Tax Debt Help - IRS Collection Process

Notice and Demand

If the IRS examines a taxpayer’s return and finds an error which results in additional tax due, they will send a bill (including tax, interest, and penalties), which is a notice of tax due and demand for payment. This letter is called a CP2000 or L1058. In most cases, the IRS give the taxpayer 10 days from the date of the notice of tax due before they may take enforcedcollection actions. The taxpayer will receive Publication 1 with the initial notice and demand for payment.

Notice Of Federal Tax Lien

Once a notice and demand for payment is sent to a taxpayer and they neglect or refuse to fully pay the tax within 10 days, the IRS files a notice of federal tax lien. This is a public notice to the taxpayer’s creditors that the Government has a claim against the taxpayer’s property.
The IRS will issue a Release of the Notice of Federal Tax Lien for the following reasons:

· Within 30 days after the taxpayer pays the tax due in full (including interest and other additions) or by having it adjusted, or
· Within 30 days after the IRS accepts a bond that the taxpayer submits, guaranteeing payment of the debt.

Notice of Intent to Levy

Once this notice is sent to a taxpayer, they have 30 days to pay the tax, or face collection by levy. This notice may be given to the taxpayer in person, left at his/her residence or place of business, or sent by certified or registered mail to the taxpayer’s last known address.
Levy

A levy is the taking of property to satisfy a tax liability. Once served, a levy on salary or wages continues in effect until it is released, or the tax liability is satisfied or becomes unenforceable due to lapse of time. The IRS may levy up to 85% of salary or wages until the debt is satisfied.

Taxpayer’s should also know that they must be compliant in filing delinquent tax returns before a levy can be released.

There are certain properties that are exempt from being levied. The following are a list of those properties:

· School books and certain clothing
· Fuel, provisions, furniture, and personal effects for a household, totaling $7,720
· Books and tools used in trade, business or profession totaling $3,860
· Unemployment benefits and certain annuity and pension benefits
· Workmen’s compensation and certain public assistance payments
· Certain service-connected disability payments
· Salary, wages, or income included in a judgment for court-ordered child support
· Principal residence, unless prior written approval of the District Director or Assistant District Director is secured, or jeopardy exists
· A minimum weekly exemption for wages, salary, and other income based on the standard deduction plus the number of allowable personal exemptions divided by 52.

Statute of Limitations

Statute of limitations for assessing tax. Statutes of limitations generally limit the time the IRS has to make tax assessments to within three years after a return is due or filed, whichever is later.

Statute of limitations for collecting tax. Statute of limitations generally limit the time the IRS has to collect taxes to within 10 years after the taxes have been assessed.

Tax Debt Help - Reason to Pay on Time

If you file on time, but don't pay the entire balance you'll be charged a late payment penalty of 0.5%, up to 25%, of the unpaid tax.

You may be penalized up to 47.5% of your unpaid tax if you don't file your return on time.

If you request an installment payment plan for your taxes, and the IRS accepts it, you'll be charged a fee plus interest on all unpaid taxes.

It's best to file on time and pay as much of your balance due as possible. If you didn't do this by the tax deadline, you probably fit into 1 of 3 categories.

You filed on time but didn't pay all of your balance due.

You'll generally have to pay a late-payment penalty of 0.5% of the tax owed for each month, or part of a month that the tax remains unpaid after the due date, up to 25% of the tax due. The 0.5% rate increases to 1% if the tax remains unpaid after several notices have been sent to you, and the IRS issues a notice of intent to levy. The penalty will not be imposed if you can show reasonable cause for the failure to pay.

You haven't filed or paid your balance due.

If you did not file on time, and you owe tax, you may owe an additional late-filing penalty unless you can show reasonable cause. The combined penalty is 5% (4.5% late filing, 0.5% late payment) for each month, or part of a month, that your return is late. The late-filing penalty is generally imposed for a maximum of 5 months. However, after 5 months, if you still have not paid, the 0.5% late-payment penalty continues to run, up to 25%, until the tax is paid. So, the combined maximum penalty may be as high as 47.5% [(4.5% x 5 months) + 25%].

Note: If your return is more than 60 days late, the minimum late-filing penalty is the smaller of $100 or 100% of the tax required to be shown on the return.

You're paying taxes through an installment agreement.

If you or your tax professional filed Form 9465 requesting an installment payment plan, and the IRS accepted your installment payment plan, they will charge you an administrative fee plus interest on the unpaid tax. If you filed a timely return and are paying your tax due according to an installment agreement, the late-payment penalty is 0.25% (instead of 0.5%) for each month, or part of a month, that the tax remains unpaid.

Regardless of which category you fall into, you'll owe interest on any balance due from the due date of the return until the date of payment. The interest rate is adjusted every 3 months.

Tax Debt Help - "Why File An Extension"

Why file an extension?

Without a valid extension, a late-filed return is subject to a 5% per month penalty on any unpaid balance. The combined penalties for late-filing and late-payment can be as much as 47.5% (see below) of the unpaid tax.

Filing Extension

File Form 4868 to automatically extend your filing deadline 6 months to Oct. 15.

Payment Required

An extension of time to file is not an extension of time to pay. When you file your extension request, estimate any balance due and pay as much of it as you can. If you file an extension and have paid at least 90% of the tax by April 15, the late-payment penalty does not apply. Interest will be charged on any unpaid balance.

If you don't file your return by Oct. 15, both the late-filing and late-payment penalties apply. If both penalties apply, a penalty of up to 25% of the balance due will be charged in the first 5 months. The 0.5% failure to pay penalty will continue to apply for up to 45 more months. Note: Interest on the unpaid balance and accrued penalty will continue to be charged until the balance due is paid.

Individuals Outside the U.S.

If you reside outside of the U.S. on April 15, you have an automatic 2-month extension until June 15 to file. You don't need to request this extension or submit any forms. If you need more time than this, file Form 4868 by June 15 to get an additional 4-month extension to Oct. 15. Note: You are not entitled to the automatic 2-month extension if you are merely taking a vacation or are on a business trip outside of the U.S.

Tax Help - Dealing With Estate Tax

If you gave someone gifts valued more than $12,000, you must report the total gift to the IRS and may have to pay tax on the gifts. If you're Married Filing Jointly, the tax-free amount doubles to $24,000. If you or your spouse make a gift to a third party, the gift can be considered as made half by you and half by your spouse (known as gift splitting).

The person who receives your gift doesn't have to report it to the IRS or pay gift or income tax on its value.

Taxable Gifts

Gifts include money and property, including the use of property without expecting to receive something of equal value in return. If you sell something at less than its value or make an interest-free or reduced-interest loan, you may be making a gift. There are some exceptions to the tax rules on gifts. The following gifts don't count against the annual limit:

tuition or medical expenses you pay directly to an educational or medical institution for someone's benefit
gifts to your spouse
gifts to a political organization
charitable donations

Estate Tax

The money and property you own when you die (your estate) may be subject to federal estate tax if the estate is worth more than the applicable exclusion amount.

Most relatively simple estates (cash, publicly traded securities, small amounts of other, easily valued assets, and no special deductions or elections or jointly held property) with a total value under $2 million and a date of death in 2006 or 2007 do not require the filing of an estate tax return.

Additionally, the person who receives your estate generally won't have to pay an estate tax or an income tax on the value of the inheritance.

Reduced Tax on Appreciated Securities

If you give your child appreciated securities (such as stock or mutual fund shares), the tax bill on the increase in value is passed on to the child along with the gift.

For example, stock you bought for $2,500 is now worth $5,000. If you sold the stock, you'd owe tax on the $2,500 gain. The 15% rate on long-term capital gains means it would cost you $375.

If you gave the shares to your child, the same $2,500 would be taxed, but at your child's rate. His or her income may be low enough to allow him or her to be taxed at the 5% long-term capital gains rate. If that's the case, the tax bill would be reduced to $125.

Tax Help - Military Taxing

If you’re a member of the U.S. Armed Forces who serves in a combat zone, you can exclude certain pay from your income. You also have additional time to make a qualified contribution to an IRA. A combat zone is an area designated by the U.S. President by Executive Order as an area in which U.S. Armed Forces are engaging in or have engaged in combat.



Income
The following income received during service in a combat zone doesn’t have to be reported as gross income:

active duty pay earned in any month served in a combat zone

imminent danger/hostile fire pay during a month served in a combat zone

re-enlistment bonus if re-enlistment or voluntary extension occurs during a month served in a combat zone

Pay for accrued leave — the department of defense must determine the unused leave was earned during the month served in a combat zone

pay for duties as a member of the Armed Forces in clubs, messes, post and station theaters, and other non-appropriated fund activities earned during a month served in a combat zone

awards or achievement pay made for a suggestion or achievement made in a month served in a combat zone

Student loan repayments if the entire year of service required to earn the repayment was performed in a combat zone

If you're a commissioned officer (other than a commissioned warrant officer), the combat pay exclusion for any month is limited to the highest rate on enlisted pay (plus hostile fire/imminent danger pay, if any).

You do not claim an exclusion for combat pay on your tax return. The excludable amount should not be included in your Box 1 wages on Form W-2. If an excludable amount is included in your Box 1 wages, you should get a corrected Form W-2.

If you served in a combat zone for 1 or more days during a particular month, you’re allowed the above exclusions for that entire month. Combat zone service includes any periods you are absent from duty due to illness, wounds or leave. A person is considered to be serving in a combat zone if he or she becomes a prisoner of war or is missing in action if that status is kept for military pay purposes.

You can also exclude military pay earned while hospitalized (you don’t have to be hospitalized in the combat zone). Your hospitalization must be due to having served in a combat zone. This is true even if you’re hospitalized after combat zone service. For more information, check with a tax professional.


Combat Zone Considerations

Military service outside the combat zone is, for tax purposes, considered to be inside a combat zone if the service is in direct support of combat zone military operations and the service qualifies you for special military pay for duty subject to hostile fire or imminent danger.

But in these situations, you’re not considered to be in a combat zone:
You’re present in a combat zone during leave from a duty station located outside the combat zone.

You pass over or through a combat zone during a trip between 2 points which are outside a combat zone.
You’re in a combat zone only for your personal convenience.


Hazardous Duty Areas

Members of the Armed Forces who serve outside a hazardous duty area in support of operations in a hazardous duty area are treated as serving in a combat zone only for the purpose of getting an extension. Meeting additional requirements may entitle you to full combat zone tax benefits.

Tax Debt Help - Installment Agreement Automation

IRS Automates Installment Agreement User Fees

WASHINGTON —The Internal Revenue Service announced today that it has automated the user fee calculations for taxpayers entering into an installment agreement.

Previously, taxpayers were required to submit a paper Form 13844 to request a reduced user fee. Now, eligibility for reduced fees is determined automatically by the IRS.

An installment agreement allows taxpayers to pay their full tax debt in smaller, more manageable amounts, though penalties and interest continue to accrue on the unpaid portion of that debt. Taxpayers are charged a one-time fee to set up an installment agreement with the IRS. A reduced fee is available for qualifying taxpayers.

Generally, user fees are $105 for non-direct debit agreements, $52 for direct debit agreements and $45 for reinstatements. However, the fee is only $43 for taxpayers with income at or below certain U.S. Department of Health and Human Services poverty guidelines.

All taxpayers entering into an installment agreement will automatically be considered for the reduced user fee using information the IRS already has on hand from the taxpayer’s current tax return. Those who qualify will be charged the reduced $43 fee for all installment agreements established through any method. These include the Online Payment Agreement application on the IRS Website at IRS.gov, telephone, face-to-face or mail.

“This new process will improve service for and reduce the paperwork burden on taxpayers applying for an installment agreement,” said acting IRS Commissioner Linda E. Stiff. “Now, taxpayers who are eligible for the reduced fee will automatically receive it without extra work on their part.”

In some instances, taxpayers may receive an installment agreement acceptance notice from the IRS but not a reduced user fee even though they believe they still should qualify for one. In that situation, taxpayers can request a reduced fee by completing Form 13844, Application for Reduced User Fee for Installment Agreements, and submit it to the IRS within 30 days of receipt of the installment agreement acceptance notice. The IRS will evaluate the application and respond to the taxpayer. Form 13844 is available on the IRS Web site at IRS.gov or may be ordered by calling toll-free 1-800-TAX-FORM (1-800-829-3676).

The IRS reminds the public that the Online Payment Agreement application launched in 2006 provides an easy way to resolve tax liabilities and allows eligible taxpayers or their authorized representatives to self-qualify, apply for and receive immediate notification of approval.

Taxpayers must have filed all required tax returns to use the online application. Agreements can be established on existing outstanding balances or on pre-assessed amounts from current year Form 1040 liabilities.

Three payment options are available when applying online:

Payment in full — Taxpayers pay within 10 days to avoid interest and penalties.

Short-term extension — Taxpayers receive a short-term extension of up to 120 days. No fee is charged, but additional penalties and interest will accrue.

Monthly payment plan — The appropriate user fee is added to the amount owed, and interest and penalty continues to accrue on the unpaid balance.
To access the online application, use the pull-down menu under “I need to...” on the front page of IRS.gov and select “Set Up a Payment Plan.” The application is available Monday through Friday from 6 a.m. to 12:30 a.m., Saturday from 6 a.m. to 10 p.m. and Sunday from 4 p.m. to midnight (all are Eastern Time).


Related Items:

IRS Announces Installment Agreement User Fee Increases for Some Taxpayers
Application Available for Reduced Installment Agreement User Fee
Online Payment Agreement (OPA) Application
Payment Plans, Installment Agreements

Finalizing Your Return

Finalizing Your Tax Return

What if You Owe. It is very important to file your tax return by April 15th, or get an automatic extension of time to file. Why? The penalty for failing to file a tax return is 5% per month – per month, not per year! – for every month that you have not filed your taxes. The maximum penalty is 25% of the taxes you owe.

By contrast, the penalty for failing to pay is half of one percent (0.5%) per month of the amount of taxes you owe. The IRS will also charge you interest on the amount of tax you owe.

Owing additional tax at the end of the year isn't fun. But here's how to get a handle on the situation.

File your taxes, or get an extension.

Pay as much as you can by April 15th.

Consider paying your taxes by credit card, or setting up a payment schedule where taxes are automatically withdrawn from your checking account.

If you will not be able to pay off your balance in a few months, ask the IRS for an installment agreement by calling their toll-free number at 800-829-1040. An installment agreement is a monthly payment plan.

To avoid having to owe the IRS next year, you should increase your income tax withholding. Fill out a new Form W-4. Use the worksheet on the Form W-4 to calculate a precise withholding amount.

Third Party Designee. If you want someone else to be able to discuss your tax return with the IRS, fill out the Third Party Designee section of your tax return.

This is helpful if you want your tax preparer to be able to talk to the IRS about any questions or concerns the IRS might have about your tax return. You can also use this area to designate a family member, caregiver, or other trusted person to deal with the IRS on your behalf.

Your 3rd Party Designation will expire one year from the due date of your tax return.

Signing. You are required to sign your tax return. By signing the return, you are declaring under penalty of perjury that your tax return is accurate. You must not cross out, put a line through, or white out the perjury statement just above the signature line. If you do so, the IRS will consider your tax return "frivolous" and assess a $500 civil penalty.

You are required to date your tax return. The date must be the day you actually signed the tax return.

Giving the IRS your occupation and telephone number is optional, but highly suggested.

Paid Preparer's Use Only. If you have paid a tax professional to prepare your return, the preparer must fill out this section of the tax return. He or she must sign and date the return, must write down their Social Security Number or Preparer's Tax ID Number, and provide other information about the tax firm. Do not let your preparer leave this area blank.

If someone is helping you to prepare your tax return, such as a friend, relative, or volunteer, they do not need to fill in this information if they are not being paid to help you.

Assembling Your Return. Staple one copy of each of your W-2 statements to the front of your tax return. If you have other schedules and statements to file, sort them from lowest to highest using their Attachment Sequence Number in the upper right-hand corner of the form. Staple everything together.

Mailing Your ReturnMail your tax return to the right IRS Service Center.

IRS Resources
Addresses for IRS Service Centers

How to Prepare Your Tax Return for Mailing

Pay Your Taxes on the Web

More Tax Filing Resources
File an Extension

IRS Payment Plan

Tax Debt Strategies

Does the IRS have a "Blind-Eye" for Federal Employees?

The Senate Finance Committee found in April that more than 450,000 federal employees and retirees owe back federal taxes (totaling about $3 billion), including almost 5 percent of the employees and retirees of the U. S. Tax Court. [U. S. Senate Committee on Finance (press release), 4-25-07].

Tax Advocate groups and Tax Protestors are having a field day with this issue. With the IRS cracking down on middle class American's tax debt, it appears to me that there is a double standard with the IRS.

Spreadsheets obtained by Washington, D.C., radio station WTOP under the Freedom of Information Act show that hundreds of thousands of government employees failed to file a tax return for the 2005 tax year. No federal agency was exempt, though "tax compliance" varied from one agency to another.

Seventy-one employees in the Executive Office of the President, which includes the White House, owe $664,527 in taxes for 2005. Approximately 20 of those employees have entered into an IRS payment plans, bringing the EOP balance down to $455,881 owed by 50 employees.

"In the past, IRS officials have been quick to compare the federal workers' rate of compliance with the general public's. But this year, the IRS is not able to track the compliance rate for the general public." - WTOP

Documents proved that one-third of the employees, or 149,500, entered into payment plans with the IRS. The United States Postal Service was the highest level of noncompliance, and the Treasury Department had the lowest level.

The IRS enters into a contract with new employees that make it a requirement to keep their 1040 filings and payments current or it is automatic grounds for discharge. If the IRS does not enforce the provisions of their own employment contracts, how can they expect and pressure taxpayers to enter into payment arrangements. Instead, they issue an IRS Levy, Garnishment and even attach personal property?

As a veteran Tax Advisor/Preparer, I have seen how the IRS deals with delinquent filers/payers.....smells like double standards and a "blind-eye" to me!

S. Raines

Senior Tax Preparer/Advisor

Effectur, Inc. (www.effectur.com)