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Special Tax Benefits for Military Families

Posted by Wetenkamp on July 13, 2012 with 0 Comment

051207-N-3019M-010 — image via reddogreport.com

In the good ol’ United States of America, we love our servicemen and women and we try to treat them right. One way we honor them is by making sure that the Tax Code is chock-full of tax benefits especially for the military. And it’s not just fluff; these are good, practical benefits that are routinely acknowledged by the IRS.

Here are some popular tax benefits available to active members of the US Armed Forces:

Some unreimbursed moving expenses are deductible in connection with a permanent change of station
Military pay while serving in a combat zone is not taxable
Military personnel get automatic extensions on many IRS deadlines, including the filing of a personal income tax returns, which could also delay collection of back tax debt
The cost and upkeep of uniforms is deductible under certain circumstances
Joint returns don’t need to be filed by both spouses when one is deployed (kind of a lame benefit, but a benefit nonetheless)
Certain unreimbursed travel expenses available to reservists traveling away from home
Subsistence allowances paid to ROTC students participating in advanced training are not taxable
Certain expenses associated with transitioning back to civilian life (i.e., job search) are deductible
FREE TAX PREP!

See IRS Pub 3 (Armed Forces’ Tax Guide) for more information.

"Collection Statute Expiration Dates"

Posted by Wetenkamp on July 11, 2012 with 0 Comment

Many of our tax relief clients know from personal experience that the IRS can very persistently chase taxpayers around for years trying to collect what is owed. But the Statute of Limitations (SOL) prohibits the IRS from pursuing a taxpayer indefinitely. Once the SOL is up, the tax debt “expires” and the IRS can no longer collect the debt.

The SOL for collection of a back tax debt is 10 years from the date of assessment. Since each tax period/form is filed and assessed on different dates, each tax period normally has a different expiration date. In the jargon of IRS Collections, this is called the Collection Statute Expiration Date (CSED). See IRS Pub 594 for further details.

In a perfect world, a 2008 tax return is filed and assessed in April 2009 and then expires in April 2019. However, there are a number of events that can toll (or extend) the SOL on a back tax debt:

IRS investigation of a request for Installment Agreement
IRS investigation of an Offer in Compromise
Appeals determination
If you live outside the US for a period of 6 months or more
Bankruptcy (SOL tolled while the automatic stay is in effect)
IRS Collection Due Process hearing
Tax Court Proceeding
Request for Innocent Spouse Relief

Some of these procedures can last several months, which automatically adds the same number of months to the SOL. Anytime a taxpayer is considering one of the listed procedures, he/she should also take into account how it will affect the CSEDs. An experienced tax attorney can help with this important analysis.

If you have to call TAS, at least dial the right number

Posted by Wetenkamp on July 3, 2012 with 0 Comment

switchboard — photo via gretachristina.typepad.com

The Taxpayer Advocate Service (TAS) has two main phone numbers.

877-ASK-TAS1 (established in 2004)
877-777-4778 (NTA toll-free line, established in 1998)

The NTA toll-free line is the more prominent number on the TAS website. It is the number found under the “contact us” link. And this is the same number listed on the IRS website. However, the primary difference between these two numbers may surprise you. ASK-TAS1 is staffed by TAS personnel, but the NTA toll-free line is actually staffed by IRS customer service personnel! See the latest TIGTA report for more information. These representatives are charged with vetting out the cases that they believe will “qualify” for TAS help.

TAS describes itself as an “independent organization within the IRS” — really an oxymoron, don’t you think? Tax professionals have long questioned their independence. When you call TAS, you are literally talking with the IRS (unless you dial the right number). I do not recommend calling TAS for help with your tax problems. For high-quality tax relief, it is important to select an experienced tax attorney that can give objective, unbiased attention to your tax matter.

IRS Lien Subordination & Federal Tax Lien

Posted by Wetenkamp on June 20, 2012 with 0 Comment

jumping_line — image via panasianbiz.com

A Federal Tax Lien (FTL) is the government’s legal claim against a taxpayer’s real and personal property that arises by operation of law (automatically) when a taxpayer incurs a tax debt and fails to pay. The taxpayer, other creditors, credit reporting entities, and the general public may only become aware of the tax lien when the IRS files a “Notice of Federal Tax Lien” — and it’s at that point that it can damage one’s credit.

Previously the only sure-fire way to get a FTL removed was to pay the liability in full. However, under the government’s Fresh Start program the IRS will agree to withdraw a lien notice if certain requirements are met. But even if you meet the criteria, you still have to request withdrawal of the lien by completing Form 12277.

If a taxpayer cannot pay the tax debt in full and does not meet the criteria for withdrawal of the lien, the taxpayer may want to consider requesting a “lien subordination.” This does not remove the lien, but it allows other creditors to “cut” in front of the IRS in line and it is normally required before a lender will refinance a home loan. Of course, if the IRS is allowing others to cut, then it is on their terms and with their permission. You must either be willing to make a big payment — sometimes up to the amount of the lien — or you must be able to show that it would be in the IRS’ best interest to subordinate their lien. From the IRS’ perspective, the only way it would be in their best interest is if it would result in them collecting more money from you.

IRS Summons

Posted by Montgomery on April 24, 2012 with 0 Comment

If you have IRS tax debt, you probably receive more IRS mail than you care to admit. Some of our clients receive so many IRS notices and letters that it becomes difficult to keep up with them. Obviously, it is very important to open and read every single correspondence you receive from the IRS. But one type of notice ranks right up at the top in terms of priority: the IRS Summons (Form 2039).

The IRS uses the summons to secure documents and records from taxpayers, normally only after informal attempts have been made without success. The IRS is typically trying to ascertain the accuracy of a tax return, to determine the liability of a taxpayer, or to collect back taxes.

One way or another, you must respond to your summons. One of the reasons the summons is so important is if you fail to comply, the IRS employee who issued the summons may seek to enforce it in court. If so, a judge could hold you in contempt of court, which means you could be fined and/or thrown in prison.

If you receive a summons, you should seriously consider hiring legal counsel to help you to respond and to protect your interests.

IRS Secrets

Posted by Montgomery on April 16, 2012 with 0 Comment

In-N-Out has its secret sauce and its secret menu. Google has its secret search algorithms. Well, guess what? The IRS has its secrets too.

For example, everybody dreads the IRS audit, but nobody can tell for sure how to avoid them. Sure, there are risk factors. For example, high income taxpayers are more likely to be audited, self-employed’s are more likely to be audited than w-2 employees, and returns that have been amended are more likely to be closely examined than other returns. However, IRS audit risk analysis is an imperfect science. Even though it is very common for taxpayers to ask their tax attorney about their individual chances of being audited, tax professionals are understandably reluctant to give a straight answer . . . because they just don’t know.

Robert Wood is a prominent San Francisco tax attorney — one of the leading authorities in his field. He writes a tax column for Forbes. In one of his recent articles, he talks about whether or not the risk of audit increases when a taxpayer files an extension. He thinks it does not, although he points out that other tax professionals disagree. Interestingly, Mr. Wood does not cite any Revenue Code section, IRM section, or anything. This is just his opinion based on his 30+ years of experience.

Even if there is a secret IRS audit formula, I’m sure it’s updated regularly to keep people on their toes.

Roads More Dangerous on Tax Day

Posted by Montgomery on April 11, 2012 with 0 Comment

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

Posted by Montgomery on April 10, 2012 with 0 Comment

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:

Visit the IRS Free File web page
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)
Choose one of the Free File companies and this will lead you away from the IRS website — click on “Leave IRS Site”
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!

The Low Down on P&I

Posted by Montgomery on April 2, 2012 with 0 Comment

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.

Common Tax Prep Errors

Posted by Montgomery on March 26, 2012 with 0 Comment

Today’s IRS Tax Tip (Number 2012-58) warns about common tax prep errors. The bottom line? To avoid tax problems, double-check everything, especially the numbers.

You’re not likely to misspell your last name, jot down the wrong address, or forget to claim one of your children. But entering a wrong number here or there is a typical mistake. Whether it be in the transposing of the number or the computation of the number, it is critical that you take your time and double-check. In fact, it’s a good idea to get a second set of eyes to go over each form if possible.

So, where do the most common number errors show up?

social security numbers
bank account numbers
adjusted gross income figures

Some tax prep errors can result in a tax return being returned, adjusted, or audited. Be sure you spell names correctly, use the correct income figures from 1099 and W-2 form(s), and always, always be sure to sign your return.