IRS Currently Not Collectible

August 22, 2014 by admin

Steven A. Leahy
IRS Currently Not Collectible

By Steven A. Leahy

There are six things you can do if you owe the IRS money. First, you can simply write the IRS a check for the full amount. For many, that is simply not a realistic option. Often, if the tax obligation is not too significant, borrowing money from another source (friends, family, bank loan, credit cards, etc.) may be a less costly alternative than an installment agreement with the IRS. Second, you can enter into an Installment Agreement; pay the IRS over time. Third, you can obtain an Offer-in-Compromise: A lump sum settlement for less than the tax owed. Fourth, you can be declared Currently Not Collectible; pay the IRS nothing (for a period of time). Fifth, you can file for protection under the bankruptcy code; Chapter 7, Chapter 13 or Chapter 11. And the last option – you can do nothing, and let the IRS do what they will to you, your family and your assets.

This article addresses the fourth option – IRS Currently Not Collectible (CNC). The IRS lists a number of reasons to report an account CNC. The reasons include, inability to locate the taxpayer, expiration of the statutory recovery period (statute of limitations), death of an individual (where the IRS can’t collect from the estate), defunct companies without assets, or the taxpayer is out of the country or in a combat zone. The most common reason for CNC status is the existence of a taxpayer hardship.

The IRS may place a taxpayer in CNC status based on a hardship – when the IRS determines that the taxpayer can’t pay their tax obligation AND pay reasonable living expenses. The first requirement for a hardship CNC is compliance. In most cases, the taxpayer must have filed all tax returns, made all required estimated tax payments for the current year and made all required federal tax deposits for the current quarter if the taxpayer is a business owner with employees. The taxpayer must remain in compliance during consideration and, should a hardship CNC be found, thereafter.

In order to demonstrate a hardship, a financial analysis, with detailed financial information, must be completed to determine the taxpayer’s assets and equity, income and expenses. The investigation into the taxpayer’s financial condition begins by completing Form 433–A, Collection Information Statement for Wage Earners and Self-Employed Individuals or Form 433–B, Collection Information Statement for Businesses, and providing all the necessary documents to substantiate the numbers.

The level of scrutiny depends on the tax obligation – the greater the tax bill, the greater the scrutiny. For example, if the unpaid tax balance is large, the IRS will review the taxpayer’s credit report, motor vehicle records and real estate records to determine if there are any additional sources for collection, in addition to the 433 and supporting documents. Generally, an IRS manager must review the IRS Currently Not Collectible recommendations paperwork and approve granting the CNC status.

Collection actions stop once a taxpayer’s account is placed in IRS Currently Not Collectible, including bank levies, wage garnishments and collection letters. The problem with CNC is that interest and penalties continue to accrue even though IRS collection activity has been suspended. In addition, if the balance is greater than $10,000.00, the IRS may still issue a Notice of Federal Tax Lien against the taxpayer (although the taxpayer can still appeal that action).

The good part about CNC is that the Collection Statute Expiration Date (CSED) is not tolled while the taxpayer’s account in a hardship CNC status. It is possible for a taxpayer to continue in hardship CNC status until the CSED passes. Once the CSED passes, the IRS cannot collect on that IRS obligation. Hardship CNC cases, however, can be reactivated if it appears there is a change in the taxpayer’s ability to pay indicating collectibility. And, the IRS may ask the taxpayer to reestablish CNC hardship status periodically.

So, if you owe the IRS and are unable to pay the full tax obligation immediately, you may be eligible for your account to be placed in a Hardship CNC status. Before you do anything, 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 Installment Agreements

August 7, 2014 by admin

Steven A. Leahy
IRS Installment Agreements

By Steven A. Leahy

There are six things you can do if you owe the IRS money. First, you can simply write the IRS a check for the full amount. For many, that is simply not a realistic option. Often, if the tax obligation is not too significant, borrowing money from another source (friends, family, bank loan, credit cards, etc.) may be a less costly alternative than an installment agreement with the IRS. Second, you can enter into an IRS Installment Agreement; pay the IRS over time. Third, you can obtain an Offer-in-Compromise: A lump sum settlement for less than the tax owed. Fourth, you can be declared Currently Not Collectible; pay the IRS nothing for a time. Fifth, you can file for protection under the bankruptcy code; Chapter 7, Chapter 13 or Chapter 11. And the last option – you can do nothing, and let the IRS do what they will to you, your family and your assets.

This article addresses the second option – IRS Installment Agreements – for personal income taxes. IRS Installment Agreements allow taxpayers to pay the IRS in monthly installments rather than paying the IRS in full immediately. There are several different kinds of Installment Agreements: Guaranteed, Streamline, Partial and Full Pay. Each has unique characteristics. In most cases, just proposing an installment agreement will stop other IRS collection efforts (e.g. wage garnishment, levies). If an IRS Installment Agreement is rejected, the IRS may consider a revised proposal, or the taxpayer may appeal the rejection.

The Guaranteed Installment Agreement is designed for taxpayers with a tax obligation of less than $10,000.00 (excluding penalties and interest). If the taxpayer has also timely filed all income tax returns, paid any tax due for the last five years, has not had an installment in the last five years, and agrees to pay the amount due in 3 years, an installment agreement is virtually guaranteed, even if the taxpayer has the ability to pay the tax liability in full immediately.

The Streamlined Installment Agreement (SIA) is designed for individual taxpayers with a tax obligation not greater than $50,000.00. Recently, the IRS instituted the “Fresh Start” initiative. Fresh Start provisions changed the parameters for a SIA in several important ways. First, the IRS raised the threshold from $25,000.00 to $50,000.00 in tax liability. Next, under the new streamlined provisions, taxpayers can stretch repayment of their tax obligation over 72 months, rather than the old maximum of 60 months. Both of these changes have had a great impact for taxpayers.

The best part of a SIA is it is streamlined, meaning taxpayers do not have to provide financial data to the IRS in order to get an installment agreement. This makes the process quick and less intrusive.

A Partial Installment Agreement (PIA) is designed for taxpayers who are unable to pay the full amount they owe to the IRS. Taxpayers must reveal their financial circumstances, in detail, for a PIA. Negotiating a PIA with the IRS can be tricky – not something I would recommend taxpayers do by themselves. IRS standards and procedures are well known to the IRS, but not to taxpayers. The IRS uses this advantage to get the taxpayers to pay more per month than they may be able to afford. If this happens, a default on the PIA is just a matter of time. After a taxpayer defaults, they will find themselves back in collections, and facing levies and garnishments again.

The final kind of Installment Agreement (IA) is an agreement that pays the full amount due over time. If a taxpayer owes more than $50,000.00, the IRS will conduct a complete investigation of the taxpayer’s finances. They look at income, expenses, and assets, with supporting documents. Again, the amount of a taxpayer’s monthly payment will determine the success or failure of the IA. So, it is imperative to get the best IA payment possible, something best left to professionals.

So, if you owe the IRS and are unable to pay the full tax obligation immediately, you should consider an IRS Installment Agreement. Before you do anything, you should give me a call. We can discuss your options. Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.

The IRS Tax Gap

August 4, 2014 by admin

Steven A. Leahy
IRS Tax Gap

By Steven A. Leahy

The IRS calculates the amount of tax liability that taxpayers do not pay on time – the difference between the true tax liability for a year and the amount that is paid on time –this calculation is defined as the IRS Tax Gap. The IRS reports the IRS tax gap every 5 years. According to the most recent IRS Tax Gap estimates (2012 for the 2006 tax year), the American public voluntarily complies with IRS regulations 83.7% of the time. To many, the compliance rate is astounding. With little or no action, only 16% of the potential tax revenue requires government action to collect. Add enforcement and late payments to that number and compliance jumps to 86.3%. These are the IRS’ own numbers.

IRS compliance rates have been steady since at least 2001. The IRS divides the IRS tax gap into three (3) components: non-filing, under-reporting, and underpayment. The biggest gap is attributed to under-reporting ($376 billion in 2006, up from $285 billion in 2001). Taxes lost due to non-filing accounted for the lowest percentage of the gap ($28 billion in 2006, $27 billion in 2001).

Compliance is highest just where you would expect – when a third party reports and/or withholds taxes. Only 1% of the IRS tax gap is attributed to this category of reporting. These numbers are also compiled from real numbers – W-2 and 1099 information. Amounts subject to little or no reporting requirements made up 56% of misreporting in 2006. But, because there isn’t any reporting, these numbers are estimates, rather than actual numbers.

While many point to the compliance rate as impressive, the IRS uses these numbers and points to the low compliance rate as proof the IRS needs to be more aggressive in their collection efforts and require additional reporting requirements to third parties. To be more aggressive, the IRS needs more money. The IRS estimates that every dollar spent on collection, the IRS receives six dollars in return.

Congress, however, has cut the IRS budget over the last several years. For 2015, Congress passed a budget that would cut the IRS enforcement by $1.2 billion dollars; almost a 10% cut. So reducing the tax gap will have to come from reporting.

You may have noticed the additional filing requirements recently implemented by the IRS. For example, the 2011 reporting year saw a new IRS form, Form 8949 “Sales and Other Dispositions of Capital Assets.” This form was designed to replace Schedule D1, and did so for 2013 and thereafter.

The change adjusts how brokers must report adjusted basis and whether any gain or loss on a sale is classified as short-term or long-term from the sale of “covered securities.” Previously, determining the basis of an asset was left to the taxpayer. These changes require additional reporting by third parties in an attempt reduce the tax gap. The IRS is always seeking new ways to require third parties to increase their reporting to decrease the chance of non-compliance.

If you need help with the IRS, you should work with a local law firm. Better, you should give me a call – Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.

IRS Collection Process

July 24, 2014 by admin

Steven A. Leahy
IRS Collection Process

By Steven A. Leahy

Resolving IRS problems is not easy. When a taxpayer owes the IRS, the IRS will send a bill, a “Notice” in IRS speak – This begins the four step collection process. Additional notices will follow – each directing the taxpayer to pay the outstanding balance, or set up a “payment solution.”

The initial notice (IRS Form CP 501) is generated by one of ten Regional Compliance Centers. IRS Form CP 501 is a reminder telling the taxpayer that there is a balance due on a tax account. Five weeks after the first notice, the compliance center will generate IRS Form CP 503, “Second Notice: You have unpaid taxes for 20xx.” IRS Form CP 503 uses a more urgent tone. Five weeks after IRS Form CP 503, the compliance center will generate IRS Form CP 504 “Notice of Intent to Levy: Intent to seize your property or rights to property Amount due immediately: $XX,XXX.XX.” Now, the IRS is taking things from you.

If the taxpayer does not respond to these notices, the account becomes delinquent. Delinquent accounts are assigned to the Automated Collection System (ACS) or the Collection Field function (CFf). Most accounts go to the ACS for collection efforts. Some accounts, however, go directly to CFf and are assigned to a Revenue Officer.

If the delinquent account is assigned to ACS, ACS employees will contact the taxpayer by telephone and try to work out a payment solution. The taxpayer may also call ACS to work out a payment solution. ACS maintains a computerized inventory system that has taxpayer information, including personal information (name, address, telephone number, date of birth, adjusted gross income and social security number), audit information, IRS collection information, and perhaps the taxpayer’s credit report and bank account information. ACS uses this information to assist them in their telephone collection efforts and enforced collection efforts. Enforced collection authorizes ACS to collect delinquent accounts via bank account levies, wage garnishments and levies on accounts held by other third parties (e.g. accounts receivables). Often delinquent accounts are forwarded on by ACS to CFf.

When an account reaches CFf, a Revenue Officer (RO) is assigned. The RO will be directly responsible for collecting the balance on the delinquent account. A RO may call the taxpayer, or even appear at their home or place of business. Being on the receiving end of a RO visit is never a good experience. Once a RO is assigned – that person is your contact person within the IRS. The RO can also direct enforced collection efforts – bank account levies, wage garnishments and levies on accounts held by other third parties (e.g. accounts receivables).

If a taxpayer disagrees with a decision by the IRS Collections office, there is an appeal process. Appeals are conducted by the IRS Office of Appeals – a separate and independent office. There are two main appeals procedures, Collection Due Process (CDP) and Collection Appeals Program (CAP). A CDP or CAP will often get a better result than dealing with ACS or a RO – but not always.

Before the IRS can levy your assets they must send the taxpayer IRS Letter 1058 “Final Notice – Notice of Intent To Levy And Notice of Your Right to A Hearing.” Use this last opportunity to resolve your IRS Problem. Generally, IRS Letter 1058 is sent via certified or registered mail. So, if you are experiencing IRS problems and you receive notice of a certified letter, GO TO THE POST OFFICE AND PICK IT UP.

If you are facing IRS Collection Efforts, you should work with a local law firm that understands the IRS Collection procedures and will work to get you the best deal possible. You should give me a call – Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.

Financial Analysis

July 17, 2014 by admin

Financial Analysis
IRS Resolutions, Loan Modifications, and Bankruptcy
By Steven A. Leahy

My office helps businesses and families resolve their financial problems. We focus on IRS problems, but we also help with foreclosure defense and bankruptcy. Resolving all of these problems has a similar approach.

We begin by gathering information about each new client. Everyone is unique, and has a unique financial situation. Our investigation employs a three step process. First, we inventory all the client’s assets. Next we register all their income. Finally, we catalog all their expenses.

First, we inventory all our client’s assets – Do they own a home, a car, stocks, bonds, or other financial instruments? Do they own a summer cottage, a boat, motorcycle or other large assets? We include bank and financial institution accounts, IRAs, ERISA, pensions, annuities, insurance policies and profit sharing plans. We list home furnishings, utility and landlord deposits, clothing, jewelry, computers, and audio/visual equipment. We catalog collections (stamps, coins, etc.), antiques, intellectual property (patents, copyrights, etc.), business equipment, and interests in partnerships, corporations or other business entities.

The second step is to register all their income, from whatever source. Common income sources include: wages, business profits, interest & rental income, annuities, retirements, pensions, etc.

Finally, we catalog their expenses. This is the critical step. Often the expenses used by creditor institutions are not real expenses, because IRS standards are substituted for actual expenses. This is true for IRS resolutions, but it may also be true for determining disposable income in Chapter 13 bankruptcy, and loan modifications. For example, the IRS has standards for housing and utilities, apparel and services (including shoes and clothing, laundry and dry cleaning, and shoe repair), food, housing supplies & personal care products. There are also standards for transportation expenses, including ownership, maintenance and public transportation expenses.

In addition to the IRS standard expenses, our clients often have additional expenses, not accounted for in the IRS list. These expenses are often disallowed by the IRS, another element that will add to an artificially high disposable income number.

If our client’s actual expenses are higher than the IRS standards and/or they have unclassified expenses, as is often the case, the “game is afoot.” Determining what you can actually pay, not what these false numbers dictate, takes time and effort. Each and every expense must be documented, reviewed and verified. Convincing the court, bank or IRS that they should use our numbers, rather than theirs is more an art than a science, but will make the difference between success and failure.

Subtracting expenses from income reveals your disposable income – the higher your expenses, the lower your disposable income, and vise-versa. Disposable income is the determinative variable. For example, an IRS installment agreement, offer-in-compromise or currently not collectible status, or your monthly trustee payment under chapter 13, are each decided based on disposable income.

Remember, defining disposable income is the critical factor. NEVER speak with the IRS or any creditor without conducting a full investigation. A disposable income number that is too high will ensure failure and more problems in the future. It’s that important. So, if you are experiencing financial problems, you should work with a local law firm that will fight to have your actual expenses considered. Better, you should give me a call – Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. I want to help! Call NOW to set up your FREE Consultation.

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