What is Compliance And Why Is It Important?

By Steven A Leahy

When I meet with new clients I often begin our discussion on how our office goes about resolving tax issues by writing “Compliance” at the top of the screen in BIG letters. Compliance, to the IRS, means complying with all tax obligations – payment compliance; filing compliance; and reporting compliance. Filing compliance refers to filing of tax returns. Reporting compliance refers to accuracy of the filing. Finally, payment compliance refers to the payment of the reported taxes.

In order to resolve a tax problem the taxpayer must be in filing compliance. In addition, if the taxpayer is a 1099 employee or self-employed, the taxpayer must be in payment compliance, at least for the current year. That means that any unfiled returns must be filed, and any quarterly payments must be paid, before the IRS will agree to stop any collection efforts. The IRS will generally begin collection efforts by sending notices, applying a previous tax year’s refund to tax due, filing liens and, finally, seizing your property and assets.

If a taxpayer receives a Notice of Levy on Wages, Salary, and Other Income and has unfiled returns and/or unpaid quarterly payments, it will be very difficult to stop the levy before the taxpayer can get into compliance. That is why it is so important to work to resolve your tax problems before levies are issued. If you ever receive Form CP 297 – Notice of Intent to Levy and Notice of Your Right to a Hearing you need to act immediately – that may be your last chance. So, OPEN ALL MAIL YOU RECEIVE FROM THE IRS.

The Notice of Intent to Levy and Notice of Your Right to a Hearing is a form that alerts the taxpayer that the IRS intends to begin taking assets from them – normally it begins with bank accounts and wages. The notice will include the balance due, and the taxpayer’s right to appeal that action. You must request an appeal (Collection Due Process) within 30 days from the date of the Notice of Intent to Levy and Notice of Your Right to a Hearing. If the appeal is filed within the 30 days, IRS collection efforts are stopped while the appeal is pending. The appeal will give the taxpayer an opportunity to get into compliance and work out a resolution with the IRS.

Compliance is also important once a resolution has been reached. If a taxpayer is granted an Installment Agreement, Offer in Compromise or Currently Not Collectible status, part of the agreement between the IRS and the taxpayer is for the taxpayer to remain in compliance with all tax obligations going forward. That means the taxpayer can’t be late filing future returns – an extension is NOT compliance – all taxes must be paid in a timely manner. The tax reported on your tax return and all quarterly payments must be paid as they come due. If a taxpayer defaults on that agreement, the IRS will cancel the agreement and begin collection efforts again, taking the taxpayer right back where they left off.

So, if you are facing IRS problems, you should work with a local law firm that will work to get you in compliance with IRS tax obligations AND help you stay in compliance after you reach a resolution. 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.

Tax Debt Settlement

By Steven A Leahy

There is one method of getting out of debt with the IRS that’s been abused more than any other.

This method, offers-in-compromise, has become downright controversial – so much so that the IRS made changes to the “rules” regarding this debt relief method for both taxpayers and tax relief specialists.

When the act that allowed Offer-in-Compromise passed, it was like a giant Pandora’s box opened up. All of a sudden, late night TV became filled with commercials from Offer-In-Compromise “Pros” promising troubled taxpayers the chance to “pay pennies on the dollar to the IRS”.

These “pros” would fill out the OIC paperwork and send it to the IRS, sometimes ignoring whether a client met the criteria for being accepted or not. Either way, the “pros” got their money…even if the client never had much of a chance of being accepted.

Not only did this practice create a huge number of people getting ripped-off, it may have caused a reduction in the number of Offers-in-Compromise that are actually being accepted by the IRS. On November 1, 2003, the IRS began charging a $150 processing fee for most Offer-In-Compromise proposals.

Also, in February of 2004, they officially issued “a consumer alert advising taxpayers to beware of promoters’ claims that tax debts can be settled for ‘pennies on the dollar’ through the Offer in Compromise Program.”

It seems that “frivolous” proposals – not to mention plenty of complaints by consumers – had been mounting… enough to warrant concern by the IRS.

The IRS has cracked down.

Offers-in-Compromise now only have a 15% chance of success. An offer-in-compromise may still be the right option for you, or there may be better alternatives.

Don’t waste your time, if you are in trouble with the IRS or have received notices that you owe taxes, we can help. Call Opem Tax Resolution – The Law Office of Steven A. Leahy, PC (312) 664-6649. Call to schedule your FREE 1 hour Consultation!

Can My IRS Debt be Reduced? – SFR Returns

By Steven A Leahy

One of the first questions IRS clients ask me is “Can you reduce my IRS Debt?” The answer to that question is – sometimes.

Many of my clients are non-filers. That means they haven’t filed their tax returns in some time. If a tax return has not been filed, the IRS will often file the return for the taxpayer. However, when the IRS files a return they don’t include any exemptions or deductions. This kind of return is called a Substitute for Return (SFR). The purpose of the SFR is to prod the taxpayer to voluntarily file a return, or, if a voluntary return is not forthcoming, determine the tax, interest and penalties based upon the information the IRS has.

Usually, the SFR greatly exaggerates the actual amount of tax due. Often, the SFR involves a tax period where an important economic event occurs – a house is sold, some stocks are sold, or some other valuable asset is sold. Because the taxpayer failed to file a tax return, the SFR will include the value of the sale, but will not include a deduction for the basis of the asset – the amount the taxpayer paid for the asset in the first place.

For example, if I purchase stocks for $75,000.00, and later sell the stocks for $76,000.00, the profit on the stock is $1,000.00. The purchase price on the stocks, $75,000.00, is my basis. If the basis is not deducted from the sale price, as happens in an SFR, I will be taxed on the full sales price, $76,000.00. Filing my own return, and deducting the basis from the sale price, would result in a tax on the profit of $1,000.00. The SFR will result in a substantial tax obligation; a voluntary tax return will not.

I have had clients assessed taxes of $100,000.00 and more, much more, for a single year because the IRS completed an SFR for the unfiled returns. In one case in particular, the client sold a house. The sale price of the house was included as income on the SFR, resulting in a tax obligation of more than $220,000.00. The client had not filed in nine (9) years. Our client received notices of collection efforts by the IRS, including threats of levies. We held the IRS at bay while we completed our investigation and the delinquent returns. In the end, the client actually received a refund. The process took many months to complete – but there was a bright outcome.

Not filing returns may also result in other consequences. For example, an SFR does not trigger the running of the statute of limitations or the 3-year period of assessment. So, there isn’t a time limit on how long the IRS can collect on that IRS debt or reassess new taxes. That is never a good thing.

There are other techniques to reduce an IRS debt, including a penalty abatement and investigative audits. I will explore these techniques in future blog posts.

So, if you have unfiled returns, you should consult with a local attorney who may be able to reduce your IRS debt. Before you do anything, you should give me a call. We can discuss your options, complete your delinquent returns and perhaps reduce your IRS debt. – Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.