Fresh Start Tax Relief Deadline Looms

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The Tax Penalty Relief provisions of the Internal Revenue Service’s (IRS) Fresh Start Tax Relief programs announced earlier this year, have a crucial deadline of October 15, 2012, next Monday. The IRS announced earlier in the year new penalty relief for the unemployed on failure-to-pay penalties, which are one of the biggest penalties a financially distressed taxpayer faces on an IRS tax bill.

To assist those most in need, a six-month grace period on failure-to-pay penalties was made available to certain wage earners and self-employed individuals. The request for an extension of time to pay will result in relief from the failure to pay penalty for tax year 2011 only if the tax, interest and any other penalties are fully paid by October 15, 2012.

The penalty relief is available to two categories of taxpayers:

  • Wage earners who have been unemployed at least 30 consecutive days during 2011 or in 2012 up to the April 17 deadline for filing a federal tax return earlier this year.
  • Self-employed individuals who experienced a 25 percent or greater reduction in business income in 2011 due to the economy.

This specific penalty relief is subject to income limits. A taxpayer’s income must not exceed $200,000 if he or she files as married filing jointly or not exceed $100,000 if he or she files as single or head of household. This penalty relief is also restricted to taxpayers whose calendar year 2011 balance due does not exceed $50,000.

The failure-to-pay penalty is generally half of 1 percent per month with an upper limit of 25 percent. Under this new relief, taxpayers can avoid that penalty until next Monday, October 15, 2012. However, the IRS is still legally required to charge interest on unpaid back taxes and does not have the authority to waive this charge, which is currently 3 percent on an annual basis.

California Attorney Failed to File Tax Returns – Sentenced to 6 Months in Prison

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California attorney Kevin Mirecki has been sentenced to six months in federal prison after pleading guilty to three counts of failing to file his tax returns and will not obtain tax relief. Mirecki was also ordered to pay more than $225,000 in restitution and fines. Mirecki entered his guilty plea in 2009 and admitted he failed to report more than $1.3 million in income over a three-year period.

Mirecki also founded Genesis Fund Ltd., which investigators say was a foreign-currency Ponzi scheme that bilked at least $80 million from hundreds of investors. Eight people pleaded guilty and another was convicted at trial in connection with the scam.

According to the indictment related to Genesis Fund Ltd., the defendants falsely claimed that investors received monthly returns of four percent, when investments were actually used to make “profit” distributions to defendants and early investors. The defendants promoted the Genesis Fund as having no reporting obligations to the IRS. Bank accounts in the names of trusts and offshore bank accounts were allegedly used to receive distributions from the Genesis Fund that were not reported to the IRS. Some of the defendants allegedly created “disclosed” and “undisclosed” Genesis Fund accounts for themselves and certain fund investors in order to conceal from the IRS all but a small portion of the fund’s distributions. In addition, some Genesis Fund investors were allegedly advised to create nominee offshore corporations and bank accounts to receive distributions from the fund.

The indictment further alleged that to obscure the operations of the fund and to limit scrutiny of its operations by investors and the government, the defendants caused the Genesis Fund to maintain no financial statements or other statements of operation. Additionally, in or about April 2000, to conceal the true nature of its operations from investors and the government, Genesis Fund’s administrative operations were relocated from Anaheim, Calif., to Costa Rica. At about the same time, paper records were moved to Costa Rica and electronic data on computers was destroyed.

Your 2012 and 2013 Federal Tax Returns Are At Risk!

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Today, National Taxpayer Advocate Nina E. Olson reported to Congress the issues that the Taxpayer Advocate Service (TAS) will focus on during the upcoming fiscal year. Olson, expressed particular concern, among other issues, about the taxpayer impact of expired and expiring tax provisions.

“The continual enactment of significant tax law and extender provisions late in the year has led to IRS delays in handling millions of taxpayers’ returns and caused many taxpayers to underclaim benefits because they did not know what the law was … Because of the magnitude of these challenges and the uncertainty about such a large number of important provisions, the 2013 filing season is already at risk. The 2013 filing season is likely to pose problems for many (if not most) taxpayers and the IRS if Congress does not address the many provisions that have already expired or soon will.” Wrote Olson.

You may be asking, “How does this affect me?” Well, if Congress doesn’t act soon you may need to hire an experienced tax attorney to fight for tax relief. As my Federal Income Tax professor repeatedly ordered in law school: “Read on, read on, read on…”.

The following provisions are among the tax provisions that expired at the end of 2011:

  • The so-called “Alternative Minimum Tax patch.” As result, an estimated 27 million more taxpayers are subject to the Alternative Minimum Tax this year.
  • The deduction for state and local sales taxes.  About 11 million taxpayers claimed this deduction last year.
  • The deduction for mortgage insurance premiums.  About four million taxpayers recently claimed this deduction.
  • A provision allowing persons over age 70-1/2 to make tax-free withdrawals from their Individual Retirement Accounts (IRAs) to make charitable contributions.

According to the IRS website, Congress is likely to extend many of these and other expired provisions retroactive to January 1, 2012, but neither taxpayers nor the IRS know for sure what will happen and taxpayers, therefore, cannot make educated tax planning decisions now.

In addition to the provisions that expired at the end of tax year 2011, an even larger number of provisions are set to expire at the end of 2012. Such rules include the Bush-era cuts in marginal tax rates, reduced tax rates on dividends and long-term capital gains, various marriage penalty relief provisions, certain components of the child tax credit, the earned income tax credit, and the adoption credit, and the moratoria on the phase-outs of itemized deductions and personal exemptions.

Romney on Tax Reform

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Mitt Romney has written an op-ed piece for the Wall Street Journal describing his vision for tax reform and tax relief.  He identifies problems with the tax code as one of our countries top problems:

  • record-breaking unemployment
  • deficit spending
  • big inefficient government & lack of leadership
  • screwed up tax code

I believe we must make the tax code simpler and fairer. We must reduce tax rates for job creators to promote economic growth. And we must still raise enough revenue to stop the endless borrowing that threatens American prosperity.

Romney lists 5 specific changes he would implement if he were elected the next US president:

  1. across-the-board 20% reduction in marginal individual tax rates
  2. reduce the corporate tax rate to 25%, transition from a world-wide taxation system to a territorial one, and make the R&D tax credit permanent
  3. maintain the low 15% rate on capital gains & eliminate it entirely for those earning below $200,000
  4. get rid of the AMT and the death tax
  5. bring stability to the tax code by making these changes permanent

Read the full op-ed piece here.  I’m not sure how he would achieve #5, although it sounds great.  So would that mean the Turbo Tax software I purchase in 2012 would also work for tax years 2013, 2014, 2015 . . . ?!

Tax Relief Available for the 2012 Tax Season!

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Montgomery & Wetenkamp are ready to help you this tax season!  See 2012 Tax Season press release.

The tax attorneys at Montgomery & Wetenkamp, personally handle all aspects of their tax relief cases. Unlike other tax relief firms, the tax attorneys at Montgomery & Wetenkamp do not employee a sales force, legal assistants, or other intermediaries which may increase client fees and diminish the client experience. From the first time a client calls Montgomery & Wetenkamp, they will be speaking directly to one of the tax attorneys who will personally resolve their IRS tax debt.

“The IRS is a very powerful and unforgiving collection machine. This tax season, it is now easy and affordable to be prepared and have an organized and systematic plan for tax relief rather than getting stuck in the bowels of the IRS collection machine. The IRS has several tax relief options available for taxpayers who cannot pay their taxes. Such options vary from allowing additional time to pay a tax debt to reducing the total amount of the tax bill to an affordable amount

~ Christian Montgomery, Tax Attorney

Most tax relief options are driven by a taxpayer’s unique facts and circumstances, and how well and organized those facts and circumstances are advocated to the IRS. The tax attorneys at Montgomery & Wetenkamp are experienced in tax relief matters and will design and implement a systematic resolution to their client’s IRS tax problems.

Contact Montgomery & Wetenkamp now for your free consultation.

IRS Procedure Gives Consideration to Spousal Abuse

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The IRS released a proposed revenue procedure (Notice 2012-8) that would loosen up some of the rules related to Innocent Spouse relief under Revenue Code section 6015(f).

Normally if a married couple files a return jointly then they are both equally liable (jointly and severally) for any outstanding balance on that tax year. However, if one spouse can show that he/she had no knowledge and had no reason to know that the other spouse was underreporting income or that the funds intended for payment of the tax were taken by the other spouse, then the IRS may impart tax relief to the innocent spouse.

One of the most significant changes has to do with the criteria that the IRS considers when reviewing an Innocent Spouse case. The IRS will now take into consideration all the facts and circumstances in Innocent Spouse cases, with no one factor or majority of factors necessarily controlling their determination. Also, some factors may weigh against the requesting spouse and some factors may weigh in his/her favor. But if the requesting spouse can prove marital abuse or lack of financial control, then it may, under the proposed procedures, mitigate those otherwise negative factors.

In layman’s terms:

Somebody in an abusive relationship does not need tax problems heaped on top of everything else going on in their life. If the requesting spouse was abused or prevented from participating in family finances, then Innocent Spouse relief may still be granted even if the requesting spouse had actual knowledge that there were problems with the tax return or that the taxes were going to go unpaid.

Interestingly, because the new revenue procedure expands equitable relief available to innocent spouses, it will be applied by the IRS immediately even before it is finalized.

Does the IRS Celebrate Christmas?

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IRS employees are given a paid day or two off around Christmastime, so we know that the IRS observes Christmas in that manner.  The US Office of Personnel Management (www.opm.gov) is the official source for federal holidays, and this year, for most federal government agencies, Christmas will be observed on Monday, December 26th.  But what about any other official IRS references to Christmas?

I was curious, so I searched for the term on the IRS website and there were 119 search results.  Here’s what I found:

  1. references to Christmas Island, a territory of Australia in the Indian Ocean
  2. references to the deduction of expenses related to Christmas Tree cultivation in the Farmer’s Tax Guide (Publication 225)
  3. references to an oil industry term (“Christmas Tree“) used to describe “an assembly of valves mounted on the casinghead through which a well is produced”
  4. old references to “Christmas in April” foundations that had lost their non-profit status
  5. references to various business names that include the word “Christmas”
  6. various references to the service’s observation of the federal holiday

So, there are no substantive references or discussions of Christmas on the IRS website.  I suppose that is as it should be.

www.mwattorneys.com

Does the IRS View Marion Barry as a “Special Circumstance”?

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Former D.C. mayor, Marion Barry, is in the news today because of a lien that the IRS filed against him in connection with a measly $3,200 in unpaid 2010 taxes.

Remember back in February of this year when the IRS announced it was going to provide taxpayers with special tax relief during these trying financial times? The IRS dubbed it the “Fresh Start” initiative. Remember when I blogged in June about the uncertainties of the program and how the IRS still had not clarified some major points? Remember what I said about the new lien filing procedures; how the lien filing threshold was reduced from $10,000 to $5,000 in most cases? According to the IRS website:

The Fresh Start changes increase the IRS lien filing threshold from $5,000 to $10,000. Liens may still be filed on amounts less than $10,000 when circumstances warrant. (emphasis added)

 

So, why did the IRS file a lien if the balance is under $5,000? Well, it appears that Barry’s 2010 liability is only the tip of the iceberg. He still owes for prior years, for which he is on an installment agreement in good standing, according to Barry’s official statement. It appears that the IRS will be looking at the overall balance in determining whether to file a lien, even under Fresh Start. At least that’s one possible explanation. The other possibility is that the IRS would have filed a lien on Barry even if $3,200 were all he owed . . . because circumstances warrant it. Let’s face it, he’s a public figure sitting on a Finance Committee in D.C, in charge of public funds, and he has a colorful history of corruption and tax delinquencies. If that isn’t a special circumstance, then I don’t know what is.

www.mwattorneys.com

Chris Tucker Sheds Assets to Pay Back IRS

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Chris Tucker, the actor best known for his work in the Rush Hour series of films, has been selling his properties in Florida to pay back what he owes to the IRS.

Mr. Tucker owes $11.5 million in back taxes (perhaps somewhat less now that he has sold off some assets). Reports indicate that he sold his Florida properties for much less than fair market value, which indicates to me that he was in a big hurry to raise some cash under pressure from the IRS.

We don’t have the complete details, but with a $11.5 million tax bill, certainly the IRS has already threatened to seize his property. Why else would he take less than it’s worth? The dilemma for Mr. Tucker is if he had not sold the property, the IRS would have seize it and auctioned it off to the top bidder. A taxpayer can normally get a much better price in a private sale than what can be fetched in a public IRS auction. But the IRS doesn’t allow the taxpayer to put a property on the market and wait until he gets his asking price. Pressure from the IRS usually forces the seller to accept less — in this case, less than fair market value.

www.mwattorneys.com

The IRS “Pendulum”

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If we were to step back and take a look at the history of IRS collection efforts (wage garnishment, bank levy, seizure of assets, etc.), we would see that it has not been consistent in its use of all available collection tools.

Longtime observers of our federal tax system note sagely that there are recurrent pendulum swings.  For some years, the IRS will be encouraged to collect, collect, collect, and inevitably be admired for its toughness perhaps earning an accolade: ruthless.  Then, after a few too many citizens have rugs pulled from under them, Congress and the Executive Branch will rebuke the IRS.  Telling the IRS how mean and inappropriate it is, Congress will cut back on the agency’s authority and make it play nice.

~ Robert W. Wood, Forbes Contributor

Wood goes on to explain that the pendulum swung to the far “NICE” side in the late 1970s. Then it swung back to the “RUTHLESS” side by the 1990s. Then back to “NICE” in the late 1990s. So is there any question where we stand today?

 [T]he pendulum has again swung the other way.  The economy is hurting, revenues are declining and wells are drying up.  Facing budget cuts and revenue shortfalls everywhere, the IRS is on a mission to collect, collect, collect.

~ Robert W. Wood, Forbes Contributor

Wood sees the IRS getting tougher on criminal investigations and even regular collection cases. For example, primary residences and retirement accounts have always been “fair game” technically, but in reality the IRS usually doesn’t have the heart to take them. Not now, according to Wood. See full story here.