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Time Limits to IRS Collection Efforts

March 24, 2015 by admin

Steven A. Leahy
Time Limits to IRS Collection Efforts

By Steven A Leahy

One of my clients recently experienced a wonderful event. Something he has been waiting a number of years for – an IRS claim for more than $900,000.00 in back taxes, penalties and interest along with the IRS Tax Lien that went along with it, has expired. That means he and his wife can sell their house, free and clear of the IRS claim. Great news!! But to understand this we have to go back to the beginning.

This client ran a company with a number of employees. The manager of the company failed to pay payroll taxes for two quarters. Instead, the manager took that money for himself. The IRS obligation totaled more than $900,000.00! The resulting effects cost my client his business – and a personal tax obligation in the form of the Trust Fund Recovery Penalty for more than $500,000.00.

He battled the IRS for a number of years before he contacted my office. He insisted that an Offer-in-Compromise was his best option. I never reach a conclusion until we gather all the facts and complete an investigation. First thing we did was protected him from IRS collection efforts – so the IRS could not attach his bank account or levy his social security any more. Next, we conducted an investigation and determined the best course of action. He was already 5 years into his battle with the IRS, and he had some equity in his home, that made an Offer-in-Compromise unattractive.

What many don’t know is the IRS has a time limit to collect IRS obligations; a sort of Statute of Limitations. Each tax assessment has a Collection Statute Expiration Date (CSED) – a date after which the government’s right to pursue collection ends. Normally the CSED date is 10 years from the date of assessment of a tax liability.

There are numerous events that can delay, suspend and/or extend the CSED. For example, an Offer-in-Compromise, Bankruptcy, entering a combat zone, moving out of the country and a Collection Due Process Appeal stay the tolling of the CSED, adding time for the IRS to collect. That’s why a full investigation should be completed to deduce the actual CSED date.

For my client, trying to resolve the IRS obligation through other means, such as an Offer-in-Compromise may have worked against him. As it turned out, he was granted Currently Not Collectible status with an outstanding balance at the time of more than $800,000.00! Then he rode out the remaining CSED time. In the interim, the IRS did come back, several years later, and required us to re-establish his Currently Not Collectible Status. But all in all, not a bad result – he walked away from more than $900,000.00 in taxes, penalties and interest.

Now, the IRS can bring an action to collect a tax obligation in court. Once a judgment is entered, the CSED date is no longer applicable. Judgments do not have a statute of limitations. But, in most cases, the IRS does not pursue court action against taxpayers. Court is generally reserved for those egregious cases you may read about in the news. Also, depending on the case, the IRS may ask a taxpayer to waive the CSED date – sometimes that’s a good thing – sometime it isn’t. That should be determined on a case by case basis after consultation with your IRS attorney. That isn’t the kind of decision a taxpayer should make without a complete understanding of the consequences.

So, if you have an IRS problem, you should consult with a local attorney. The strategy you use will make ALL the difference in how your life progresses. Before you do anything, you should give me a call. We can discuss your options, complete your an investigation and determine the best course of action. – Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.

What is a 1099-A?

February 16, 2015 by admin

Steven A. Leahy
What is a 1099-A?

By Steven A Leahy

For the last several weeks we have been discussing 1099-Cs on The IRS Radio Hour. Any discussion of 1099-Cs naturally leads to the question – What is a 1099-A? This post will address that question.

As we discussed, 1099-C is a tax record sent by financial institutions to debtors when the lender forgives or cancels a debt in excess of $600.00. A 1099-A Acquisition or Abandonment of Secured Property is a related document for “[c]ertain lenders who acquire an interest in property that was security for a loan or who have reason to know that such property has been abandoned.” Generally, a taxpayer will receive this form in the mail after losing a property to foreclosure, or an automobile to repossession. Often, a taxpayer will receive both a 1099-A and 1099-C.

There is a lot of confusion out there on exactly which tax document a lender should send out. That’s why there isn’t consistency. Some lenders will send out a 1099-A after a foreclosure; others will send out a 1099-C; still, others will send out both forms, just to cover themselves. Some lenders may send a 1099-A first, to report the foreclosure to the IRS, and a 1099-C later, to document the decision to cancel the debt. It is vital that these documents are treated correctly for tax preparation purposes. A mistake may result in tens of thousands of dollars in IRS liabilities.

1099-As contain three important pieces of information, found in Boxes 2, 4 and 5. First, Box 2 reports the principal loan balance. Box 4 reports the fair market value (FMV) of the foreclosed property (generally, the price the house sold for at the foreclosure auction). Finally, Box 5 reports whether the taxpayer is personally liable for repayment: recourse vs. non-recourse. The very same exceptions and exclusions available for 1099-C income, are available for 1099-A income. Notably, Title 11 (bankruptcy), “Insolvency Exclusion,” and the exclusion offered by the Mortgage Forgiveness Debt Relief Act (MFDRA).

Some important information regarding the tax implications are not included on Form 1099-A. If the property that was lost was an investment property, rather than the taxpayers principle residence, the taxpayer will also need to supply the basis for the property ((Cost + improvements) – depreciation) in order to calculate the tax implications. Investment property losses may be fully deductible.

The key to excluding or exempting 1099-C debt forgiveness, and 1099-A property abandonment, from taxable income lies in tax preparation. If a taxpayer qualifies for an exception or exemption and fails to prepare the appropriate IRS forms, the IRS will complete an examination and assess a deficiency for that tax year. In addition to attaching the 1099-A or 1099-C to the taxpayer’s tax return, often IRS Form 982 Reduction of Tax Attributes Due to Discharge of Indebtedness is also required. Form 982 is used to determine the amount of discharged indebtedness that can be exempted or excluded from gross income.

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.

If you have an ongoing IRS problem – installment agreement, recent offer-in-compromise or currently not collectible status 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.

Three Tax Preparer Scams

February 4, 2015 by admin

Steven A. Leahy
Three Tax Preparer Scams

By Steven A Leahy

My last several posts addressed who should and shouldn’t prepare their own tax 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.

In my office we have run into three common tax preparer scams that can raise red flags with the IRS. First, the most common: promises of large refunds. Second, the 1099 OID scam and finally, the ID theft scam.

The most popular tax preparation scam involves the tax preparer promising larger returns than other tax preparers. Many of these preparers charge a very high fee, or a percentage of the refund. Both of these fee structures should alert you that something is amiss. They achieve these high refunds by playing with your tax return numbers. They may include income that was never earned, claiming expenses you did not pay, or otherwise manipulating the tax return to qualify for earned income tax credits you are not qualified for.

The second scam involves filing false 1099 OID (Original Issue Discount) forms. The scam artist convinces the taxpayer that there is a secret fund held by the Treasury Account for an amount equal to the face amount of any debt they hold, including credit card and mortgage debt. To lend legitimacy to the scam, the scammer contends the government went bankrupt in 1933 and made all Americans chattel of the government’s creditors at birth, evidenced by their birth certificate. The scammer alleges that the government guarantees all your debts and the taxpayer need only apply through their tax return to access the hidden account.

By completing their tax returns and including 1099 OID for the full amount of all debt, including tax debt, sometimes amounting to hundreds of thousands of dollars. The real problem with this scam is – it works! The IRS sends the taxpayer a large refund check. The check tends to confirm the legitimacy of the scam. After much of the funds have been spent, the IRS comes looking to the taxpayer and the funds received from the fraudulent scheme.

Taxpayers will be on the hook for these first two scams, because they sign the return under penalty of perjury. These scams can lead to significant penalties and interest, and the possibility of criminal prosecution. So, before you sign a return, review your tax return, ask questions about entries you don’t understand – and NEVER sign a blank return. A reputable tax preparer will sign the tax return and provide you a copy.

Finally, let’s review identity theft and tax return preparation. There are two forms of identity theft to worry about: tax fraud through the use of identity theft and the tax return preparer using your personal information after preparing your tax return. Tax fraud through the use of identity theft tops the IRS’s list of top tax scams. This type of fraud occurs when someone uses a taxpayer’s personal information to fraudulently file a tax return and claim a refund.

The second type of identity theft is when your tax preparer uses your personal information to obtain credit in the taxpayer’s name, after the taxpayer willing provided the tax preparer with all the information they need to commit fraud. The IRS has more than 3,000 employees working on identity related cases.

The lesson here is to know your tax return preparer. 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.

If you have a ongoing IRS problem – installment agreement, recent offer-in-compromise or currently not collectible status 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.

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.

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.

Time Limits to IRS Collection Efforts

What is a 1099-A?

Three Tax Preparer Scams

Who Should Not Prepare Their Own 2014 Tax Returns

Should I Prepare My Own 2014 Tax Return

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