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What is a 1099-C?

February 9, 2015 by admin

Steven A. Leahy
What is a 1099-C?

By Steven A Leahy

Last week on The IRS Radio Hour, in the question segment, I answered a question about 1099-Cs. I realized that there were a lot more questions about 1099-Cs, so this post will address some of those questions.

A 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. The IRS views the cancelation of debt as a taxable event. That’s right. If a creditor forgives a debt you owed because you could not afford to pay the debt, the IRS may tax you on the forgiven amount. In fact, even if the amount forgiven is less than $600.00, the taxpayer is expected to report that amount as income – even though the financial institution is not required to send a 1099-C.

Generally, taxpayers are to report the 1099-C amount as income. There are, however, certain exceptions and exclusions that often protect the taxpayer from paying additional tax. There are 6 exclusions or exemptions. For example, if a taxpayer has filed for protection under Title 11 (bankruptcy) the discharged debts are not considered taxable income. The “Insolvency Exclusion” is another good example that will protect some taxpayers from 1099-C incomes. To determine if a taxpayer is insolvent at the time the debt is forgiven one looks at assets and liabilities. If liabilities are greater than assets, the taxpayer is technically insolvent. The Insolvency Exclusion only protects a taxpayer to the extent of their insolvency.

In my practice, I see forgiven debt most often in connection to foreclosures or short-sales. After a short-sale or foreclosure sale, the mortgage company often forgives the balance and issues a 1099-C (or a 1099-A, but we will leave that for another blog post). The homeowner is often surprised to receive this tax document and wonders how this will affect them.

In addition to the exclusions mentioned above, Congress passed the Mortgage Forgiveness Debt Relief Act (MFDRA) in 2007. MFDRA has been extended a number of times, most recently on December 16, 2014. MFDRA expired at the end of 2013, so the most recent extension came at the 11th hour and was retroactive – but does not extend beyond the 2014 tax year. That means it will take another act of Congress to extend the Act into 2015 and beyond. Generally, the MFDRA allows a taxpayer to exclude the 1099-C forgiven debts from income if the forgiven debt (up to $2 million) relates to the taxpayers principal residence, regardless of insolvency.

The key to excluding or exempting 1099-C debt forgiveness 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. I have a client that received a 1099-C for a foreclosed property. She used one of the big chain tax preparation companies. The 1099-C was not properly accounted for and they failed to file Form 982 – Reduction of Tax Attributes Due to Discharge of Indebtedness. The IRS conducted an examination (audit) and assessed more than $100,000.00 in additional taxes, penalties and interest. All of this could have been avoided if she had sought advice from a tax professional versed in these matters.

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.

Filed Under: Uncategorized Tagged With: “Owe Taxes”, “Tax Relief Chicago”, 1099-C, back taxes

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.

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.

Filed Under: Uncategorized Tagged With: “Tax Relief Chicago”, back taxes, Chicago Tax Help, Help With IRS, IRS Tax Debt, tax attorney chicago, Tax Help Chicago, tax return preparation, unfiled tax return help

IRS – Taxpayer Bill of Rights

December 8, 2014 by admin

Steven A. Leahy
IRS – Taxpayer Bill of Rights

By Steven A Leahy

In June of 2014 the National Taxpayer Advocate, Nina Olson, announced the new “Taxpayer Bill of Rights.” Turns out, this initiative was merely a list of already existing rights – The right to be informed, the right to be assisted, the right to be heard, etc. Ms. Olson thought it important that this list of existing rights be supplied to taxpayers because “taxpayers overwhelmingly do not believe they have any rights.”

The “real” Taxpayer Bill of Rights (TBOR) are three pieces of legislation creating never before existing rights. Known as Taxpayer Bill of Rights I, II and III, these new laws were passed between 1988 and 1998, after nearly 20 years of Congressional Hearings. These changes to the tax are “[p]erhaps the most significant tax legislation in the history of tax administration.” This article will review those three historic pieces of legislation and the changes to the tax law each implemented.

Before 1988, the IRS pretty much had free reign for seizures and liens. “Without a court order, the tax code allows them the power to completely wipe out a bank account, attach almost an entire paycheck, and seize almost anything of value.” For example, the IRS only had to provide a 10 day notice before seizing property. The 10 day period didn’t give taxpayers enough time to raise money to pay the IRS. The result was – lots of seizures. Also, the only way to appeal an IRS decision was after you paid the tax the IRS insisted you owed – even if it turned out they were wrong.

The 1988 Congress passed the Technical and Miscellaneous Act of 1988, now known as the Taxpayer Bill of Rights 1 (TBOR 1). TBOR 1 was a modest first step. Senator Mark Prior, then chairman of the Senate Sub-Committee on Oversight of the IRS, introduced TBOR 1 and strongly supported it passage. He said “[this law] will stem the abuse of taxpayers by the IRS and provide redress when abuse does occur. It marks a victory for the little taxpayer. It levels the playing field.”

There are some Highlights of TBOR 1. It created the position of ombudsman, with the authority to stop certain IRS actions against taxpayers. Created an installment agreement option. But only required the IRS to “fairly consider the request.” The taxpayer was granted the right to assistance of a tax professional – an attorney, CPA or enrolled agent. Also permitted the taxpayer to stop an interview or audit to get advise of a tax professional. TBOR 1 also increased the time of Notice of Levy from 10 days to 30 days and created the right to audio record most meetings with the IRS.

Taxpayer Bill of Rights 2, or T2, was signed into law on July 30, 1996. T2 did not replace TBOR1, it merely supplemented it. T2 created a process to formally appeal liens, levies and seizures through the IRS Appeals Office, created to be totally independent of the collections department. The appeals office can stop these actions if the IRS collectors did not follow the correct procedures. T2 also created additional notice requirements for IRS actions relating to the Trust Fund Recovery Penalty, joint liabilities of married and divorced persons, and how the IRS applies credits. Finally, T2 made it easier for a court to award attorney fees and court costs to taxpayers who battle the IRS in court.

The biggest changes happened with the Internal Revenue Service Restructuring and Reform Act of 1998, better known as the Taxpayer Bill of Rights 3 (TBOR 3). The biggest changes involved IRS collections activities and the individual rights of each taxpayer. TBOR 3 created Innocent Spouse relief, the Offer-in-Compromise, required supervisor permission for any lien, levy or seizure, limited the IRS ability to seize a residence, created the right to a Due Process appeals in all IRS collections actions, release of levies if there is a determination that the tax obligation is currently not collectible, increased the dollar amount of exemptions to levy and garnishment actions. There were also changes to interest rates, and penalties applied while in an installment agreement, and disallowed interest and penalties without at least yearly notice.

The Tax Payer Bill of Right 1 – 3 has turned out, less then expected – there is still room for improvement. But we are worlds apart from where we were before TPBR. If you owe the IRS money, or have unfiled returns these changes can help you. To find out, you should give me a call. We can discuss 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.

Filed Under: Uncategorized Tagged With: “Tax Relief Chicago”, Chicago Tax Help, currently non collectible, Help With IRS, IRS Lien, IRS problem, Offer in Compromise IRS, tax attorney chicago, tax resolution chicago

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.

Filed Under: Uncategorized Tagged With: “Tax Relief Chicago”, back taxes, Chicago Tax Help, Help With IRS, IRS Help Chicago, IRS Options Help, IRS Tax Debt, tax attorney chicago, Tax Help Chicago, tax options Chicago, Tax Problem Help

Foreclosure Defense – Remedies

October 2, 2014 by admin

Steven A. Leahy
Foreclosure Defense – Remedies

By Steven A. Leahy

Foreclosure is the process necessary for a mortgage lender (i.e. mortgagee) to take possession of a property because the borrower (i.e. mortgagor, homeowner) defaults on a contractual obligation to the mortgage lender, usually a default in payments. In Illinois, Mortgage foreclosures are governed by the Illinois Mortgage Foreclosure Law (IMFL) 735 ILCS 5/15-1101 et seq. (2013). There are at least three alternatives for a homeowner to defend against a foreclosure, litigation strategies, loan modifications, and Chapter 13 bankruptcy. This article will discuss the first alternative, litigation strategies.

Illinois is a judicial foreclosure state. That means the mortgage company must file a mortgage foreclosure complaint with the court in the county where the property is located, and go through litigation in order to receive permission from the court to conduct a public sale. As in all litigation, the defendant (homeowner) can defend themselves in court or employ an attorney to defend them. Foreclosure defense has all the same ingredients of other litigation. The homeowner (defendant) can attack every step of the process: the adequacy of the complaint, the propriety of the plaintiff, the sufficiency of the promissory note and/or mortgage and compliance with federal and state regulatory laws.

First, under the IMFL the filed complaint must substantially follow the form set out in 735 ILCS 5/15-1504. If the complaint does not substantially follow the set form a homeowner (defendant) may bring a Motion to Dismiss alleging “the legal sufficiency of a complaint based on defects apparent on its face.” However, courts have concluded that as long a complaint includes all the requirements laid out in the IMFL, the complaint will survive a Motion to Dismiss.

Next, the defendant may attack the plaintiff’s right to bring an action in the first place. This defense is known as a lack of standing. The plaintiff must show that they suffered, or will suffer, direct injury or harm. Many mortgages in the Untied States are bought and sold on a regular basis, so the owner and holder of a mortgage and note change. To complicate matters, mortgages are usually serviced by third parties and held in Trust by yet another party. Often, the homeowner (defendant) will not recognize the named plaintiff on the complaint. That doesn’t mean the plaintiff lacks standing, but it may be a worthwhile investigation to find out if the plaintiff is the proper party.

Another way to attack the foreclosure case is to question the sufficiency of the promissory note and/or mortgage. Mortgage loans are governed by federal and state laws. The Truth in Lending Act (TILA), Home Ownership Equity Protection Act (HOEPA), Real Estate Settlement Procedures Act (RESPA) are federal regulations designed to protect consumers in the purchase of a home. For example, TILA regulates the information that must be disclosed to the borrower prior to extending credit: annual percentage rate (APR), term of the loan and total costs to the borrower. TILA requires this information to be conspicuous on the documents presented to the borrower before signing. TILA also details the remedies for violations of the Act – the most important to homeowners facing foreclosure is Rescission. Rescission allows the borrower to “recind” or “cancel” the loan.

RESPA is another federal regulation about closing costs and settlement procedures. RESPA is enforced by the U.S. Department of Housing and Urban Development (HUD). The Act requires that borrowers receive disclosures at various times in the transaction and outlaws Kickbacks and certain fee splitting arrangements. It also outlines penalties for violations, both criminal and civil.

The problem with this litigation strategy is that it can be very expensive and, in my opinion, ineffective. Litigation strategy is often employed just to buy more time in order to reach another remedy, like a loan modification. There are other ways to buy the time you need to get a loan modification. Because many mortgages have been bought and sold multiple times, locating the necessary documents to prove the foreclosure case can be difficult and time consuming. So, certain discovery requests may buy just as much time, at a reduced cost to the homeowner.

If you are facing foreclosure, you should take action. You need an attorney to help you sort through your options and choose the best remedy. Never hire a firm to help you with your foreclosure unless the firm is experienced in helping homeowner with all the possible remedies, loan modification, short-sales, deed-in-lieu, consent foreclosures, and bankruptcy. Before you do anything, you should give me a call. We can discuss 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.

Filed Under: Uncategorized Tagged With: “Owe Taxes”, “Tax Relief Chicago”, back taxes, Chicago Tax Help, currently non collectible, Help With IRS, IRS Help IL, irs non-collectible status, Offer in Compromise IRS, Offer in compromise Settlement, tax attorney chicago

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