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.

Non Collectible Status

What is currently non collectible status?

If you do not have the means to pay your tax debt, the IRS can declare your status as currently non collectible. When the IRS declares you currently non collectible they must stop all collection processes, such as liens and wage garnishments.
How do you get currently non collectible status?

The Collection Information Statement, form 433-F, is needed by the IRS to declare you currently non collectible. The IRS gains the information from this form to make their decision about your status.

Is it a good idea to get help?

A tax law consultant can help you work through the paperwork and forms needed to get you through the problems and challenges of dealing with the IRS. Can you do it on your own? With a lot of time and effort, you may be able to work through the maze set up by the tax code. But why go through all of that when a tax law consultant can save you that time, effort, and possibly money, just by doing their job.

Currently non collectible status may be the help you need to get your financial life back on track, and you don’t have to do it alone. Call Opem Tax Resolution – The Law Office of Steven A. Leahy, PC (312) 664-6649. Call Now to schedule your FREE 1 hour Consultation!

What to know about Tax Bankruptcy in Chicago

By Steven A. Leahy

Since bankruptcy can have a long-term negative impact on your financial life, it might be a big mistake to seek bankruptcy protection as a tax-relief option…if in the end it doesn’t relieve the tax pressure that you were seeking
to relieve in the first place.

In order for a tax debt to be discharged in bankruptcy, it must meet these criteria:

1. The tax debt must be related to a return that was due at least 3 years prior to the taxpayer declaring bankruptcy

2. The tax debt must be related to a tax return that was filed at least 2 years before the taxpayer files bankruptcy

I know that the above 2 conditions are a bit confusing. Let’s see if I can clear it up a bit:

For example – if you file bankruptcy in 2007, the tax debt that you are trying to eliminate should be from a return
due in 2004 or before (meeting the requirement of #1).

If you wish to eliminate the debt from 2004, you must have filed the return at least by 2005, which would meet the requirement in #2.

In other words, if you filed the 2004 returns late (say in 2006), you would not be able to eliminate the debt in bankruptcy in 2007, since 2 years had not yet passed since the return had been filed.

Think that’s complicated?

That’s only the beginning. There are many complicated rules when it comes to getting your tax debt taken care of in a bankruptcy. 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!