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IRS 1099-A 1099-C Confused Yet?

by

Steven A. Leahy

IRS 1099-A 1099-C Confused Yet?

It’s tax season. Each year, at tax time, many taxpayers receive a 1099 A or a 1099 A and have no idea how to handle them. So, many just ignore the forms and go about filing (or not filing) their tax return. This is a BIG mistake!

Form 1099 C – Cancellation of Debt – is a form used by financial institutions to report cancelled debt to the IRS. “Cancelled Debt” is debt that has been cancelled or forgiven for less than the full amount.

Form 1099 A – Acquisition or Abandonment of Secured Property – is a form used by lenders if they acquire secured property in full or partial satisfaction of a debt, or they have reason to know that the property has been abandoned. Does that make it clear? Who must file? When do you “reasonably know” the property is abandoned? Trying to decipher these definitions is the subject of many Judges’ opinions.

As the borrower, you receive these forms and must respond. But how? Often, a lender will send a 1099 A and a 1099 C. What happens then? If there are multiple borrowers, each may receive a form for the full amount. Whom must report? A borrower may receive multiple forms, if there are multiple lenders to the same piece of property. All good questions – without straight forward answers.

First, Form 1099 A. Typically, a homeowner will receive a 1099 A from a lender(s) after a piece of property is foreclosed. For tax purposes, a foreclosure is treated as a sale. The borrower must calculate capital gains or losses. Since the property wasn’t sold, there isn’t a selling price. Instead, the borrower uses the information on 1099 A as the date of sale [Box 1] and the selling price of the property. The borrower may use the fair market value [Box 4], or the outstanding balance [Box 2]. How to report the foreclosure on your tax return depends on the nature of the property (primary residence?), the state the property is located, and the purchase price.

Next, Form 1099 C. If you receive a 1099 C for a foreclosed property, you should not (but may) receive a 1099 A. Because the 1099 C has the same information as 1099 A, and also includes the additional information that the debt has been cancelled. Cancelled debt may require the borrower to report the cancelled amount as income. That’s right – you couldn’t pay the debt, but the IRS may add the cancelled amount to your gross income and require you to pay income tax on that amount. Talk about kicking you when you’re down.

The good news is, sometimes there are exceptions and often the borrower may exclude the forgiven debt from income. For example, if the debt was discharged in Title 11 Bankruptcy, if the borrower was technically insolvent for an amount greater than the forgiven debt, or if the debt was forgiven on a qualified principal residence.

All this can get VERY complicated! If you receive one or more of these forms in any tax year, I suggest you find a good tax preparer. Do not ignore the forms AND do not prepare your own return. I help people get out of the trouble caused by those you take care to this matter themselves. Get help! Here’s an idea – Call Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.

Unpaid Payroll Taxes?

by

Steven A. Leahy

Unpaid Payroll Taxes?

By Steven A Leahy

This week I had the pleasure of meeting a very nice couple. They ran a business that was started by his parents more than 30 years ago. The business has provided a comfortable living for this couple and their family – until last year. Last year they had a big contract that was completed, but their bill went unpaid. This is how financial problems of a customer can spill over to just about any business.

Well, to complete the project required lots of manpower. That manpower required a big payroll. When a business has a payroll, that business is required to deduct federal and state taxes, Medicare and social security obligations, union dues, insurance and perhaps other expenses. The business is then mandated to turn that money, and the business’ own contributions, over to the various government and other entities on behalf of their employees. When that money is not turned over, the IRS will take action to collect the tax portion of those funds.

What happens when the business goes under and is unable to pay the outstanding obligations? Well, if the business was a corporation, or other limited liability entity, the owner may have some protection from the business taxes. However, the portion of the tax obligations that was deducted from the employee’s paycheck was the employees’ property, and the business held that money in trust for the employee.

So, the IRS will look to the person or persons responsible for collecting, accounting and paying over the taxes to the IRS. The IRS defines a “responsible person” as:

One who had the duty to perform or the power to direct the act of collecting, accounting for, or paying over trust fund taxes.

The owner of a business is almost always a “responsible person.” These “trust” taxes include three components: Federal Income tax withheld from the employee; social security and Medicare taxes withheld from the employee; and, the employer’s contribution to social security and Medicare. The “trust” portion is that portion deducted from the employees’ pay check – Federal Income Tax and the employees’ contribution to social security and Medicare. The employer’s contribution to social security and Medicare is not part of the trust taxes, because this tax was not paid by the employee and held in trust by the employer.

When the IRS looks to a responsible person individually to recover this tax, it is referred to as the Trust Fund Recovery Penalty (TFRP). If there is more than one responsible party, the obligation is joint and several – that means the IRS can collect all or part from any or all of the parties. However, the IRS can only recover once. So if the TFRP obligation is satisfied by one responsible party, the obligation of the other parties is also satisfied. Complicated, right?

It gets more complicated, because TFRP are never dischargable in bankruptcy and are difficult to walk away from. But, sometimes, it can be done. If you are having IRS problems you should seek help early. Better yet, you should call me, Steven A. Leahy of Opem Tax Resolutions and The Law Office of Steven A. Leahy, PC. I will sit down with you and explain how this all works and what you can do to protect yourself. Call me today at 312-664-6649. Tell Bonnie I asked you to call to set up a FREE consultation.

Peter Bella – TheCookingCop.com

by

Steven A. Leahy

Peter Bella – TheCookingCop.com

By Steven A Leahy

Regular listeners to The IRS Radio Hour know my family members were union iron workers for three generations. I was a member of the Riggers, Machinery Movers & Erectors Local 136 for many years before I started practicing law. As a Rigger, I met and became friends with many Chicago Police Officers (still am). I always enjoyed their refreshing honesty about life in Chicago – It isn’t always what we think it is.

This week on the IRS Radio Hour we welcome Peter Bella to the show. I have known Mr. Bella for some time, he hired me to help him solve his IRS problem – it turns out he knew my brother Jim before he hired me. They were friends through mutual work with conservative causes. Peter Bella is a retired Chicago Police officer, photographer, blogger, chef and Chicago life observer.

PeterBella

I follow Mr. Bella’s blog posts on chicagonow.com. “Chicagonow.com is an online community created for Chicagoans by Chicagoans. Every day, ChicagoNow bloggers post more than 100 entries to the site about local topics. And every day, thousands of ChicagoNow users comment on those entries. The result is a lively, authentic conversation about all things Chicago.”

His recent articles include “Is it time to start Tentbnb in Chicago”; What cops know can solve some of America’s problems”; “Don’t bite the hand that fed you”; “Ignorant and uninformed rhetoric over police killings is disgraceful”; Just to name a few. Each article is a blunt, “as I see it” response to the biggest issues facing Chicago.

Mr. Bella also blogs about another subject I love: Food – as the Cooking Cop. Why Cooking Cop? He writes, “Cooking Cop sounded better than the Cooking Dude, Cooking Goof, Cooking Mook, or Cooking Mamaluke. I cook. I eat. I drink. I write about it. I shoot pictures too. That is my game.”

On TheCookingCop.com, Mr. Bella shares his “passion for eating, drinking, and cooking.” He shares “recipes, techniques and methods, handy kitchen tips and advice.” He also writes about his favorite Chicago restaurants, usually out of the way joints with little fanfare, but great food. I have to say, the pictures of the food he prepares are mouth-watering.

So, tune in to the IRS Radio Hour to meet Mr. Peter Bella, the Cooking Cop, on Sunday August 7, 2016 at 5:00 on AM 560 The Answer.

And remember, if you have an IRS problem – like the Cooking Cop did – Call Opem Tax Resolutions and the Law Office of Steven A. Leahy, PC at 312-664-6649.

Who Files Bankruptcy – The Answer Will Surprise You

by

Steven A. Leahy

Who Files Bankruptcy – The Answer Will Surprise You

By Steven A Leahy

With the Trump Bankruptcies in the news lately, you may be wondering “Who Files Bankruptcy?” The answer may surprise you. Bankruptcy is a Federal Law and is administered by the Federal Court System under the rules of the U.S. Bankruptcy Code. “The primary purposes of the federal bankruptcy laws are to give an honest debtor, either a person or a business, a ‘fresh start’ in life by relieving the debtor of most debts, and to repay creditors in an orderly manner to the extent that the debtor has property available for payment.”

In the first three months of 2016, 201.906 bankruptcy cases were filed nationwide – a vast majority (195,679) were consumer cases. There are 90 Bankruptcy Courts – each a unit of a U.S. District Court. The Northern District of Illinois is comprised of the Eastern and Western Divisions, and has 10 bankruptcy judges. 11, if you count the retired Judge that handles a limited case load. The Northern District of Illinois encompasses 18 counties – with court locations in Chicago, Joliet, Rockford, Lake County and Geneva.

The Northern District of Illinois leads the nation in bankruptcy filings with 47,535 case filings over the 12 month period ending March 2016. That is actually a decrease of 6.6% compared to the previous 12 month period. A recent study revealed the top reason people file for protection under the bankruptcy code is – Medical Bills! The second reason is – Job loss! Both of these reasons may have nothing to do with the person filing bankruptcy.

I help people resolve their IRS problems. As I have mentioned many times – there are only 6 things you can do if you owe the IRS money. One of those six things is bankruptcy. Many of my clients are reluctant to even consider bankruptcy as a remedy. They believe it isn’t morally available to them. They have always paid their debts, and filing bankruptcy would go against that value.

First, often a tax debt includes an unreasonable amount of penalties and interest. A debt that may not hold the same moral obligation as the underlying debt. Second, as I explain to my clients, bankruptcy does not protect you from your moral obligations. Bankruptcy only protects you from some legal obligations. My favorite example is Abraham Lincoln. That’s right Honest Abe sought protection under the bankruptcy laws. You see, he had creditors taking legal action against him after a failed partnership in a General Store.

The Bankruptcy Code protects a person from their creditors. Most creditors are prohibited from collecting on the debt. It does not, however, prevent that person from repaying their creditors if they elect to do so. Honest Abe is a good example of this concept. Once granted legal protection from his creditors, Abraham Lincoln felt he still had moral obligations to repay his creditors. He paid every creditor back. It took some time to accomplish this – but in the end, his creditors were paid.

If you were to seek legal protection from your creditors, like the IRS, you could still repay the debt, at your convenience, should you feel a moral obligation to do so. Maybe you feel a moral obligation to pay the underlying debt, but not the unreasonable penalties and interest. You could do that. The IRS would accept the money!

If you have IRS problems and need the help of a professional to resolve it – I encourage you to call my office. Opem Tax Resolutions and the Law Office of Steven A. Leahy, PC helps taxpayers resolve their IRS problems

IRS Problems: Know Where You Are Before You Can Get Where You Want To Be

by

Steven A. Leahy

Find Out Where You Are So You Can Get Where You Want To Be

By Steven A Leahy

Too often clients come to see me with IRS problems and tell me how to solve their problem. When I ask, how much they owe? How old is the debt? How much is penalties? How much is interest? They don’t have an answer.

How can you know how to solve a problem, if you don’t even understand what the problem is? IRS problems are no different from any other problem. Understanding the problem goes a long way to figuring out how to solve the problem Radio and television ads always push to pay the IRS pennies on the dollars – an offer-in-compromise. So, that’s the remedy clients want. They want to pay pennies on the dollar. The problem is, an offer-in-compromise is NOT the right answer for every case. In fact, putting an offer-in-compromise forward may be exactly the wrong way to solve your IRS problem.

Begin with an Investigation

So, let’s start at the beginning. First learn exactly where you are. Only then can you chart a course to get you where you want to be. To learn where you are, my office completes an complete investigation. The investigation begins by gathering all of the information we can from the IRS. The IRS has account transcripts for every year, wage Transcripts, tax return transcripts, just to name a few. These transcripts contain lots of information about your IRS problem. At my office, we have access to a a propitiatory software package that takes all that IRS information and puts it into a form we can use to understand it.

The report will detail how much you owe; how much is penalties, and how much is interest. The report will analysis the dates of assessments, the number of tolling days, the Collection Statute Expiration Dates, and the important dates concerning the dischargability of taxes in bankruptcy. The report also provides a breakdown of every payment the taxpayer has made and how they were applied. The report will also reveal if the IRS prepared a tax return for the taxpayer (known as a Substitute for Return, or SFR) or if some returns are still unfiled.

Once we know where the IRS puts you, we gather information about your particular financial situation. We gather this information on IRS Form 433. This form collects the taxpayers income, assets, liabilities, income and expenses. Only after we have all this information can we compose a strategy to solve your IRS problems.

The Six Things You Can Do If You Owe The IRS

Remember, there are only six things you can do if you owe the IRS money. You can pay the IRS what they claim you owe. You can enter into one of several kinds of installment agreements. You can submit an Offer-in-Compromise (offer a lump sum settlement). You can have the IRS place you in a Currently not Collectible status (get the IRS to leave you alone for a time without payments). You can seek protection under the bankruptcy code. Or, finally, you can do nothing and let the IRS have their way with you.

Don’t let someone tell you they know how get you where you want to be (solve your IRS problem) – unless they know where you are now. That’s why a complete investigation is so important.

If you are facing IRS Problems, call Opem Tax Resolutions at 312-664-6649. If you mention this blog post, we will complete the first step, the IRS analysis report, for FREE.

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