Filing OIC? Take a Number.

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The IRS has done quite a bit to promote the Offer in Compromise program during the economic downturn of the last few years, and the message is coming across loud and clear.  That’s the good news.  The bad news is the IRS can’t seem to handle the onslaught of new offers.

The Offer in Compromise (OIC) is a program whereby the IRS accepts an amount that is less than the tax liability to forever settle what is owed.  The rationale behind the OIC program is this: if the taxpayer can prove that the amount offered is the absolute most he/she can pay and the IRS will most likely never be able to collect the full tax debt, it is better for the government to cut their losses and take it rather than expend any more resources trying to collect some unknown amount at some unknown time in the future.

According to a recent audit report by the Treasury Inspector General for Tax Administration (TIGTA), there are huge OIC backlogs at both the Memphis and the Brookhaven Offer Units, but Memphis is in worse shape than Brookhaven.  The IRS is in the process of transferring cases between sites to even things out, but precious time is lost in the transfer process, so who knows if that will truly reduce delays.

Offers with the following characteristics can expect the longest delays:

  • taxpayer is self-employed
  • taxpayer earns over $100,000 per year
  • taxpayer owes over $50,000 in back taxes
  • taxpayer lives in a state handled by the Memphis OIC Unit (AK, AL, AZ, CA, CO, HI, ID, KY, LA, MS, MT, NV, NM, OR, TN, TX, UT, WA, WI, WY)

Roads More Dangerous on Tax Day

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Tax debt is a major source of stress for some people.  But who knew tax time could cause such distress and turmoil on our nation’s roadways?

A study published in the Journal of the American Medical Association shows that fatal motor vehicle accidents spike right around the middle of April each year.  The sharp increase in fatalities is believed to be associated with the stress of Tax Day.  The lead researcher, Donald Redelmeier, identified the following contributing factors:

  • stress
  • lack of sleep
  • alcohol use
  • less tolerance to other drivers

Wait, aren’t these the conditions we drive in every day?

The researchers studied data from the IRS and the National Highway Traffic Safety Administration between the years 1980 -2009.  Of the 30 tax days during that time span, there were a total of 226 fatal crashes.  In comparison, there were only 213 fatal crashes during the 60 control days.  Even though most people now file their taxes from their computer and don’t have to get in their car and drive down to the post office, fatalities have held steady over the years.

Filing an Extension: Step by Step

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A wise taxpayer knows his limits.  With exactly one week remaining to file your income taxes, you should know by now if they’re going to be done on time.  If you can’t get all the figures together and you can’t do a decent job on your taxes right now, maybe you need to file an extension.  Here’s how:

  1. Visit the IRS Free File web page
  2. Under “Choose a Free File Option,” click on “Browse the list of Free File companies” (this will take you to a comprehensive list of non-IRS Free File companies)
  3. Choose one of the Free File companies and this will lead you away from the IRS website — click on “Leave IRS Site”
  4. Find the Free Extension link and follow the instructions; it should take no more than 5 minutes

The beauty of doing this electronically is you get an email confirmation, no stamp, no paper.  But you can still do it the old-fashioned way by filling out a paper Form 4868.

Remember, an extension will not provide you with unfettered tax relief.  It gives you an additional six months to file, but it does not give you additional time to pay.  Interest and failure to pay penalties still apply.  Good luck!

Abel Maldonado: Raises Taxes in 2009, Owes Taxes in 2012

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Abel Maldonado, a Republican from Santa Maria, is running for Congress.  He voted with Governor Schwarzenegger and state Democrats to raise taxes in 2009.  Should that preclude him from seeking tax relief by disputing an IRS assessment?  Some think it should.

News sources have Maldonado owing as much as $470,000 in back taxes in connection with poorly-named family businesses, “Agro-Jal Farming” and “Tri-M Rental Group.”  The dispute is either currently in, or on its way to, US Tax Court where a judge will determine whether or not he will be held liable for the tax, plus whatever interest and penalties have accrued since 2006.  See full story here.

Of course the primary detractors are the rival congressional candidates, including Rep. Louis Capps, D-Santa Barbara, who are portraying Maldonado as a hypocrite.   This just goes to show that even the most staunch big-government Democrat usually doesn’t want to pay a penny more than he is legally obligated to pay.  I’m not sure that makes him a hypocrite.

If I voted to reduce the speed limit to 55mph, should I be morally obligated to drive 45?  No.  And if I got ticketed for driving 54mph, shouldn’t I have the right to dispute it?  Of course I should.  And the same things goes for payment of taxes.  Maldonado is no hypocrite; he’s just doing what every single warm-blooded American would do in his situation.

It’s Baseball’s Opening Day!!!! – Sort Of

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Baseball season is finally here! So if you follow this blog, you know that the Tax Attorneys at Montgomery & Wetenkamp, are San Francisco Giants fans first, then baseball fans second. Just like tax day is no longer April 15th; Baseball’s opening day has gone the way of the dinosaur. Worse however, is it is now confusing … just like taxes can be at times.

For those baseball fanatics reading this and thinking the season has already started, technically you’re right. It started in Japan last week with the A’s and the Mariners. After which they sensibly returned to spring training to play more exhibition games. Therefore, that was not opening day.

For those of you that aren’t on Japan time and missed those games, you may have thought the opening day was earlier this week on Wednesday when the Marlins opened their new ballpark against the Cardinals. Wrong again. The Marlins immediately jumped on an airplane and played the Reds on Thursday in Cincinnati. That’s not a home-stand and therefore not opening day. Same could be said about the Tigers and Red Sox who played Thursday just to have an off day Friday. This is the case with all of the teams that played Thursday, with the exception of the Dodgers and the Padres, who played the first game of their home-stand yesterday, and are shockingly playing today as well. You may be thinking, well that must count as a home-stand and must have been the real opening day. Wrong Again! If it involves the Dodgers, by rule, does not count.

That leaves us only to conclude that today, Friday, April 6, 2012, is Baseball’s official opening day for 2012 because the 2010 and 2012 World Champion San Francisco Giants are finally in the fight for the pennant. It’s sad that gone are the (opening) days where every team in the league has a 50/50 shot to be in first place after the 27th out.  However, at least the boys of summer are back.

IRS Uses 40-Year-Old Data Processing System

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The Commish recently addressed the National Press Club to discuss some of the IRS’ major deficiencies and how the agency is overcoming them by never being satisfied with the status quo:

[T]he germination of any idea…the cultivation of a concept…is only the beginning. Then, begins the real work of teasing it into life, and growing it. And that process never ends. It’s one of continuous improvement.

~IRS Commissioner, Douglas H. Shulman

The speech is long, and my attention span is not.  If you want to read the whole thing, here is the link.  But there was at least one interesting point that I want to share having to do with technology.  In my experience, small tax problems can become bigger when IRS technology is not up to par.  I have always said that the IRS has been behind the curve when it comes to technology.  Even the strides that have been made recently to appear tech savvy seem to have been more for show than anything.  I’m referring to changes that have been made to the IRS website and their entry into YouTube and social media.

Well, it turns out I’m even more correct than I thought.  Shulman says that the IRS uses the same basic data processing system that was used in the 1960s.  Here’s why (according to the Commish) the IRS has not made a comprehensive technology upgrade:

  • The IRS believes in the philosophy “if it ain’t broke, don’t fix it.”
  • The IRS relies on a complicated hodgepodge of new and old computer systems (so it’s not ALL old)
  • The IRS hasn’t been able to get the funding they need to make a comprehensive upgrade

So, which is it?  Is it because they don’t get enough funding, or is it because they are satisfied with the way the 40-year-old technology works?  I suppose it’s both.  The amount of funding is never quite enough to do any kind of comprehensive technological overhaul, and when they do get some money, they (quite correctly) spend it on whatever is broken regardless of how old or new it is.

IRS Enforcement of ObamaCare

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As you may know, the IRS is supposed to be the agency to oversee enforcement of the new health care law, in the event that it does not get thrown out.  Perhaps the reasoning there was, they’ve been so good at denying tax relief over the years, they’re now ready for more responsibilities.

But the IRS really doesn’t want this additional duty.  They would have to hire 4,000 new employees, and they would have to train them (along with their current personnel) to do something they have never done before.  Furthermore, the IRS definitely doesn’t want to have to deal with all the thorny privacy issues that would crop up.

Apparently the IRS is moving forward with the hiring spree without waiting to see if ObamaCare makes it or not.  As some point out, it’s not only about ObamaCare; they are needed to enforce the current tax laws and collect taxes regardless of what happens.

See the recent Fox News debate.  Steve Forbes expresses probably some of the most bold opinions in this short debate.  He thinks that the numbers used to convince Congress to pour more money into the IRS have been spun — the idea that through IRS enforcement efforts, the government collects $4 in revenue for every $1 spent to collect is bogus.

Forbes and others agree that our focus should be on simplifying the tax code, not spending more on enforcement.

IRS to Hire 4,000 New Employees

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“[I]t’s a power grab. So even if the ObamaCare gets thrown out those agents will be there to harass us. What we need as a nation is fewer tax collectors and more entrepreneurs. We need tax simplification and these IRS agents should be able to contribute to the economy instead of sucking the blood out of it.

~ Steve Forbes

The Low Down on P&I

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Most words and phrases don’t get an abbreviation or an acronym unless they’re used with a certain degree of frequency.  Unfortunately, in the tax debt business, “Penalties and Interest” has earned the nickname “P&I” because, yes, they are just that common.  If you wonder why you owe so much now when the original tax due was far less, here’s the low down:
Penalty for Filing Late
5% of the unpaid tax for each month the return is late (up to maximum of 25%).  This penalty is not avoided by filing for an automatic 6-month extension.
Penalty for Paying Late
.5% (1/2 of 1 percent) of the unpaid tax for each month after the tax is due, increasing to a full 1% per month after formal demand for payment is made (up to maximum of 25%).  This penalty can be avoided by filing an extension, but only if at least 90 percent of the tax liability is paid by the original due date.
The late payment penalty is reduced to .25% per month during any month that a valid installment agreement is in place so long as the return was filed on time.  See IRS website for additional information.
Interest
The interest rate on unpaid taxes is the federal short-term rate plus 3 percent, calculated every three months.  The IRS is required by law to charge interest on unpaid back taxes.  This cannot be avoided.