Category: Taxpayer Representation

An IRS Installment Agreement, or payment plan, is the primary means by which taxpayers with tax debts settle up with the government. A special provision in the law allows the IRS to accept payment plans without reviewing your financial information, which they are otherwise normally required to do. These simpler payment plans are called a Streamline Installment Agreement.

Normally, applying for an IRS payment plan is literally like applying for a home mortgage loan, and requires extensive prying into your personal finances. Historically, the IRS will simplify this procedure if you owe less than $25,000 and can make large enough payments to pay off the tax debt within 5 years (60 months).

The IRS has issued new regulations regarding Streamline Installment Agreements, due to the continued economic difficulties and the fact that their collections case burden is skyrocketing and they don’t have the personnel to manage so many tax debts.

The IRS will accept now a Streamline Installment Agreement for taxpayers that owe up to $50,000. In addition, they will give you up to 6 years to pay it all off. This effectively makes the vast majority of tax debtors eligible for the program, allowing the IRS to expend resources chasing after people that owe much larger sums of money, and lessening the headache and aggravation they cause to middle class families that have enough to worry about without the threat of the IRS seizing funds in bank accounts or garnishing wages.

Setting up an Installment Agreement under these criteria can be done over the phone or on the IRS web site. Of course, you may wish to consult with a licensed tax professional to determine if another option, such as Status 53 or an Offer in Compromise, may be better for you financially. Oftentimes, individuals and small businesses that qualify for a Streamline Installment Agreement with a small payment amount may also be eligible for these other programs. Status 53, also called “Currently Not Collectible” status, doesn’t require you to make any payments, but does require full financial disclosure. An Offer in Compromise also requires full financial information from you, but allows you to settle your entire tax liability for some fixed amount that is less than what you actually owe.

As with most things in life, make sure that you explore all your options, and that you thoroughly understand both your rights and your obligations under any tax resolution program you enter into. … Continue reading

Every year, the IRS rolls out new initiatives to make sure everybody is complying with the tax laws. While certain things, such as frivolous tax arguments, are always enforced, the IRS shuffles personnel around to enforce compliance with certain parts of the tax code based on the trends they identify. Five of those trends are discussed here.

1. Foreign accounts and assets. If you have money or assets overseas, the IRS wants to know about it. If you have more than $10,000 in a foreign bank account, you’re required to file an annual disclosure statement with the Treasury Department. In addition, the IRS is now requiring foreign banks to enter into information sharing agreements, or else have 30% of payments transferred to them from the U.S. withheld to pay potential tax bills. The failure to disclose your overseas assets can result in significant penalties, and potentially criminal prosecution.

2. Payroll taxes. The single biggest emphasis of enforcement within the employment tax arena has to do with taxpayers that pyramid their employment tax liabilities, meaning that they owe money, and continue to accrue new liabilities each quarter. The IRS is also heavily targeting the owners of S-corporations that don’t pay corporate officers a fair wage (and thus payroll taxes), but rather take nothing but distributions, which are not subject to payroll taxes.

3. Gift tax audits. Many people don’t realize that giving cash gifts to their friends and family can have tax consequences. Every person has a lifetime cumulative exemption from gift taxes, and there are also annual limits. The IRS has started to electronically examine property transfers based on public records in order to ferret out people that may owe gift taxes.

4. Automated Substitute for Return Program. Section 6020(b) of the Internal Revenue Code allows the IRS to file a tax return for you if you fail to do so. They prepare this Substitute for Return (SFR) based on information they have on file, such as W-2 and 1099 information sent to the IRS by your employer. A computerized system now prepares these returns, and the IRS has asked Congress for the past several sessions to make it a felony when you fail to file a tax return for three out of five straight years and the tax exceeds $50,000. Fortunately, this has never been passed into law, but it is a law that the IRS will likely continue asking for.

5. Schedule C … Continue reading

When a taxpayer owes money to the IRS, they enter the IRS Collections system. The IRS has a very detailed process that they are required by law to follow when it comes to collecting tax debts. Knowing a little bit about how this system works and how IRS collections personnel are required to act can be very beneficial to you.

There are two distinct collections units within the IRS. The first is the Automated Collection System (ACS), which consists of computerized lien filings, automated send out of bills and notices on set intervals, and the call center agents that perform basic collections functions. It is important to understand that the people you’re talking to on the phone at ACS have limited authority, and may not be able to assist you with every tax matter without elevating to a supervisor or other personnel.

The other distinct collection unit within the IRS is the Collection Field Function. Field agents, called Revenue Officers, are located in cities and towns across the country. Rural Revenue Officers may work from home and have a field territory covering hundreds of miles, while thousands of agents in big cities have extremely small territories and may hardly ever leave their Federal Building.

Revenue Officers are required to do many things in order to “resolve” a tax liability placed under their control. They are required, by law and regulation, to collection certain information, verify things through whatever means available, and close out cases. Over the course of the past year and a half or so, I have personally noticed a significantly reduced emphasis on simply reducing the number of open cases, and instead increasing cash collections through whatever means necessary.

In order to demonstrate to IRS management that they are doing their jobs properly, here are some of the biggest actions that Revenue Officers are required to perform (and document in their files):

• Make sure you’ve filed every past tax return you should have (and if not, make you do so)
• Verify that you are making payments on time and in full for any new taxes you have come up, such as employment taxes or estimated tax payments (and if you’re not, making sure that you do)
• Collect detailed financial information from you concerning your income, expenses, assets, and other debts
• Based on that financial information, determine sources of money from which the government can collect on the tax debt (this can include forcing