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Why You Must Think Twice Before You Refinance Your Home To Pay The IRS…

May 13, 2016 by admin

Steven A. Leahy

Why You Must Think Twice Before You Refinance Your Home To Pay The IRS…

By Steven A Leahy

The housing market is making a come back! That is good news for home owners. It may also be good news to taxpayers. Here’s why. There are only Six Things You Can Do If You Owe the IRS. The first is to Pay the IRS what they claim you owe. I often tell clients it is better to owe anyone else instead of the IRS. The IRS has vast powers of collections. Powers other creditors do not have. Powers like liens and levies. The IRS can take you stuff without a court order!

With the value of property increasing, homeowners may be able to tap into that equity to resolve IRS problems. There is a catch. If you wait too long the IRS will file a lien. The lien covers all your property – everything you own, AND, everything you will own. If you try to refinance after the lien has been filed, the IRS will have a superior right to your property. In real estate law, that is known as “First in Time, First in Right.” Meaning, the IRS lien would pre-date a new loan, so the new loan would be a second lien. Mortgage Companies aren’t likely to give you a loan if they have take a position behind the IRS. There is another problem too. Once the IRS files a lien against you, your credit score is likely to plunge at least 80 to 100 points! Ouch!

The first problem can be solved by paying the IRS in full out of the proceeds of the refinance. You can ask the IRS to provide you a Payoff letter for the closing. If the IRS is paid in full, the lien will be released and the Title Company will insure over the IRS Claim.

But what if the refinance won’t pay the IRS in full? In that case, you can work with the IRS to subordinate their claim to the new mortgage. Subordination is when one party agrees to let another party jump in front of them in order of liens. That way your new mortgage will be in front of the IRS and more likely to agree to fund the loan.

Problem solved, or is it. Remember, the lien will clobber your credit score. So, even if the IRS will release the lien after refinance, or agree to a second position, your new credit score may prevent any mortgage company from providing a loan.

To work around this we may be able to use the new program under the IRS Fresh Start Initiative. This new program allows some taxpayers to have the lien Withdrawn completely, not just released. If the IRS agrees to Withdraw the lien, you can have the lien information REMOVED from your credit report! Like it never existed! A lien Release does NOT have the same effect. Once a lien is released, the blemish on my credit report remains, and continues dragging down your credit score. I have seen a lien Withdraw have a near instant increase in credit scores by 80 – 100 point. The increase in the credit score makes the refinance work, at a much lower interest rate, solving the IRS problem.

In order to get the IRS to Withdraw their lien, you have to follow all the IRS procedures. And it may take some months to accomplish. But it can work. If you are looking to resolve your IRS problem any you have equity in your home, this may be your solution.

Let’s find out. Call me, Attorney Steven A. Leahy and I will provide you with a free in office consultation to review your situation and see it this program is right for you. Call me, the Chicago IRS Answer Man at 312-664-6649 and let us resolve your IRS problem for good.

Four Things You Need To Know If You Have Unfiled Tax Returns

February 18, 2015 by admin

Steven A. Leahy
IRS – Four Things You Need To Know If You Have Unfiled Tax Returns

By Steven A Leahy

Many of my IRS clients are “Nonfilers,” they have unfiled tax returns. Some of my clients have not filed for multiple years – some, for many prior years. Sometimes, they take action because they (or a friend) heard my radio show or commercial. Most, however, wait until the IRS sends a Notice of Intent to Levy, or worse, Notice of Levy to their employer or bank. If you have unfiled tax returns there are four things you need to know.

First, you need to know that not filing your tax returns is a crime, punishable by up to one year in prison for each year of unfiled tax return. Fortunately, the IRS doesn’t put a lot of taxpayers in jail for not filing tax returns. But, they do put some in jail. For example, Wesley Snipes was recently released after serving 3 years for failure to file. There is a statute of limitations for unfiled tax returns. The IRS will not be able to bring criminal charges after 6 years from the date the taxes are due. So, 2007 taxes that came due on April 15, 2008 are now beyond the statute, and the IRS can’t bring criminal action against you for unfiled tax returns 2007 and before. But, they still can collect any tax due.

Second, you should know that the IRS may complete your tax returns for you if you fail to file your tax return (it’s a penalty not a service). These are known as Substitute for Returns (SFR). When the IRS prepares your SFR, they will not include any deductions or exemptions. The result will be an inflated tax obligation. Penalties and interest are calculated based on the tax obligation. So, if the tax obligation is greatly inflated, so too will the penalties and interest. Don’t forget, the interest is calculated from the date the tax was due. So, the penalties and interest can add up to amount greater than the inflated tax obligation.

Third, the IRS will only allow you to recover any tax refund for 3 years. So, if you have any refund older than 3 years, the IRS will not refund OR credit your tax obligation for those years. For example, suppose a taxpayer hasn’t filed a return for years 2009 – 2014. Further, suppose, once the returns are complete, the taxpayer is due a refund for the years 2009 – 2011, but incurs an obligation for the most recent years 2012 – 2014. The refunds from the first three years will not be used to set off the tax obligations of the past three years. Those refunds are gone.

Finally, you need to know that, should the IRS levy your bank account or garnish your wages, it will be difficult to stop the levy before real damage is done. This is true because, generally, in order to stop a levy, the taxpayer must be in compliance. Compliance requires the taxpayer to have previous tax returns filed BEFORE the IRS will agree to stop taking your assets. If there are years of unfiled tax returns, it will take some time to get into compliance. Finding the records to prepare older returns can be a real problem.

There is some good news. Because the statute of limitations is six years, a taxpayer may not have to file all of their unfiled tax tax returns. In fact, it may be the worst thing you can do, because you may be creating a greater tax obligation then necessary. Remember, these are the older returns, so if a tax obligation is created, they will bring along a large penalty and interest burden as well.

More good news – if the IRS filed your tax returns for you (SFR) you can file the proper return to decrease you tax obligation. I have helped clients with more than $100,000.00 in tax obligations that disappeared when the corrected tax returns were filed and the SFR’s nullified.

So, if you have unfiled tax returns – Take action today! You should work with a local law firm. Call Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation. (312) 664-6649.

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.

IRS Bankruptcy Chapter 7

August 27, 2014 by admin

Steven A. Leahy
IRS Bankruptcy Chapter 7

By Steven A. Leahy

There are six things you can do if you owe the IRS money. First, you can simply write the IRS a check for the full amount. For many, that is simply not a realistic option. Often, if the tax obligation is not too significant, borrowing money from another source (friends, family, bank loan, credit cards, etc.) may be a less costly alternative than an installment agreement with the IRS. Second, you can enter into an Installment Agreement; pay the IRS over time. Third, you can obtain an Offer-in-Compromise: A lump sum settlement for less than the tax owed. Fourth, you can be declared Currently Not Collectible; pay the IRS nothing (for a period of time). Fifth, you can file for protection under the bankruptcy code. And the last option – you can do nothing, and let the IRS do what they will to you, your family and your assets.

This article addresses the fifth option – Bankruptcy. The Bankruptcy Code is found in United States Code: Title 11. Think of the Bankruptcy Code as a book, and like other books, it is divided into chapters. That’s why you hear so much about Chapter 7, Chapter 9, Chapter 11, Chapter 12, Chapter 13, or Chapter 15. Each chapter has a different remedy for a different situation. Chapter 7 is titled “Liquidation,” Chapter 9 “Adjustment of Debts of a Municipality,” Chapter 11 “Reorganization,” Chapter 12 “Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income,” Chapter 13 “Adjustment of Debts of an Individual with Regular Income,” and Chapter 15 “Ancillary and Other Cross-Border Cases.” Generally, individual taxpayers rely on Chapter 7, Chapter 11 or Chapter 13.

This article will focus on the first kind of bankruptcy available for individual taxpayers, IRS Bankruptcy Chapter 7 “Liquidation.” Taxpayers who file Bankruptcy are referred to as “Debtors.” Under IRS Bankruptcy Chapter 7 all the Debtor’s assets, above a certain level of exemptions allowed by law, are sold and the proceeds of that sale are used to pay their creditors all or a portion of what the creditor’s claims are. In a vast majority of cases, there are not any assets above the exemptions allowed by law. So, most Debtors don’t lose any assets, but most of their debts are discharged. Not all debts are dischargeable – for example, past due child support, student loans, government fines and recent taxes are not dischargeable in bankruptcy, but most other debt is.

While recent taxes and some specific types of taxes (e.g. Trust Fund Recovery Penalty, excise taxes, etc.) are never dischargeable, some tax debts are dischargeable. There are three important dates to remember if you are trying to discharge IRS tax debts in bankruptcy. First, the due date for filing the tax return in question must be more than three years before the date of the bankruptcy filing. Second, the tax return in question must have been filed at least two years before the date of bankruptcy filing. Finally, the tax claim must have been assessed more than two-hundred and forty days before the date of the bankruptcy filing.

The taxpayer’s conduct may also come into question. In order to discharge taxes in bankruptcy, in addition to the time criteria, the Debtor must not have filed a fraudulent return or willfully tried to evade taxes.

Discharging taxes in bankruptcy can be very complicated. For example, there are events that may extend the dates discussed here; there may be questions about exactly when a return was “filed” or when a tax was “assessed.” Objections may be raised about whether the document filed meets the technical definition of “Tax Return,” or whether the taxpayer’s conduct to evade taxes was “willful.”

This is just a general overview. If you owe the IRS and are unable to pay the full tax obligation immediately, bankruptcy may be your best option. Never hire a firm to help you with your IRS problem unless the firm is experienced in helping taxpayers use the bankruptcy code to protect them from the IRS. Before you do anything, 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.

Why You Must Think Twice Before You Refinance Your Home To Pay The IRS…

Why You Must Think Twice Before You Refinance Your Home To Pay The IRS…

Four Things You Need To Know If You Have Unfiled Tax Returns

What is a 1099-A?

Three Tax Preparer Scams

IRS Bankruptcy Chapter 7

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