Good News! IRS Expands Offers in Compromise!

Good News!  IRS Expands Offers in Compromise!

Courtesy:  Ronald A. Marini, JD, LLM in Taxation - 
Marini & Associates, PA - Attorneys at Law in Miami, FL
Offer in Compromise Pre-Qualifier online tool
OIC booklet

The IRS has completely revamped its offer in compromise guidelines to greatly increase the number of taxpayers who will be able to qualify. The new guidelines are announced in a news release by the IRS (IR-2012-53, May21,2012). 

The most revolutionary change is the methodology of calculating the offer amount. The amount of the offer in compromise has always been determined by the amount of the reasonable collection potential (RCP). RCP is determined by adding the net realizable value of the taxpayer's assets to his (Net Disposable Income x 12 months). 

Offer Amount = RCP = net assets + (Net Disposable Income x 12).

Net Disposable Income (NDI)* is defined as an estimate of the taxpayer's ability to pay based on an analysis of gross income, less necessary living expenses, for a specific month. 

In the past a taxpayer who wanted to pay the offer amount in 5 monthly installments would multiply his monthly NDI by 48 months to arrive at the amount.  A taxpayer who wanted to pay the offer amount over a 24 month period was required to multiply his monthly NDI by 60 months to arrive at NDI. In both cases NDI was added to the net realizable value of the taxpayer's assets to arrive at RCP, or the "offer amount". 

Under the new offer in compromise guidelines NDI will be arrived at by multiplying the monthly NDI by 12 if the offer can be paid in 5 monthly payments or less. If the taxpayer needs 24 months to pay the offer amount in full then the NDI will be determined by multiplying the monthly NDI by 24. The deferred payment option which allows payment over the life of the statute is no longer available.

Example:  A taxpayer who has $50,000 in realizable equity in assets, and monthly NDI of $2,000, will pay $74,000 [$50,000 + ($2,000 x 12 months)] if the offer amount can be paid in 5 months or less, and $98,000  [$50,000 + ($2,000 x 24 months)] if the offer will be paid over a 24 month period. This compares to offer amounts under the old guidelines of $146,000, or $170,000, respectively. The higher the monthly NDI, the greater the discrepancy.

The new guidelines also include changes to the necessary living expenses:

1. Payments on delinquent State taxes may be allowed in full or in part.
2. Minimum payments on student loans guaranteed by the federal government will be allowed for the taxpayer's post-high school education (note it says nothing about loans incurred by parents to pay for their children's' tuition).
3. When the taxpayer owns a vehicle that is six years or older or has mileage of 75,000 miles or more, the IRS will allow additional operating expenses of $200 or more per vehicle.
4. The first $400 per vehicle of retired debt will not be added back to monthly available income.

Another welcome modification; the calculation of so-called "dissipated assets" has been radically altered. While the exact details are subject to numerous exceptions, and clarifications, in general assets which have been dissipated three years or more prior to the submission of the offer in compromise will not be included in the RCP. For example, if the offer is submitted in 2012, any asset dissipated prior to 2010 should not be included

* NDI is sometimes referred to as Future Income.

Offer in Compromise - Documentation Checklist

OFFER IN COMPROMISE 
Documentation Checklist 

Documents being included when submitting an Offer (Form 656) to the IRS. 

                            TOPIC                

1. Completed and signed Form 433-A and (433-B if applicable).
2. Explanation of Circumstances (see Form 656, Part VI). 
3. Most recent three (3) months bank statements for every checking and savings accounts.
4. Proof of mortgage and monthly payment or rent payment.  (Monthly mortgage statement, cancelled checks, rent receipt, etc.)
5. Proof of any extraordinary expenses, such as: medical expenses, doctor bills, court judgments, etc. 
6. Proof of any mandated child support orders.
7. Appraisal or current market analysis (CMA) for each parcel of real estate. 
8. Every car/truck/boat/RV/trailer/motorcycle/snowmobile/jet ski/ATV, etc. appraisal and copy of registration. (Use Blue Book value, NADA Guides and/or Dealer appraisal letter).
9. Explain source of funds to conclude Offer. (e.g. “Borrow from relatives.”)
10. Copy of most recent three (3) months household bills and proof of payment.  (Utilities, cable, telephone etc.)
11. Must be in current tax filing compliance.  [Necessary to prove taxpayer’s filing compliance for all tax periods due, personal and business (if applicable)]. 
12. Brief statement on taxpayer’s work history and education.
13. Proof of estimated tax payments (if applicable) current year only. 
14. Most recent three weeks pay-stubs.
15. Any other specific items. 

This information is  provided by Stephen B Jordan - EA of Salem, NH USA

Please copy and distribute freely
Offer in Compromise is an option under the law.
It's there for your protection...
If you qualify, why not take it?
Resolve your tax debt on a permanent basis.

Manage Stress

Manage Stress
The Basics
When you take steps to manage stress, you help protect yourself from serious health problems like heart disease and depression.
Take Action!
Try meditating to help you relax.
The Basics
Not all stress is bad. Stress can help protect you in a dangerous situation. But preventing and managing chronic (ongoing) stress can help lower your risk for serious health problems like heart disease, obesity, high blood pressure, and depression.

You can prevent or reduce stress by:
♦ Planning ahead
♦ Deciding which tasks need to be done first
♦ Preparing for stressful events

Some stress is hard to avoid. You can find ways to manage stress by:
♦ Noticing when you feel stressed
♦ Taking time to relax
♦ Getting active and eating healthy
♦ Talking to friends and family

What are the signs of stress?
When people are under stress, they may feel:
♦ Worried
♦ Angry
♦ Irritable
♦ Depressed
♦ Unable to focus

Stress also affects the body. Physical signs of stress include:
♦ Headaches
♦ Back pain
♦ Problems sleeping
♦ Upset stomach
♦ Weight gain or loss
♦ Tense muscles
♦ Frequent or more serious colds

Use this tool to better understand your stress.

What causes stress?
Stress is often caused by some type of change. Even positive changes, like winning a contest or getting a job promotion, can be stressful. Stress can be short-term or long-term.

Common causes of short-term stress:
♦ Too much to do and not enough time
♦ Lots of little problems in the same day, like a traffic jam or running late
♦ Getting lost
♦ Having an argument

Common causes of longer-term stress:
♦ Death of a loved one
♦ Chronic (ongoing) illness
♦ Caring for someone with a serious illness
♦ Problems at work
♦ Money problems

What are the benefits of managing stress?
Managing stress can help you:
♦ Sleep better
♦ Control your weight
♦ Get sick less often and heal faster
♦ Lessen neck and back pain
♦ Be in a better mood
♦ Get along better with family and friends

Take Action!
Being prepared and in control of your situation will help you feel less stress. Follow these 9 tips for preventing and managing stress.

1. Plan your time.
Think ahead about how you are going to use your time. Write a to-do list and figure out what’s most important – do those things first. Be realistic about how long each task will take.

2. Prepare yourself.
Prepare ahead of time for stressful events like a job interview or a hard conversation with a loved one.
• Picture the event in your mind.
• Stay positive.
• Imagine what the room will look like and what you will say.
• Have a back-up plan.

3. Relax with deep breathing or meditation.
Deep breathing and meditation are 2 ways to relax your muscles and clear your mind.
• Find out how easy it is to use deep breathing to relax.
• Try meditating for a few minutes today.

4. Relax your muscles.
Stress causes tension in your muscles.  Try stretching or taking a hot shower to help you relax. Check out these stretches you can do at your desk.

5. Get active.
Physical activity can help prevent and manage stress. It can also help relax your muscles and improve your mood.
• Aim for 2 hours and 30 minutes a week of moderate aerobic activity, like walking fast or biking.
• Be sure to exercise for at least 10 minutes at a time.
• Do strengthening activities – like sit-ups or lifting weights – at least 2 days a week.

6. Eat healthy.
Give your body plenty of energy by eating vegetables, fruits, and protein.

7. Drink alcohol only in moderation.
Don’t use alcohol and drugs to manage your stress. If you choose to drink, drink only in moderation. This means no more than 1 drink a day for women and no more than 2 drinks a day for men.

8. Talk to friends and family.
Tell your friends and family if you are feeling stressed. They may be able to help.

9. Get help if you need it.
Stress is a normal part of life. But if your stress doesn’t go away or keeps getting worse, you may need help. Over time, stress can lead to serious problems like depression, post-traumatic stress disorder (PTSD), or anxiety.
• If you are feeling down or hopeless, talk to a doctor about depression.
• If you are feeling anxious, find out how to get help for anxiety.

A mental health professional (like a psychologist or social worker) can help treat these conditions with talk therapy (called psychotherapy) or medicines.

Lots of people need help dealing with stress – it’s nothing to be ashamed of!

courtesy: healthfinder.gov

50 Good Reasons to See Your Tax Advisor

50 Good Reasons to See Your Tax Advisor
1.  Changed your job address
2.  Changed jobs
3.  Big raise or bonus
4.  Exercised a stock option
5.  Retired
6.  Married or divorced
7.  Had a child  
8.  Adopted a child
9.  Child off to college
10. Child finished college
11. Opened an account for a child
12. Received unemployment
13. Started receiving Social Security benefits
14. Started receiving a pension
15. Cashed in an IRA
16. Won a prize
17. Won big at casino or track
18. Won the lottery
19. Served as paid executor
20. Received a director's fee
21. Won a lawsuit
22. Received alimony
23. Paid alimony
24. Sold stocks or securities
25. Invested in mutual funds
26. Opened a qualified retirement account
27. Sold your home
28. Bought a home
29. Helped kids buy a home
30. Refinanced your home
31. Remodeled your home
32. Started a business
33. Wrote a living trust
34. Added someone to title on your home
35. Bought rental property
36. Remodeled rental property
37. Started renting out your home
38. Let a friend move into a rental property at reduced rent
39. Sold rental property
40. Began using your car for business
41. Sold your business car
42. Became a telecommuter
43. Allowed spouse to use business car
44. Cashed in EE Bonds
45. Inherited money
46. Inherited an IRA or pension
47. Reached age 59 1/2
48. Reached age 70 1/2
49. Became disabled
50. New tax law questions (Tax Code is constantly changing)

Claim a Child as Dependent - How to Claim a Child as Dependent Video

Claim a Child as Dependent - How to Claim a Child as Dependent Video

video courtesy: About.com

Married Filing Jointly vs. Married Filing Separately -- Getting to Know ...

video courtesy: H&R Block

IRS Data Retrieval - FAFSA

video courtesy: Florida State University

Eleven tax myths, debunked

Eleven tax myths, debunked Courtesy: Kelly Phillips Erb TAXGIRL

1. You have to itemize to take advantage of tax deductions.Yes, many of the most popular tax deductions (think home mortgage interest and medical expenses, for example) require you to itemize, or file a Schedule A, in order to take advantage of the benefit. But not all tax deductions require you to itemize. A number of deductions can be found on the front of your federal form 1040 at the Adjusted Gross Income section (generally, lines 23-37). Those deductions are sometimes called “above the line” deductions and are available to you whether you itemize or claim the standard deduction. They include such popular items as the Tuition and Fees Deduction, Alimony and Moving Expenses. The take away? Save those receipts and keep good records even if you don’t itemize.

2. You don’t have to claim payments received so long as they are under $600. This is probably one of the most repeated tax myths out there. So, let me clear it up for you quickly: income is income, no matter the amount. The threshold for required reporting from the payor is $600 which means that if payments are at least $600, a federal form 1099 must be issued. Some folks believe that if no 1099 is actually issued, you don’t have to report it. That’s not true. You have to report all of your income, from whatever source, on your tax return unless it’s otherwise excluded.

3. Head of Household status applies to anyone with kids. At some point, I realize that almost all parents assert to their kids in a very loud voice that they are the head of the house. But that definition and the one allowable by IRS are not the same: you can only file as Head of Household (HOH) if you are unmarried (!) and provide a home for a dependent. That means you must be single, divorced, or otherwise unmarried at the end of the tax year and (1) you paid more than 50% to keep a home for the entire tax year for a parent who was a dependent OR (2) you paid more than 50% to keep a home for the entire tax year with your dependent (there are some exceptions to this rule). You are considered unmarried for purposes of HOH even if you were not divorced or legally separated at the end of the tax year if all of the following apply:
  ♦ You lived apart from your spouse for the last 6 months of the tax year (don’t count temporary absences for business, medical care, school, or military service) AND
  ♦ You file a separate tax return from your spouse AND
  ♦ You paid over half the cost of keeping up your home for the tax year AND
  ♦ Your home was the main home of your child, stepchild, or foster child for more than half of the tax year AND
  ♦ You can or could claim (under the rules for children of divorced or separated parents) this child as your dependent.

4. You’re out of the woods with IRS if you make it 3 (or 5 or 7) years without filing a return. For most taxpayers, the statute of limitations – meaning the time the IRS has to examine your tax return – is three years following the date of filing or the due date of your tax return, which ever is later. But. There’s a bit exception to this rule: if you don’t file a return at all, the statute of limitations never actually runs. In that event, you’ll want to hold onto your records, well, for forever (really, it’s much less work to simply file).

5. You are not responsible for mistakes on your return made by your tax professional. Tax professionals are human and they make mistakes just like anybody else (hopefully, fewer than anybody else when it comes to tax returns). It happens. However, that doesn’t excuse you as a taxpayer. You still have a responsibility to read and understand your returns before you sign them. And if there’s a problem, it has to be fixed and that becomes your responsibility. The extent of the tax professional’s responsibility might figure into any mitigation for penalties (or any civil or contract claims you might have against the tax professional) but the IRS buck stops with you.

6. Fixing a mistake on a tax return will result in an audit. Taxpayers are often afraid to amend their tax returns because they feel that it might increase the chance of an audit. But that’s wrong, wrong, wrong. Amending your return when you find that you’ve made a mistake is a good thing. Amended returns don’t increase your risk of audit but mistake-laden ones do.

7. After the age of 55, you can sell your house tax-free. Well, true… in 1996. The rule used to be age dependent but changed under President Clinton (which may or may not have contributed to the bubble). Now, the rule is that a taxpayer can exclude from gross income up to $250,000 ($500,000 for a married couple filing jointly) of capital gains on the sale of a personal residence so long as you’ve lived in it for two of the last five years. This rule doesn’t apply to second homes or vacation homes – and it’s not a one-time deal. You can sell and sell and sell and exclude away so long as you meet the rest of the criteria.

8. Minors don’t have to file and pay taxes. This can be true but isn’t always. Whether or not a child must file a federal income tax return — and the rate at which the child pays tax — depends on whether it is earned income (income from wages, salary or self-employment) or unearned income (generally passive income like money earned from dividends and interest). Even if a child’s income is to be taxed at the child’s parents’ tax rate, that does not necessarily mean that the income has to be included on the parents’ tax return; the child can opt to file a separate return (and in fact, that can sometimes be preferable for all kinds of reasons, including the dreaded AMT).

9. Getting the biggest tax refund possible is the best possible result at tax time.  Yes, getting a refund is much more fun that owing at the end of the year. But moderation, folks. The average refund last year was nearly $3,000. That’s a lot of money. Your money. And you’re not getting paid any interest while the government hangs onto your cash. Plan wisely.

10. Employer-provided health insurance is taxable. There have been a lot of rumors flying fast and furious about what’s happening to employer-provided health insurance for 2012. The amount of benefits paid on your behalf will appear on your form W-2 as a reported item in Box 12, using code DD. Under the new health care plan, there may be a penalty for a taxpayer who is not covered by health insurance. The reporting requirement will eventually assist the IRS in verifying that taxpayers have coverage. Additionally, the new reporting requirements will help identify those taxpayers who will be subjected to the so-called Cadillac tax on high-dollar insurance plans (effective in 2018).

11. Receipt of a refund means the IRS agreed with my tax return. No. Receipt of a refund means that the IRS mailed (or direct deposited) money that you said you were entitled to. It does not mean that the IRS agrees with what you reported; it merely means that the initial information you included didn’t raise any flags, your math didn’t stink and the Treasury didn’t offset your refund with any federal obligations.

What is Portability of the Estate Tax Exemption?

What is Portability of the Estate Tax Exemption?

A New Estate Tax Election for Surviving Spouses

Courtesy: Julie Garber, About.com Guide 

See More About: estate taxes estate tax exemption

On December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 into law. A big part of this new law is modification of the federal estate tax rules, including offering "portability" of the federal estate tax exemption between spouses for the 2011 and 2012 tax years. But what does "portability" of the estate tax exemption mean?

Definition of Portability of the Estate Tax Exemption
In simple terms portability of the federal estate tax exemption between married couples means that if the first spouse dies and doesn't use up all of his or her federal exemption from estate taxes, then the exemption that the deceased spouse didn't use will be transferred to the surviving spouse's exemption so that he or she can use the deceased spouse's unused exemption plus his or her own exemption when the surviving spouse later dies.

Examples of Portability of the Estate Tax Exemption
Some examples using numbers should help to illustrate the concept of portability of the federal estate tax exemption between spouses:

Result Without Portability
Assume Bob and Sue are married and have all of their assets jointly titled and their net worth is $8,000,000, Bob dies first and the federal estate tax exemption is $5,000,000 on the date of his death, and there isn't portability of the estate tax exemption between spouses:
Under these facts, when Bob dies his estate won't need to use any of his $5,000,000 estate tax exemption since all of the assets are jointly titled and the unlimited marital deduction allows Bob to transfer his share of the joint assets to Sue without incurring any federal estate taxes.  Assume that at the time of Sue's later death the federal estate tax exemption is still $5,000,000, the estate tax rate is 35%, and Sue's estate is still worth $8,000,000.  With Bob's $5,000,000 estate tax exemption completely wasted, when Sue later dies she can only pass on $5,000,000 free from federal estate taxes. Thus, Sue's estate will owe about $1,050,000 in estate taxes after her death:
$8,000,000 estate - $5,000,000 exemption = $3,000,000 taxable estate
$3,000,000 taxable estate x 35% estate tax rate = $1,050,000

Result With Portability
Assume Bob and Sue are married and have all of their assets jointly titled and their net worth is $8,000,000, Bob dies first and the federal estate tax exemption is $5,000,000 on the date of Bob's death, and there is portability of the estate tax exemption between spouses:
As above, when Bob dies his estate won't need to use any of his $5,000,000 estate tax exemption since all of the assets are jointly titled and the unlimited marital deduction allows Bob to transfer his share of the joint assets to Sue without incurring any federal estate taxes.  Assume that at the time of Sue's later death the federal estate tax exemption is still $5,000,000, the estate tax rate is 35%, and Sue's estate is still worth $8,000,000.  Enter portability of the estate tax exemption - With full portability of the estate tax exemption between spouses, under these facts Bob's unused $5,000,000 estate tax exemption will be added to Sue's $5,000,000 exemption, in turn giving Sue a $10,000,000 exemption.  Since Sue has "inherited" Bob's unused estate tax exemption and she can pass on $10,000,000 free from federal estate taxes at the time of her death, Sue's $8,000,000 estate won't owe any estate taxes at all:
$8,000,000 estate - $10,000,000 exemption = $0 taxable estate
Thus, portability of the estate tax exemption will save the heirs of Bob and Sue $1,050,000 in estate taxes.

Of course, these examples illustrate how portability of the estate tax exemption between spouses really works in the same way that the AB Trust system works but without the need for setting up AB Trusts.

Understanding Federal Estate Taxes
What is the Federal Estate Tax?
What is the Exemption From Estate Taxes?
Exemption From Estate Taxes: 1997 - 2013