Category: Taxpayer Representation

If you have a large amount of other debt besides just tax debt, bankruptcy may be an option you end up considering. Is this the right thing to do when you have tax liabilities?

For some people, bankruptcy can be the right way to go. While bankruptcy will not erase most tax debt, the bankruptcy court determines what you pay each creditor, and may remove some of the penalties and interest, depending on the case.

The interest rate that the IRS charges, to be honest, isn’t that bad. The rate is adjusted several times per year, and it currently sits at 4%. What kills people are actually the penalties. It is not uncommon for tax debtors to max out all their penalties, which tacks on a whopping 45.5% to their principal, and THEN interest accrues on the whole thing.

To determine whether bankruptcy is the best route for you, you should consult with a bankruptcy attorney. If all you have is IRS debt, and don’t have significant other creditors and/or don’t want the bad credit associated with bankruptcy, but you cannot otherwise go on a monthly payment plan, then consider an Offer in Compromise with the IRS. It’s a good non-bankruptcy alternative for folks that might otherwise have no other choice but to file Chapter 7, but would only be filing chapter 7 because of their IRS debt.

If you do choose to file for bankruptcy, it’s important to have a contingency plan for those taxes that cannot be discharged. For example, Trust Fund Recovery Penalty assessments, property taxes, and sales taxes will not generally be flushed in a Chapter 7. So, if your tax liability consists of those tax types, you need to be looking at other options.

Personal income taxes (1040 taxes) can be discharged in bankruptcy if they meet certain criteria. In general, income taxes must be at least three years old to be discharged in bankruptcy, and the tax return on those tax debts must have been filed at least two years ago. So, if you haven’t filed the actual tax returns that will incur the tax debt you want to discharge in bankruptcy, you’re going to have to file the returns and then wait two years.

Filing bankruptcy is obviously not a decision to be taken lightly, and you must consider the tax debt implications of doing so. However, bankruptcy isn’t nearly as bad of a thing to go through … Continue reading

The vast majority of small businesses could use the services of an accountant. The number of ways in which it is possible to introduce errors into your business through accounting practices is staggering. Your accounting includes issues related to payroll, monitoring profitability, inventory control, avoiding penalties and interest on taxes, and much, much more. It is wise to select a competent professional in this field to help you navigate the minefield of accounting pitfalls. Selecting such a professional can be difficult, especially since not all accountants are created equal.

Here are some questions to ask to help ensure that you are selecting the best accountant you can for your business.

1. Do they have any complaints with the Better Business Bureau?

When many individuals decide to take action and make a complaint against a firm, they often think first of the BBB. Check with your local division, or look them up online, and make sure that the company you are considering hiring has a good record with the BBB. If they have a Gold Star award from the BBB, then you’re on the right track to working with a company that is reputable and stands by their word. The BBB’s new letter grading system can also help you in selecting a good firm.

2. Have they ever been investigated by your state Attorney General’s office or state board of accountancy?

This is another place to do your own due diligence. Complaints with the state AG or Board of Accountancy is an automatic red flag and should be highly considered before selecting a firm.

3. What services do they provide, and what services do you need?

Think about exactly what you’re looking for in a service provider. Do you need full service accounting, outsourcing all functions to another person or firm? Or do you just need year-end tax preparation? Knowing the answer to what services you need will help you pick the best person to do what you need, and will affect your budget for getting it done. For example, if you just need tax preparation, then you might be better off with an experienced tax preparer instead of a CPA firm that mostly does auditing and general accounting. If you only need payroll services, then you might want to hire a payroll company rather than a bookkeeper that does payroll on the side. If you need the books updated weekly or monthly, most communities … Continue reading

Taxpayers have the right to request relief from penalties assessed by the Internal Revenue Service. The IRS sets very specific criteria for the granting of penalty abatements. It can be very difficult to demonstrate that a taxpayer’s circumstances meet the criteria for penalty relief. Most of the time, we will request a written statement from the taxpayer explaining the circumstances that lead to the accrual of their tax liability, and then use that to create our own penalty abatement request that fits to one of the IRS criterion, cites case law, etc.

Most of the time, taxpayer’s have some reason for not paying their taxes that ties back to not having the money to do so. Lack of funds does not meet IRS reasonable cause criteria, but the circumstances behind the lack of funds sometimes can be reasonable cause.

Occasionally, the taxpayer’s explanation for failing to pay their taxes doesn’t leave us with a lot to work with. On rare occasions, we receive an explanation that is quite humorous.

This example is from a taxpayer that elected to continue NOT paying his taxes because it was financially convenient. With a struggling business, a divorce, and alimony and child support to pay, the taxpayer was experiencing financial hardship. He wrote:

I financed [business] shortfalls with credit card advances and soon I had unsupportable credit card debts and many other expenses…

As things started to turn around for the taxpayer, he continues:

In early 2001 I noticed that I somehow had enough money to pay my bills. Later, I discovered that I had inadvertently neglected to call in the 941 payment [for fourth quarter], even though the check had been generated by the accounting program. I was consternated but simply didn’t have the money to make good.

This is a common reason as to why people miss a Federal Tax Deposit, often several in a row. They then try to make it up when they can. However, in this case:

I expected a notice from the IRS daily, but nothing happened and when it was time for the next 941 payment I thought, “This is the kind of tax relief I need right now.” As an expedience, I didn’t pay the 941’s for the next several months and used the respite to get back on my feet financially.

Doing this enabled the taxpayer to get current with his vendors, credit cards, etc. He skipped his payroll tax … Continue reading