This Week's IRS "Hall of Shame" Inductee: Derek Jeter

Imagine being paid a salary of $11 million in 2001, $13 million in 2002 and $14 million in 2003. Now imagine how much money you would save over the course of those three years if you did not have to pay state taxes. Um.....yeah...we're talking about a ton of money. Well, apparently New York Yankees' Derek Jeter had that thought in mind when he tried to falsely claim his home residence when filing income tax returns. His grand plan was to claim he resided in Florida, where he did have a home, because Florida has no state income tax. However, the IRS discovered that Jeter had officially established his home in New York in 2001, the year he bought an apartment in Trump World Tower.

Fast Forward to today and we have come to the end of his tax dilemma. It has been reported state officials have settled their case against the Yankees shortstop. The details are not known at this time, but rest assure, as soon as we know, you'll know.

Additional Resources:

TaxProfBlog has had good coverage of the unfolding case.

Until then,

Cheers!

Taxus

Why You're Paying Interest

I would say that one out of every four phone calls that I receive is a taxpayer requesting that we help them eliminate the penalties and interest that have piled up against them. What really gets me is that they believe the interest shouldn't be there. The IRS is not a bank. They are not loaning you money and they firmly believe that all money due to them should have been paid since day 1.

"But why do I have to pay interest on the money I owe the IRS?" When you owe someone or some institution money and you do not pay in full, interest is going to be tacked on. It's no different than a credit card. If you make that minimum payment, there's going to be interest. When it comes to backtaxes though, you will have interest and penalties.

Concerning your backtaxes, the interest is compounded daily and is charged on any unpaid tax from the due date of the return until the date of payment. There's no getting around it. The interest rate is the federal short-term rate plus 3 percent. That rate is determined every three months. If you would like to know the current interest rates, you can visit News Releases and Fact Sheets and find the most recent Internal Revenue press release entitled Quarterly Interest Rates.

You cannot abate the interest, but there are effective programs if you choose to abate the penalties and there is reasonable cause. When taking this route, it would be best to seek out professional help. A tax resolution firm will have a staff of experienced tax consultants who know how to negotiate penalty abatements with taxing authorities.

Cheers!
Taxus

As always, you can find an array of articles by perusing this site or by checking out my coworkers' individual sites:

IRS MIND
Tax Negotiation
Tax-Thoughts
Little Miss Tax Lass
Tax Settlement

And if you need the assistance of a tax resolution firm, seek out the best: Effectur, Inc.

The IRS Repossessed My Car...

I was busy putting my trash cans by the road since tomorrow was garbage day. Then I hear the slurred voice of my neighbor and before I know it, I am trapped talking to him. It was already 2pm so he was well lit by this point. "Hey guess what? I am finally getting my car back. I settled up with the IRS and they are going to give it back to me. I would of had it sooner, but it takes forever to get a hearing with them."

Now, to know my neighbor would mean that you know he is an alcoholic and a habitual liar. First off, the Internal Revenue Service wouldn't have repossessed his car...the bank or lender would have. The IRS could have placed a federal tax lien against my neighbor and that would have prevented him from buying or selling a car, but they certainly did not repossess it. It's just not their style. Second, to get that car back once repossessed, my neighbor would have had to fork over some serious dough and that was not possible for a man who wasn't working. No, once again my inebriated friend is lying to my face. I know this because as I said before, the IRS isn't going to repossess the car. I also know this because the owner of the house my neighbor was renting told me so. You see, the car is the house owner's, and he gave it to his renter to get around town in. He took the car because he noticed my neighbor was behind on his rent, wasn't keeping up the house, and remained in an intoxicated state. So the real reason my neighbor was getting back his "repossessed" car was because apparently the owner had a change of heart. Again, something uncharacteristic of the IRS.

Cheers!
- Taxus

As always, you can find an array of articles by perusing this site or by checking out my coworkers' individual sites:

IRS MIND
Tax Negotiation
Tax Thoughts
Little Miss Tax Lass
Tax Settlement

And if you need the assistance of a tax resolution firm, seek out the best: Effectur, Inc.

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

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