t pay off your credit card in full, you’ll start racking up interest charges on your account. In some cases, however, your credit card interest charges might come to less than IRS penalties and interest you’d owe if you don’t pay on time. So before you decide to pay with plastic, run the numbers so that you don’t pay anyone, neither Uncle Sam nor your credit card company, any more than necessary.
Installment plans
If your tax bill is too large for a credit card, the IRS is willing to take monthly payments. You even get to pick your monthly payment amount and the day it will be due.
In fact, if you’ve previously filed (and paid) taxes on time, your tax bill is less than $10,000 and you convince the IRS that you can’t come up with that much all at once, the agency can’t turn down your request. Your installment plan, however, must pay off the due tax in at least three years. To get the program going, attach Form 9465, Installment Agreement Request, to the front of your tax return.
Financially strapped taxpayers also have the option of using an installment plan to make partial payments of tax liability. The IRS had previously allowed partial installment payments but stopped the practice in 1998 when an IRS attorney raised questions about the IRS’s authority to accept such payments without statutory authority. Congress officially granted the IRS the power to resume partial payment installment agreements as part of the American Jobs Creation Act of 2004.
While the IRS argued for legislative reinstatement of the partial-payment option, approval is not automatic. Taxpayers who request a partial-payment installment agreement must provide detailed financial information, including data on equity assets, that the IRS will verify. Plus, the IRS will review the arrangement every two years to determine whether the taxpayer’s financial status has changed, and if it has improved, the amount of installment payments could increase or the agreement could be terminated.
Regardless of whether you pay your tax bill in full or partially via an installment agreement, keep in mind that paying over time, even to Uncle Sam, will cost you more. The IRS charges a one-time fee of $105 unless you make arrangements to have your installment payments made via direct debit from your bank account.
The fee drops to $52 for direct debit agreements. Some lower income taxpayers might be able to pay a reduced fee of $43, which was the previous user fee for all installment agreement applicants. The rate increase took effect in 2007.
You’ll be billed for any fee with your first payment. Plus, penalties and interest continue to accrue to your unpaid tax bill. The IRS may also file a federal tax lien against you, which will be released when you pay off your installment loan.
If you want to apply for an installment arrangement, the IRS now accepts online applications.
Let’s make a deal
What if you can’t pay off your tax bill, in whole or part, in three years or five years or …? Then it may be time to negotiate.
The IRS might be willing to accept an offer in compromise, or an OIC; a lump-sum payment you offer to make that is less than the total amount of tax you owe. In these cases, the agency hopes to get some taxpayer money sooner than it would after years of costly collection efforts.
The key here is that the amount must reasonably reflect your ability to pay. It’s not merely haggling to get your tax bill reduced. In fact, the IRS is stepping up its efforts to weed out those taxpayers who use the offer-in-compromise route merely to delay paying their bills. Since Nov. 1, 2003, any taxpayer making a reduced payment offer has had to include a $150 application fee with the request. The agency hopes this means that it will hear only from folks who truly need the negotiated bill.
Once a tax lien has been assessed by the IRS, most taxpayers find that they are need of the services of a reputable tax resolution service to help them reduce their liability and possibly have the lien removed. Once you have entered into a payment arrangement with the IRS…..please, please make you payments timely therefore reducing the possibility incurring additional costs of hiring a firm for help.
The IRS will review your financial situation and future income potential to determine whether your offer is appropriate. Be warned, however. Uncle Sam says this program was designed only for extreme cases and very few filers will qualify for the program under the terms they would like. If you believe your situation does indeed meet the requirements, you need to file two forms: Form 656, Offer in Compromise, and Form 433-A, Collection Information Statement.
You must also submit the $150 application fee along with Form 656-A, Offer in Compromise Application Fee Instructions and Certification. (The fee is waived for filers who have little or no income. They can claim a poverty exception when they file Form 656-A.) If you don’t send this form along with your fee, the IRS will return your offer application “without further consideration.” If you submit everything as required, and the IRS determines you do not meet the qualifications and rejects your offer, you are out $150. But if the agency accepts your offer, your fee will go toward your new payment amount.
Then the IRS wants even more upfront. Your offer must include a 20 percent payment for lump sum cash payment offers or your first installment payment if you’re seeking a periodic payment plan.Regardless of which tax bill-payment method you choose, make your decision now. Delay will only compound your financial and tax problems. And try to pay something. By sending in any amount when you file your return, at least you’ll ultimately reduce your interest and penalty charges.
S. Raines, Sr. Financial Advisor/Tax Preparer
Tax Debt Help – IRS News Release #IR-2007-211
This is a heads up from the IRS on proposed regulations for cash balance and other hybrid pension plans.
WASHINGTON — The Treasury Department and Internal Revenue Service (IRS) issued proposed regulations relating to cash balance plans and other hybrid pension plans.
The proposed regulations would interpret rules that were added to the tax law by the Pension Protection Act of 2006 (PPA), including an age discrimination safe harbor for hybrid pension plans, conversion protection for employees, and a 3-year minimum vesting requirement. The proposed regulations would also apply for purposes of the parallel rules that were added by PPA to the Employee Retirement Income Security Act of 1974 (ERISA).
The regulations are generally proposed to be effective for plan years beginning on and after Jan. 1, 2009. For periods before the effective date of these regulations, a plan must comply with the new PPA statutory provisions. During these periods, a plan is permitted to rely on the regulations for purposes of satisfying the new PPA statutory provisions.
S. Raines, Sr. Financial Advisor/Tax Preparer
Tax Debt Help – Preparing for the Audit
How to prepare for an audit
It’s the last thing most people want to see at this tax-paying time of the year: A plain brown envelope marked “Official Government Business” with the return address of the Internal Revenue Service.
But don’t panic. The news might not be as bad as you think.
While a full-blown tax audit might be your first thought, that notice might be the extent of your contact with the IRS. The agency might be telling you that you’ve made a math error on your return that must be fixed. Or maybe something on your W-2 doesn’t agree with your tax return. In such correspondence audit situations, you usually can clear up the discrepancy with a couple of exchanges of information via the mail.
Then again, the worst could happen and that envelope could be a notice that one of your past tax returns is being audited in full. In this case, what do you do?
This makes a good case for having a professional prepare your tax returns!
Enrolled Agents never recommend that a client call the IRS themselves nor attend the audit. They can unwittingly reveal information that is not required and potentially cause more problems. A tax professional licensed to practice before the IRS can deal with the IRS and attend the audit for you.
Even with professional representation, you still must prepare for an audit by gathering information and taking it to your tax representative. Three top tips for preparing for an audit are, “Good records, good records and more good records.” In other words, adequate record keeping year round, not just on April 15, is essential in case of an audit.
More specifically, how should you, a taxpayer, prepare for an audit if it happens? These tips will point you in the right direction:
· Retain the services of a professional. Enrolled agents, tax attorneys or CPAs may represent you at an audit. They are trained in tax law and can much better represent you than you can represent yourself. To a lay person, reading the tax code is like reading a foreign language. Enrolled agents have been around since the post-Civil War days and go through relatively grueling training in this very area.
· Keep good records. It’s not enough to just pull your records together year-by-year on April 15. Get in the habit of keeping good primary and secondary tax records year round and using a personal filing system to keep them with the appropriate tax return. Then, if you’re tapped for an audit, you’re prepared. It alleviates so much stress when you can put your finger on a document when you need it. Primary records are bills and receipts. Secondary records may be spreadsheets, mileage logs or other summary information you’ve kept. Warren recommends that you keep all tax returns, but that you keep your backup information for the current year plus three past years.
· Gather information. What if you haven’t kept good records for the tax year in question? Go back to that year and try to re-create records as accurately as possible. If you’ve claimed expenses in certain areas, like medical expenses, it’s possible that your doctor or hospital will still have those medical records on file. Don’t hesitate to call them. You can also call your place of employment and ask for duplicate W-2s or 1099 forms or check with your mortgage company for interest expenses for that year or your county for personal property taxes paid. Put everything in a neat format, summarized but with supporting documentation, to take to the audit with you.
· Do your homework. Research what the audit process is likely to entail. Check with people in your industry or workplace to see if any of them have gone through the process. Find out what it was like so you can prepare yourself. You might be able to avoid some of the stresses they endured. Knowing what questions the IRS examiner might ask can also help lower the fear factor. The agency prepares audit guides for its examiners, with many of them posted on the IRS Web site. Check them out, says Einbinder, so you can go into the audit knowing, at least in part, what the auditor is going to ask.
· Behave professionally. Generally, the IRS will set the time and place for an audit. Comply with their wishes if possible. If you or your tax representative cannot attend the audit at the time they set, negotiate another time with them. Remember that taxpayer presentation is critical. “Be polite, prompt and professional,” says Einbinder. “It will get you so much further.” Don’t show up at the audit wearing jeans and with your receipts in a shoe box. Be on time, be organized and take the audit seriously.
· Realize that the IRS auditor is not your friend. You can be sure of two things with an IRS auditor. First, he/she pays their taxes. Second, there is an implicit assumption that you may have done something wrong, perhaps unwittingly, or you wouldn’t be there in the first place. Be forthcoming with information but only answer questions that are directed to you. Never volunteer extra information. Don’t be surly or impatient, but also, don’t be fearful. Be confident that your tax return was correct and that you have records to prove it.
The good news is that all audits do not result in the taxpayer owing extra taxes. There are many audits that prove the IRS actually owes you instead of the other way around. Start now on your record-keeping system if you do not have one. If you have a complex return or if you’re unsure about calculating deductions, hire a tax professional to prepare your return. It may pay off in the long run. The best defense, with regard to an IRS audit, is always a good offense.
S. Raines, Sr. Financial Advisor/Tax Preparer
Tax Debt Help – Legislative Update
The end of 2007 has seen Congress very busy with legislative acts which will have great impact not only on 2007 tax filings but for years to come.
Not only did Congress pass The Tax Increase Protection Act of 2007 and the Energy Bill both reported to the NSTP membership last week but on December 20 both houses of Congress passed the Mortgage Relief Bill. The President has already signed the Energy Bill and Virginia Tech Relief into law and today, December 26, signed the Mortgage Relief Bill into law. The White House has indicated he will sign The Tax Increase Protection Act of 2007 upon the legislation reaching his desk.
The following is a summary of the most recently passed legislation:
The Prevent Taxation of Payments to Virginia Tech Victims and Families Act
Signed into law by President Bush on December 19, 2007.
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Excludes from gross income payments from a special memorial fund for victims of the April 2007 Virginia Tech tragedy.
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Increases the penalty for failing to file a partnership return by $1 beginning in 2008 to pay for the tax break.
It should be noted that along with the penalty in the Mortgage Debt Relief Act of 2007, the penalty is now $86 per partner per month.
Mortgage Forgiveness Debt Relief Act of 2007
Passed by Congress, awaiting the signature of President Bush.
Mortgage Relief:
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A three-year exception for debt forgiveness on qualified home loans, retroactive to January 1, 2007.
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Excludes from taxation discharges of up to $2 million of indebtedness that is secured by a principal residence and is incurred in the acquisition, construction or substantial improvement of the principal residence.
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Indebtedness also includes refinancing of such acquisition indebtedness as long as the refinancing does not exceed the amount of the original indebtedness.
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The definition of principal residence for purposes of the Act is the same as that under §121 for the home sale gain exclusion.
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The basis of the taxpayer’s principal residence is reduced by the amount excluded from income under the Act.
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Tax years relief is granted include 2007, 2008 and 2009.
Mortgage Insurance Deduction:
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Extended the Tax Relief and Health Care Act of 2006 allowing taxpayers to take an itemized deduction for premiums paid or accrued on qualified mortgage insurance as deductible qualified residence interest for three years through December 31, 2010.
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Deduction is phased out at 10 percent for each $1,000 by which the taxpayer’s AGI exceeds $100,000.
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Qualified mortgage insurance is mortgage insurance provided by the Veterans Administration, the Federal Housing Administration, the Rural Housing Administration or private mortgage insurance in Section 2 of the Homeowners Protection Act of 1998.
Survivor’s Home Sale Exclusion:
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Beginning January 1, 2008, the sale of a residence that had been jointly owned and occupied by the surviving and deceased spouse is entitled to the $500,000 gain exclusion.
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The sale must occur no later than two years after the date of death of the individual’s spouse.
Volunteer Emergency Responders:
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Individuals receiving a qualified state and local tax benefit, any reduction or rebate of tax and qualified payments of up to $360 each year provided on account of their volunteer services can exclude them from income.
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Tax treatment applies to tax years beginning after December 31, 2007.
Definitions:
The Act clarified the low-income housing credit and the definition of a cooperative housing corporation.
Other provisions:
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Increased the failure to file penalty for partnerships from $50 to $85 per partner per month. Along with the $1 penalty increase in the Prevent Taxation of Payments to Virginia Tech Victims and Families Act brings the penalty to $86 per partner per month.
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S Corporation new failure to file penalty of 85 per S shareholder per month, up to 12 months.
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Increase in corporate estimated tax payments for corporations with 1 billion-plus assets, by 1.5 percent to 117.25 percent for payments due in July, August and September 2012.
While Congress has recessed for the holidays, they will return to Washington for some last minute legislation which will likely include:
· Military tax breaks
· Tax gap legislation
· Tax shelter issues
· Lower corporate tax rates
· Farm-related tax incentives
The Federal Tax Alert reported that the name of Doug Shulman has been sent to the Congress for confirmation as the next IRS Commissioner. On December 19 Congress passed Sen.2436 which clarifies that an appointee serves the remainder of the vacating commissioner’s five-year term rather than starting a new five-year term. However, irrespective of any appointment or nomination delays, each five-year term is measured from November 13, 1997. Consequently the commissioner appointed to fill the vacancy left by the former Commissioner will fill the five-year term of office which began running on November 13, 2007 and will complete on November 12, 2012.
S. Raines, Sr. Financial Advisor/Tax Preparer
Tax Debt Help – Bill Gates Has IRS Problems Too!
Bill Gates, Microsoft Founder and his IRS Problems……..
And you think you have problems. Just when common folks thought they had it rough, we find out that Microsoft founder Bill Gates, the world’s richest man, has tax problems too. But probably not the kind of tax problems you’re thinking.
Gates said the tax office in the US has to store his financial data on a special computer because his fortune is so vast. Say what?
“My tax return in the United States has to be kept on a special computer because their normal computers can’t deal with the numbers,” he said at a Microsoft conference held in Lisbon.
Maybe so, maybe not. Maybe its just his big head that needs its own special computer. But Gates goes on to state a problem which is all too common among the common folk as well.
“… I am constantly getting these notices telling me I haven’t paid something when really it is just on the wrong computer,” he added in comments broadcast on television.
The shame of it is that the IRS regularly sends out incorrect notices, even to folks like Bill Gates. Government research has repeatedly shown, year after year, that the IRS can’t seem to correct this problem of sending out a large volume of incorrect notices.
But I thought the IRS was perfect and didn’t make any mistakes. In your dreams.
If you receive a notice from the IRS you should not assume the notice is correct just because the IRS sent it. The IRS’s own internal accounting system is far from perfect. The Government Accounting Office (GAO) has reported for years in a row that the IRS’s financial statements are not complete. The IRS doesn’t even know where all the money is that it supposedly has, much less know where they’ve spent all their own money.
Let’s make sure we’re understanding this. The IRS expects taxpayers to keep perfect records while their records are stink.
This is a case of the IRS saying “Do as I say”, not “Do as I do”.
But back to Mr. Gates, who goes on to say, “Then they will send me another notice telling me how bad they feel they that they sent me a notice that was a mistake,” he said.
How nice of the IRS to send those follow-up letters to Gates. The problem is that most taxpayers may not get an IRS follow-up letter admitting that the initial letter was incorrect. The hard reality is that common folks have to take their time and effort and fight to prove the IRS’s notice is incorrect.
Where’s the justice in that? This is not Bill Gates’ fault. It is the IRS’s fault for not catching their own erroneous letters and correcting the bad notices themselves.
Under this environment where the IRS fails to correct their own incorrect notices, the answer lies in having experienced tax professionals to defend you. Mr. Gates can afford to hire tax professionals to assist him. After all, Gates’s fortune is put at 47 billion dollars, according to the latest list of the world’s rich published by Forbes magazine.
The hard truth is that if you have a problem with the IRS you’ll probably need to hire a tax professional to help you. The IRS is not easy to deal with.
The good news is that hiring an experienced tax professional is more affordable than you think. A few tax professionals, allow you to make payments on the legal fees as the case proceeds.
Despite the fact that “Service” is in their name (Internal Revenue “Service”), they offer terrible “customer” service. In regard to the IRS, the old saying is true, “If You want something, you’ve got to be willing to fight for it.”
If you want to solve your tax problem let someone experienced fight for you.
S. Raines, Sr. Financial Advisor/Tax Preparer
Tax Debt Help – Federal Tax Lien Documents
IRS to Partially Redact All Federal Tax Lien Document SSNs Effective January 6, 2008
| NOTE: This headliner is current through the publication date. Since changes may have occurred, no guarantees are made concerning the technical accuracy after the publication date.Headliner Volume 219 December 3, 2007Effective January 6, 2008 the IRS will partially redact taxpayer social security numbers in the format XXX-XX-NNNN on all federal tax lien documents filed in public records, including lien documents issued electronically. SSNs will also be partially redacted on documents issued to taxpayers and their representatives.Only the last four digits of the SSN will appear on all federal tax lien documents. This change will not impact IRS systems or IRS employees’ ability to provide assistance to taxpayers using the SSN as an identifier. The increasing problem of identity theft poses significant privacy concerns for public documents that include a social security number. IRS transcribed this information for many years on the public notice of federal tax lien. To proactively respond to growing national concerns about identity theft, the IRS instituted SSN partial redaction for notices of federal tax lien recorded after January 1, 2006. Documents such as lien releases and withdrawals associated with documents previously recorded with full SSNs were not included in the 2006 partial redaction due to the possibility of a negative impact on recording offices. The IRS recently surveyed recording offices and the findings indicate that partial SSN redaction on previously recorded documents will not negatively impact recording office procedures. Therefore, effective January 6, 2008, IRS will partially redact social security numbers of taxpayers on all federal tax lien documents. At this time, there is no requirement, nor does IRS plan, to partially redact Employer Identification Numbers. For more information about processing procedures for Notices of Federal Tax Lien and other lien notices, consult IRS Publication 1468, Guidelines for Notices of Federal Tax Liens and Centralized Lien Processing. Contact the Centralized Lien Unit in Cincinnati at the toll-free number (800) 913-6050, with requests for lien payoff or escrow demand letters and for copies of a certificate of release. Questions on other lien issues may be faxed or mailed to the advisory group where the taxpayer resides. The fax number and mailing addresses may be obtained from IRS Publication 4235, Technical Services (Advisory) Group Addresses, on the IRS.gov publications Web page. Call toll-free (800) 829-3676 to order by U.S. mail, or access IRS.gov to download the publications online. S. Raines, Sr. Financial Advisor/Tax Preparer |
Tax Debt Help – “The AMT and the 2007 Filing Season”
Although both the U. S. House of Representatives and the United States Congress have passed the AMT “patch” for 2007, the bills have yet to be reconciled.
The Senate-passed bill would leave a trillion-dollar hole in the federal budget over 10 years. The bill would spare the middle-class households touched by AMT an average of $2,000-per-family increase on 2007 income taxes and would ensure that refunds of as much as $75 billion would be distributed without delay.
The House-passed bill would be paid for mainly by forcing managers of private equity “buyout” firms and hedge funds to pay ordinary income tax rates on the millions of dollars they earn each year. Currently, much of those earnings are counted as capital gains and taxed at 15 percent, rather than at the 35 percent income tax rate paid by the nation’s highest earners.
What this all means to the tax professional:
The IRS is anticipating the AMT “patch” for 2007 however they cannot change the IRS programming for AMT until the act is passed and signed into law by President Bush.
After the law passes, the IRS will require a minimum of seven (7) weeks to reprogram their computers.
The challenge is to modify a program allowing some returns to be processed while restricting those returns which would be affected by the AMT.
Two potential options are:
1. Programming in stacking order to process returns that are unaffected by the AMT or
2. Not processing until the reprogramming is complete.
While IRS is uncertain of the date the legislation might pass as well as the particulars of the legislation, they are certain that:
the tax deadline of April 15 will not be extended.
Any potential delay will affect paper filed returns as well as e-filed returns.
The AMT was designed in the 1960s to prevent the very rich from using deductions, credits and other shelters to avoid paying taxes, but its income thresholds did not rise with inflation. Taxpayers are not hit by the AMT based on income alone. The number and type of deductions and credits they take also help determine whether they will be forced into the alternative taxation system. Because of rising incomes, the tax’s bite is expected to expand to more than 30 million households in 2010. Last year, the AMT affected 3.8 million mostly well-off households.
S. Raines, Sr. Financial Advisor/Tax Preparer
Tax Debt Help – Bush’s Proposal to Congress on Mortgage Relief
Yesterday, President Bush unveiled his plan to help save the mortgage industry and homeowners facing foreclosure http://www.whitehouse.gov/news/releases/2007/08/20070831-4.htmlNow remember, this is a plan that’s been proposed to Congress.It’s not law yet.
The Rev. Jesse Jackson, in a WSJ commentary says this will only help about 750,000 of the 6.5 million sub-prime borrowers.
http://online.wsj.com/article/SB119699795437616770.html?mod=googlenews_wsj
And Barclays Capital says this will help only about 240,000 of the 2.9 million subprime adjustable rate mortgages that the Mortgage Bankers Association says exist.http://www.forbes.com/home/wallstreet/2007/12/06/bush-mortgage-subprime-biz-wall-cx_lm_1207subprime.html
Isn’t the disparity in numbers fascinating?Where does Jesse Jackson get his figures?
And doesn’t the Wall Street Journal verify numbers before printing them – even in editorials? (My Dow Jones editor verifies MY sources of information when I cite numbers.)
Regardless, there is some help out there. But for whom?
According to Liz Moyer in the Forbes article, “It also won’t help the 16% of subprime borrowers who are already delinquent or in default, and it won’t help millions of other homeowners who either will be deemed able to pay the higher rates when they adjust, starting in January, or who have the unhappy circumstance of having a house worth less than their mortgage or a loan that has already reset to the higher rates.”
Is that entirely true? Well, according to the information on the White House’s website, the plan is designed to help homeowners with otherwise good credit who are now delinquent in their payments because they couldn’t afford the increases.
The other provision of the plan is to amend the Internal Revenue Code to avoid taxing the phantom income that arises from cancellation of debt, when these homes are foreclosed upon.
We’ll have to wait and see how this plays out.
If you’re in the affected group, I do urge you to contact your Senators and Representatives to pass legislation that can help you.
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