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: February 22nd, 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: How long does it take to get a refund from the IRS?

If you e-file and use the direct deposit option then you could receive your refund within three weeks. However, if you went the paper route it could take upwards of eight weeks. If you want to know exactly when to expect your money, you can track your refund on the IRS's Where's My Refund page.

Question #2: What is the statute of limitations on Federal income taxes owed?

Generally speaking, the IRS statute of limitations is 10 years. However, there are a number of ways the IRS can get past this limit. According to IRS.gov “the IRS generally must collect the tax owed within 10 years after the assessment of the tax. Depending on the taxpayer, the assessment of tax may be the date a taxpayer files a tax return with a balance owing or the date the IRS files a tax return on behalf of a non-filer taxpayer. Thus, the statute of limitations will begin once the tax liability has been ‘assessed’ by the IRS.”

“Although the IRS generally has just 10 years to collect on an outstanding tax liability, there are certain events or transactions that may extend or suspend the statute from expiring. Various laws affect the statue of limitations expiration date. For example, if a taxpayer files bankruptcy or files an Offer in Compromise, the statute of limitations is generally suspended during the time the bankruptcy or Offer in Compromise is under review. Also, additional assessments of tax owing may extend the amount of time that the IRS is allowed to collect. Therefore, if the IRS is going to collect taxes owed, they must do so within the time frame permitted by law.”

Even the IRS Has Time Limits

I am always writing about how important it is for taxpayers to know their rights, and one of the biggest defenses they have against the IRS is the statute of limitations. So when I saw this detailed explanation of the statute of limitations on Forbes.com I knew I should share it with my readers. Check out their article below.

If you are a fan of Law & Order as I am, you may have a negative reaction when a suspect claims the law can't touch him because of the statute of limitations. By relying on a technicality that hinges on the mere passage of time, it's almost as if the suspect is admitting he did it.

In any tax dispute, you'll want to make good substantive arguments. Still, don't discount the importance of the statute of limitations.

If you face a tax audit and can legitimately point to the statute of limitations to head off trouble and expense, you should. Why should you have to prove you were entitled to a deduction (or have to find and produce yellowed receipts) if it is simply too late for the IRS to make a claim?

Given the importance of the statute--both to heading off audit trouble and to knowing when you may be able to throw some of those receipts away--it is surprising how few taxpayers are statute savvy.

Fortunately, in this part of the tax law, the rules for corporations, partnerships, nonprofit organizations and individuals are consistent. Here's what you need to know.

Normally, the IRS Has Three Years

The overarching federal tax statute of limitations runs for three years after you file a tax return. If your tax return is due April 15, but you file early, the statute runs exactly three years after you file. If you file late and do not have an extension, the statute runs three years following your actual (late) filing date.

Continue reading at Forbes.com…

Take It To The Limit: IRS Statute of Limitations

Nearly every day, my law firm receives calls from people who are terrified of IRS collection activities, but don’t realize that their debt has expired. On the other hand, similar calls from people who thought their tax debt expired only to find that their wages are being garnished.

As you may know, the IRS has 10 years to collect on a taxpayer’s tax liability. The clock starts running from the date of assessment, which means the date the return was processed and an amount due was calculated for the tax return. Sounds easy enough, right? Well, like most things involving the IRS there are always exceptions. The IRS calls these exceptions “special circumstances.” And there are a few special circumstances that can extend the statute of limitations on a tax liability.

Bankruptcy which is either incomplete, or if the tax liability was not discharged. While your case is pending, the statute extends accordingly. If your bankruptcy agreement does not include your tax liability, those expiration dates keep getting pushed out.

Filing an Offer in Compromise. Yes, just the act of filing an OIC will extend a tax liability’s statute of limitations during the process. Of course, an accepted and completed OIC will resolve the debt.

Signing Form 900 Waiver, allowing the government additional time to collect. Why would anyone sign this document? Well, sometimes the IRS tells taxpayers they must sign it in order to enter into an installment agreement or other negotiations. Of course, they can not actually force you to sign the document, which is why asking for professional help in IRS negotiations can be beneficial.

Important to keep in mind, the statute of limitations begins running on the tax liability’s date of assessment. Which is when an IRS official actually signs off on your return. So, if you file your 2005 tax return in 2008, the liability won’t expire until 2018. This should be an enticement to file your returns on time, even if you can not pay your full liability. The earlier taxes are assessed, the sooner they will expire.

How do you find out when your debt will expire? You need to request a Record of Accounts from the IRS for each year you owe. Of course this will be a lot of paperwork, and it will be written in the classically difficult to understand IRS language. But the inconvenience can be worth if for taxpayers with particularly old debt. If you find you only have a few months left for the IRS to collect, you can simply ride it out and hope the IRS does not take any further action against you.

Sometimes an impending debt expiration can work in your favor, enticing the IRS to accept an Offer in Compromise. They would rather get some of their money than risk collecting nothing at all.

The IRS is not under any obligation to notify taxpayers that their debt is no longer collectible. So, many taxpayers live in fear of collection activity that will never come. Sounds pretty stressful. Sometimes, the IRS forgets to release a tax lien against your property, even after the debt expires, tarnishing a taxpayer’s credit. These are all reasons to get informed and be your own advocate. If you are not comfortable contacting the IRS, find a CPA or a tax attorney with experience in IRS negotiations and let them deal with all the bureaucracy.