Questions for the Tax Lady: October 18th, 2010

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question: If an "Offer in Compromise" was rejected in 2007 for taxes owed 2001 and 2002, does this affect the Statute of Limitations?

Generally, the IRS has 10 years to collect any unpaid taxes from you. The clock starts running when the IRS officially assesses the taxes – not when you filed the return, or when the taxes were originally due.

Submitting an Offer in Compromise causes the Collection Statute Expiration Date (CSED) to be suspended; which means the clock stops running once the IRS receives your offer and determines that it is processable. Once your offer was rejected, the clock started running again. This means that if you Offer in Compromise was under review for 90 days, an additional 90 days was added on to the CSED dates for you 2001 and 2003 back tax debt.

To sum it up: Your new CSED will be extended by the length of time the IRS reviewed your offer, plus 30 days. For example, if your original CSED was May 15, 2012, and the IRS took 4 months to review your offer before ultimately rejecting it, your new CSED would be October 15, 2010 (add the four months the IRS was reviewing your offer, add on 30 more days).

Question: I filled an automatic six month extension in April, but forgot to get my tax return in by last week's deadline. What should I do Roni?

You need to file your return immediately. The penalties for not filing pile up quickly, so it is in your best interests to file your return as soon as possible. If you will not be able to pay the amount of taxes owed, file anyway; pay what you can, and call the IRS to request an installment agreement for the rest.

Questions for the Tax Lady: June 14th, 2010

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: Roni, I know that the federal estate tax is on hiatus this year. However, are there any state tax agencies that will collect an estate tax?

Yes. There are plenty of states that do enforce an estate tax (Indiana, Iowa, Kentucky, Maryland, Nebraska, New Jersey, Ohio, Oklahoma, Pennsylvania, Rhode Island, Tennessee, and Wisconsin). However, the rules and rates vary for each state. If you live in one of the states listed above then I highly recommend speaking with an estate-planning attorney in your state.

Question #2: Will an accepted Offer in Compromise remove a bank levy?

An accepted Offer in Compromise will resolve your back tax liability with the IRS once you paid the amount offered in compromise. Once your back tax liability is resolved, the IRS will not pursue collection activity against you—this includes bank levies. What you need to know is that the Offer in Compromise process is lengthy and because and you only have 21 days to release a bank levy, filing an offer in compromise for the purpose of releasing a bank levy may not be the wisest choice. For more information regarding how to get tax levies released, check out this blog entry on the RoniDeutch.com Tax Relief Blog.

Questions for the Tax Lady: November 23rd, 2009

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: What is the head of household filing status?

In addition to filing as a single taxpayer, you can also file your tax return as “head of household.” Typically, if you qualify then your tax rate will be lower and you will be able to receive a higher standard deduction. However, in order to qualify you must meet the following IRS requirements:

1. You are unmarried or “considered unmarried” on the last day of the year.

2. You paid more than half the cost of keeping up a home for the year.

3. A “qualifying person” lived with you in the home for more than half the year (except for temporary absences, such as school). However, if the “qualifying person” is your dependent parent, he or she does not have to live with you. See Special rule for parent, later, under Qualifying Person.

For more information including rules on qualifying persons, check out IRS Publication 501.

Question #2: Will an accepted Offer in Compromise remove a bank levy?

Unfortunately, having your offer accepted will not automatically remove a wage garnishment or bank levy. However, it will resolve your tax debts with the IRS so that you can request to have the levy released. For more information regarding how to get tax levies released, check out this blog entry on the RoniDeutch.com Tax Relief Blog.

FAQs About IRS Offers in Compromise

My law firm’s Tax Relief Blog published a useful entry on the 10 most commonly asked questions about the IRS’ Offer in Compromise program. You can find a section of the article below, but be sure to read all 10 items at the Roni Deutch Tax Relief Blog.

1. What is an Offer in Compromise?

An OIC is an IRS tax resolution program that allows a taxpayer to settle their IRS back tax liability by paying less than they owe. The amount of a taxpayer’s needs to pay will vary depending on the taxpayer’s unique financial situation, as well as his or her original liability amount. However, it is usually significantly less than the tax debt owed. The IRS will only accept a taxpayer’s OIC if it is equal to or greater than the reasonable collection potential, which is the IRS’s measurement of the taxpayer’s ability to pay their debt. Most taxpayer’s will not qualify for this program.

2. How do I submit an Offer in Compromise?

You will need to complete and submit an OIC to the IRS. The OIC package generally consists of the following documents:

• IRS Form 656 – Offer in Compromise Form
• IRS Form 656-A – Income Certification for Offer in Compromise, if you believe you are not required to submit an application fee or payments based on your family unit size and income.
• Form 433-A – Collection Information Statement for Wage Earners and Self-Employed Individuals
• Form 433-B – Collection Information Statement for Businesses (if applicable)
• $150.00 Application Fee
• 20% payment

3. Can I hire someone to help prepare an Offer in Compromise?

Yes, you can hire a tax lawyer or a tax resolution professional to prepare and submit an OIC for you. However, submitting an OIC does not guarantee that it will be accepted. You must meet certain financial and other criteria in order to qualify. Additionally, you will need to have filed all necessary tax returns for both yourself and any business you own, and you cannot be a debtor in bankruptcy proceedings. Thus, be wary of any company sales representative that tells you your OIC will be accepted.

IRS Testing Fast Track Mediation

Remember the idea of a “kinder, gentler Internal Revenue Service?” You are probably rolling your eyes at the thought, right?

But it seems the IRS is trying to find ways of working with taxpayers, rather than fighting them. The IRS has been testing Fast Track Mediation in eight areas in the country. These mediations are designed to help resolve tax disputes quickly and with less paper flying.

Tax issues for which you may request mediation include:

• Examinations/audits
• Offers in Compromise
• Trust fund recovery penalties
• Collection actions

Taxpayers do not have to file written protests to request fast track mediation. If you disagree with the IRS’s findings or determinations on your tax account, ask for a mediation session. In order to expedite, make sure your tax filings are current, and you have provided necessary documentation to the IRS Compliance office.

On the appointed day and time, the IRS representative and you will meet with the mediator. Who is this mediator? Well, usually an IRS Appeals Officer who has been trained in mediation. This does beg the question, how impartial can mediators be when their paychecks come from one of the parties they are mediating?

The mediator’s job is to facilitate communication, guiding everyone to a mutually beneficial resolution. Like any dealings with the IRS a tax attorney or CPA with a Form 2848 Power of Attorney and Declarations of Representative on file is allowed to represent your interests. And since the mediator and the IRS representative know the laws, it would be a good idea to have someone familiar with taxation law on your side as well.

While mediation can not solve all tax problems, this is an interesting program the IRS is testing, and I’ll be interested to see how useful it is.

Tax Attorney Pans IRS OIC Program

A few weeks ago I sent an open letter to the IRS regarding their Offer in Compromise (OIC) program. It recently came to my attention that WebCPA, a site with tools and news for accountants, had posted an article about my open letter. Below is the text from their article.

Tax attorney Roni Deutch has written an open letter to the Internal Revenue Service criticizing the agency's offer in compromise program, which is supposed to help taxpayers settle their debts.

The letter came in response to a recent questionnaire from the IRS asking recipients how satisfied they were with the program. Deutch described several objections that she and other attorneys at her firm share. The firm has been helping taxpayers settle their debts with the IRS for 17 years.

Deutch noted that she had sent a similar list of suggested improvements in December 2005, the last time the IRS sent out a questionnaire to taxpayers and tax professionals about the OIC program, but the IRS essentially ignored them.

"In those three years, the IRS has done nothing to act upon our requests," wrote Deutch. "Thus, I resubmit these requests to you for consideration and action."

One of her criticisms is that the IRS is not doing an adequate review of its Effective Tax Administration offers in compromise. "There are not enough sufficiently trained employees at the IRS to review and accept ETA OICs," she wrote. "When an ETA OIC is filed, the taxpayer states that 'I owe this amount and have sufficient assets to pay the full amount, but due to my exceptional circumstances, requiring full payment would cause an economic hardship or would be unfair and inequitable.'"

IRS Announces Two New Appeals Programs

According to their newest press release, the IRS is announcing “a two-year test of two programs: the post-Appeals mediation and arbitration procedures for Offer in Compromise (OIC) and Trust Fund Recovery Penalty (TFRP).

Beginning Dec. 1, 2008, for a two-year test period, Appeals will offer post-Appeals mediation and arbitration for OIC and TFRP cases for taxpayers whose appeals are considered at the Appeals office in Atlanta, Chicago, Cincinnati, Houston, Indianapolis, Louisville, Phoenix, and San Francisco.

Under these two alternative dispute resolution programs, the taxpayer or Appeals may request nonbinding mediation. The taxpayer may decline Appeals’ request for mediation. Appeals will evaluate a taxpayer’s request for mediation based on the criteria detailed in Revenue Procedure 2002-44 and Announcement 2008-111. A request for binding arbitration must be made jointly by the taxpayer and Appeals. The mediation and arbitration procedures do not create any additional authority for settlement by Appeals.

During the test period, Appeals employees will advise the taxpayer of the availability of these alternative dispute strategies and the deadline for timely requesting such strategies when a rejection of an OIC is sustained or a proposed TFRP assessment is sustained. An OIC submitted during Collection Due Process (CDP) as an alternative to a Collection action is not eligible for these alternative dispute resolution strategies during the test period.”

Revisions to Offer in Compromise Application Form

On Monday the IRS announced they had revised the application for an Offer in Compromise, Form 656 package. IRS Commissioner Mark W. Everson notes, "we hope that these changes help more people who qualify satisfy their tax obligations." The changes were made as a result of the Tax Increase Prevention and Reconciliation Act of 2005 and some of the changes include new payment terms and submission rules. For more details on the changes visit the IRS’s website.