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IRS Audits – What are they looking for?

by

Steven A. Leahy
IRS Audits – What are they looking for?

By Steven A Leahy

The IRS calls an audit an “Examination of Returns.” The IRS accepts most federal tax returns just as they are filed. Some returns, however, are selected for review. The IRS selects returns for audit by computerized screening, random sample, or by an income document matching program. An examination can take place in several ways. Some audits are handled exclusively by US Mail, in the taxpayer’s home or place of business, at an IRS office or at your representative’s office. The time, place, and manner of the audit are negotiable.

Here are nine “red flags” the IRS uses to select a return to audit:

1. Make a mistake on your tax return – Gross errors will bring immediate scrutiny to your return and cause the IRS to audit your return. Simple math errors, not signing a paper return, leaving off or incorrectly listing your social security number are common ways to invite IRS scrutiny.

2. Round off the entries on your tax form – Generally, life doesn’t happen in round numbers. If you use round numbers, it tells the IRS that the numbers may be fictitious, or at least not accurate.

3. File late, or not at all – When you file late, the return is not processed with the hoard of annual filers. Instead, your return will be processed by a person, looking at the details of your return.

4. Be a Tax Protester – Tax protesters don’t believe the IRS has legitimate authority to collect taxes and they thumb their nose at the IRS by filing returns that indicate zero tax owed (if a tax protester files a return at all). Tax protestors can count on the IRS assigning a revenue agent to review it.

5. Have unreported Foreign accounts – Foreign banks have been reporting American account holders to the IRS for some time now. So, even if you don’t report the foreign account, you can be assured that the foreign financial institution will.

6. Don’t report some income – Companies are to issue a 1099 for any payments over $600.00 or W-2s to employees. So, if you don’t report some income, the company that paid you will likely report the payment in a 1099 or W-2 and the IRS will have the paperwork to match against your return.

7. Claim large charitable contributions – This is an easy target for the IRS. The IRS can simply audit you by mail and ask for substantiation for all deductions.

8. Take a repeated loss on a home based business – If a business loses money for 3 out of 5 years, the IRS considers that activity to be a hobby, not a business. If it is a hobby, you can only deduct losses equal to or less than income. You can’t use the losses in a hobby to offset taxes from other income.

9. Use an unscrupulous tax preparer – When the IRS notices a specific tax preparer is preparing returns that generate large refunds the IRS is likely to audit ALL the taxpayers who used that tax preparer. So, be careful whom you hire.

Generally, the IRS has three years from the due date to audit a return. That explains why the IRS will usually conduct an audit for three consecutive years, rather than just one. There are exceptions to the three year rule. For example, if you underreport your income by more than twenty-five percent, the IRS has six years to audit. And, if a taxpayer files a fraudulent or false return, there isn’t a time limit on an audit.

So, if you are facing an IRS audit, or have already been audited, you should work with a local law firm that will work to get you through the audit process and collections in the best way 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.

Should I Prepare My Own 2014 Tax Return

by

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.

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.

IRS – Fresh Start Initiative

by

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.

IRS Installment Agreement: Making Payments to the IRS

by

Steven A. Leahy

IRS Installment Agreement: Making Payments to the IRS

By Steven A Leahy

In Chicago and Considering An Installment Agreement as a Solution to Your IRS Tax Problem? You have several options for dealing with a tax problem with the IRS. An Installment Agreement is one of them. In this video we’ll tell you what an Installment Agreement is and information on it works.

An installment Agreement is just what it sounds like… You agree to pay your tax Debt to the IRS in a monthly payment. There are some restrictions on installment agreements, but many times this is a good option for both businesses and individuals who owe taxes to the government.

There is a downside though; if you owe alot in taxes, the required payments on the installment plan can quite often be very high and can interfeer with paying your monthly bills. In addition, you may still be subject to interest and penalties on the debt that you owe.

The good news is: It is possible to negotiate lower payments with the IRS. To determine if this option is good for you, and to discover other strategies on how you can break free from the IRS and reclaim your life, Call Opem Tax Resolution – The Law Office of Steven A. Leahy, PC (312) 664-6649. Call to schedule your FREE 1 hour Consultation!

What is Compliance And Why Is It Important?

by

Steven A. Leahy

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.