How (Not!) to Make a Gift of your Refund to the IRS

The majority of taxpayers get a refund after filing their 1040. Late filing by these people is not normally a problem since all the penalties are based on the amount of tax due. But, filing too late can be costly.

When you file a 1040 requesting a refund you can think of it as having two different functions.

  • Function 1 is your report to the IRS to self-assess your total tax liability.
  • Function 2 is to file an administrative claim for a refund on the overpayment.

If you file your tax return more than 3 years after its original due date, you will lose the right to claim the excess. This is because the claim is only good for tax payments made within the three years prior to the claim itself.

This recently happened to some taxpayers in Wisconsin who filed their 1040 more than three years after the due date and lost their right to claim a $7,000 plus refund. The Golden Rule here is “FILE THE BLOODY RETURN WHEN IT’S DUE”. These things simply do not age well.

If you or someone you know has received a Notice of Intent to Levy or some other federal or state tax issue, please feel free to contact me at either (352) 317-5692 or email jim@taxrepgainesville.com.

The IRS Option to Sue You

Generally, the IRS has 10 years to collect from someone. This period starts on the date of assessment and can be tolled (suspended) for a variety of different reasons. Once the Statute runs out, the IRS is barred from doing anything to collect on the debt.

A big part of the strategy to minimize the impact the IRS can have on someone’s life evolves around getting to that statute date. You might be tempted to believe that your almost there at year nine, but you need to be aware that the IRS has a very big weapon in its arsenal. They could sue you in Federal Court and get the debt reduced to a judgement. Judgements usually run 20 additional years from the date of judgment.

When will the IRS head for court? According to the Internal Revenue Manual, the Revenue Officer should consider doing so in cases where:

  • There is a significant amount of money involved. How much is considered significant is anybody’s guess. My guess is under $100,000 not likely at all, over $500,000 there is probably a good chance.
  • The taxpayer has some asset that they could get to if they had more time. Examples include IRA accounts, life insurance policies with a large cash surrender value, or maybe a pending inheritance.
  • The taxpayer’s personal residence has a significant amount of unclaimed equity built up and the IRS wants to force the sales.

Finally, I have heard of cases where the taxpayer did something incredibly stupid such as buying an expensive yacht or luxury vacation in the last years before the statute would have run. This kind of stuff is pretty much guaranteed to tick off the Revenue Officers and result in them suing for judgment.

If you or someone you know has received a Notice of Intent to Levy or some other federal or state tax issue, please feel free to contact me at either (352) 317-5692 or email jim@taxrepgainesville.com

The IRS and Third-Party Contacts

You get a call from your stockbroker or maybe even a customer that they have been contacted by the IRS requesting information about you. The IRS is supposed to notify you in advance of such contacts, but that notification in the past has been less than clear about their intent. The result is that you are taken by surprise and embarrassed while trying to explain to someone why they were called. That IRS process has now been changed for the better.

The 2019 Taxpayer First Act includes a requirement for the IRS to improve their notice requirements before contacting a 3rd Party regarding the assessment or collection of taxes. Effective 8/15/19 the IRS will send a clearly stated notice of their intent to contact which will have a definite time that covers no more than one year in the future. They will also send you this notice a minimum of 45 days in advance of the contact.

Why is this good news? With proper notice you will have an opportunity to satisfy the IRS’s request for information without them contacting the other parties. Better that you provide the documents rather than the government demanding it.

You may also request from the IRS a list name for of all 3rd Parties that they have contacted. This can be a written or oral request made with the auditor.

If you or someone you know has received a Notice of Intent to Levy or some other federal or state tax issue, please feel free to contact me at either (352) 317-5692 or email jim@taxrepgainesville.com.

Dissipated Assets May Maim Your Offer-in-Compromise Application

Dissipated Assets can maim your OIC application.

Let’s say you spent many hours producing an Offer-in-Compromise Application that shows it’s in the Government’s interest to accept your payment offer of 50 percent on each dollar owed. Your tax debt, cut in half. With a smile, you submit it to the IRS.  Many months later, the IRS responds with a counteroffer that is $20,000 higher. Why?

IRS Eyes Form 4797 for Dissipated Assets

It turns out that part of the IRS process when evaluating an OIC Application is to look back at your last three years of tax returns, specifically at Schedule D and Form 4797 where you report sales of assets.

There, they found a big sale of stock that netted you $20,000.   Now they want that money plus your offer amount.

The moral of the story? Always look back in time — three years of returns worth — before finalizing an Offer-in-Compromise Application. Maybe that stock sale was on the earliest return and waiting a year before you make your offer is possible.

Another strategy is that if you owe the IRS and have a big sale that nets cash, make sure you spend it on “allowable expenses.”. Allowable expenses are housing, food, medical expenses, not vacations and personal loans. Paying down a credit card debt is not an allowable expense unless the underlying charge can be categorized as such.

If you or someone you know has received a Notice of Intent to Levy or some other federal or state tax issue, please feel free to contact me at either (352) 317-5692 or email jim@taxrepgainesville.com.

Foreign Financial Accounts Can Cost You Big Time

I represent taxpayers in Gainesville and the state of Florida who have tax issues with the IRS. Participating in the global economy can easily run you afoul of the Government for the failure to report on Foreign Financial Accounts. The civil penalties for failing to report can cost you 50% of your holdings. Here is the real kicker, you may have to file information on these accounts in two different places – the IRS with Form 8938 and Department of the Treasury with Form 114.

The complexity behind these filings is immense, so here are the bear minimums to alert you if you have a potential problem with this issue. You need to worry about this if:

  • You are a US Citizen or Resident, or any US business entity to include corporations, limited liability companies, partnerships and trusts.
  • You have either a financial interest or signature authority of a Foreign Account or Accounts that exceed $10,000 in value at any time over the calendar year.
  • The exception to the both rules are foreign accounts held by IRA’s, 401Ks, and US mutual funds.

From here, life gets really tough in that you must figure out if you need to file with either the IRS or the Department of the Treasury or both. Very likely – both. There are differences as to the threshold amounts requiring filing and whether a US Territory is considered to be a foreign account. For more information, here is the link to the IRS information on FBAR

 

If you or someone you know has received a Notice of Intent to Levy or some other federal or state tax issue, please feel free to contact me at either (352) 317-5692 or email jim@taxrepgainesville.com.

The IRS and Private Debt Collectors

I represent taxpayers in Gainesville and the state of Florida who have tax issues with the IRS. The IRS reinstated an old program in 2019 of using non-government collection agencies to collect IRS tax debts. The IRS’s policy is to only assign accounts that have been “inactive” for more than a year. These collectors are limited in what they can do to collect these debts which is generally a good thing. However, they also do not have the ability to negotiate with taxpayers beyond recommending a payment plan.

What can the Private Debt Collectors do?

    Basically, only two things:

  1. Ask that the debt be paid in full, and failing that
  2. Offer to help with an installment plan.

They are required to be respectful and to not threaten you. If you do feel like you are being mistreated, you can report them with this link.

What can they not do?

  • They cannot negotiate an Offer-in-Compromise to pay less than the face value of the debt. This is an important option that allows the IRS and the taxpayer to come to an agreement that gets the debt off the IRS’s books and allows the taxpayer to get on with their life.
  • Additionally, from what I can tell, they cannot change the taxpayer’s status to “Uncollectable”.
  • They cannot report your debt to a credit bureau. The IRS will also not report you to the credit bureaus, but the filing of a Notice of Federal Tax Lien will almost certainly be picked up by the credit bureau processes.

What should you do if notified of your debt being assigned to a Private Debt Collector?

IRS procedures are to notify you with Notice CP40 that they are assigning your case. You have the right to request that it be reassigned to an employee of the IRS and I recommend you do just that.

Beware

You can bet that there will be a lot of telephone and email scams from people claiming to have IRS authority to collect tax debts. If you have the Notice CP40, there is a Taxpayer Authentication Number on the letter that you can use to verify that the caller is possibly legitimate. If the caller cannot tell you that number, they are most certainly scammers.

If you or someone you know has received a Notice of Intent to Levy or some other federal or state tax issue, please feel free to contact me at either (352) 317-5692 or email jim@taxrepgainesville.com.

What about IRS Levies?

I represent taxpayers in Gainesville and the state of Florida who have tax issues with the IRS. A Federal Tax Levy is the actual seizure of a taxpayer’s assets because of past-due taxes. Usually, it involves a bank account or wages.

There are two types of Levy. A Regular Levy is one that seizes what the taxpayer owns at that moment such as cash in a bank account. The other variation is the Continuing Levy which stays in place to continue to grab wages as they are earned.

The IRS and Qualified Plans

One of the big myths is the idea that the IRS cannot Levy an IRA, 401(k) or other qualified retirement plan. While it may be true that other creditors can’t reach these funds, the federal government and its agencies are exempt from this restriction. If the taxpayer has the right to liquidate one of these accounts, then the IRS has the right to step into their shoes and grab the funds. Worse, the 10% early withdrawal penalty still applies.

What to Do

What is the best technique for avoiding one of these levies? It’s simple, don’t ignore IRS notices. Contact them and do your best to resolve the situation. As long as you are providing returns and information to the IRS to resolve the situation, there is no need for the IRS to resort to their big hammer — the Levy.

Should the IRS Levy your bank account or your wages, not all is necessarily loss. Your bank or employer is required to hold the funds for 21 days before sending it on to the IRS. If you move quickly, you can begin negotiations with the IRS and perhaps get the Levy released before the money is paid over to the IRS.

If you or someone you know has received a Notice of Intent to Levy or some other federal or state tax issue, please feel free to contact me at either (352) 317-5692 or email jim@taxrepgainesville.com.

What about IRS Liens?

I represent taxpayers in Gainesville and the state of Florida who have tax issues with the IRS. IRS Liens are a big part of the IRS Collection Division’s tool kit for collecting back taxes. If a taxpayer owes money to the IRS, there is an automatic tax lien against them, all of their assets, and any future assets that they might acquire.

What the IRS Must Do

    There are three prerequisites to create this “silent” lien:

  1. The IRS must have assessed the tax liability,
  2. The IRS must have given the taxpayer notice of the amount assessed and has demanded payment, and
  3. The taxpayer has failed to pay the amount assessed within 10 days after notice and demand.

Public Notice

These silent liens are not a big problem. But, when the IRS goes public your life cam become miserable in a hurry. They do this by filing a Notice of Federal Tax Lien at the courthouse where you own real estate. The result is an immediate hit on your credit rating. Additionally, you will receive a deluge of mail from national companies claiming that they can make a deal with the IRS for pennies on the dollar. Unfortunately, Offers-in-Compromise to minimize the debt are formula driven. This formula considers the taxpayer’s equity in the assets they own plus their expected future earnings. Superior negotiation skills has very little to do with it.

What to Do

If you receive a Notice of Federal Tax Lien, your best option is to contact the IRS and resolve the issue. Resolution will come in the form of an Offer-in-Compromise or a payoff. It usually takes the IRS a minimum 30 days to issue the lien release.

If you or someone you know has received a Notice of Federal Tax Lien or some other federal or state tax issue, please feel free to contact me at either (352) 317-5692 or email jim@taxrepgainesville.com.

Solid Steps to Avoid IRS Liens or Levies

If you’re a Gainesville (FL) business owner, we share a desire — to avoid IRS tax liens and levies! If your firm is financially sound, with handsome profits and all debts and taxes paid timely, that’s wonderful. Go on vacation and send me a postcard. But few entrepreneurs can avoid all the ditches on the road to success, and many end up with unwanted IRS letters in their mailboxes.

Depending on the tax debt involved, this can lead to fear, panic, and paralysis. I’m also a business owner and have experienced hard times. But as a long-time CPA and former IRS agent, I know my IRS options, keep up with changes in the law, and was able to avoid the deepest ditches or become insolvent.

To start you feeling relief and hope, here’s my key advice on resolving all IRS problems:

Don’t ignore IRS correspondence — replies buy you time and perhaps favor. Never lie to the IRS. Get current with all filings, and make any payments due for your current year tax returns. If you can’t make the full payment due, send less, but send. Figure out your options by filling out IRS form 433 to assess your future cash flows and any assets that might be available for liquidation.

Depending upon how this analysis comes out, you might be able to make an installment agreement, make an offer in compromise, file bankruptcy, or convince the IRS that the tax debt is simply not collectible currently.

If you cannot make a satisfactory deal (you may not like any deal the IRS proposes), the IRS will likely begin collection by attempting to levy your bank accounts and/or place liens on the property you own. It is critical that you request an appeal hearing within 30 days of any lien or levy notice date.

The bigger the number of the debt, the more it pays to get professional representation. If you live in Gainesville, Florida, and have an IRS problem, call me at (352) 317-5692 for a free consultation. You can also send me an email. I’ll get back with you promptly.