Final Thoughts For 2011 Tax Returns on Deadline Day

Today is April 17th: Tax day. I’m sure that it will be discussed during the day’s talk shows and news broadcasts, and there will be long lines at the post offices that stay open until midnight. There will be reminders aplenty around you today that this is the day, the final day, the deadline, the “do it or go to jail” day.

In reality, that’s all hogwash.

In all actuality, there is only one firm, hard deadline today for most taxpayers: Today is the last day the IRS will accept e-files. If you file tomorrow, you have to mail it in.

What about an extension? Yes, if you want to file an extension, it’s a good idea to do so. But NOT filing an extension doesn’t have any real consequences.

If you owe the IRS money for 2011, then yes, today is theoretically the deadline to pay it. But for most people reading this particular article, the reason they’re reading this info in the first place is because they don’t have the cash on hand to pay their tax bills. So what really happens if you don’t file and pay on time?

Really, nothing of non-monetary consequence.

Yes, you’re going to pay some interest and penalties if you owe. There are both late filing penalties AND failure to pay penalties, and yes, they’re steep. These penalties are a percentage of what you owe, as are interest charges. Interest is compounded daily, which starts to add up.

If you’re able to pay your taxes with cash, a credit card, or borrowing the money from relatives, then do so, and do it on time. Even if you owe several thousand dollars and have room on a credit card to pay it, then do so, and do it on time — the finance charges on the card are going to be a lot lower than what the IRS will charge you over the course of 6 months to a year.

If you owe the IRS so much money that you simply can’t pay it no matter what, then don’t fret too much. If this is the first time you’ve accrued a tax liability, then the IRS has special rules that allow for the forgiveness of penalties for first time offenders.

If you have previous tax liabilities, then this will get added on to your total. As your total grows, so does your eligibility for certain tax resolution … Continue reading

Jury Awards TaxMasters Victims $113 Million

TaxMasters, a tax resolution firm based out of Houston, TX, had been under investigation by the Texas Attorney General since 2010 for unethical sales practices. After finally going to trial earlier this year, a jury has passed down a verdict of $195 million against the firm. This amount includes $113 million in restitution to the firm’s customers, $81 million in civil penalties, and $1 million in attorney fees. The company was found guilty of 110,000 violations of Texas consumer protection laws.

Founder and CEO Patrick Cox himself must pay well over $40 million of the award from his own personal fortune.

The firm was primarily accused of failing to disclose it’s no-refund policy, and for failing to immediately start work on a client’s case, but rather waiting until fees were fully paid before even doing anything to protect clients.

The firm recently filed for Chapter 11 bankruptcy protection during the course of the trial.

If you were a TaxMasters client, however, don’t expect to get any money. In it’s bankruptcy filing, the company only listed $50,000 in assets, and it is unlikely that Patrick Cox possesses the $40 million assessed against himself.

So, what can you do if you are a victim of TaxMasters, or any other company? Here are some quick tips:

  1. Contact your Revenue Officer immediately, to find out the status of your case in the collections process.
  2. If you have tax returns that are overdue, get them filed immediately.
  3. Assemble any financial information requested by your Revenue Officer.
  4. Request a 120 day collections hold in order to give you time to put everything together and prepare a plan of attack, particularly if you can’t pay your tax debt in full.
  5. If your tax situation is more complex than you are comfortable handling, then seek professional assistance from a licensed taxpayer representative (Enrolled Agent, CPA, or tax attorney).

It’s a travesty that unscrupulous companies such as TaxMasters, American Tax Relief (shut down by the FTC with a $105 million judgement), Roni Deutsch (shut down by the California AG), and JK Harris (went bankrupt in 2011) have been stealing from hardworking taxpayers for years (TaxMasters complaints ran back to 2005). Always conduct proper due diligence before hiring any tax resolution firm.

Even if you already have representation, if you want a second opinion about your case, be sure to contact a local tax firm in our directory.… Continue reading

Stop Hitting Yourself: The Conundrum of IRS Collections

Note: This is a guest post written by an attorney that formerly worked in the tax resolution industry, and later went on to work with the US Attorney’s Office. He has asked to remain anonymous, but wanted to share some personal insights about the IRS Collections process.
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For those that don’t work much with the Collections Division of the Internal Revenue Service, there is a stigma attached to both the methods and people involved. On one side, the IRS is seen as bullying taxpayers, especially the “little old ladies” and the “working men.” On the other side, the taxpayers are seen as being inadequate business people and as “stealing” from the government. Is the IRS an evil organization created by bureaucrats to systematically take the wealth of it’s citizens? Are the individuals caught up in the system evildoers needing to brought to justice? Both statements are a little extreme.

In all reality, the Collections Division of the IRS does not care where the money goes. Sometimes, it does not even care if it gets it. It, like many administrative agencies, seems more caught up it’s own procedures. Anyone having worked with the IRS might wonder if they are on a fool’s errand, considering how many of the installment agreements entered into by the IRS default.

The Collections Division is concerned primarily about getting taxes that should have been paid, but were not (a.k.a. “the tax gap”). These can be personal income taxes, employment taxes, trust fund recovery penalties, corporate income taxes, etc… The majority of this collections is done in a civil (i.e. non-criminal) setting. Within this context, there are common dilemmas that rear their heads every day, especially with regards to employment (withholding and FICA) taxes.

Although there are many reasons for a business to fall behind on its employment taxes, a common scenario is as follows: Small business owner falls on hard times; bills must be paid, but there is not enough to go around. The IRS relies exclusively on voluntary compliance (at least at the outset), as do most creditors. However, the IRS probably has more debtors than any other creditor in the country. As such, they cannot detect and move fast enough to put the strong arm down on the taxpayers. Because there is only so much to go around for the taxpayer, they pay the bills that need immediate attention (i.e. payroll, rent, utilities) and the employment taxes go … Continue reading