IRS Tax Debt Archives - Page 4 of 10 - Chicago IRS Tax Attorney

Who Should Not Prepare Their Own 2014 Tax Returns

January 12, 2015 by admin

Steven A. Leahy
Who Should Not Prepare Their Own Tax Returns

By Steven A Leahy

My last post was directed to those who should prepare their own returns. Remember, for the majority of people, preparing your own return makes sense; it may save you money, allows you to maintain control and may increase your understanding of your financial situation. But preparing a return isn’t right for everyone.

For those who own property or investments, own a business, are recently married, divorced or had a child, or if you aren’t a “numbers” person, aren’t interested in keeping up with changes in tax law, don’t understand the tax jargon on irs.gov, and prefer not to spend your free time working for the IRS, it makes sense to hire a tax professional to help you with your annual tax return.

Preparing your own taxes costs less up-front. According to the IRS, the average taxpayer filing a 1040 form (68% of all filiers) will spend 22 hours filing their taxes. It breaks down like this: form completion (4 hours), record keeping (10 hours), tax planning (3 hours), form submission (1 hour), “other” (3 hours). The average cost to hire a tax professional to prepare 1040 tax return is around $250.

Generally, I recommend tax preparation to avoid a tax audit. Having a professional prepare your tax return is not a guarantee you will not be audited – but it does cut down the odds. The IRS looks for “red flags.” Tax professionals can reduce, or eliminate red flags. Also, having a professional prepare your tax returns insulates you from the IRS. We prepare tax returns, but I always have a independent third party prepare my personal tax return and the business tax returns.

Those who are in an ongoing installment agreement, currently not collectible or were recently granted an offer-in-compromise should do all they can to ensure that there tax returns are prepared and filed on time. If the filing the return is delayed for ANY reason, you may find the agreement cancelled. Yes, the IRS can even rescind an accepted offer-in-compromise after the fact.

When the IRS accepts an offer in compromise, part of the agreement requires the taxpayer to remain in compliance for at least the next five years. That means the taxpayer must file all tax returns and pay all taxes due on time for the next five years. If the IRS calls an offer in compromise in default, the IRS will begin collecting what was originally owed.

Many who fall behind on their taxes are procrastinators at heart. Therefore, those who have a history of IRS problems should not wait until April to begin thinking about preparing their tax returns. The consequences are just too great. Get in front of the problem.

I recommend the IRS Protection Plan offered by Opem Tax Resolution and the Law Office of Steven A. Leahy, PC. This program anticipates the tax compliance requirements including, timely tax preparation, on-going IRS monitoring, resolution of IRS actions (cancellation of installment agreements or currently not collectible status and defaulting an offer in compromise). In addition, developing a relationship with a tax team will give you access to tax planning to avoid IRS problems in the future and minimize your tax burden.

If you are considering hiring a tax professional to complete your 2014 tax return, consider giving Opem Tax Resolutions and The Law Office of Steven A. Leahy, PC a call. We prepare old unfiled tax returns, as well as current returns. So, if you are a number of years behind in your filing, we can help get you in compliance with the IRS. Call (312) 664-6649 today and ask Bonnie to set up a time to talk me about your tax returns.

Should I Prepare My Own 2014 Tax Return

January 5, 2015 by admin

Steven A. Leahy
Should I Prepare My Own 2014 Tax Return

By Steven A Leahy

Filing your own returns sound simple enough. There are plenty of software packages out there to help – some are even free. If you are a W-2 employee without deductions, who generally receives a refund from the IRS each year, preparing your own tax return probably makes sense. The three best reasons to prepare your own taxes are; 1. Saves money; 2. Control; 3. Understanding.

First, preparing your own tax returns will save you money. Traditional software and online tax programs make doing your own taxes much easier. The IRS “freefile” program is also available. The IRS freefile program partners with software companies to provide free tax preparation software and e-filing to those who earn less than $60,000.00. Those you make more than $60,000.00 can use Free File Fillable Forms. However, taxpayers should know how to prepare their own tax returns in order to use Free File Fillable Forms. Free File doesn’t include state tax returns. But 7 States don’t have a state income tax, and 21 states and Washington D.C. have their own Free File program. Nearly 43 Million people have used Free File. Not all forms and schedules are available through Free File, so it isn’t right for everyone.

Software packages like TurboTax and TaxAct are also available, at a price. These programs walk taxpayers through the process of tax preparation. They both present typical scenarios and answer common questions. But, taxpayers should be familiar with their filing status, whether they are eligible to claim tax breaks and are comfortable doing research to answer any tax questions that are raised during preparation. It also helps if you are organized and keep complete records.

Second, preparing your own tax returns give the taxpayer more control. Without a tax preparer, how your return is prepared is up to you. Many have trust issues with others handling such an important aspect of their life – will they file the return on time? Did they take advantage of all the available deductions? Will they share my information with others? Etc. . If these questions haunt you, it is probably better you prepare your own tax return.

The final reason you should file your own tax return is the understanding you will acquire. Preparing your own return will force you to become familiar with your own finances, and you will gain financial insight. You may even learn about ways to reduce your tax obligations, simply by reviewing the tax code each year.

Often, however, hiring a tax professional is the best option. For example, if you own property or investments, own a business, are recently married, divorced or had a child, or if you aren’t a “numbers” person, aren’t interested in keeping up with changes in tax law, don’t understand the tax jargon on irs.gov, and prefer not to spend your free time working for the IRS, it makes sense to hire a tax professional to help you with your annual tax return.

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.

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.

Who Should Not Prepare Their Own 2014 Tax Returns

Should I Prepare My Own 2014 Tax Return

IRS – Fresh Start Initiative

The IRS Tax Gap

IRS Collection Process

Our Resources

Testimonials

Our Office