Newlyweds Tax Tips

Newlyweds Tax Tips
From the IRS

Late spring and early summer are popular times for weddings. Whatever the season, a change in your marital status can affect your taxes. Here are several tips from the IRS for newlyweds.

• It’s important that the names and Social Security numbers that you put on your tax return match your Social Security Administration records. If you’ve changed your name, report the change to the SSA. To do that, file Form SS-5, Application for a Social Security Card. You can get this form on SSA.gov, by calling 800.772.1213 or by visiting your local SSA office.
• If your address has changed, file Form 8822, Change of Address to notify the IRS. You should also notify the U.S. Postal Service if your address has changed. You can ask to have your mail forwarded online at USPS.com or report the change at your local post office.
• If you work, report your name or address change to your employer. This will help to ensure that you receive your Form W-2, Wage and Tax Statement, after the end of the year.
• If you and your spouse both work, you should check the amount of federal income tax withheld from your pay. Your combined incomes may move you into a higher tax bracket. Use the IRS Withholding Calculator tool to help you complete a new Form W-4, Employee’s Withholding Allowance Certificate. See Publication 505, Tax Withholding and Estimated Tax, for more information.
• If you didn’t qualify to itemize deductions before you were married, that may have changed. You and your spouse may save money by itemizing rather than taking the standard deduction on your tax return. You’ll need to use Form 1040 with Schedule A, Itemized Deductions. You can’t use Form 1040A or 1040EZ when you itemize.
• If you are married as of December 31, that’s your marital status for the entire year for tax purposes. You and your spouse usually may choose to file your federal income tax return either jointly or separately in any given year. You may want to figure the tax both ways to determine which filing status results in the lowest tax. In most cases, it’s beneficial to file jointly.

For more information about these topics, visit IRS.gov. You can also get IRS forms and publications at IRS.gov or by calling 800-TAX-FORM 800.829.3676

Tax Resolution | Tax Problems? Past or Present...

Tax Resolution | Tax Problems? Past or Present...
Has it been awhile since you filed a tax return?
• Feeling guilty? Scared?
• Don't know what to do or where to turn?
• Past Due Taxes are a Serious Problem!
• Do you even need to file? Yes.

Your first step to solving these problems is calling our office...
We will help you with the following:
• Settle your tax debt with the IRS for your reasonable collection potential (RCP)
• Handle all negotiations with the IRS for you
• Protect your paycheck and assets from the IRS
• Negotiate an affordable monthly payment plan to the IRS
• Discharge tax liens from your credit and property
• Negotiate with the IRS even if you have never filed a tax return!
• Prepare past due returns.

  

Volunteer

If you come forward and voluntarily file your missing tax returns, the system works more in your favor. Since nearly three out of four tax returns filed are due a refund, there is a good chance that the IRS might owe money to you. The only catch is that if you don't ask for your refund within three years, the IRS isn't going to give you what was yours in the first place. We are available to help you file your returns and, if necessary, act as your representative before the IRS. We work for you, not the IRS. Sometimes things just happen. If there is a good reason for not filing a tax return, some of the penalties can be reduced. Generally, if the IRS owes you a refund there are no penalties at all.

Scared of Volunteering?
If the IRS decides to come looking for you, life can become very difficult and frequently embarrassing. There is a chance that your employer might be requested to send part of your paycheck to the IRS instead of handing your paycheck to you. Your bank account could be frozen or even seized. A lien could be placed on your house. In the worst case, you could face criminal prosecution.  

What if you owe money?

Installment Agreements -- If you can pay the full amount within five years, you should be able to set up a monthly payment plan and make regular installment payments.  The IRS is now accepting Partial Payment Installment Agreement (PPIA).

What if you owe a lot of money?
Offer in Compromise -- If you owe so much money that you will never be able to pay your tax liability, we may be able to work out a compromise where the IRS will accept less than you actually owe. If the IRS accepts your Offer-in-Compromise (OIC), your total tax liability including interest and penalty is considered paid in full. An OIC is a mathematical formula, NOT an amnesty program. Professional assistance is strongly recommended when compromising a tax liability. 

Professional assistance

Don't be afraid to ask for help. By law, you have the right to professional representation. Only an Enrolled Agent, certified public accountant or attorney can represent your case before an IRS Collections Officer. Remember, your representative is working for you.

The IRS has ten (10) years from the date of a tax assessment to collect a debt from the taxpayer.

• The date the collection statute expires is called the Collection Statute Expiration Date or CSED.  IRC §6502 provides that the length of period for collection after assessment of a tax liability is ten years. 
• When the CSED date passes, the IRS is barred from attempting to collect your tax debt unless you waive the enforcement of the statute.

• When Does the Collection Statute Start to Run?
  • The statute starts on the day an IRS assessment is made.
  • Generally, the dates of assessment are as follows:
    • Filed tax returns – The date you mailed the tax return plus six weeks.
    • Audit Adjustments (agreed) – The date you signed the auditor’s report plus three weeks.
    • Audit Adjustments (unagreed) – The date the appeals process and the tax court process (if any) is completed and the tax court judge has issued his or her ruling.

• What Will Cause the Collection Statute to be Extended?
  • The Collection Statute can be extended (tolled) by one or more of the following acts or situations:
    • The filing of a bankruptcy petition - The statute is extended for duration of the bankruptcy proceedings.
    • The filing of an Offer in Compromise - The statute is extended for duration of the Offer or one year, whichever is greater.
    • The filing of requests for relief – The statute is extended when a taxpayer files for a Collection Due Process (CDP) hearing, Innocent Spouse Relief and any other form of relief that requires the IRS to suspend collection enforcement while it reviews the validity of the underlying assessment.
    • The signing of a waiver extending the statute - The statute is extended to date indicated in signed waiver. Never sign a statute extension without first consulting your tax advisor.
    • The taxpayer is out of IRS jurisdiction – The statute is extended for duration taxpayer was out of IRS jurisdiction.

• Example:  10-year period begins to run with the date of the “assessment,” not the tax year for which taxes are due. For example, if the return for 2005 is not filed until 2008 and the tax is assessed in 2009, the 10-year period begins to run in 2009 and expires in 2019.  Ten years is not always the limit. There are a number of other ways the 10-year collection period may be extended. For example, during the period an Offer in Compromise is pending, the statute of limitations is extended accordingly. Similarly, if bankruptcy is declared, while the bankruptcy proceeding is pending, the 10-year statute of limitations on collection is extended by the duration of the bankruptcy proceeding.

• Many types of court actions may also suspend the running of the 10 years. The filing of an IRS levy or a judgment entered in a Federal Court in a suit by the Department of Justice can also extend the 10-year period. The IRS can ask the Department of Justice to institute a collection proceeding in Federal District Court. If such a proceeding is begun and the United States Government prevails, then the statute of limitations on collection on that judgment is extended for the period generally allowed to collect such judgments, and such judgments can be renewed subject to the discretion of the Court.

• If the tax return was prepared by the IRS (Substitute For Return - SFR) under the authority of IRC §6020(b) the statute of limitations on assessment and collection shall not apply. IRC §6501(b)(3) Rev. Reg. §301.6501(b)-1(c).

• What options are available to me to solve my tax problems?
  Among services we offer:
  • Currently Not Collectible (CNC) - When the taxpayer cannot afford to pay the IRS monies due to a lack of assets and low income or no income (e.g. recently laid off due to current economy, divorce, illness) then the IRS will deem the taxpayer Currently Not Collectible (CNC) (Code 53) and agree that their tax liability will be suspended for the time being.  
  • Installment Agreement (IRC §6159) - A monthly payment plan set up to pay back the taxpayer's tax liability. The IRS has guidelines as to what amount they will accept and the time frame they will accept it in (usually sixty months). A financial affidavit (Form 433-A) is required from the taxpayer before the we can negotiate an installment agreement.   Under an installment plan, you make monthly payments on your tax debt for up to five years.  This is something you can do on your own.  The IRS fee to set up an installment plan is $105, or $52 if you agree to have payments automatically debited from your bank account. Approval is automatic for taxpayers who owe $10,000 or less and are in good standing with the IRS.
  • Offer in Compromise (IRC §7122) (We do legitimate offers!) - An offer to the IRS to lower the total tax liability owed by the taxpayer due to financial constraints. This is a very popular solution advertised on TV.  Under the offer program, the IRS agrees to accept less than you owe.  But to obtain a permanent reduction in your tax debt, it's not enough to show the IRS that you can't pay your tax bill.  You must also prove you've exhausted all of your financial resources and have little hope of raising money in the future.
  • Penalty Abatement - The IRS assesses penalties and interest on tax liabilities so over time taxes due years ago can increase from hundreds to thousands of dollars. The IRS will sometimes lower or eliminate these fees with a well worded request.  The IRS won't grant penalty abatement without reasonable cause.  For example, a widow who filed her tax return late because her husband died shortly before April 15 might qualify for penalty abatement.  If you believe you can show extenuating circumstances, you can apply on your own or ask your tax preparer to file a request on your behalf.  
  • Bank Levies/Wage Garnishment Release - The IRS will collect their monies due by any means necessary. They may take all your assets with a levy or garnish up to 70% or your wages.  We can negotiate with the IRS to have these released in as little as 4 business days.
  • Audit Representation - If you are currently being audited and you don't know why, it is very important to be represented by a tax professional who can get to the bottom of the problems and fix them. We can have your past audit reopened if you feel you did not get a fair shake.

I have unfiled taxes from previous years but no longer have my records from those years. Can you help me?

We can prepare your past unfiled tax returns by requesting your IRS wage transcripts and completing a tax questionnaire. Six (6) year filing requirement for past-due returns per IRM 4.12.1.

Is there anything I need to do before I can solve my tax problems?

Before the IRS will accept any negotiations to solve your tax liability you will need to be in compliance with any unfiled tax returns. Any unfiled taxes up to ten years ago may be required to be prepared and filed with the IRS.

If you owe the IRS money, you have options:

• Talk to a enrolled agent who has experience dealing with IRS collection issues. If you already have a tax preparer, he or she may be able to help you or refer you to someone who can.
• If you can't afford to hire a tax professional, you may qualify for a Low-Income Tax Clinic. 
• If you have tried unsuccessfully to resolve your problems with the IRS, you may be able to get help from the Taxpayer Advocate's office. For more information, go to IRS Taxpayer Advocate, or call 877-777-4778.

Payroll Taxes - IRS Unveils Key Penalty Findings

Payroll Taxes - IRS Unveils Key Penalty Findings 

Courtesy: Robert W. Wood 

I keep noting how bad IRS payroll tax penalties can be.  See When Payroll Taxes Go Criminal.  Although any tax dispute is bad, payroll tax disputes are especially bad.  How does the IRS build a case against you?  An IRS internal  memorandum provides guidance to IRS employees how to document cases against employers.

If you’re in business you must withhold tax money from employee pay.  Then you must account for it and send it promptly to the IRS.  Failing to pay not only makes the business responsible—you are personally on the hook. When you withhold tax but fail to remit it the IRS will come after you. The IRS views it as trust fund money.

In a cash-strapped business, keeping the lights on or the warehouse stocked can seem more important.  You may think you can pay the IRS later.  But these problems have a way of snowballing, so keep payroll taxes current at all times.

Business owners and other “responsible persons” have personal liability. The IRS can assess a Trust Fund Recovery Assessment—also known as a 100% penalty—against every “responsible person.”  Under Section 6672, the penalty equals the entire amount of trust fund taxes. The IRS can seek to collect 100% from the business and 100% from each responsible person. The IRS often makes an assessment against every officer, watching them turn on each other.  One person may get stuck while others get off scot-free.

The new IRS memorandum says revenue officers should determine case-by-case how much documentation will support a penalty.  Key issues are the “responsibility” and “willfulness” factors. In determining “willfulness,” courts focus on whether you had knowledge of the non-payment of taxes or showed reckless disregard whether they were being paid.

But a person need not actually perform the withholding and payment functions to be considered “responsible.”  If you have signature authority (whether or not you exercised it) while other (non-IRS) payments are being made, that can be enough to result in liability. Most of the time, here’s what the IRS will collect to sink you:

1. “Form 4180” interviews: Form 4180 is the form that is used by the IRS to conduct interviews with each potentially responsible person;
2. Articles of incorporation;
3. Bank signature authority cards or electronic PINS/passwords; and
4. Copies of cancelled checks (or electronic payments or debits) demonstrating payment to other creditors (not the IRS).  If the IRS can’t get the records easily from the business, the IRS will issue a summons to the business, the bank or both.

Individual factors will influence the amount of documentation needed to support a penalty. IRS revenue officers are directed to exercise judgment whether they need more.  Often, though, these key elements will be enough to impose and support the penalty so be careful.

For more, see:

Supreme Court Deaf To Payroll Tax Woes

Don’t Cross The IRS On Payroll Taxes
Fail To Pay Payroll Tax: Go To Jail
Robert W. Wood practices law with Wood LLP, in San Francisco.  The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009, Tax Institute), he can be reached at Wood@WoodLLP.com.  This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

Offer in Compromise Pre-Qualifier online tool

Offer in Compromise Pre-Qualifier online tool.  This online tool can be used to determine if a taxpayer is eligible for an Offer in Compromise (OIC).  If the taxpayer is eligible for an OIC they must still complete and submit a Form 656 and a Collection Information Statement.  The tool brings the user (the practitioner or the taxpayer) through six steps:

1.    Status: This step contains questions to determine the taxpayer’s eligibility for an OIC.

2.    Basic info: This step contains questions regarding the taxpayer’s location and their tax debt.

3.    Assets: This step contains questions regarding the taxpayer’s assets (FMV and any encumbrances).

4.    Income: This step contains questions regarding gross wages, net business and rental income, and other sources of income.

5.    Expenses: This step requests information regarding the taxpayer’s necessary living expenses. The tool will consider the local allowable expense criteria for the taxpayer.

6.    Proposal: In this step the tool will suggest a starting point for the offer amount representing the sum of asset equity and present value of future income.

The taxpayer or their authorized representative should use the results from the OIC Pre-Qualifier to complete the required forms in the OIC booklet.  If the suggested amount cannot be offered, a lower amount could be justified if the taxpayer has qualifying exceptional circumstances (Section 3 of Form 656).

Filing FBARs Electronically

Filing FBARs Electronically
...on behalf of my clients, here are five items that will be useful to know:
1.  An IRS Form 2848 will suffice to provide "documented authority" to e-file the FBAR.
2.  FinCEN is in the process of creating its own power of attorney form (though we've strongly suggested that continued use of the already common Form 2848 would be highly desirable given that so many individuals turn to their enrolled agents and other tax pros to file the FBAR.)
3.  If an attorney, CPA or EA files on behalf of his client, they are expected to retain (for five years) proof of your authority to do so. This proof may be maintained in electronic format.
4. FinCEN Form 114 supersedes TD F 90-22.1 (the FBAR form that was used in prior years) and is only available online through the BSA E-Filing System website. Report of Foreign Bank and Financial Accounts (FBAR) :: FinCen

5. File Form 8938 if max value of account exceeds $50,000 at any point during the year. Must use US Treasury FMS website Treasury Reporting Rates of Exchange to calculate foreign currency exchange rate.

Can an attorney, CPA or EA submit an FBAR via the BSA E-Filing System on behalf of a client?
Yes.  An attorney, CPA or EA may always assist his client in the preparation of electronic BSA forms for BSA E-Filing, including the FBAR. Consistent with FinCEN's recent proposal to provide for approved third-party filing of the FBAR, if an attorney, CPA or EA has been provided documented authority by the legally obligated filers to sign and submit FBARs on their behalf through the BSA E-Filing System, that attorney, CPA or EA can do so through a single BSA E-Filing account established for the attorney, CPA or EA. If such authority is not provided, the filings must be signed and submitted through a BSA E-Filing account unique to each client.