Tax Term of the Week

Reasonable Collection Potential- The total realizable value of the taxpayer's assets plus any future income. The total is generally the minimum Offer in Compromise amount.

Having Tax Debt Wasn't Bad Enough... False OIC Submission? Now We're Talkin'!

Sometimes taxpayers want to be “creative” in filling out IRS Form 433-A (Collection Information Statement for Wage Earners and Self-Employed Individuals). Stephen Miller got too creative, and he was found guilty of tax evasion in violation of Internal Revenue Code § 7201. He was sentenced to 46 months imprisonment.

The conviction was upheld by the Court of Appeals. United States v. Stephen Miller (No. 06-11078) (5th Cir. 2008). Miller, who owed the Internal Revenue Service (IRS) about 2 million dollars, filed an offer in compromise with the IRS in which he stated he had insufficient assets and income to pay the tax debt. The IRS Form 433-A he filed stated he only had $40,000 in assets including an IRA with a balance of $25,000. What he didn’t tell the IRS was that he had withdrawn $1,000,000 from his IRA, and transferred it offshore. When the IRS asked about the money taken out of the IRA he responded that the money had been used to pay off a loan to the Euromex Leasing Corporation in the Isle of Mann. As it turned out Euromex was a shell corporation controlled and formed by a financial planner that Miller contracted to hide his money from the IRS. And how did the IRS find out that it was all a lie? Simple, the financial planner turned Miller in when he wound up with his own tax fraud problems with the IRS.

More proof the IRS will find you every time. People, just pay you taxes!!

Tax Term of the Week

Compliance- In order to be in full compliance, all taxes must be paid up to date and all returns required to file must be filed to date. Therefore, if submitting an OIC, IA or CNC (Status 53) for an individual, the taxpayer must have all estimated tax payments paid to date and returns filed. If submitting an OIC or IA for a business, the taxpayer must have paid all taxes for the past two quarters and filed all returns.

The Need for Compliance

When dealing with the IRS and more specifically, a tax liability, it is extremely important to be in compliance with the IRS. In order to be in full compliance with the IRS, all taxes must be paid up to date and all returns required to file must be filed to date. Obviously, full compliance should be a goal for every taxpayer.

It’s a requirement to be moving towards compliance with the IRS when submitting an Offer in Compromise, Installment Agreement, or Currently Non-Collectible (Status 53). The past tax debt does not necessarily need to be paid off at that time, but the taxpayer must have all estimated tax payments paid to date and all returns filed. If you are going to submit an OIC or IA for a business, you are going to need to have paid all taxes for the past 2 quarters and filed all returns. The IRS will not even begin to have a conversation concerning a tax settlement or installment agreement until all returns have been filed.

I suggest consulting with a tax professional before your tax liability gets out of hand. A tax resolution firm will be able to help you get back into compliance with the IRS and bring you some peace of mind.

Cheers!
Taxus

Magic Tax Negotiation: Make My Lien Disappear!

Presto!

What do you mean the lien is still there?

Damn.

That's right. Tax liens are awful. They attack from all sides and in the end, leave you with a terrible credit score, hinder your ability to buy/sell assets, and broadcast your tax debt to the general public. So if "presto" didn't do the trick, what magic word will? None...unless that word is followed by full payment of the tax liability. Tax liens will stick around until the amount of tax is paid or abated in full.

Obviously most of those that find a lien placed against them cannot pay their tax debt in full. It's just not a practical option. So another option to release the lien would be thru an abatement program. This process is possible via: offer in compromise (if applicable), a penalty abatement request (if this is all the debt you owe), expiration of the collection statute of limitations, and/or filing amended returns, if warranted.
Each process above has the potential to release a lien but are not simple maneuvers. When serious about releasing a tax lien, it would be in a taxpayer's best interest to consult a professional tax resolution firm. Trust me, you will have much more luck by using the help of someone familiar with tax negotiation as opposed to relying on some type of magic solution.

Cheers!

-Taxus

Let's Settle This: Part 2 of 2

(Let's Settle This: Part 1)

Now even if you meet one of the requirements mentioned in part1 of this blog post, your OIC has to be prepared and submitted with a monetary "donation" to the IRS. A taxpayer must pay a $150 application fee along with either a "lump sum offer" or a "periodic payment offer." A lump sum offer will be a nonrefundable payment equal to 20% of the amount you are offering to pay. A periodic payment offer is also nonrefundable and is the first proposed installment payment. While the IRS is evaluating a periodic payment offer, the taxpayer must continue to make the installment payments provided for under the terms of the offer.

Again, easier said than done. There are a lot of people who owe a great amount to the IRS and offer to settle with a lump sum, but in the end, cannot even afford to pay the 20% due at the time they submit their OIC or keep up with their periodic payments during the initial review. With both types of payments being nonrefundable, if the IRS rejects the OIC, the money submitted during that time will simply be applied to the tax liabilities.

If the IRS actually accepts the taxpayer's offer, it is understood that the taxpayer will have no further delinquencies and will fully comply with the tax laws from that point forward. If a taxpayer fails to meet these expectations in the future, the IRS may deem the OIC to be in default and then has the right to no longer accept the agreement and collect the amounts originally owed, plus penalties and interest.

Tax settlement is always a question but hardly ever an answer. Settling with the IRS is an obvious goal for a taxpayer with a hefty liability but may not be a possibility given the specifics of their situation. It is a good idea to be wary anyone who tries to sell a "pennies on the dollar" solution that seems too good to be true....because most likely, that's just what it is.

-Taxus

OIC

Let's Settle This: Part 1 of 2

One of the most common questions I am asked when taxpayers call in is, "Can I just settle with the IRS and pay them a lump sum?" You see, taxpayers hear promises of reducing their total liability and settling for "pennies on the dollar." Advertisements on the radio and television make this sound like a slam dunk move with no defenders in site. NOT TRUE. In fact, "settling" with the IRS is like trying to drive to the basket while dribbling with your elbows....extremely difficult.



An agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed is called an Offer in Compromise (OIC). The IRS has the ability to settle, or “compromise,” federal tax liabilities by accepting less than the full payment under certain circumstances. A tax debt can be legally compromised if there is doubt that the assessed tax is correct, if there is doubt that the tax payer could ever pay the full amount of tax owed, or if there is serious economic hardship or other exceptional circumstance which warrants acceptance of less than full payment of the taxes owed. Again, simply not a slamdunk.


Approximately 25% of the offers received in 2006 were actually accepted by the IRS. While this number seems high, it is rather misleading, because the number of offers received has actually decreased over the last 3 years due to a tougher screening process and requirement of nonrefundable payments that must accompany the offer when it is submitted. So while a higher percentage of offers are being accepted in 2006, there are fewer offers that are actually being received.















The OIC process is complex and very time-consuming. What may seem like a quick solution can actually take up to 18 months to resolve. During this time period, the liability continues to grow with penalties and interest, and the statutory time within which the IRS may engage in collection activities is suspended. It will be further suspended if the OIC is rejected by the IRS and the taxpayer tries to appeal the rejection. So in essence, an OIC may not be an option for you and should not be seen as the "Break Glass in Case of Emergency" solution to your tax problem.

Settle's Settle This: Part 2

-Taxus
OIC