IRS Audits

There are generally three reasons that a person or company will be audited by the IRS. The first is random selection. The second is a discrepancy in their paperwork, and the third is having someone you do business with be audited.

If you are being audited by the IRS, it is important to get the right IRS audit help. The right help can reduce your stress level and may reduce the amount of penalties and taxes the IRS finds during the audit process.

It doesn’t matter the reason that you are audited, but it is important to understand that when you are, the IRS will go through all of your records with a fine-tooth comb. And while you can represent yourself in an audit, it is usually a good idea to get IRS audit help instead.

When you get experienced, professional representation in an audit, they will go through your records before the IRS does. Having a broad knowledge of tax law, they will be able to anticipate any problems and create a strategy for dealing with those problems. Our team has years of experience with tax audits and other tax issues.

Don’t go through an audit alone. If you are being audited by the IRS, or have received notice that you owe back taxes, call our experienced tax law consultants today for a free consultation. We will help create a custom solution specific to your situation.

Don’t go through an audit alone. If you are being audited by the IRS, or have received notice that you owe back taxes call Opem Tax Resolution – The Law Office of Steven A. Leahy, PC (312) 664-6649. Call Now to schedule your FREE 1 hour Consultation!

by Steven A. Leahy

Being able to Qualify for Chapter 7 bankruptcy is a misnomer. Everyone can file a Chapter 7 bankruptcy – but not everyone who files will receive a discharge of their debts. Back in 2005 Congress changed the bankruptcy laws to include a means test. The means test looks at a family’s gross income and compares it to the “average” income of a family of the same size. If that family’s income is higher than the mean income, it is presumed that is would be abusive for that person to receive a discharge under Chapter 7 of the bankruptcy code.

Instead, the code anticipates that a Chapter 13 would be more appropriate for over the mean debtors. Under Chapter 13, an over the mean Debtor is required to dedicate their disposable income, as determined by Bankruptcy Form 22C, for 60 months (5 years). Only after completing the plan can that debtor receive a discharge of their debts. Most Debtors favor Chapter 7 over Chapter 13.

Simply looking at a person’s gross income and comparing that number to the mean is only the surface analysis. If this surface analysis indicates that the family’s income is over the mean, it is only a presumption that a Chapter 7 would be abusive. The presumption can be overcome by showing that the Debtor’s disposable income will not allow creditors to receive any meaningful pay out in a Chapter 13 plan.

The more detailed analysis begins with Bankruptcy Form 22A. Debtors are to report all income, from whatever source, for the previous six (6) months. The income is annualized and then averaged over twelve (12) months. The next step is to determine monthly expenses and deduct those expenses from the average monthly income.

Many of the allowable expenses are determined from IRS standards, rather than actual expenses. For example, housing expenses are determined by where the Debtor lives and how many people live in the house. Transportation expenses are determined by the age of the vehicles, and if a vehicle is financed.

Next, actual taxes and payroll deductions are subtracted. Deductions for federal income tax, state income taxes, social security tax, Medicare tax, union dues, and mandatory pension contributions, are common deductions. The next deductions look to health insurance and life insurance contributions.

Finally, secured debt is deducted. This is the often overlooked deduction that allows over the mean debtors to overcome the presumption of abuse. The first section of secured debt includes a home mortgage, car payments and other secured debt (e.g. 2nd mortgages, house improvement payments, etc.). The last numbers, and often a large number, concern arrears in home mortgage payments. The longer a family is behind in mortgage payments, the greater the arrears used to overcome the presumption of abuse.

Interpretation of Bankruptcy Laws can vary according to district. So, if you are in foreclosure or considering bankruptcy, make sure you consult with a local attorney who will complete a comprehensive investigation of your case – not just a surface analysis. Before you do anything, you should give me a call. We can discuss your options to see if you can overcome the presumption of abuse and qualify for Chapter 7 bankruptcy. – Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.

by Steven A. Leahy

Deficiency judgments in Illinois are created when a homeowner loses their home to foreclosure, and the forced sale does not generate enough money to payoff the outstanding mortgage balance. Illinois is a recourse state. That means mortgage companies have recourse; they can recover the deficiency from the homeowner, even after the house is lost to foreclosure sale.

Illinois is also a judicial foreclosure state. That means mortgage companies must go to court, receive a judgment, and hold an auction in order to foreclose on a homeowner’s property. Generally, judicial foreclosures give the homeowner much more time before the home is lost. The two concepts (recourse and judicial) are complementary. Some states do not require court action to foreclose on a home. But, in those states, generally mortgage companies can’t go after the homeowner should a sale result in a deficiency (non-recourse states).

In non-recourse states, homeowners often implement a plan called “strategic default.” That’s when homeowner’s stop making mortgage payments – for whatever reason (e.g. the mortgage is far greater than the value of the home, the homeowner has been transferred to another part of the country, etc.) – and the mortgage company takes the property in foreclosure (usually rather quickly). The homeowner leaves the property free and clear of any financial obligation to the mortgage company.

Homeowners in Illinois must be careful with a strategic default, because a deficiency judgment may arise and the financial obligation to the mortgage company may survive the foreclosure. There are options to avoid a deficiency in Illinois – a judicial, non-recourse state.

My office has helped clients avoid deficiency judgments in Illinois in a number of ways, including:

1. Deed-in-Lieu of Foreclosure;
2. Short sale of the property;
3. Consent foreclosure;
4. Reduced redemption period;
5. In Rem Judgment;
6. Deficiency Waiver;
7. Bankruptcy.

In the last several months I have helped a number of homeowner’s, in similar situations, avoid a deficiency judgment in Illinois. The homeowners have a good income, but their mortgage is much greater than the value of the property. To add to the problem, family members have not paid their fair share of the mortgages, creating a tremendous hardship. The homeowners have been battling this situation for some time; but recent changes in circumstances have made it nearly impossible to continue. Each has found themselves falling behind on the mortgage payments.

In one case, the homeowner is also faced with a mountain of additional debt. Trying to stay current with the mortgage payments has meant neglecting other debt payments, and creating new obligations. Eventually, the other creditors start taking legal action for payment. In this case, bankruptcy is the best option. The homeowner is protected from the deficiency and is granted a discharge of the other debts. While the foreclosure is pending, the homeowner will have a little time to get back on track, save a little money and be in a position to move to a new home.

The second case is in the earliest stages of foreclosure. The homeowner doesn’t really have other debt, but a large deficiency looms, should the home go to a foreclosure sale. For a number of reasons, a consent foreclosure is the best option in this case. By statute (735 ILCS 5/15-1402) a consent foreclosure will protect the homeowner from the deficiency. A consent foreclosure will mean surrendering the property fairly quickly; but the peace of mind and financial certainty far outweigh the inconvenience.

Every case is as different as each client. The best way to resolve each situation begins with discussing the goals of each client and analyzing their financial situation in detail. Only then can the correct remedy be determined. Often the best remedy isn’t available, because the mortgage company will not agree. So, you need a plan B, C and D, just in case.

If you are facing foreclosure, and you need some direction, make sure your attorney understands all the options available. A comprehensive investigation should be completed before you decide which option is best for you. Before you do anything, you should give me a call. We can discuss your options in fighting a foreclosure deficiency in Illinois. – Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.

IRS Tax Penalties: IRS Help Chicago

There are three major IRS tax penalties, and they can add up fast. Learn what they are and how to handle them.

Penalty #1: Penalty for failure to pay.

If you don’t pay the IRS on time they will charge you a late penalty of .5% per month that the taxes are late. This tax penalty cannot amount to more than 25% of the taxes owed and is only assessed on the amount still owed.

Penalty #2: Penalty for failure to file.

If you don’t file your tax return on time, the IRS is going to attach a penalty to your tax bill of 5% per month that the taxes are filed late. This can be waived if you prove that there was a “reasonable cause” for late filing.

Penalty #3: Interest

Interest is added to any taxes that are not paid at the time they are owed. The IRS can change the interest rate on taxes owed.

The best way to avoid penalties from the IRS is to take care of your taxes owed. If you do owe taxes, then be sure to file your returns to minimize penalties.

If you owe taxes and can’t pay them right away, then the best thing to do is work with the IRS to get them paid off. There are many programs available to help you do this, but they can be complicated and it’s not always easy to determine which one is right for you.

Tax Penalties? Don’t wait. Call Opem Tax Resolution – The Law Office of Steven A. Leahy, PC (312) 664-6649. Call Now to schedule your FREE 1 hour Consultation!

by Steven A. Leahy

Are taxes dischargable in bankruptcy? The answer is – It depends. Some taxes are never dischargable. For example Trust Fund Recovery Penalties (TFRP) – that is, taxes imputed to the responsible party for non-payment of payroll taxes – are never dischargable in bankruptcy.

However, some income taxes are dischargable in bankruptcy. There are three important dates to remember. First, the tax must be due more than 3 years ago. 2010 tax returns were due April 15, 2011 – unless an extension was filed. An extension would move the due date to October 15, 2011. Second, the tax return must be filed more than 2 years ago. And, finally, the taxes must have been accessed more than 240 days ago. If all three of these date requirements are met – then the taxes may be dischargable. However, calculating the dates can be tricky.

Some events, such as a prior bankruptcy, Offer in Compromise application or a Collection Due process appeal, stop the clock on the time periods discussed here. So, merely looking back and counting the days may not give an accurate determination of dischargability.

Another obstacle may be the taxpayer’s failure to file tax returns at all. If a taxpayer fails to file a tax return, the IRS may file the return for them. When the IRS files a return for a taxpayer, the return is referred to as a Substitute for Return (SFR). A SFR is NOT considered a return for the purposes of determining discharagablity in bankruptcy.

Recently, I helped a taxpayer with his IRS problem, after he thought the problem was resolved through a Chapter 13 Bankruptcy. His confirmed plan called to pay his IRS debt at 10% of the balance due. He paid his Trustee payments for five (5) years, and received his discharge upon completion. He was shocked to find that he still owed the IRS more than $60,000.00, and the IRS was aggressive in collecting that amount from him after bankruptcy. This taxpayer’s taxes were not discharged because several of his prior returns were SFRs.

If you owe the IRS money, and you are contemplating discharging irs debts in bankruptcy, make sure your attorney understands both tax law and bankruptcy law. A comprehensive investigation should be completed before you decide what remedy is best for you. Often, bankruptcy can be the best remedy, even if some or all the tax is not dischargable. But you should have all the information to make an informed decision. If an IRS debt will remain after bankruptcy, you should know that going in.

Before you file bankruptcy you should give me a call. We can discuss discharging irs debts in bankruptcy, or some other option. – Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.