Articles Posted in Tax Problems

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There are major differences in the way that the NY Tax Department and the IRS view a tax debt.

The NYS Tax Department, especially with unpaid sales tax, views the unpaid taxes as money that needs to be paid to them. They are less willing than the IRS to understand that a taxpayer will not be able to pay them back all the taxes, interest (in the 7.5% to 14.5% range) and penalties they owe. They want to be paid back in up to five years through a payment plan, even though legally they have twenty years to collect. When such a payment plan becomes impracticable since the monthly payments are not affordable, an offer in compromise may then be the best solution since I find that the offer in compromise group is willing to work out a fair deal to resolve the tax issue.

The IRS, on the other hand, is more flexible than NYS Tax Department since if you can prove to them that you only have enough income to pay basic living expenses (rent, food, transportation, etc),  they will allow the tax debt payment be differed until your income rises to a level where you can pay toward your tax debt and also pay basic living expenses. The IRS calls this “status” currently non-collectible, and it helpful even though interest (usually about 3-4%) is charged on the unpaid debt, since this status allows for a normal lifestyle and allows for greater planning to take place to resolve the tax debt through an offer in compromise. I have also found that the IRS allows for more flexible payment plan arrangements, such as tax payment plans that  take into account seasonal income issues (contractors, etc in the winter), and modified payment plan where for some period of time (six month, one-year, etc.) the payment is lower to allow the taxpayer to adjust their living expenses to enable them to make the payments. Lately, NYS Tax Department is less willing to entertain the modified payment approach.

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With the IRS Fresh Start Program, It is easy to think the IRS is not an easy organization to deal with but there is a glimmer of hope. From my experience, that is true most of the time but the IRS Fresh Start Program does have one glimmer of hope. One aspect of their collection efforts where they do show kindness is when they view a taxpayer as currently non-collectible. What this means is that even though the taxpayer owes money they are unable to pay off the tax debt based on the taxpayers current income and expenses. From my experience, a taxpayer who makes less than $50,000 a year and has court ordered payment (such as past debts, child support) often falls within this category and the IRS Fresh Start Program can assist them. The tax debt still accrues interest. However, the delay buys time to submit an offer in compromise to resolve the tax problem.

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We are all human and therefore prone to making the occasional mistake or two. This includes financial errors concerning one’s personal or business expenditures as well as tax-related faux pas. This is something that even the Internal Revenue Service acknowledges and seems to understand. However, depending on the type of mistake, the agency’s response may not seem very forgiving.

The IRS lists the following tax-related mistakes as being among the most commonly made by taxpayers.

  • Failing to provide or making errors when entering Social Security numbers

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Each year, countless Americans are duped by so-called tax preparers who commit identity theft or fraud, or at the very least, file incomplete or inaccurate returns. Possibly contributing to this problem is the fact that the IRS lost the ability to regulate the licensing of tax preparers who are not attorneys or CPAs last year following a Supreme Court ruling.

However, a new bipartisan bill that has been proposed in Congress would give the Department of the Treasury and the IRS the authority to regulate tax preparers once more. As a recent Forbes article reported, the bill would allow the two agencies to oversee “all aspects of Federal tax practice, including paid tax return preparers.”

Ultimately, this would mean people who prepare taxes for profit will once again have to pass exams, fulfill continuing legal education requirements and maintain a valid preparer tax identification number in order to be licensed to prepare taxes.

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Are you one of the unlikely New Yorkers who have been tagged for audits by the IRS this year? If so, take a deep breath because we are here to provide you with the information you need to get through this.

What does it mean to be audited?

A tax audit means that the IRS is going to look at your income tax returns a little more closely in order to make sure that you paid the correct amount of taxes. This includes looking at your income and deduction to make sure that they are accurate.

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Tax season is in full swing and tax professionals across New York and the rest of the country are hard at work. But do you know who else is hard at work? Tax scammers. Tax season can be stressful enough as it is, and falling for a scam only makes it that much worse.

The IRS recently released a list of the “dirty dozen” scams tax preparers need to watch out for this year. Here are several of the scams included on the list:

Phone scams. For years, scam artists have tried to prey on taxpayers by making threatening phone calls pretending to be IRS agents, and the IRS said the phone scams have surged in recent months. Remember that the IRS will never demand immediate payment or call about taxes without first issuing you a bill. The IRS will also never threaten to have you arrested or deported, as some tax scammers claim.

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As we discussed in an article on our website, most people don’t think of contacting a tax lawyer until they are facing some kind of problem such as being accused of not paying taxes or being audited. However, it’s best to work with a tax lawyer before that happens in order to avoid these problems in the first place.

For example, one time New York residents may run into tax issues is after receiving an inheritance. Typically, receiving an inheritance is not a taxable event, but there can be tax controversies that arise and greatly complicate the inheritance for the beneficiary or the executor of the estate.

In order to avoid this, it’s best to consult a tax attorney who can work with the estate planning lawyer to make sure that all potential tax issues are resolved.

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While all of us would like to have more money, few of us like the idea of having to pay taxes and deal with the IRS in connection with that wealth. For better and for worse, those with significant wealth also end up owing significantly more taxes and having more potential to catch the attention of the IRS. A good example of this is actor Robert Redford, who is currently suing the state of New York in connection with a tax bill. The bill, which goes back to 2005, is for a total of $1,568,470, nearly half of which is for interest.

The bill is connected to the sale of Redford’s ownership stake in the Sundance Channel, which features independent films. Redford, who didn’t even know about the bill until recently, argues in his suit that he is being subjected to double taxation and that he already paid taxes for the sale in Utah, since all operations are based in Utah.

What is interesting is that New York tax authorities looked at papers for a company transaction made in 2008 and approved it; which is part of why it is so odd that now Redford is being hit with such a large bill and massive interest. In his complaint, he asks that the tax bill be entirely thrown out.

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This month marked 25 years since “Seinfeld” debuted on television. And while it is often described as a “show about nothing,” but in reality it was about all of the ordinary things New Yorkers go through in life, including paying taxes.

Recently, a Forbes article highlighted the fact that taxes and the IRS were discussed in at least 10 episodes. One episode talked about gift taxes, another discussed classifying workers as independent contractors and there was even an episode that highlighted the importance of mailing dates.

In the episode “The Package,” Jerry and Kramer discuss “write-offs” — a tax phenomenon that most Americans don’t quite understand. In the episode, Kramer advises Jerry that he should tell a company that an item he purchased was broken during shipping.

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If you are one of the many New York residents who are waiting until the last minute to file your 2013 income tax return, you may be starting to panic and desperate for help.

However, before you turn to just any tax preparer, make sure that you find someone you can trust and that you find out their fees upfront.

As we reported in a past post, the IRS does not have the authority to regulate tax preparers, which means that many so-called tax experts are not certified or properly-trained to deal with complicated tax matters.