How to Handle Un-Confrontable Tax Debt

How to Handle Un-Confrontable Tax Debt

This is a common situation. For whatever reason, your IRS debt has spiraled out of control.  There seems no possible way to pay it.  You keep dreaming of  a fantastic income year to handle it, and it does not happen.  Each year the debt increases, the IRS Notices and Letters flood the mail box, and IRS tax liens, bank levies and wage garnishments trash any hope of financial recovery.

Many Americans do not realize that there are legal provisions to protect the taxpayer who is actually unable to pay his tax debt. Indeed, from an IRS negotiation standpoint, a huge IRS debt that you cannot possibly pay is the Ideal situation to get IRS tax debts cancelled!

It is a mistake to apply standard business logic to IRS tax situations.  Setting aside money so you can cut  a deal with the IRS and get them to accept a lower payment is fruitless. They will simply levy your bank account, take the set-asides, and demand the full balance, plus accruing interest. There is special action needed to deal  with the IRS. You either study up and get it, or hire someone who has it to  represent you.

If your tax debt seems un-confrontable, contact GuardDog Tax at 1-877-758-7797 for a free consultation.

How to File Overdue Returns Without Raising a Red Flag

How to File Overdue Returns Without Raising a Red Flag

I have heard many taxpayers or potential taxpayers say something like “I don’t want to raise any red flags by filing my late taxes” or “I want to stay under the radar”. With a healthy fear of the IRS and the inability to pay their tax debt, this seems to many to be the only solution. A variant of this is “Why file my taxes if I can’t pay them?”

This is an understandable concern. Who wants to receive letters and notices from the IRS! You certainly don’t want to give them access to all of your bank accounts and financial data and send them a notice “I have not filed taxes for ten years.”

This is all fine. But what is the BIGGEST red flag to the IRS? NOT FILING YOUR TAXES. The IRS knows you exist. You have a Social Security Number. They have access to it. They know you did not file a tax return. If you earned wages your employer sent a W-2 to the IRS. If you were an independent contractor, your customers reported paying you to the IRS. If you earned interest, your bank reported this to the IRS. If you earned dividends or profited on stock sales, your brokerage house reported this to the IRS. If you sold a house, this was reported to the IRS. Even if you made no reported income, they may still catch you out. You own a car or a house or are making payments on one. They can find this out and ask where did this money come from. They may even estimate your income based on your mortgage payment!

Yes, it is true that you might seem to get away for it for a while. But you gain nothing. All the time you are “getting away with it”, the IRS is waiting and the bill is growing. The IRS never goes away. They may be slow. They may be stupid. But they are always there. If you can go an entire lifetime without paying, great. You did it! Of course, if you have an estate, they may still get their fingers in. But if you do not make it through your entire lifetime, being under the radar for some years gains you nothing.

When you finally have to file, you will have to pay the penalties and interest for not filing and paying. And the kicker is the original penalties for not filing are 10X those for not paying!

Plus, on late filings, the rules favor the IRS. If you owe IRS money on un-filed taxes, there is no statute of limitations. If you owe them $10,000 on a return you have not filed from say 2010, you will pay that with penalties and interest if they catch up with you and you file in 2015. And suppose they owe you $15,000 refund in 2011, and you also file it in 2015. Sorry, too late. No refund for you. But the 2010 debt, penalty and interest is on your 2015 tax bill.

To file or not to file?

The answer is to file. There really is no benefit in not filing. But how to best do it?

It is important that it is done right. You are doing a late return and any penalty and interest are based on what is owed. So your best bet is to hire an Enrolled Agent and back him up with any data he asks for. If he asks you for your business mileage for 2010, get it for him. 10,000 business miles might give you a tax deduction of $5.000!

If you paid tuition in a past year, that may be a $2500 credit. Enrolled Agents, such as those att Tax Solutions, are the only federally licensed tax experts. We know the law and will look out for your best interests. So when we ask you a question, listen closely and do not automatically say “Who knows? It was too long ago.” Cooperate with us in finding every tax break.

It takes expert knowledge, hard work, and data to get you every legal tax break. We have the expert knowledge and do the hard work. You will have to help us get the data we need.

If you do decide to go it alone, OK. That is your right. You are still welcome to contact us for a free consultation. We will do it by email, phone, or in-person. We will be glad to help, but we won’t do your whole return for free. If you try it alone and wind up with a large tax bill, you may wish to re-consider. Usually the cost of EA tax preparation is a small percentage of the total tax bill. Also, consider why the return was not filed on time in the first place? Was it because you were confused or did not know what to do? If so, this would be another reason to use an EA.

Now for returns six months past the due date, there is no electronic filing. So you will need file your return by sending a paper copy to the same location you would file your regular return. This data is on the tax form itself. If you have received a notice from the IRS, make sure you send your return to the location directed in the IRS notice.

Using an EA

Another advantage of using an Enrolled Agent is he may be able to assist you in getting an abatement in penalties. This is likely to be approved for one year, not for more than one. This can be a big savings if the year has accrued substantial penalties and interest. The rules about abatement are somewhat complex. Very often you will see an IRS representative who will ask you a bunch of questions, type the answers into his computer and get a computer-generated answer back that you are not eligible for an abatement of penalty and why, but the computer also says you can appeal it. Usually the appeal is approved. Sounds crazy. Well, I never said tax rules were sane. The well-trained EA sits through the expected question and answer period, is told the abatement is disapproved which he expected, files his appeal and gets the abatement.

If you cannot pay what you owe, you can request an additional 60-120 days to pay your account in full. You can also request an installment agreement which will likely allow you to pay it off over five years. There is a fee for this and you have to pay interest as well. But if you get this approved and keep your agreement, this protects you from tax levies and garnished wages. You also may be eligible for an Offer In Compromise. Maybe the IRS will accept less than full payment. If you go this route, make sure you check when your debt was assessed. The IRS has a statute of limitations requiring them to collect within ten years of assessment, but this is extended while an Offer in Compromise is under consideration. So if your bill is about to disappear through the statute of limitations, do not enter into an Offer In Compromise. Also, some tax bills are deemed un-collectible if you have no assets the IRS can levy and your income is below a certain level. The level is variable based on the cost of living where you live but you can look it up on the Internet or your Enrolled Agent will find out.

What to do?

If you have any questions or need any tax assistance contact GuardDog Tax for a free consultation. One of our Enrolled Agents (top federally credentialed tax expert) will assist you.  Email us or call our Toll Free Number (877) 758 7797.

How to File an Amended Tax Return

How to File an Amended Tax Return

Of course we all want the original return to be perfect. But sometimes you receive data that changes the return after you have filed. Maybe you made a mistake. Maybe your tax preparer did. Maybe you falsely reported income on your return, and realize you could be caught. What do you do? File an amended return!

(Note: Contacting an Enrolled Agent/Lawyer first may be advisable for dealing with tax or legal consequences.)

An amended return is done to correct or make changes in an original tax return. If you made a mistake in your filing status or failed to take a deduction or apply for a credit, you can file an amended return. One client filed an amended return to change his filing status to Married Filing Jointly and received a substantial refund. Another had done an earlier year tax return, but neither the client nor her tax preparer had realized that paying her son’s college tuition the year before made her eligible for a $2500 education credit. By filing the amended return in a timely fashion, she was able to get that $2500 refund check due to the education credit she was entitled to.

How Do You File Your Amended Return?

The amendment is done on a Form 1040X on paper (not E-file). When we do your taxes at Torchlight Tax Solution, we have all the forms needed right on our computer system. If you go it alone, you can get the needed forms from the IRS. In addition to the 1040X, attach any needed forms or schedules to the amended return.

As this is an amended return, you are already correcting an error. You do not want to make an error correcting an error. So honestly look at why the error was made. If the person doing the return did not know what he was doing, you may want to get someone else. If you were that person, the same applies. It has been said that knowing when you don’t know is a point of wisdom.

You need not file an amended return to correct math errors because the IRS automatically makes those changes for you.

If you are amending more than one tax return, prepare a 1040X for each return and mail them to the IRS in separate envelopes. Note the tax year of the return you are amending at the top of Form 1040X. DO NOT try to save stamp money by putting multiple forms in one envelope. One form might be totally overlooked when the envelope is opened. This is not theoretical. It has actually happened.

If you are filing an amended tax return to claim an additional refund, wait until you have received your original tax refund before filing Form 1040X. (You may cash your original refund check while waiting for the additional refund.)

If you owe additional taxes with Form 1040X, file it and pay the tax as soon as possible to minimize interest and penalties. Generally, to get a refund, you must file Form 1040X within three years from the date you filed your original tax return or within two years of the date you paid the tax, whichever is later. Special rules may apply to certain claims. You can find these rules on the 1040X instructions, or take advantage of your free consultation at a TAX Solutions office.

You can track the status of your amended tax return for the current year on the IRS site. I recommend keeping a copy of your amended return/returns and checking the IRS site at least three weeks after filing using the “Where’s My Amended Return” tool on the IRS website.

Tax Law and Regulations can be a complicated labyrinth to the regular taxpayer. You may plug away for hours only to find yourself at a dead end. It may be wise to get an expert’s assistance. Maybe you are going to have a substantial liability and an Enrolled Agent can get it reduced by an Offer In Compromise. Perhaps you have a debt you cannot pay, and an Enrolled Agent can get it relegated to uncollectible status.

Perhaps the income the debt is based on is bogus and is not taxable income at all, and thus the debt is invalidated. There are many scenarios that require expert skill. One of my clients, for example, was not getting the full advantage of his deductions because he was subject to the Alternative Minimum Tax. One of his deductions was for State Income Tax. In amending his return, I had him not take that deduction, as it did not reduce his tax bill. Next year, when he gets a substantial state refund, it will not be taxable income. Had I taken the deduction, it would have been taxable income and he would have paid thousands of dollars on it in taxes the next year.

Filing an amended return may be aggravating experience to many a taxpayer. Sometimes it may result in substantial savings. If you feel confident in your tax expertise, you are welcome to go it alone.

I do not recommend this. Instead, here is what you do. Call or email us for your FREE consultation. One of our Enrolled Agents will review you situation and recommend solutions based on this. You can still go it alone, but chances are our expertise will save you money and worry. Our fees are a bargain compared to the money and aggravation you save.