Special Alert: 2015 Tax Extenders

Special Alert: 2015 Tax Extenders 
President Obama has signed the Protecting Americans from Tax Hikes (PATH) Act which extends numerous tax provisions. Some important tax provisions have been made permanent, while others were extended through 2016 or 2019. The PATH Act adds in other provisions to mitigate "erroneous" education credit, child tax credit and earned income tax credit claims. Some of the most notable provisions include:

• A permanent extension of the $500,000 §179 limit.
• An extension for bonus depreciation through 2019.
• A permanent extension of the general state and local sales tax deduction.
• A permanent extension of the $250 educator expense deduction.
• An extension for the exclusion from the cancellation of debt of qualified principal residence indebtedness through 2016.
• The research credit.
• A requirement that a tax preparer exercise due diligence, similar to the earned income tax credit, for the American opportunity tax credit and child tax credit, with similar penalties for failure to do so.

A full listing of PATH Act provisions can be found here.

• By signing into law the Tax Extenders bill, President Barack Obama extended over 50 provisions in the tax code due to expire. 
• If your house was foreclosed, and the foreclosure sale did not satisfy the mortgage debt, there is an exclusion for the mortgage debt that is cancelled as a result of the foreclosure.
• Tuition deduction, aimed at students pursuing higher education, e.g. Master's or PhD degrees, is a deduction up to $2,000 or $4,000, subject to income thresholds.
• Earned Income Tax Credit (EITC), an antipoverty program set to expire in 2016, is extended permanently. 
• EITC is intended to encourage workers with children. 
• Max credit for families with 3 or more children has been raised from 40% to 45%.
• American Opportunity Tax Credit (AOTC) is extended permanently, AOTC is a benefit for college students, who can claim a tax credit of up to $2,500 per academic year subject to income limitations.
• "Teacher Deduction" is made permanent, which allows teachers to deduct up to $250 of their personal expenses spent on school supplies for their classrooms.

For a list of the 50 provisions, visit the Journal of Accountancy for more detailed information.

References:

National Association of Tax Professionals

Journal of Accountancy

IRS Withholding Lock-In Letters

 IRS Withholding Lock-In Letters

• Issue of IRS Withholding Lock-In Letters. Often a client’s employer will receive these letters from IRS, and the client almost immediately has their withholding “locked-in” at Single 0, even though the client may have a legitimate reason to be Married 4. 
• There seems to be some confusion regarding whether “Lock-in Letter” W-4 adjustments can be changed after the 30 day deadline in the letter. The IRS department that handles lock-in letters states, 
• when an employer receives a "Lock-in Letter" from the IRS, the employee has 30 days to disagree with the letter based on legitimate exemptions. 
• If the employee does nothing, the lock-in letter goes through and the W-4 is changed to single zero. Even after the 30 days, and the W-4 has changed to single zero, the W-4 can still be adjusted back to proper withholding's. 
• The IRS will allow the taxpayer to claim the number of exemptions based on the most recently filed return. 
• Many times, the IRS allowable exemption amount is above and beyond what the client SHOULD be withholding. 
• You will need to call to have a "Lock-in Letter" adjusted.
• How to get help
• Call toll free 1-855-839-2235 weekdays between 8:00 am and 8:00 pm
• Send a fax to 1-855-202-8300
• Write to:

US Treasury Dept
Internal Revenue Service

Compliance Services

Withholding Compliance Unit

PO Box 9047, Stop 837
Andover, MA 01810-9047

Source: Eric Roffer, Esq. Tax Defense Network/Karle Simmons

New FBAR Extension and Due Dates: Surface Transportation and Veterans Health Care Choice Improvement Act

New FBAR Extension and Due Dates:

• Surface Transportation and Veterans Health Care Choice Improvement Act changes the deadline for FBAR Reporting from June 30th to April 15th, the same due date as an individual tax return. 
• Under new law FBAR (FinCEN Form 114) can be extended for a period of six months ending October 15th, just as an Individual tax return. 
• IRS and/or FinCEN need to provide further clarification on the format or forms for such extensions, which may be similar to Form 4868, the form used to request extensions on Individual tax returns. There may be a requirement that these extensions be filed on the BSA E-filing Website as in the case of the FBAR forms. 
• For those who are not resident in the United States and have to file a US tax return, there is an automatic 2-month extension until June 15th, under §1.6081-5. Under new law, this extension is available to any FBAR filing as well. 
• For those who are filing an FBAR for the first time, new law specifically states that, "for any taxpayer required to file [an FBAR] for the first time, any penalty for failure to timely request or file an extension, may be waived by the Secretary." 
• The above due dates are applicable for returns filed after December 31st, 2015.

Due dates for Trust returns: Foreign trusts with US Owners and transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, Form 3520-A and Form 3520.

• Form 3520 and Form 3520-A Deadlines: 
• The due date for Form 3520-A is March 15th with a maximum 6-month extension until September 15th. Form 3520 is due with the tax returns on April 15th and the maximum extension allowed is 6-months ending October 15th.
• file a Form 3520, if the following apply:
1. Gifts or bequests more than $100,000 from a nonresident alien individual or a foreign estate (including foreign persons related to that nonresident alien individual or foreign estate); or
2. Gifts more than $15,102 (for 2014) from foreign corporations or foreign partnerships (including foreign persons related to such foreign corporations or foreign partnerships).
• The due date for Form 3520 tax return is the same as the individual tax filing date (April 15th) including extensions (October 15th). You need to include copies of appraisals; copies of documents showing transfer; documentation of unusual items.
• file a Form 3520-A 
• Any foreign trust with a US owner must file Form 3520-A in order for the US owner to satisfy its annual information reporting requirements under IRC §6048(b). Each US person treated as an owner of any portion of a foreign trust under §§671 through 679 is responsible for ensuring that the foreign trust files Form 3520-A and furnishes the required annual statements to its US owners and US beneficiaries. 

Effective Tax Administration (ETA) Offer-in-Compromise (OIC)

Effective Tax Administration (ETA) Offer-in-Compromise (OIC)

Submitting an Offer-in-Compromise (OIC) under doubt as to collectibility even though the client could full pay using equity in the home is plausible if the client could not afford to pay a home equity loan or a mortgage loan and the client had applied and been rejected for a home equity loan in the amount of the tax liability. (OIC's submitted under ETA have a much higher reject rate those submitted under doubt as to collectibility). 

If your OIC is rejected under doubt as to collectibility because the client would not take out a reverse mortgage you can appeal. During negotiations with the Appeals Officer who conducts the CDP hearing, make the following argument:

• First, calculate reasonable collection potential (RCP) by determining future income and equity/assets. 
• Calculate the monthly deficit over the life expectancy of the client and arrive at a lump sum deficit. Use the actuary tables at SSA.gov for life expectancies to calculate the lump sum number. Look closely at the Porro and Crosswhite cases for guidance. 

Under IRM 5.8.4.3, a taxpayer's RCP is defined as net equity plus future income. Under this financial analysis, ability to pay is calculated by determining future income minus allowable expenses. Additionally, Rev. Proc. 2003-71 states that special circumstances are:

1. circumstances demonstrating that the taxpayer would suffer economic hardship if the IRS were to collect from him/her an amount equal to RCP and
2. compelling public policy or equity considerations that provide a sufficient basis for compromise. 

In Porro v. Commissioner, TC Memo 2014-81, the Court held it was proper for the Settlement Officer (SO) when calculating RCP to consider the taxpayer's monthly deficit and acknowledge the taxpayer would need to spend over $200,000 of assets in order to meet the taxpayer's future basic living expenses.  The SO excluded net equity/assets of $200,000 (extrapolating living expenses over ten years) from the taxpayer's RCP calculation.

In Crosswhite v. Commissioner, TC Memo 2014-179, the Court sent back to the Appeals Office a case where the Appeals Officer rejected an OIC and only considered net equity,  but failed to determine the taxpayer's RCP by considering future income and monthly deficits.  The Court in Crosswhite cited the Porro case.  Finally, clients operating at a deficit, who need any potential equity to meet future living expenses have a zero RCP. 

When the home needs repairs, and the terms of a reverse mortgage require the recipient to keep the home compliant with various housing standards, a reverse mortgage is not a smart solution because of all the unaffordable costs involved in procuring one. 

Strangely enough, an OIC can be rejected mainly based upon the fact that the client can get a reverse mortgage. 

• File an ETA OIC on behalf of a client when her current expenses exceed her monthly income even though the equity in her condominium may be in excess of the tax liability due. The taxpayer will be unable to borrow against this equity by way of a conventional home equity loan because she wouldn't be able to repay the amount borrowed.  
• If the IRS forces the sale of the house, severe adverse consequences would result as it's unlikely the taxpayer could afford replacement housing at the same reasonable cost she's paying now. 
• If the ETA OIC is rejected meet with the SO in Appeals. If the SO still believes the taxpayer should secure a reverse mortgage, it needs to be explained that a reverse mortgage would shred the only safety net this elderly taxpayer has. 
• She's 72 years old, in ill health and will likely need all the equity she has in her condo if/when she is forced to move into an assisted living facility.

Question: Can a potential reverse mortgage be a factor considered by the IRS in denying an ETA OIC? The example in paragraph 7 of IRM 5.8.11.2.1 dealing with equity in real estate seems only to refer to a conventional equity loan, and not a reverse mortgage.

Source:

Borland, Tamara, Project Manager, Low-Income Taxpayer Clinic - Iowa Legal Aid

Estate Planning Executor Checklist

Executor/Administrator/Successor Trustee's Responsibilities and Checklist

1. ___ Locate the last will and/or trust document(s)
2. ___ Carry out written instructions of the decedent relating to his/her body, funeral, and burial arrangements
3. ___ Locate all important papers and information of decedent
4. ___ Change mailing address(es) for statements (bank, investment, etc.)
5. ___ If necessary, select an attorney to handle the estate
6. ___ Select a tax professional to prepare the required tax returns (1040, 1041, 706, and state returns)
7. ___ Notify heirs of appointment of attorney
8. ___ Notify IRS and state of your fiduciary relationship as executor, trustee, or administrator
9. ___ Locate all assets (cash, real estate, securities, collectibles, jewelry, life insurance, safe deposit box, etc.)
10. ___ Take possession of estate property
11. ___ Apply for tax identification number for estate/trust income tax returns (TIN)
12. ___ Transfer the decedent's accounts into account(s) for the estate using new TIN
13. ___ Pay expenses for last illness, funeral and burial expenses, and other debts
14. ___ Have real and personal property appraised as of the date of death
15. ___ Have any other assets appraised or valued as of the date of death
16. ___ Notify life insurance companies
17. ___ Notify trustees of retirement accounts
18. ___ Notify Social Security
19. ___ Obtain a list of debts of the decedent (mortgages, credit cards, auto loans, etc.)
20. ___ Arrange for family's immediate living expenses
21. ___ From the estate, raise cash that will be required to pay estate taxes, administration expenses, and other costs of settling the estate, if any 
22. ___ Decide which assets need to be sold, if any
23. ___ Satisfy charitable pledges listed in the decedent's will
24. ___ Locate last 3 years of income tax returns of decedent
25. ___ If a business is involved, locate comparative financial statements for any closely held business
26. ___ Locate all gift tax returns filed by decedent, if any
27. ___ Decide where to deduct the estate's administration expenses (Form 706 or 1040 or 1041)
28. ___ File final individual income tax returns by the due date (Form 1040 and state)
29. ___ File the estate income tax returns by the due date (Form 1041 and state)
30. ___ Consider special valuation on farm and business real estate
31. ___ Consider QTIP election
32. ___ Within 9 months of the date of death, file federal estate tax return and related state forms, if required (Form 706 and state)
33. ___ Safeguard any assets that will be distributed to minors
34. ___ Prepare a statement detailing the distribution of assets
35. ___ Prepare an accounting of both income and expenses of the estate
36. ___ Distribute assets to heirs and beneficiaries

Form 433-A / Form 433-F

Form 433-A

Key items to look for:

• Get the taxpayer started on a 433-A (see Pub 1854 Instructions) immediately in order to identify issues that may impact your recommendations and goals.
• Background:  The IRS issues collection letters usually five weeks apart in this order:
• CP14 letter  Balance Due - initially notifies taxpayer of balance due.
• OK, now this is when IRS sends out the first round of letters to those who have filed and not paid. Don't ignore the letter. Call the number on the letter and if you can't pay in full set up an installment agreement to pay.
• CP501 - Reminder, We Show You Still Owe
• CP503 - Important – Immediate Action Required
• CP504 - Urgent Notice – We Intend to Levy on Certain Assets, Please Respond Now
• LT11 (Letter 1058) within the last 30 days presents a very urgent situation for Collection Due Process (CDP) and filing Form 12153. IRS Letter 1058 - Final Notice of Intent to Levy
• Normally, a CP504 precedes Letter 1058 (LT11) - Final Notice of Intent to Levy.  TP has 30-days to file appeal using Form 12153 (CDP Hearing) after receiving Letter 1058.
• CP90/CP297 - Final Notice of Intent to Levy and Notice of Your Right to a Hearing
• CP91/CP298 - Final Notice Before Levy on Social Security Benefits
• ACS (Automated Collection System) has electronic sources of income and assets of the taxpayer, such as wages, bank accounts, certificates of deposit and accounts receivable, all of which can be seized administratively from the taxpayer. 
• ACS will issue a Notice of Levy against the taxpayer’s assets approximately six weeks after the Letter 1058. 
• If ACS does not have sources of income or other assets to levy upon, it will either research other sources or issue a Balance Due (Bal Due) to a local area office for collection, several weeks subsequent to the final notice.
• This cycle can take several months to complete.  Each notice is usually issued about five weeks apart.  In high dollar cases or for businesses, the IRS may sometimes skip the complete cycle and go to the final notices.
• Per IRC §6331 and IRM Part 5.10, Part 5.11,and Part 17.3 individual taxpayers are allowed up to one year at a lower Installment Agreement (I/A) payment amount in order to make necessary lifestyle changes to conform to the National Standards guidelines.
• In most situations, the IRS cannot levy by surprise and without prior notice. As a prerequisite to levying, the IRM 5.17.3 and IRC §6331(d) require the IRS to send a Final Notice of Intent to Levy (CP90), giving the taxpayer a "heads-up" before a levy is sent. 
• To ascertain if a CP90 has been sent to the taxpayer, look for the following entry on the taxpayer's IMF account transcript:
• CODE: 971
• EXPLANATION OF TRANSACTION: Collection due process Notice of Intent to Levy -- issued
• DATE: MM-DD-YYYY
• The IRS will take a taxpayer's funds, but not usually without first giving the taxpayer an opportunity to avoid levy. Compliance (filing and paying on time) is the "backbone" of tax resolution. Primary reasons for levy are:
1. Missed deadlines
2. Lack of Communication 
• The IRS cannot levy when a taxpayer has filed:
• An offer in compromise
• A request for an installment agreement
• If there is reasonable doubt that the liability is correct, IRS Policy Statement 5-16 requires the IRS to forbear and cease collection activities
• Modern IRS collection policies, codifying Offer in Compromise, granting statutory rights to I/A's and granting appeal rights before enforcement action, all have their roots in Restructuring and Reform Act of 1998 (RRA 98).
• IRS' "Fresh Start" initiative (Commissioner Doug Shulman, 2012) streamlines I/A's to qualify taxpayers who owe up to $50K, increasing the time to full-pay to 6 years (72 months). A Partial Payment I/A may be implemented if economic circumstances dictate
• The six-year rule allows for payment of living expenses that exceed the National Standards, and allows for other expenses, such as minimum payments on student loans or credit cards, as long as the tax liability, including penalty and interest, can be full paid in six years.
• If your tax debt is > $50K know that the IRS will file a "tax lien" against any real or other property you may own "to protect the government's interest."
• Although IRS seizure of taxpayer assets is not a common IRS enforcement tool, the IRM directs IRS Revenue Officers to seize assets of a taxpayer who will not pay.
• In 2014 there were 432 IRS seizures compared to over 2 million levies.
• Interestingly, there is no legal distinction between a levy and a seizure, just different procedures that must be followed by the IRS.
• Because of this distinct practical difference between levies and seizures in the IRS' perspective, there are far fewer seizures.
• An IRS levy may be used to take a taxpayer's right, title, and interest in the following:
• Cash in banks
• Social security
• Wages
• Alternative collection methods require:
• Demonstrating current compliance
• Showing the potential impact of a seizure on a third party
• An ability to enter into an installment agreement or qualify for an OIC
• IRS collection is most concerned with recovering revenue while considering rules and case specifics
• IRS Policy Statement 5-34 states that seizure action should usually be considered the last option in the collection process.
• Before seizing and selling a personal residence, the IRS must first:
• Have the Department of Justice file a lawsuit to foreclose
• Send out a Final Notice of Intent to Levy
• Secure a court order permitting the sale
• It is necessary to both write and call the IRS as a means to communicate in any given case.
• Form 911 
• Line 12a. THE JEOPARDY ASSESSMENT HAS CAUSED A SEVERE FINANCIAL HARDSHIP ON THE TAXPAYER. HE IS IN DANGER OF LOSING HIS JOB IF HE CANNOT AFFORD TRANSPORTATION TO AND FROM WORK. THE TAXPAYER DOES NOT HAVE ENOUGH CASH-FLOW AFTER THE GARNISHMENT TO PAY FOR RENT AND FOOD. 
• Line 12b. THE TAXPAYER REQUESTS IMMEDIATE RELIEF FROM THE GARNISHMENT. REMAINING LIVING EXPENSES ARE TOO GREAT AFTER MAKING THE IRS GARNISHMENT PAYMENT. THE TAXPAYER WOULD LIKE TO IMPLEMENT AN INSTALLMENT AGREEMENT/OFFER-IN-COMPROMISE THAT HE CAN AFFORD TO PAY.

433-A INSTRUCTIONS:

• Sections 1 to 9, contain line items numbered from 1 to 53. Each numbered item must have a response. Use N/A (for not applicable), Zero, or None, as appropriate.
• Read each numbered item carefully. You will be painting a picture of your ability to pay your tax liability.

Section 1. Personal & Household Information

• Name & contact information - Do not to use a PO Box, unless this conforms to your IRS record of account.
• Marital status – use married and separated if separated (living in different households), and still married.
• Social Security number- Use your SSN and date of birth.
• Same for spouse
• Own home, rent, etc. – remember to think of your purpose when answering questions. "Paint a picture" that supports your purpose, and make sure it makes sense. 
• If living together, IRS will consider both incomes and apply the joint living expenses to arrive at a monthly payment. 
• If living apart and not sharing income and expenses, IRS may only allow the expenses for one person. 
• If living apart and still sharing income and expenses, you will have to explain the additional living expenses created by the two households.
• Dependents are people you are obligated to support. Use the income tax guide definitions for blood relatives. If they are not living with you, they won’t be allowed when using the table allowances, except for legally obligated additional expenses you incur.

• The most common situation of a dependent not living with you would be your minor child living with your ex-spouse, who meets the dependency test. 
• No problem, your child support and other court ordered payments will be deductible.
• "Goodwill" child support outside of a court order has to be explained when dealing with the collection division. You could go back to court and raise your court ordered payments. This is an option, as long as it’s a court order for child support and related child welfare, and you can prove that you are making the payments.

Section 2. Self-employed Information

• If you operate a business, put the information here. Then fill out Form 433-B so you can deduct your related expenses against the income. Sole proprietors may use 433-A for their business reporting.

Section 3. Personal Asset Information
1. List your checking & savings accounts and balances. If the balance is high because of outstanding checks, submit bank reconciliations to the IRS showing the true balance. 

• A 3-month "average daily collected balance" shown on the first page of the bank statement is a good average to use. 
• IRS allows $1,000 deduction from total bank balances.
• Cash on hand – Will be added up later as available assets for the IRS. The Internal Revenue Manual - Collections Section, instructs the Revenue Officer to clean out all available assets before considering an Installment Agreement. Your assets, cash or otherwise, get added together and increase the amount you have to pay in settlement.

2. List your investment accounts. Discounted at 80% minus any loan balances. If tied up as collateral, the IRS won’t expect you to cash it in to pay the government.

3. List your retirement accounts. Discounted at 70% minus any loan balances.

4. List cash value life insurance policies.  If you have a cash value (CSV) in your life insurance policy, IRS may ask you to withdraw it.

5. List real estate in your name. Fill in all items, and attach an explanation for any fractional or joint ownership. If not in your name, omit from list.

• Remember, if you have an equity interest in a corporation, partnership, family trust, etc. you must list it on this form. You will be signing the bottom of the last page “under penalties of perjury” so on the day you sign it, the information must be true, correct, and complete to the best of your knowledge. 
• If you have "any %" interest in an asset or business put it on 433-A or 433-B as appropriate, with a value for your interest. Be prepared to defend it. Even if the value is minimal, you need to list it to avoid fraud. Avoid arguments concerning valuation.
• Be cognizant of interests that are traceable. (Information on K-1's from Form 1065 or 1120S to which IRS has access).
• Be extra careful in an Offer. If the Offer Division feels that you are hiding assets, they can turn down your Offer based on non-disclosure.
• Use Quick Sale Value for current value (the IRS does). 

6. List all the vehicles titled in you and your spouse’s names and respective loan balances. Use a "best guess" (Kelley Blue Book) at any balances not readily available. If you lease (or lease to own) put the vehicles here. (Use vehicle FMV times 80% minus Loan Balance equals amount of vehicle equity available for Offer).

• NOTE:  
• If you are filing an individual Offer, the IRS permits you to:
• subtract $3,450 from the value of first vehicle. 
• If you are filing a joint Offer, the IRS permits you to: 
• subtract an additional $3,450 for a second vehicle for a total of $6,900. 
• Enter the amount on Line (6d). Do not enter a negative number.

7. Other valuable items. – (e.g. stamp, coin, gun, jewelry, antique collections) This helps the IRS know about the availability of assets affecting your ability to pay any liability, or make timely payments.

• Available credit – the IRS looks for untapped sources for you to use and pay faster.

Section 4. Business Asset Information (for Self-Employed)
8. List your business checking & savings accounts and balances.

9. List business assets. 

10. IRS allowed deduction for books & tools of the trade.

• Does it matter where you list it? In general, no. However, in an Offer situation, under IRC§6334(a)(2) you are allowed to deduct;

1. $4,540 (TY2015 amount) from your business assets (Tools of Trade) on 433-B.
2. $9,080 (TY2015 amount) from your Furniture and personal household effects on 433-A..

• Notes Receivable - Put down people who owe you money personally if you want the IRS to attempt to collect it.
• Account Receivable goes here.

11. Value of personal assets minus §6334 exclusion.

• Box 1. Available Equity in Assets

Section 5. Business Income and Expense Information (for Self-Employed)
Lines 13 to 30. This can be on a 433-B. If you are paid on a 1099 with no deductions or related expenses (it’s rare not to have expenses), and decide to not use Form 433-B, but actually have business assets, list them here.

• Box 2. Net Business Income

Section 6. Monthly Household Income Information 
31. W-2's, social security and social security here

32. W-2's, social security and social security here (spouse)

33. Interest & Dividends – From interest bearing accounts. If recently liquidated, or will be liquidated shortly, the interest and dividends no longer exists, then leave it blank.

34. Distributions from partnerships & S-Corps

35. If you actually happen to receive rental income, (pull out depreciation, it’s not a cash outlay). Explain details.

36. Carry over from Form 433-B (or Box 2 or 1099 total if 433-B not used).

37. Child support received. Yes it’s considered income for collection purposes. Don’t worry, you get a deduction to offset this.

38. Alimony here.

• Box 3. Total Household Income

Section 6. Monthly Household Expense Information 

• Here we show the IRS that most of your income is absolutely necessary for your living expenses. 
• The first three items (Food, Housing, Vehicle & Out-of-Pocket health care costs) have table amounts. It’s not realistic to get the IRS to go beyond these amounts. Download the National Standards tables.

41. Food, etc. – Table amount is allowed, even if you spend less. If you have a physician’s letter requiring you to eat certain foods that increase your food bill you can add that to your health expense. Make sure you include the letter with your receipts. 

42. Housing and Utilities – Table amount again, but IRS has a 1-year rule, so if your amount is greater than the table amount, you can use your amount for the first year, and then their smaller table amount after that. It’s not automatically given at your request.

43. - 44. Vehicles. Use Table for each vehicle. There are two parts, one for monthly payment (ownership) and one for operating expenses (upkeep). These amounts are capped, so read the instructions carefully.

45. Public transportation (if applicable) Use Table amount.

46. Health insurance premiums. Medical expenses from your paycheck, separate payments, and any other methods you actually paid for physicians, dentists, insurance, travel to physicians, prescriptions, etc. – all medical related expenses. Be prepared to have receipts and explain why the past expenses represent the future.

47. Out-of-Pocket health care costs. See Table. (e.g. co-pays, deductibles, prescriptions) 

48. Child support and other court ordered payments go here and are readily accepted by the IRS.

49. Child day-care is allowed only if both spouses work. Special needs dependent care and expenses are okay even if one spouse doesn’t have income.

50. Life insurance – allowable expense

51. Current taxes. This is your FITW, FICA, and Medicare, from your paycheck, and estimated payments. Use the last three months pay-stubs as a reference.

52. Other secured debt – yes under acceptable circumstances. (e.g. Student Loans)

• Other expenses – If you have certain expenses that are necessary for living, and are not part of any item above, then list them here and be prepared to substantiate.

53. Delinquent State and Local taxes

• Box 4. Household Expenses

• Box 5 = Box 3 minus Box 4 shows Disposable Net Income (DNI), or how much you can pay each month toward your liability. Let’s look at this from another perspective.
• Let’s say you have a liability of approximately $50,000 under your social security number for personal and/or trust fund taxes. Consider the following cases.
1. You have hardly any assets, say $5,000 worth and your 433-A shows that you can’t make monthly payments. You are probably an Offer in Compromise candidate. If you can fill out the Offer Form 656 prior to the deadline given to you by IRS collections, and meet the other requirements, then submit the offer to the IRS in place of doing a payment plan. If you can’t submit Form 656 by the deadline, give Collections the 433-A and 433-B information with backup and request time to do an Offer.
2. You have hardly any assets, say $5,000 worth, and you can pay $300-$400 per month. Given that the $50,000 is accruing interest and penalties, you will not be able to pay this off in 10 years. Ten years is the (stature of collections) time that the IRS has to collect the money starting from the date it is assessed. Not that they will give you that amount of time anyway. They want the liability paid off as soon as the financial statements allow. In the alternative at least 6 years. Anyway, you are probably an Offer candidate. If you fill out the Offer Form 656 prior to the deadline given to you by IRS collections, and meet the other requirements, then submit the Offer to the IRS in place of doing a payment plan. If you can’t submit Form 656 by the deadline, give Collections the 433-A and 433-B information with backup and request time to do an Offer. 
3. You have hardly any assets, say $5,000 worth, and you can pay $1,000 per month. This is close. You’re probably not an offer candidate, but you will have to ask for a longer payout, probably by signing a 2751 extension, giving yourself additional time, past the statute of limitations on collections, to collect the money. You should agree to this so you can get your payment plan or Offer approved later on.
4. You have hardly any assets, say $5,000 worth, and you can pay $1,000-$2,000 per month, then move forward with the payment agreement or Offer. But wait, even though the financial statements say so, you really can’t afford $1,000 per month. Well "too bad, so sad" says the IRS. You do not have a choice. If you don’t agree the IRS will take levy and seizure action until the debt is paid.

• Before submitting the 433-A and 433-B, monthly payment amount, and asset liquidation using QSV (Quick Sale Value @ 80%), and you want to liquidate more assets, like your home for instance, that’s okay. It will lower the interest and penalties that are accruing. If you want to pay a larger monthly payment, then do so at your option. You are not obligated to pay any more than the minimum you can absolutely afford.
• If you make additional payments, or increase your monthly payment voluntarily, the IRS won’t reduce your next monthly payment. 
• For example, you are required to pay $500 per month. One month you get “extra money” and pay an extra $10,000. The next month you can only pay $450 (not the whole $500.) This will break your agreement. 
• If this ever happens, or if you are short on a payment, call the IRS immediately and explain that you are "short" this month and IRS may give you a grace period with permission to pay later.

Section 7. Calculate Minimum Offer Amount

• Mathematical formula (Offer Options)
• Offer option #1: Minimum acceptable Offer amount (full payment within 5 months)
• 12 times monthly DNI + net equity in assets
• Offer option #2:  Minimum acceptable Offer amount (full payment within 24 months)
• 24 times monthly DNI + net equity in assets.

Section 8. Other Information

• Beneficiary to estate, trust of life insurance policy?
• Bankruptcy?
• Lawsuits? 
• Asset transfers for less than full value in past 10 years?
• Living outside USA in past 10 years?

Section 9. Signatures

Form 433-F

• Most IRS collection personnel want you to fill out the 433-A to present your personal income and expenses to them, and a 433-B to present your (non salaried or non W-2) income and related expenses, assets and liabilities to them. Sometimes ACS will demand that you fill out and send in the 433-F. 
• The 433-A gives a larger and more detailed picture of the taxpayer’s situation.
• Lay everything out on the 433-A and if needed the 433-B, figure out your table allowances and get an idea of what your monthly payment should be, and then transfer it to the 433-F. 
• Anything that doesn’t fit on the 433-F, can be put on a separate attached schedule. You are entitled to all IRS allowable expenses whether or not you can fit them on the forms! 
• Then, do your formal request for an Installment Agreement in a separate letter and include it with the form 433-F and the required backup.
• Remember, even if IRS asks for 3 months of receipts, ask yourself if 3 months gives an accurate description of what you can pay each month? Extend it to 4 months, or 5, 6, 7 etc. giving you a more accurate picture (e.g. recurring medical bills and prescriptions paid).
• Document your expenses with the most extensive amount of backup receipts, cancelled checks, doctors letters, etc. Prove to the IRS with supporting documents you actually paid what you are saying?
• The 433-F is similar to the 433-A, refer above for explanations.

Turkey Veggie Sloppy Joes

Turkey Veggie Sloppy Joes

Ingredients

• 1 pound lean ground turkey breast meat (or 12 ounces soy-based crumbles)
• 1/2 medium onion, finely chopped (about 3/4 cup)
• 1 medium carrot, finely chopped
• 1/2 medium green bell pepper, chopped
• 1 1/2 cups zucchini, chopped
• 3 garlic cloves, minced
• 1 can low-sodium tomato paste (6 ounces) 1 1/2 cups water
• 1 tablespoon mild chili powder
• 1 teaspoon paprika
• 1 teaspoon dried oregano
• 1/2 teaspoon ground black pepper
• 5 ounces reduced-fat cheddar cheese, thinly sliced 10 whole-wheat hamburger buns

Instructions

• In a large skillet over medium-high heat, sauté ground turkey until browned, about 7 minutes. Add onion and sauté 2 minutes. Add carrot and green pepper and sauté 2 minutes. Add zucchini and garlic and sauté 2 minutes more.
• Add tomato paste and water, stirring until the paste has dissolved. Add chili powder, paprika, oregano and pepper. Reduce heat to medium and continue to cook until the mixture has thickened, about 10 minutes.
• Preheat broiler. Divide cheese among the bottom halves of the hamburger buns. Transfer both halves of the buns to the broiler, open-faced, and toast until the cheese has melted and the buns are toasted.
• Remove buns from the broiler and fill each sandwich with the meat-vegetable mixture. Serve immediately.
• Serves 10.
• Serving size: 1 sandwich
• Nutritional Information
• Amount per serving
• Calories: 230
• Total fat: 5 g
• Saturated fat: 2 g
• Sodium: 340 mg
• Total carbohydrate: 29 g
• Dietary fiber: 5 g
• Protein: 20 g

Tuscan White Bean Soup

Tuscan White Bean Soup
The white beans (cannellini), along with garlic and rosemary or sage, are traditional ingredients in many soups and stews in Tuscany. Serve as a main course with a simple salad of mixed greens.

Ingredients

• 1 tablespoon oil, olive, extra-virgin
• 6 clove(s) garlic chopped
• 1 slice(s) bread, 100% whole-grain cut into 1/2-inch cubes
• 2 cup(s) beans, cannellini or other white beans, picked over and rinsed, soaked overnight, and drained
• 6 cup(s) water
• 1 teaspoon salt
• 1 leaf bay leaf
• 2 tablespoon oil, olive
• 1 medium onion(s), yellow coarsely chopped
• 3 medium carrot(s) peeled and coarsely chopped
• 1/4 teaspoon pepper, black ground
• 1 tablespoon rosemary, fresh chopped, plus 6 sprigs
• 1 1/2 cup(s) stock, vegetable or broth

Instructions

• Serves 6
• To make the croutons, heat the olive oil over medium heat in a large frying pan. 
• Add the garlic and saute for 1 minute.
• Remove from the heat and let stand for 10 minutes to infuse the garlic flavor into the oil. 
• Remove the garlic pieces and discard. 
• Return the pan to medium heat. 
• Add the bread cubes and saute, stirring frequently, until lightly browned, 3 to 5 minutes. 
• Transfer to a small bowl and set aside.
• In a soup pot over high heat, combine the white beans, water, 1/2 teaspoon of the salt and the bay leaf. 
• Bring to a boil over high heat. 
• Reduce the heat to low, cover partially and simmer until the beans are tender, 60 to 75 minutes. 
• Drain the beans, reserving 1/2 cup of the cooking liquid. 
• Discard the bay leaf. 
• Place the cooked beans into a large bowl and save the cooking pot for later use.
• In a small bowl, combine the reserved cooking liquid and 1/2 cup of the cooked beans.
• Mash with a fork to form a paste. 
• Stir the bean paste into the cooked beans.
• Return the cooking pot to the stove top and add the olive oil. 
• Heat over medium-high heat. 
• Stir in the onion and carrots and saute until the carrots are tender-crisp, 6 to 7 minutes. 
• Stir in the garlic and cook until softened, about 1 minute. 
• Stir in the remaining 1/2 teaspoon salt, the pepper, chopped rosemary, bean mixture and stock. 
• Bring to a boil, then reduce the heat to low and simmer until the stew is heated through, about 5 minutes.
• Ladle the stew into warmed bowls and sprinkle with the croutons. Garnish each bowl with a rosemary sprig and serve immediately.
• Serving size: About 1 1/4 cup stew and 1/6 of the croutons

Source: This recipe is one of 150 recipes collected in The New Mayo Clinic Cookbook, published by Mayo Clinic Health Information and Oxmoor House, and winner of the 2005 James Beard award.

Turkey Bean Soup

Turkey Bean Soup

Ingredients:

• 1 pounds turkey, lean ground breast meat
• 2 medium onion(s) chopped
• 2 stalk(s) celery chopped
• 1 clove(s) garlic minced 
• 1/4 cup(s) crushed tomatoes
• 1 can(s) tomatoes, diced, no salt added (14.5 ounces)
• 3 piece(s) bouillon, chicken, low-sodium
• 7 cup(s) chicken broth (or water)
• 1 1/2 teaspoon basil, dried crushed
• 1/4 teaspoon pepper, black ground
• 2 cup(s) cabbage shredded
• 1 can(s) beans, cannellini or Great Northern beans or Navy beans, no-salt-added drained, (15 ounces)

Instructions:

• Serves 4
• In a large saucepan, cook the ground turkey, onion, celery and garlic until the vegetables are softened and the turkey is cooked.
• Drain off the fat and add the crushed tomatoes, tomatoes, bouillon, water, basil, pepper, cabbage and beans.
• Bring to a boil and reduce heat. 
• Cover and simmer for 30 minutes.

Courtesy: Mayo Clinic Diet

Innocent Spouse

Innocent Spouse

On August 13, 2013, the IRS released new proposed regulations under the innocent spouse rules. In general, a husband and wife are allowed to file a joint federal income tax return, or choose to file married filing separate. If they choose to file a joint return, each spouse is jointly and severally liable for the tax on the return, including any additions to tax, penalties, and interest. Therefore, the IRS is authorized to collect the entire amount of tax plus any additions, penalties, and interest from either spouse, regardless of which spouse is responsible for the income, deductions, credits, or basis that resulted in the liability.

There are several exceptions to the general rule:

• §6015(b) allows an innocent spouse to elect relief from joint liability if understatements of tax are attributable to erroneous items of the other spouse and the innocent spouse had no reason to know of the understatement and, taking into account all the facts and circumstances, it is inequitable to hold the innocent spouse liable.
• §6015(c) allows an innocent spouse who is divorced, legally separated, or no longer living with the other spouse to elect liability for his/her share of the tax as if the spouses had originally filed separate tax returns. (separation of liability)
• §6015(f) provides that an innocent spouse may request equitable relief from a tax understatement or underpayment when the innocent spouse does not qualify for relief under the other two provisions and it would be inequitable to hold the innocent spouse liable considering all the facts and circumstances. An example of equitable relief under §6015(f) is when there is domestic abuse in the marriage.
• §6015(b) and §6015(c) both impose a 2-year deadline for a taxpayer to elect innocent spouse relief. Under the 2-year deadline, an innocent spouse has two years from the date of the IRS first collection activity to make the election. 
• §6015(f) does not contain an explicit deadline to request equitable relief.

In 1998, IRS regulations imposed a 2-year deadline for §6015(f) equitable relief under the premise that each statutory provision should be consistent (Notice 98-61). In Lantz, 132 T.C. 131 (2009), the Tax Court considered the 2-year deadline regulations for §6015(f) and ruled that the regulations were invalid. On appeal to the 7th Circuit, the Tax Court decision was reversed upholding the validity of the 2-year deadline. In subsequent cases not under the 7th Circuit Court jurisdiction, the Tax Court has continued to find the regulations with a 2-year deadline invalid.

The IRS has reconsidered the 2-year deadline and issued new guidance. The new guidance says the 2-year deadline no longer applies to requests for equitable relief under IRC §6015(f). Instead, to be considered for equitable relief, a request must be filed with the IRS within the 10-year statute of limitations under §6502 for collection of tax, or the 2-year or 3-year statute of limitations under §6511 for credit or refund of tax, as applicable to the specific request (Notice 2011-70). 

Under transitional rules, the 2-year deadline under prior regulations does not apply to any request for equitable relief filed on or after July 25, 2011 or any request filed prior to July 25, 2011 that is still pending with the IRS as of that date.

Illustration:

• For 2012, Wilma and Fred filed a joint federal income tax return on April 15, 2013. For 2013, Wilma and Fred filed separate federal income tax returns and Wilma’s return showed a $4,000 overpayment. 
• On March 15, 2014, the IRS determined Fred and Wilma's 2012 joint tax liability was underpaid by $10,000 and subsequently offset Wilma’s $4,000 overpayment from her 2013 separate federal income tax return and applied it towards Fred and Wilma's 2012 joint tax liability. The IRS offset was the first collection activity the IRS initiated against Wilma to collect the underpaid 2012 joint tax liability. 
• On October 13, 2016, Wilma requests innocent spouse relief under §6015. Wilma’s request is beyond the 2-year limit for requesting innocent spouse relief under §6015(b) and §6015(c). 
• The statute of limitations for requesting credit or refund of the $4,000 withheld from Wilma’s 2013 overpayment for equitable relief under §6015(f) has also expired. 
• However, the 10-year statute for collecting the additional $6,000 due has not yet expired. 
• Wilma is allowed to request equitable relief for the $6,000 of unpaid tax from their 2012 joint tax return.

Source:  Tax Materials, Inc. The TaxBook Update Service 08/26/2013
IRC §6015
REG-132251-11
Innocent Spouse Relief- IRS Modifies Section 6015(f), Equitable Relief Rules

Three Ways to Pay Your Federal Income Tax

Taxpayer Representation - resolving tax liabilities :: Call our Tax Office! 

• Options
1. Full Pay
2. Payment plan
3. OIC - Equity
4. CNC - Debt doesn't go away (Currently Not Collectible - "Code 53") 
• Attorney referrals to discharge taxes in bankruptcy for certain exceptions.
• Tax lien & levy assistance - bank account levies/garnished wages 
• Partial Payment Installment Agreement (PPIA) IRC§6159 (affordable monthly payment plan) Form-9465 - Installment Agreement Request
• Expanded administrative appeals in many dispute areas. 
• Innocent spouse relief IRC§6015(b): Form 8857 (Request for Innocent Spouse Relief)
• "Innocent Spouse"-one who signs a return without knowledge or benefit of the income omitted from the joint return.
• Separation of liability relief - innocent spouse IRC§6015(c): Form 8379 (Injured Spouse Allocation)
  • "Injured Spouse"-involves an event before the marriage such as delinquent child support, back taxes or student loans.
• Equitable relief - innocent spouse IRC§6015(f)
• Offer-in-Compromise (OIC) IRC§7122 (settle debt for Reasonable Collection Potential)

Available ACA Documents

Available ACA Documents

• What are we looking for?
• We need Form 1095-A/B/C
• 1095-B&C are voluntary this year, but you should see some of them.
• Without Form 1095, we'll need to ask for:
• your insurance cards,
• monthly payment verification, or
• year-end pay-stubs showing premium payments
• Was it family coverage?
• MEC compliant? 10 Essential Health Care Benefits:

1. Ambulatory services
2. Emergency services
3. Hospitalization
4. Maternity & Care for New-born babies
5. Pediatric services
6. Preventive & wellness care (e.g. flu shots, vaccinations, once per year physical or twice per year physical if diabetic) These should be covered 100% with NO deductible.
7. Prescription drugs
8. Mental health & substance abuse
9. Rehabilitative services & devices
10. Lab fees

• Minimum Essential Coverage (MEC) requires 60% minimum coverage
• Do the best you can under the circumstances and make copies
• Taxpayers receiving coverage through state-approved exchanges or federal marketplace will receive Form 1095-A (Hold onto it! I have to have that.)
• Retiree coverage (Medicare) qualifies as MEC. Part A is FREE, as long as you pay for Part B. No further worries.
• If you are a non-citizen filing a 1040-NR or a US citizen living abroad (US Military is covered), you are exempt
• US Territories (Puerto Rico, US Virgin Islands, Guam, Mariana Islands, American Samoa, Federated Micronesia, Midway Islands, Marshall Islands et. al) automatic MEC (exempt)
• HRA's must be integrated with a MEC policy, i.e taxable (Must have full coverage in place; regardless, using bona-fide health care insurance policy) 
• Exempt from ACA "penalty" Shared Responsibility Payment
• When premium exceeds 8% of household income
• Households below "filing threshhold"
• Single $10,150
• Couple $20,300
• Native Americans "federally recognized tribe" (approx. 566 tribes listed in National Register)
• Short-lapse of coverage (3-months or less)
• Dependents themselves are exempt (Parent/Guardian are NOT excused from child's penalty). (Note: Finalized Adoption establishes responsible party for health care coverage)
• Non-resident aliens & non-citizens
• Religious sect objection to health care benefits
• Member of Health Care Sharing Ministry under §501(c)(3)
• Incarcerated persons
• Citizens living outside the US
• Other Exempt Certificate Number (ECN) 
• HHS Special Hardship Exemptions:
1. Homeless
2. Evicted in past 6 months
3. Received shut-off notice from utility company
4. Recently experienced domestic violence
5. Death of close family member
6. Experienced fire, flood, or other natural or human-caused (e.g. arson) disaster
7. Filed for Bankruptcy in past 6 months
8. Unable to pay medical bills in last 24 months
9. Unexpected increase in necessary expenses due to caring for ill, disabled, or aging family member (loved-one disrupts your ability to pay living expenses)
10. Dependent child denied coverage (Must apply for Medicaid or CHIP before exempt for child penalty only).
11. Eligible appeals decision
12. Those eligible for Medicaid under ACA, who were denied Medicaid (because state opted-out)
13. Current health insurance plan cancelled or MarketPlace plan unaffordable to you (8%)
14. Any other hardship in obtaining health insurance

PAID PREPARER MUST ASK:
"Did you have health insurance for the entire year for your family?"
"Where did you purchase your health insurance?"
Taxpayers should be able to validate their answers.