Do you know what to expect from your tax return? If you get a tax refund, then, you’ll have no problem figuring out how to use the money! But what if with all the current changes to the Tax Code you will end up owing the IRS and can’t pay it immediately? You may then ask the question, is there a tax attorney near me?

a5-300x300Many find themselves in a similar situation each year. They filed their taxes and had a life changing event that also impacted the taxes they pay. For instance, one client filed his taxes after buying a condo with money he had withdrawn from his 401K account. Smart or not, he did it not realizing the income tax implications and ended up with a federal tax debt of about 15,300.

There are many reasons for people ending up with a tax debt, but income tax debts are most common for the individual taxpayers.

It’s a somewhat painful road to take, but people manage to deal with their own taxes issues when they are under $10,000 and do not need a tax attorney to offer tax help services to them. And so can you. That’s what a person who called me and explained they owed about ~$8,700 in taxes. I gave them a frame work of how he could solve his problem without me  since the tax debt was small. He worked out an installment plan with the IRS and paid his debt off in about a year. The interest rate is compounded (interest on the accumulated unpaid interest and also on the original principal) that will add up, and tax penalties for not paying the taxes on time, so its advisable to pay off the debt quickly. The steps are:

a10-300x300a) Call IRS or state as soon as you realize you can’t repay your tax obligation.

If you filed your tax return, and determined a tax liability, deal with it immediately. Don’t wait. It’s going to make things worse if you don’t. Besides your original tax debt you may end up owning loads of back taxes, tax levies and penalties. Those add up pretty fast! Get ahead of the problem as quickly as possible. If you owe a lot, get tax help from a qualified professional.

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Tax Relief: From our experience as New York Tax Attorneys, if you owe the IRS taxes and presently are unable to make a payment in full to satisfy the debt and you have either assets or regular income to make good on your debt, you may very well be able to arrange an installment agreement of some form with the IRS. This page discusses the various types of tax relief installment agreements can provide and the conditions under which you may be qualified to obtain this form of IRS relief.

There are 3 main steps to set up an IRS installment agreement, each with its own special considerations:

Step 1: Before you can establish an IRS installment agreement:  First, file all your past tax returns

In general, the IRS imposes a penalty against any person who has the obligation to either collect, or pay over employment taxes that are withheld from an employee’s salary, when those monies are not paid to the IRS.  Often this happens, when a business is having financial difficulties and uses the payroll withholding to pay other expenses. IRS Tax Relief is then needed.

The Trust Fund Penalty is not a true penalty. It is the amount of monies that should have been paid to the IRS, that were taken from the employees wages (federal withholding taxes, and social security). Therefore, it is actually a portion of the the wages which were not paid, and not a true “penalty”.  Therefore, this penalty does not include interest and penalties charged against the employer for the failure to pay in the taxes owed. However, once the assessment is made against the person, interest will begin to accrue and you will need IRS Tax Relief.

a7-300x150The IRS can collect from an officer, member, partner or other owner or operator of the business. It sometimes comes as a shock to a person that they are liable for the unpaid taxes since they may have been an owner of the business but not in charge of the financial affairs of the business. In addition, the penalty can be assessed against more than one person, but once it collects it from any other party your liability will also be reduced.

Every month I am contacted by a new client who has a tax issue from the 1990’s. You may wonder if it is even possible to have a tax issue going back that far in time. The answer is yes, I hate to say since if you did not a tax return, the IRS will not start the statute of limitations on that year, and its still an “open year” where they can assess taxes against you. The other scenario of when old tax debts are still relevant is where the State, such as New York, has 20 years to collect the tax. Therefore, they are chasing people for tax debts for these years since the twenty years may not have expired yet (since there is almost always a delay after the end of a tax year and when the tax return is audited) so this tax debt is still on the books.

Therefore, it is important to maintain good records, and to maintain them forever. This may seem harsh and a painful experience, but its better to keep good tax records than to pay a tax bill that is inflated greatly with interest if you made a mistake and did not file a tax return when you thought it was filed (which is easy to happen with e-filed tax returns) and need your tax records to file a new tax return.

a9-300x150The Lucky number is twenty three years. This is the number of years you should keep your tax records, since you are covered in case of some mistake, and need to prove what happened. This is not as bad as it seems since other permanent records (deeds, Wills) need to be kept forever. Often, it is less paperwork than you think if you get rid of the extra paperwork and envelopes that come along with the tax records. I am sure your still in shock. 26 years is not a short period of time, but it worth it when needed to prove that you paid the correct taxes.

A client who has unpaid IRS or State taxes and is needing back taxes help, is not without defenses to the IRS or State collection process of his or her outstanding income tax liability. In determining which defenses are available for their tax case,  the taxpayer and adviser will analyze many options to determine the best course of action.

  • Determine whether the income tax was properly assessed to make sure you need back taxes help. While the IRS does not ordinarily does not assess an incorrect tax by not processing a tax return correctly, the IRS frequently will determine the tax owed of a taxpayer who has not filed an income tax return. In these cases, the IRS often computes an incorrect tax since they were not aware of any of the particulars of the taxpayer, such as the number of child they have, whether they are married, or if they had business expenses (which would offset business income).
  • Make sure that the statute of limitations (SOL) on collection of the tax debt has not expired. Normally the IRS has 10 years from when they assessed the tax to collect it. This period of time can be increased if you file an offer in compromise, or pending payment plan. Therefore, it makes sense to double check the IRS on the dates your tax debt expires since they sometimes miscalculate the date.

When the Internal Revenue Service analyzes a taxpayer’s ability to pay, they follow certain rules contained in the Internal Revenue Manual.  Depending on whether a revenue officer has been assigned to your case, either a form 433-F or 433-A will need to be completed. From the IRS’s perspective, these forms are used to compute the amount of money you can pay them each month. The problem with this approach from the taxpayers perspective, it that the IRS uses certain unrealistic expense standards that do not take into account such items as your child’s sports expenses, vacations, or regional food expenses. Therefore, it takes skill and effort to formulate a plan to “sell” to the IRS of the actual amount that is available to them each month.

a2-300x150Below are the relevant sections are of their manual:

Financial Analysis Handbook — IRM 5.15.1 Excerpts

Due to a law passed by the United States Congress in 2015, the Internal Revenue Service must hire third party tax debt collection firms when they have unpaid taxpayer tax accounts that are not being worked on by the IRS collection group. These private collection companies are hired to either create tax payment plan with the taxpayer, or to gather financial information of the taxpayer to assist with collection activities (levies, liens, etc.). The payment plan through a private vendor would be similar to the payment plans that the IRS enters into, and as such would either be tailored to the financial issues facing the taxpayer, or be a payment that is spread over a certain term, such as a sixty or eighty four months’ time period.

IRS-building-300x200The inactive tax accounts subject to these rules include taxpayer accounts that have 1) been removed from active IRS collection inventory (for instance, they cannot locate the taxpayer), 2) where there is no IRS employee assigned to the collection case, or 3) at least one year has passed since the IRS collection group obtained the case, and it was not assigned to a revenue officer or other field collection person (for cases over $250,000).

If you have filed an offer in compromise, or some other collection alternative, your account will not be transferred to a third-party collection firm. Therefore, innocent spouse claims, deceased taxpayers’ debts, or cases that are being litigated or part of an exam, will be excluded from these rules, and only be subject to the normal IRS collection rules.

Most taxpayers think because they are married, that they need to file a joint income tax return. That is not correct since they can file separate tax returns based upon their own income and expenses. In some cases when a couple divorces, and they filed jointly,  it is found out not all of the income was reported. For instance, take this example:

I recently reviewed tax returns jointly filed by Ms. and Mr. Soris for the tax years 2015 to 2017. During that time frame, Ms. Soris operated a business as a fitness coach. The majority of the income she earned was from cash transactions and PayPal. From a review of the records provided by PayPal, not all of Ms. Soris’s income was included in their joint income tax returns. My calculation showed $150,000 was missing from gross receipts, just looking at the PayPal data alone. The good news, both the Internal Revenue Service and the New York State tax department have formal written programs and policies where taxpayers can voluntarily report and disclose under-reported income with their tax returns. It is important to keep in mind that the main goal of the tax authorities is to collect tax, and not to prosecute people. Therefore, if the taxpayer cooperates and signals a clear desire to repay the taxes owed, they will usually avoid a criminal charge and prosecution.

a5-300x300The policy rules of the Internal Revenue Service, that is contained in their Internal Revenue Manual section 38.3.1 (08-11-2014), a taxpayer can correct problems with their tax returns that may be viewed as potentially criminal in nature by following specific voluntary disclosure steps. The steps are 1) communicating to the IRS the issue (normally through an amended tax return being filed providing the details of the issue, along with a letter demonstrating a willingness to cooperate with the IRS in determining their correct tax liability), and 2) making good faith arrangements to pay the IRS back.

When a client has a tax problem, that may also be a criminal tax problem since they crossed the line of mere negligence to civil fraud, extra steps are needed to protect the clients interests. As in all cases, there is not a bright line between civil and criminal tax cases, and many tax cases with the potential for criminal prosecution are resolved through civil proceedings.

a9-300x300A criminal tax case involved when the taxpayer willfully violated the tax laws. The most common examples of this is tax evasion or failing to file a tax return. Typically, the government must institute criminal charges within six years of the due date of the tax return. Criminal tax cases are typically investigated within the IRS by special agents. Many cases start of civil audits, and as information is uncovered that leans toward potentially criminal conduct, the audit can shift to the criminal investigation group within the IRS. Therefore, it is important to recognize the warning signs  that the person handling the civil audit, whether it is a compliance officer of revenue agent, is going to suspend the audit and refer the case to the criminal investigation unit. Since the IRS will not tell the taxpayer about the potential criminal investigation, the clearest indicator that the case was referred is it is difficult to reach the civil auditor after many attempts.   However, before that happens there are warning signs to look for that the case is headed in the direction of a criminal issue when during the course of the audit the auditor asks for many details related to omitted income, the audit is taking longer than normal, the auditor is issuing summons to third parties, or is making copies of all the relevant documents. Most seasoned tax professionals can spot this issue fairly easy.

The next issue therefore, is how to handle the case at that moment you suspect a criminal issue. A IRS special agent will normally want to visit the taxpayer at their home, as a surprise tactic to gather information. The  taxpayer should not let the agent into the home, and should tell the agent they are retaining council to assist with the matter.  Since this initial interview may be the most important event during the case, it has to handled with care. Many honest taxpayers believe that they can talk their way out of trouble, but then they start making admissions and factual misstatements that criminally hamper their case. In most cases, a tax attorney should be the person explaining to the IRS why certain items are missing from the tax returns, and the taxpayer should remain quiet.