Foreclosure Defense – Saving Your Home With Chapter 13

December 29, 2014 by admin

Steven A. Leahy
Foreclosure Defense – Saving Your Home With Chapter 13

By Steven A Leahy

Foreclosure is the process necessary for a mortgage lender (i.e. mortgagee) to take possession of a property because the borrower (i.e. mortgagor, homeowner) defaults on a contractual obligation to the mortgage lender, usually a default in payments. In Illinois, Mortgage foreclosures are governed by the Illinois Mortgage Foreclosure Law (IMFL) 735 ILCS 5/15-1101 et seq. (2013). There are at least three alternatives for a homeowner to defend against a foreclosure, litigation strategies, loan modifications, and Chapter 13 bankruptcy. This article will discuss the third alternative, Chapter 13 bankruptcy.

Illinois is a judicial foreclosure state. That means the mortgage company must file a mortgage foreclosure complaint with the court in the county where the property is located, and go through litigation in order to receive permission from the court to conduct a public sale. Under the IMFL, the homeowner has a period of redemption, during which the plaintiff (mortgage company) cannot sell the property. Redemption is the period of time that the mortgage company must accept full payment from the homeowner, instead of proceeding to the foreclosure sale. The period of redemption runs seven (7) months from the date of service of the summons to all defendants, or three (3) months from the date of entry of a judgment of foreclosure, whichever is longest.

Recently, we reviewed how foreclosures work in general and the IMFL in particular. When a defendant is served with a Complaint to Foreclose Mortgage, the next steps are crucial. Most foreclosure cases are never defended in court. Instead, homeowners contact their mortgage company (or mortgage servicing company) in order to work out an agreement. Usually, the homeowner is seeking a loan modification. While loan modifications can be a good remedy, what most don’t understand is, obtaining a loan modification may take many months. Sometimes, so long that it limits the homeowner’s other options to save their home.

Because loan modifications may take a long time, homeowners may look past the best option to save their home – Chapter 13 bankruptcy. If a homeowner files for protection under Chapter 13 of the bankruptcy code before the judicial sale occurs, the home may be saved, if the circumstances are right.

For example, a family may find themselves several months behind on their mortgage payments, due to a temporary job lay-off. Once the lay-off is over, the debtor can return to paying their regular monthly mortgage payments. But, because they are behind in payments, the mortgage company will not accept regular monthly payments unless the family can bring their mortgage account current. Chapter 13 will allow that family to pay the arrears over 60 months and require the mortgage company to accept the regular monthly payments while they are in Chapter 13. In this way the family can avoid foreclosure of their home.

The key factor is the size of the past due payments, plus legal fees and late charges (arrears). The longer it has been since a mortgage payment was made, the greater the arrears, and the less likely a workable chapter 13 plan can be proposed. If the loan modification takes too long, by the time the homeowner is denied a loan modification a Chapter 13 plan may be unworkable. Let’s put some numbers in my example.

Let us assume the homeowner’s monthly mortgage payment is $1,700.00, and the family has $30,000.00 in credit card debt. If the homeowner is 5 months behind in their mortgage, the arrears may reach $12,000.00 ($8,500.00 in past due mortgage payments + $3,500.00 in legal fees and late charges). A Chapter 13 plan may work if the plan pays 100% of arrears to the mortgage company and 10% of unsecured claims ($30,000.00 in credit card debt). The plan’s monthly payment would be around $270.00 ($12,000.00 + $3,000.00 + Trustee fees / 60 months), plus the regular monthly mortgage payment of $1,700.00: for a total of $1,970.00 monthly.

Now, let’s assume the homeowner is 15 months behind in mortgage payments. The chapter 13 plan payment would be around $500.00 per month ($25,500.00 + $3,000.00 + Trustee’s fees / 60 months). Add the plan payment to their regular monthly payments, and the number jumps to $2,200.00 per month.

In this example, the original mortgage terms are in effect. However, just because a homeowner files for protection under chapter 13 bankruptcy, doesn’t mean the homeowner can’t also seek a loan modification. So, if saving your home is the most important goal, Chapter 13 may be the best option.

If you are facing foreclosure, you should take action. You need an attorney to help you sort through your options and choose the best remedy. Never hire a firm to help you with your foreclosure unless the firm is experienced in helping homeowners with all the possible remedies, loan modification, short-sales, deed-in-lieu, consent foreclosures, and bankruptcy. Before you do anything, you should give me a call. We can discuss all your options. Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.

IRS Radio Hour; Blog Post – IRS Fresh Start Initiative

December 23, 2014 by admin

Steven A. Leahy

IRS Fresh Start Initiative

View the blog post here

Transcript:

0:14
pursuant to Internal Revenue Service guidance be advised that any federal tax advice contained in this program is not intended to be used and cannot be used
by any person or entity for the purpose of avoiding any tax penalties that may be imposed by the Internal Revenue Service or any other US Federal taxing
0:29authority or agency or promoting marketing or recommending to another party any transaction or 3matter addressed in the show
the opinions expressed by the host and the guests are their own and may not be 8used as authoritative advice any use of this material without the written consent of the host is strictly
prohibited

0:44 – Steve
I am your host Attorney Steven Leahy and this is the IRS Radio Hour On AM 560 The Answer

0:52- Jim
Well Steve this is the section of the show where you go to your blog – Tell me, what is on the blog this week.

1:01 – Steve
Well this week on the blog I wrote about the IRS Fresh Start Initiative. You’ll see it. Anybody who has IRS problems, if you go online you’ll see this all over the place for you know IRS Fresh Start initiative take advantage of this new program. It’s a fairly new program. It started in 2011 where they changed some of the rules and they made some of these things a little bit easier to take advantage of. So one of the first things they did, some other programs, so for instance we talk on this show a lot about – There’s the six things you can do if you owe the IRS money. And the first thing you can do is – you can pay them. You write them a check, Be done with them or borrow money from someone

1:41 – Jim
Oh – a check I have a check

1:42 Steve:
It has to be a good check

1:45 Jim:
I can’t help you then.

1:46 Steve:
Borrow money from someone but get the IRS get ’em out of your life. A second thing you do is an installment agreement and the third thing you can do is in offer in compromise and the fourth thing you can do is currently not collectible status the fifth thing you can do is bankruptcy and the sixth thing you can do, and this what a lot of people do before they come see me – is you continue to do nothing

2:09 Jim:
There is a seventh thing,

2:10 Steve
What’s that?

2:11 Jim
You can leave the country. Oh that’s right they can catch you now. Forget that.

2:17 Steve:
All those things we talked about installment agreements of an offer in compromise and also the currently not collectible they have changed some of the rules. Three things actually up four areas that are their own were changed one was the offer in compromise they changed some of the parameters. Same thing with installment agreement, they changed some of the parameters. We are going to get into that in just a second. Another thing they did is they changed the way they are getting rid of the tax lien if you have a tax lien against you. They changed some other rules and that. Another thing they did is they changed some other penalties. So in 2011 when they changed this if you old if he had some penalties from 2010 if I didn’t pay because of late payment I didn’t have the money to pay ’em they forgave some other late filing late payment penalties not late filing ever filed late they still they still got me with the penalty but if I failed to pay they waved that penalty for a year.

Obviously that’s a long time what does not help us today. But the things that they did change, so for instance, some weeks ago we talked about the installment agreement and different types of installment agreements. One type on installment agreement, what they call a streamlined installment agreement. And the streamlined installment agreement makes it easier. It streamlines the process the IRS will agree to.

So, generally, if I owe the IRS money, they’re going to ask me to provide all this information. I have to give them, they will ask for my tax returns, but they have my tax returns, but I have to provide them anyway. And I have to provide my pay stubs, and I have to provide my bank statement and I have to have a full disclosure of all my assets and all my liabilities. And it takes a long time and it’s very lengthy and its fairly hard process. But the streamlined process cuts through all that. They just say if I owed less, It used to be they would say if I owed less than $25,000 they would just set up a payment plan and the payment plan would be up to 60 months.

Okay so now what did the Fresh Start initiative what they did and installment agreement streamlined is that they raised it from $25,000 to $50,000. So now if I owe $50,000 dollars or less I can get the streamlined program and again it makes it a lot easier. It was $25,000t and now its $50,000 and the set.

Okay so now the next thing is the offer in compromise. The offer is really the big thing that changed the most. Because offers were always only like 20 percent or 18 percent were granted. So a lot of people would go through this the process – because it is a hard process. That one in an offer in compromise you do have to give them all this financial information. And they go through all your financial information, and then they determine. They have this calculation that they use. So there’s three big three big determinations of what how much they will accept.

One is what is my disposable income every month? So they look at my income and they subtract from that some expenses now the IRS were notoriously stingy. They didn’t give me a lot expenses. So for instance, if I have student loans, they didn’t permit me to deduct the student loans to determine how much they would accept.

5:41 – Jim:
But they force you to pay them?

5:42 – Steve:
Yes, I still have to pay them. But, they wouldn’t accept, So if they’re trying to calculate how much a lump sum. Because, remember an offer in compromise is when the IRS agrees to take a lump-sum payment to settle my IRS debt. Okay so if they’re if they’re not going to use all my expenses, well my disposal income number is going to be very large then. So, when they, the next thing is a multiplier. Okay, so the multiplier if I could pay them, if I could pay the IRS within, under 5 months, the multiplier used to be 48. So 48 months. So if I say for instance, I had I had $500.00 a month in disposable income. Well, they would multiply that by 48. And then they would – So that is $24,000 that they would accept, plus my assets.

Well, now the multiplier has been changed to 12. So now it’s only a one-year. So that’s a huge difference. Right now it’s only $6,000.00. A fraction of what they used to agree to. If I can pay between 6 months and 24 months, well now the multiplier is 24. And it used to be 60. So that should make a huge difference, a huge difference.

7:00 – Jim:
When they want to money in less time?

7:02 – Steve:
No. It’s the same, that’s the same amount of time that they would have done it before. It just now the number the multiplier is changed.

7:10 – Jim:
Lower?

7:11 – Steve:
Much lower. That’s right. And again, if they are agreeing to a lot more expenses, and so I can deduct a lot more expenses than I used to be able to deduct, then my monthly disposable income is less, and then the multiplier is less. Now that number’s going to be something that might be able to really actually take advantage of. And use it to get rid of my debt.

Now the third, the third aspect that were that we’re talking about is your assets. How many assets do you have? So the IRS goes back, if I have any equity. If have, for instance. If I have an IRA, and that’s where a lot of people get caught. “Well, yeah I have an IRA” If I had a lot of money in my IRA, and it is more than I owe the IRS, Well guess what – they’re not going to agree to offer in compromise because they can always take your IRA and pay off your debt.

Now there are ways to protect your IRA to make sure that they can’t take it. So when the IRS has a lien against you one of the things is, they only have the rights that you have. So, if I have an IRA and I don’t have a right to access that money until I’m 65 or until I’m 70, Well then the IRS doesn’t have a right to access that money until I’m 65 or 70. So they can take it away from me. But if I can go to my IRA and I could take it out and pay a penalty.

8:32 – Jim:
But does that make them want to wait?

8:35 – Steve:
No. Remember there’s a statue of limitations

8:38 – Jim:
So once you start paying job

8:39 – Steve:
I’m in my 40s, if I’m 45 and I get to get money on time 65 the statue of limitations will have run and they will be able to take that money from me. So that is one way I can protect my IRA but most people don’t have that kind of IRA like that. Most people have an IRA that they can get at, but they have to pay a penalty if they get at it.

So the next thing they did, they changed the rules when it comes to liens. Because they understand that if you have a lien against you, it makes it very hard for you to conduct your business. You can’t really borrow any more money. It affects your credit score tremendously. So they’ve changed some of the rules that let you take off, to release the lien, and also take it off your credit report which they never used to do before. So it used to be that if I owed less than $5000.00 than the IRS wouldn’t put a lien against me. Now, if I owe less than $10,000.00 then generally the IRS won’t put a lien against me

9:33 – Jim:
Really

9:34 – Steve:
Another thing that they did is if I owe less than $25,000.00 and have made three payments on an installment agreement, and I’m going to pay them in full, and I make three payments an installment agreement, then if I apply they’ll probably release the lien again. And so I won’t have a lien. I could still all the IRS money and they’ll release my lien. That’s something they never would do before. So these changes I have been a huge benefit for people who all the IRS and you should take advantage of it. I use to tell people that the Offer in Compromise was actually a farce it didn’t really work it didn’t work for almost anybody. But now it does work now it is starting to help a lot of people and so if you

10:13 – Jim:
Did that just come, like say can you go back retroactively now to like 3 years before it was covered?

10:18 – Steve:
Yes, If I owed the taxes yes

10:21 – Jim:
I go back to 2007 redo my taxes these rules apply to

10:25 Steve:
These rules apply to any money I owe the IRS today no matter where it’s from. So, If you have IRS problems one of these programs might help you call me at 312 664 6649 and all remember ChicagoTaxTeam.com there’s lots of answers there.

10:44 Jim:
Okay. See you on the other side

IRS – Taxpayer Bill of Rights

December 8, 2014 by admin

Steven A. Leahy
IRS – Taxpayer Bill of Rights

By Steven A Leahy

In June of 2014 the National Taxpayer Advocate, Nina Olson, announced the new “Taxpayer Bill of Rights.” Turns out, this initiative was merely a list of already existing rights – The right to be informed, the right to be assisted, the right to be heard, etc. Ms. Olson thought it important that this list of existing rights be supplied to taxpayers because “taxpayers overwhelmingly do not believe they have any rights.”

The “real” Taxpayer Bill of Rights (TBOR) are three pieces of legislation creating never before existing rights. Known as Taxpayer Bill of Rights I, II and III, these new laws were passed between 1988 and 1998, after nearly 20 years of Congressional Hearings. These changes to the tax are “[p]erhaps the most significant tax legislation in the history of tax administration.” This article will review those three historic pieces of legislation and the changes to the tax law each implemented.

Before 1988, the IRS pretty much had free reign for seizures and liens. “Without a court order, the tax code allows them the power to completely wipe out a bank account, attach almost an entire paycheck, and seize almost anything of value.” For example, the IRS only had to provide a 10 day notice before seizing property. The 10 day period didn’t give taxpayers enough time to raise money to pay the IRS. The result was – lots of seizures. Also, the only way to appeal an IRS decision was after you paid the tax the IRS insisted you owed – even if it turned out they were wrong.

The 1988 Congress passed the Technical and Miscellaneous Act of 1988, now known as the Taxpayer Bill of Rights 1 (TBOR 1). TBOR 1 was a modest first step. Senator Mark Prior, then chairman of the Senate Sub-Committee on Oversight of the IRS, introduced TBOR 1 and strongly supported it passage. He said “[this law] will stem the abuse of taxpayers by the IRS and provide redress when abuse does occur. It marks a victory for the little taxpayer. It levels the playing field.”

There are some Highlights of TBOR 1. It created the position of ombudsman, with the authority to stop certain IRS actions against taxpayers. Created an installment agreement option. But only required the IRS to “fairly consider the request.” The taxpayer was granted the right to assistance of a tax professional – an attorney, CPA or enrolled agent. Also permitted the taxpayer to stop an interview or audit to get advise of a tax professional. TBOR 1 also increased the time of Notice of Levy from 10 days to 30 days and created the right to audio record most meetings with the IRS.

Taxpayer Bill of Rights 2, or T2, was signed into law on July 30, 1996. T2 did not replace TBOR1, it merely supplemented it. T2 created a process to formally appeal liens, levies and seizures through the IRS Appeals Office, created to be totally independent of the collections department. The appeals office can stop these actions if the IRS collectors did not follow the correct procedures. T2 also created additional notice requirements for IRS actions relating to the Trust Fund Recovery Penalty, joint liabilities of married and divorced persons, and how the IRS applies credits. Finally, T2 made it easier for a court to award attorney fees and court costs to taxpayers who battle the IRS in court.

The biggest changes happened with the Internal Revenue Service Restructuring and Reform Act of 1998, better known as the Taxpayer Bill of Rights 3 (TBOR 3). The biggest changes involved IRS collections activities and the individual rights of each taxpayer. TBOR 3 created Innocent Spouse relief, the Offer-in-Compromise, required supervisor permission for any lien, levy or seizure, limited the IRS ability to seize a residence, created the right to a Due Process appeals in all IRS collections actions, release of levies if there is a determination that the tax obligation is currently not collectible, increased the dollar amount of exemptions to levy and garnishment actions. There were also changes to interest rates, and penalties applied while in an installment agreement, and disallowed interest and penalties without at least yearly notice.

The Tax Payer Bill of Right 1 – 3 has turned out, less then expected – there is still room for improvement. But we are worlds apart from where we were before TPBR. If you owe the IRS money, or have unfiled returns these changes can help you. To find out, you should give me a call. We can discuss all your options. Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.

IRS – Fresh Start Initiative

November 26, 2014 by admin

Steven A. Leahy
IRS – Fresh Start Initiative

By Steven A Leahy

In 2011, the IRS implemented a new program to help taxpayers pay back taxes and avoid tax liens. The IRS calls this new program the Fresh Start Initiative. “This phase of Fresh Start will assist some taxpayers who have faced the most financial hardship in recent years,” Said former IRS Commissioner Doug Shulman. “It is part of our multiyear effort to help taxpayers who are struggling to make ends meet.”

The “Fresh Start” initiative changed several important IRS programs. The program was directed to help taxpayers with installment agreements, Offers-in-Compromise & tax liens. The Fresh Start initiative expanded streamlined installment agreements. Installment agreements allow taxpayers to pay the IRS over time. Streamlined agreements remove the cumbersome disclosure requirements that normally apply to IRS installment agreements. The IRS program increased the threshold for total tax debt from $25,000.00 to $50,000.00. The number of installments acceptable from the IRS was increased from 60 months to 72 months. These two changes provide much relief to a very large number of taxpayers.

The Fresh Start initiative also changed the Offer-in-Compromise program. An Offer-in-Compromise is an agreement that allows taxpayers to pay less than the full amount due in order to settle their IRS obligation. The initiative gave the IRS more flexibility when calculating a taxpayer’s “reasonable collection potential.” The amount the IRS will accept for an Offer-in-Compromise depends on three major factors – the taxpayer’s monthly disposable income, the multiplier, and the taxpayer’s assets. The reasonable collection potential is calculated: (taxpayer’s monthly disposable income) x (the multiplier) + (value of assets).

Disposable income is the difference between a taxpayer’s income and their expenses. The IRS uses national standards when calculating expenses, not the taxpayer’s actual expenses. Historically, the IRS did not consider many of the taxpayer’s actual debts. Under the initiative, the IRS will now allow taxpayer’s to deduct student loan payments and monthly payments for state and local delinquent taxes. The national standards now also include a “miscellaneous” allowance. The miscellaneous allowance can be used for credit card payments and other debts that were previously not considered. The additional expenses will reduce the calculated monthly disposable income.

The biggest change concerns the multiplier used to calculate the amount the IRS will settle the debt. Once a taxpayer’s disposable income is calculated, the IRS uses the multiplier to calculate the cash component. If the taxpayer can pay the lump sum in five or fewer months, the IRS multiplier was 48 (4 years). Now, that multiplier is 12 (1 year). If the taxpayer can pay in 6 to 24 months, the multiplier was reduced to 24 (2years) from 60 (5 years). The decreased multipliers significantly reduce the reasonable collection potential calculated to settle an IRS obligation.

The asset calculation has also been reduced. The IRS will use 80% of the value of assets, overlook some dissipated assets and forego any equity in income producing assets in calculating the asset portion of the offer-in-compromise. All of these changes have the effect of lowering the calculated “reasonable collection potential.”

Finally, the Fresh Start initiative changed IRS policy concerning Tax Liens. A Federal Tax Lien secures the IRS’s interest in property when a taxpayer fails to pay their tax obligation and alerts creditors of the government’s claim. The initiative increased the tax obligation to $10,000.00, from $5,000.00 before the IRS will file a federal tax lien (in most cases). The initiative also made it easier to remove a lien. For example, if the outstanding tax obligation is less than $25,000.00 (even if you paid down your obligation to under $25,000.00) and you agree to an installment agreement to pay the full amount through a direct debit agreement, the IRS will agree to withdraw the Federal Tax Lien. But, the taxpayer must be in full compliance with other filing requirements, made 3 consecutive monthly payments and there wasn’t a previous default.

The IRS Fresh Start Initiative may be just what you need. To find out if this program will work for you, you should give me a call. We can discuss your all your options. Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.

IRS Madness – Reefer Rules

November 21, 2014 by admin

Steven A. Leahy
IRS Madness – Reefer Rules

By Steven A Leahy

On Tuesday, November 4, 2014, Oregon, Alaska and the Washington D.C. made recreational use of marijuana legal. Twenty-one other states allow medical use of marijuana. Illinois now accepts applications from patients for the “Medical Cannabis Pilot Program.” Businesses have sprung up around the country to accommodate the new demand. But the federal government has laws against marijuana – and the IRS enforces those laws through our tax policy. This article will examine our tax laws as applied to those in the “Canabusiness.”

IRS Code Section 280E “prohibits taxpayers[] from deducting any expense of a trade or business that consists of the trafficking of a controlled substance such as marijuana.” Section 280E was drafted in response to a 1974 case involving a Minneapolis drug dealer. After his arrest, the IRS audited him and assessed taxes based on his drug deals. The convicted drug dealer reduced his tax burden by deducting his drug dealing expenses. He included traveling expenses, rent, telephone, equipment, etc. Congress decided to close the drug dealer loop hole and adopted 280E.

Now that states and jurisdictions have legalized the recreational use of marijuana and have permitted medical use of marijuana the tax laws have changed, right. Well not exactly. Under the federal Controlled Substances Act, Marijuana is still a “controlled substance.” The United State Supreme Court has held that “no exception in the Controlled Substances Act exists for marijuana that is medically necessary.”

A number of cannabis dispensaries have found out what this apparent contradiction means. Early on, the IRS interpreted the prohibition to mean that cannabis dispensaries are not permitted any deductions for income tax purposes, including the cost of goods sold. That means dispensaries would be taxed on the gross sales rather than net sales. In a 2012 case heard by the Tax Court in California, Judge Kroupa narrowed that interpretation, holding that the cost of goods sold (COGS) “is not a deduction [] but is subtracted from gross receipts in determining a taxpayer’s gross income.” Therefore, COGS can be used by cannabis dispensaries to reduce taxable income. Other expenses (wages, rent, utilities, etc), however, are deductions and prohibited to cannabis dispensaries under the code. Obviously, the loss of any deduction can make a big difference at tax time.

To add to the burdens of cannabis dispensaries, the IRS assesses a 10% penalty on businesses that pay their federal employee withholding taxes in cash, according to the Denver Post. The Controlled Substances Act also prohibits banks from doing business with cannabis dispensaries. The Justice Department and Treasury have changed some regulations to address the concerns of the banking industry. But the banks are still not comfortable with the change of regulations without a change in the law.

Frank Keating, president of the American Bankers Association said “While we appreciate the efforts by the Department of Justice and FinCEN, guidance or regulation doesn’t alter the underlying challenge for banks.” He continued, “as it stands, possession or distribution of marijuana violates federal law, and banks that provide support for those activities face the risk of prosecution and assorted sanctions.”

The banking rules create other problems for cannabis dispensaries. For example, dispensaries can’t get credit card processing accounts, checking accounts or saving accounts. The lack of banking services means the dispensaries deal as a cash business. The large amounts of cash create security problems and IRS reporting concerns.

Those in the canabusiness have been struggling with these IRS problems. If you have IRS problems, you should take action. You need an attorney to help you sort through your options and choose the best remedy. Before you do anything, you should give me a call. We can discuss all your options. Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.

Foreclosure Defense – Saving Your Home With Chapter 13

IRS Radio Hour; Blog Post – IRS Fresh Start Initiative

IRS – Taxpayer Bill of Rights

IRS – Fresh Start Initiative

IRS Madness – Reefer Rules

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