2011 Offshore Voluntary Disclosure Initiative FAQs

The IRS put together a list of frequently asked questions about the offshore voluntary disclosure initiative. Check out a few below, or the full list at IRS.gov.

1. Why did the IRS announce a new special offshore voluntary disclosure initiative at this time?

The IRS’s prior Offshore Voluntary Disclosure Program (2009 OVDP), which closed on October 15, 2009, demonstrated the value of a uniform penalty structure for taxpayers who came forward voluntarily and reported their previously undisclosed foreign accounts and assets. Not only did the initiative offer consistency and predictability to taxpayers in determining the amount of tax and penalties they faced, it also enabled the IRS to centralize the civil processing of offshore voluntary disclosures. Therefore, it was determined that a similar initiative should be available to the large number of taxpayers with offshore accounts and assets who applied to IRS Criminal Investigation’s traditional voluntary disclosure practice since the October 15 deadline. This new initiative, the 2011 Offshore Voluntary Disclosure Initiative (2011 OVDI) will be available to those taxpayers and other similarly situated taxpayers who come forward and complete all requirements on or before August 31, 2011.

2. What is the objective of this initiative?

The objective remains the same as the 2009 OVDP – to bring taxpayers that have used undisclosed foreign accounts and undisclosed foreign entities to avoid or evade tax into compliance with United States tax laws.

3. How does this initiative differ from the IRS’s longstanding voluntary disclosure practice or the 2009 OVDP?

The Voluntary Disclosure Practice is a longstanding practice of IRS Criminal Investigation whereby CI takes timely, accurate, and complete voluntary disclosures into account in deciding whether to recommend to the Department of Justice that a taxpayer be criminally prosecuted. It enables noncompliant taxpayers to resolve their tax liabilities and minimize their chance of criminal prosecution. When a taxpayer truthfully, timely, and completely complies with all provisions of the voluntary disclosure practice, the IRS will not recommend criminal prosecution to the Department of Justice.

This current offshore initiative is a counter-part to Criminal Investigation’s Voluntary Disclosure Practice. Like its predecessor, the 2009 OVDP, which ran from March 23, 2009 through October 15, 2009, it addresses the civil side of a taxpayer’s voluntary disclosure by defining the number of tax years covered and setting the civil penalties that will apply.

Continue reading at IRS.gov...

10 FAQs About End of the Year Tax Planning

I know, the holidays are upon us, and the last thing anyone is thinking about is tax season. But as New Year’s creeps into view, this is your last chance to make money-saving moves for your taxes. Earlier this week the RDTC Tax Help Blog posted an entry with answers to 10 common questions about year end tax planning. You can find a snippet of the article below, or click here for the full text.

1. Why should I start planning now?

Most taxpayers do not plan ahead for the coming tax year, simply because they do not want to start stressing about taxes during the holidays. However, choosing to plan ahead will actually make things easier and less stressful come tax season. You should look at tax planning as a stress-preventative measure.

2. What are the advantages tax planning?

Besides reducing stress, end of the year tax planning can also save you a lot of money. Tactics like making an extra mortgage payment or paying state taxes in advance can quickly and easily reduce your tax liability. If you wait until the New Year begins, it will be too late to take advantage of these strategic tax moves.

3. What tools do I need for end of the year tax planning??

Year-end tax planning does not need to be difficult, especially if you have your financial documents organized. You should also get a copy of your tax return from last year as well as a calculator and pencil. It is also a good idea to have access to a computer with Internet so that you can research deductions and credits.

Common Questions About Estimated Quarterly Tax Payments

The June 15^th deadline for making estimated payments to the IRS is only a few days away. To help confused taxpayers, the RDTC Tax Help Blog has posted an entry with answers to the 10 most common questions about quarterly tax payments. I have included a few of questions and answers below, but you can find the full list at RDTC.com.

What federal taxes am I required to include in my quarterly payment?

In your estimated quarterly payment you must pay your federal income tax, as well as Social Security and Medicare taxes, which are known collectively as the self-employment tax. The amount of tax you are required to pay will depend on your income level.

When are my quarterly tax payments due?

The federal due dates for estimated tax payments are April 15, June 15, September 15, and January 15. However, if one of these dates falls on a weekend or legal holiday then the associated payment will be due the following business day.

What forms do I need to use to file my payment?

To file your quarterly payment you will need to complete IRS Form 1040-ES. If you cannot download it online, then you can get a copy at a local IRS office or by calling 800-TAX-FORM.

My business is setup as a partnership; will I still need to make estimated tax payments?

Yes, you and your partner will both need to make quarterly payments unless you are paying yourself wages and are having the necessary taxes withheld from your paychecks.

Top 10 FAQs About IRS Refunds

Since so many Americans have already filled their returns and are waiting on their refund with the IRS, the Roni Deutch Tax Center Tax Help Blog posted a great entry explaining answers to the top 10 most common questions about IRS refunds. I have included a snippet of the post below, but you can find the full post at the Tax Help Blog.

1. When will my refund arrive?

Depending on your unique situation it can take anywhere from ten days to ten weeks to receive your refund. The fastest way to get your refund (in as little as ten days) is to e-file your return and request the money is directly deposited into your bank account. On the other hand, if you file a paper return and request the IRS mail you a check then it can take up to ten weeks to arrive.

2. Do I need to direct deposit if I e-file?

No, and this is actually a fairly common misconception. When you e-file your return you do not have to have your check deposited into a bank account, you can select an option to have it mailed to you just as you can with a paper return.

3. Can I have my refund split into multiple accounts?

Yes. If you intend to select the direct deposit option on your tax return then you can split the refund between three different accounts. In addition to bank accounts you can have a portion of your refund deposited into a retirement account, or you could convert part of your tax refund into Series I Savings Bonds.

Questions for the Tax Lady: November 30th, 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: Roni, I got married last month and I was wondering if my new husband and I should still file as single with the IRS since we were wed so late in the year?

No, as long as you are legally wed before December 31^st, then you are married in the eyes of the IRS. Therefore, you will either need to file as married filing together, or married filing separately. Depending on your unique financial situation, it might be more beneficial to select one option or the other.

Question #2: What is nontaxable income?

Nontaxable income is pretty much exactly what it sounds like – income that is exempt from taxation. If you have to file a return, there are some kinds of nontaxable income that do need to be included on your return, but will not be included in the total amount subject to income taxes. These types of nontaxable income include child support payment, most life insurance proceeds, certain veterans’ benefits, public assistance payments, etc.

Paying for the Affordable Health Care for America Act

Over the weekend, the U.S. House of Representatives passed HR3962: the Affordable Health Care for America Act of 2009. The legislation is thousands of pages long, making it difficult for regular taxpayers to understand how the bill will affect them. To help all the readers of my blog, I have analyzed the bill and put together the following explanation of how it will be funded.

The Public Option

Although it was rumored that reform legislation would not include a public option, HR3962 does set the groundwork for a public option that will take full affect in 2013. Supporters of the legislation assert that it will target those who have been uninsured for several months or were denied because of pre-existing conditions. The Health Insurance Exchange will setup to offer four different plans (basic, enhanced, premium, and premium-plus), and will limit out of pocket spending to $5,000 for an individual and $10,000 for a family. This new program will not replace Medicare, which will still be available to those who qualify. Instead, the Health Insurance Exchange will aim to provide coverage to those caught in loopholes for insurance companies. Such as low waged workers employed by small businesses that cannot afford to provide benefits.

Tax Penalties

The new legislation is very expensive, and Congress has come up with a number of ways to pay for it. First of all, there will be a shared responsibility provision that basically forces taxpayers who cannot establish acceptable health care coverage to pay an additional 2.5% tax. There will be a hardship exception though, for taxpayers who cannot afford to pay the tax.

Payroll Penalty

In addition to a penalty on taxpayers who cannot afford coverage, the government will also assess an 8% payroll tax on businesses that do not offer health insurance to their employees. However, it is widely expected that the penalty will be reduced to 5% when the Senate revises the bill.

Millionaire Surtax

One of the largest sources of funding for the reform bill is a new surtax on individuals making more than $500,000 per year, of couples making over $1 million. In the House’s bill, beginning in 2010 all taxpayers making a qualifying amount will be subject to a massive 5.4% tax increase.

Inflation Increases

In addition to adding heft tax increases, the bill also partially repeals tax indexing for inflation. This will result in more money for the Federal government as the years go by. According to the Joint Tax Committee the surcharge is only expected to generate $30.9 billion in 2011, but nearly $70 billion in 2019.

Passage into Law?

The present version of this bill is not likely to get passed into law. Despite President Obama’s optimistic stance, some Senators are already pronouncing the bill dead on arrival. Although there has been a lot of discussion about this health care reform bill, it could be months before even a highly amended version of it becomes law. The Senate is not going to vote on the bill until at least 2010, and since they are expected to make numerous modifications it will likely need to return to the House for another vote. It could be six months from now before a health care bill goes to President Obama’s desk for a signature.

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.

The NEXT Economic Stimulus Package

While the country continues to focus on health care reform, and random events like last week’s “Balloon Boy” fiasco, advisors for the Obama Administration and leaders in Congress are quietly working on ways to further stimulate the economy. With unemployment rates continuing to climb, and a housing tax credit due to expire in a few weeks, there is pressure on the White House to do something else to help the economy. Since the Obama Administration asserts that their $787 billion stimulus package did prevent job losses, and helped the economy from falling further, many experts are predicting that they will support another type of stimulus program. To help the readers of my blog keep track of these new developments, I have put together the following article taking a deeper look at some of the suggestions being considered for this new stimulus package.

Not Really Another Package

One of the administration’s biggest priorities is to keep any new legislation from being labeled as another stimulus package. Why? Because it implies that the first package was unsuccessful, and taxpayers are not likely to support a second unsuccessful program. The Obama Administration claims that only part of the original $787 billion budget has been spent, and that the program will fund projects aimed at helping the economy for the next year. With the first stimulus package still on everyone’s mind, and a huge health care reform bill, it may be difficult to get the American public to support another huge government program. Therefore, it is likely that we will see a handful of smaller pieces of legislation signed into law to help improve the economy rather than one big, expensive stimulus package.

Extending the Homebuyers Credit

One of the first actions Congress will likely take is to extend the $8,000 first time homebuyers credit that is due to expire on November 30th. The program has been deemed successful by dozens of economists, and there are dozens of industries lobbying heavily for it to be extended. Some proposals even call for the credit to be offered to all homebuyers, as opposed to just those who have not owned a home within the past three years, and others even call for it to be increased to $15,000.

$250 Check to Social Security Recipients

Like I mentioned last week, President Obama has called on Congress to send another batch of $250 checks to recipients of Social Security benefits. Earlier in the year, checks were sent out to Social Security recipients as well as taxpayers enrolled in Veterans Administration, Railroad Retirement and Supplemental Security Income benefit programs as part of February’s $787-billion economic stimulus package. Since it was announced last week that there would be no increase in the amount of money people on Social Security receive this year, many are predicting that another one time payment will be made.

Extend Unemployment Benefits

With businesses making cuts, it is getting harder and harder for Americans to find new jobs, as such the average time it takes someone to find a new employer is now longer then the length of time they can collect unemployment benefits. Therefore it is likely that Congress will extend the amount of time people can collect their benefits. Some proposals in the House of Representatives aim to provide 13 additional weeks of benefits in states with jobless rates of 8.5% or higher, while the Senate is considering proposals to extend benefits in all states.

Health Insurance for Unemployed Workers

Earlier in the year, Congress passed an act that provided a 65% subsidy of COBRA health-insurance premiums for workers laid off between September 2008 and the end of this year. For those of you who may not already know, COBRA is the program that allows taxpayers to keep their health insurance benefits after they have been let go. Since the subsidy, enrollments in COBRA have doubled, and it is expected that Congress will extend this program into next year.

Incentives for Companies Hiring New Employees

The original stimulus package had a tax credit for employers hiring new workers, but it was removed before the bill was signed into law. Now members of Congress are considering a variety of proposals aimed at offering incentives for companies to hire new employees. There is a proposal in the Senate to offer a $4,000 tax credit to businesses that expand their payroll. However, there is a lot of criticism over these types of incentives, and I am not sure if any would ever become law.

Refunds for Losses

Last week it was announced that Speaker of the House, Nancy Pelosi was also considering a proposal from a Republican Congressman to allow companies that are losing money to use their losses to get refunds of taxes paid in the previous five years. Currently, most businesses can only use current losses to get refunds from the previous year. A similar proposal was included in an early draft of February’s stimulus package, but was dropped when it was discovered it would cost nearly $20 billion.

Credit Scores: What You Need to Know Now

Most people wrongfully assume that they have only one set credit score that anyone who runs a credit check will see. However, as this Washington Post article discusses, the average American actually has several different credit scores that creditors use to decide if you will qualify for a line of credit or not. Read the very informative article, below.

Are you keeping score?

Credit scores have been getting a lot of attention lately, as lenders tighten credit standards and contend with new legislation that has, among other things, reined in how credit-card issuers can raise rates.

Meanwhile, several firms, preying on our insecurities, are pushing credit scores and credit-score-tracking services for a monthly fee.

For all the attention they generate, though, credit scores are largely misunderstood. For instance, your precise score matters only when you're in need of new debt, like a home, auto or education loan or a new credit card, which should be a fairly rare occurrence.

You don't have just one score, but many. Your FICO score, the one developed by Fair Isaac Corp. that runs from a low of 300 to a high of 850, will vary depending on which credit bureau is reporting it and the kind of lender that requested it.

So the score that costs you $15.95 at MyFico.com may not be the score your lender sees. Beyond that, the three credit bureaus— Equifax, Experian and TransUnion— sell their own proprietary scores.

What Makes A Tax Credit "Refundable"?

From Boston.com:

Every tax credit that is introduced is either refundable, partially refundable or non-refundable. What does "refundable" mean?

A refundable credit is a tax credit that can reduce the amount of tax you owe to less than zero. In other words, it can result in a refund where there was not one to begin with. As an example, the newly created $8000 first-time homebuyers tax credit is refundable. If your federal income tax bill without this credit is $6,000, and you qualify for the credit, $8,000 would be deducted from the amount you owe. You would end up with a $2,000 refund.

A non-refundable credit cannot reduce your tax bill to less than zero. The Hope and Lifetime Learning credits are good examples of this. For instance if your tax bill is $1,000 and you qualify for a $1,800 Hope Credit, your tax bill would be reduced to $0 and you would not owe any taxes, but you would not get a refund.

Some tax credits are partially refundable, such as the child tax credit. Taxpayers with income below a certain threshhold receive a larger refundable portion of the credit than those above the threshold.

The New, Improved College Tax Credit

This year there is a new and improves college tax credit and Forbes.com has broken it down for everyone to understand. You can find a segment of their article below, but the full post can be found here.

There's a new $2,500 college tax credit for 2009, 2010 and possibly beyond. Even if your family hasn't qualified for earlier college tax credits, this one might put thousands of extra dollars in your pocket.

Called the American Opportunity Tax Credit, the new benefit was authorized for two years by the stimulus bill enacted in February. But President Barack Obama has already proposed making it permanent and it has some powerful Democratic supporters.

Technically, the new credit is an expansion of the old Hope college credit. But many more families (including both low-income and upper middle-income) qualify. Married couples filing jointly who have modified adjusted gross income of up to $160,000 ($80,000 for single parents) can claim the full credit for 2009 and 2010. Above that income level, the credit gradually phases out, with those earning up to $180,000 ($90,000 for singles) eligible to claim a partial credit. By contrast, the old Hope credit was available in full for 2008 only to couples with incomes below $96,000 ($48,000 for singles). The expanded credit can even by claimed by taxpayers paying the alternative minimum tax (AMT).

The new credit is also partially refundable. What that means is a family which doesn't earn enough to pay income taxes will get $1,000 back. A family which would otherwise owe, for example, $2,000 in income tax, should qualify for the full $2,500--it would have its $2,000 tax bill wiped out and get $500 back as part of the refundable credit.

The Pros and Cons of Refund Anticipation Loans

In this economy, quick cash is in high demand. However, it is never a good idea to get into a new loan or financial venture without properly researching the topic. During tax season refund anticipation loans become popular as they allow you to borrow against a potential tax refund. However, these loans can be either good or bad depending on who you are and why you want one. To help decide if a refund anticipation loan is right for you, we have put together the following list of pros and cons.

Pro: Instant Cash

If you are low on cash and cannot wait for your refund to pay off some bills, a refund anticipation loan could certainly fill that role. While cash advances on a paycheck could pay for small bills that are due very soon, if you have a larger sum to pay off and no other way to do so, a refund advance loan could be very helpful.

Con: Interest and Fees

Unfortunately, the interest ad fees associated with these types of loans can be quite high. This is mostly due to the fact that the loan itself does not come from the preparers handling your taxes. Although you typically apply for and receive the loan through at a tax preparer’s office, they almost always outsource to third party lending banks.

Pro: Short Processing

As opposed to other large loans, a refund anticipation loan has a short application and approval process. Normally processing will take no more than a day, and the loan can be distributed within 24-48 hours. In comparison, traditional loans can take weeks to be approved and distributed.

Con: Payment Responsibility

Like with any loan, you are ultimately responsible for repaying the bank for the money they lent you. Therefore, if for any reason the lending bank does not receive the amount the full amount of your refund from the IRS then you will be held responsible for the difference.

Pro: No Tax Prep Fees

Usually if you decide to get a refund anticipation loan the tax preparer will deduct the cost of their services from your refund. This can be a great option for those who might not otherwise be able to afford the fees associated with professional tax preparation.

Con: Lack of Loan Education

Unfortunately, hundreds of people take advantage of refund anticipation loans every year without fully understanding their options. As with any major financial transaction you always want to carefully consider the pros and cons before making a decision, and when it comes to refund anticipation loans if you do not need the funds right away then you would probably be better off waiting for a check from the IRS.

What to Do If You Owe the IRS

From CNBC.com:

If you owe the IRS, you need to take action or they will levy your bank account, garnish your wages or seize your property. Here are three tips that will help you if you are in debt to the taxman, courtesy of tax attorney Roni Deutch:

1. Offer in Compromise: If you cannot afford to full pay the IRS but can afford to settle your debt for less money than what’s owed, you should file an offer in compromise with the IRS. The OIC program is wonderful and if you qualify, your tax debt is eliminated for far less money than what you owe. The IRS will evaluate your income, expenses and asset value before settling your tax matter for less money.

2. Installment Agreement: If you do not qualify for an Offer in Compromise then you should enter into an affordable monthly payment plan with the IRS until your liability is paid in full. Many people make monthly payments to the IRS but they will never full pay the debt. By making monthly payments, you are making a good faith effort to contribute something toward your debt and you will not be garnished or have money taken from your bank account.

3. Currently Not Collectible: If you owe the IRS and have absolutely nothing, they will classify you as CNC and they will leave you alone! Again, you continue to owe the taxes but at least they have thrown you into a black hole and you will no longer be bothered. When you get a job or land on your feet again, you must call the IRS and work out a payment arrangement or file an OIC.