Articles Posted in IRS Tax Penalties

When it comes to filing a tax return, or not filing one, the IRS can assess a penalty if you fail to file, fail to pay or both. Here are eight important points the IRS wants you to know about the two different penalties you may face if you do not file or pay timely.

If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty.

The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return on time and explore other payment options in the meantime. The IRS has options such as payment plans, offer in compromise, and other options.

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Tax relief experts have a job pretty similar in nature to specialists of any other field. For example, if you are traveling on the road and suddenly your car breaks down due to a mechanical fault, you cannot fix it without the service of an expert mechanic, unless you possess such proficiencies. Likewise, when your IRS taxes get out of control due to financial problems, carelessness or any other reason, you need the help of a tax relief expert to carry on with your smoother journey of life. But there are many so-called experts you need to beware of, who are there only to take your money. Let us try to expose these scammers!

The American economic system relies heavily on the taxation system and this is why the IRS handles the individuals vehemently who try to evade taxes. However, in current cloudy financial circumstances paying taxes is not an easy job. If you have become a tax defaulter, need not worry because there are several legal ways out.

If you try to solve your IRS tax problems without the technical know-how expertise, it is just like trying to fix your broken car without the help of a mechanic and you will end up nowhere. If you do not want to waste your time and money, contact a reliable tax relief expert, as soon as you realize the tax problem. Procrastination will result in nothing but penalties and higher interest and you will be paying much more than the actual back taxes owed.

Is there a worse scenario than being haunted by the hostile IRS officers and you do not have enough money to pay back the taxes? Yes, if you fall a victim to fake tax relief experts. These scammers have interest in your money not in solving your problems. At the end of the day you will pay their huge fee, the whole tax amount plus penalties and interest.

The trustworthy tax relief experts usually offer free consultation before they take up your case. In this session you should ask them as many questions as you can, to assess their capabilities. If they are paying more attention to your money rather than your tax problem, go somewhere else to seek help.

On the other hand, there are honest and helpful experts who try to be as fair as possible as they know their client is in financial problems. These experts bear all the burden of representing you before the IRS, formulating the best solution for you and in the end, get you favorable results for a reasonable fee.

Good news for American taxpayers who have an outstanding IRS Tax Debt: IRS is still accepting a large number of requests for settlements of delinquent back taxes from taxpayers who are in financial distress and cannot pay their back taxes in full. However, it is a pity that even a huge number of American citizens are possibly qualified for IRS tax relief programs, yet only a small percentage has managed to settle and benefit from these programs. This article not only explores the mistakes made by the individuals who owe IRS back taxes but also explains the best line of attack to resolve your IRS problems.

Although the Internal Revenue Service is offering the taxpayers having back tax problems a solitary opportunity to say goodbye to their tax debt for good, it neither advertises nor suggests that taxpayers should make the use of their offerings. This clearly depicts that the IRS is more eager to recover its full amount instead of providing you the relief. Therefore, most of the taxpayers in financial hardship are not aware of this golden opportunity.

On the other hand, the major reason for taxpayers not being able to enjoy the tax debt settlement offer by IRS is not awareness. In fact majority of taxpayers shamble their case themselves by taking wrong steps, incorrect paperwork and various other mistakes. At the end of the day, these taxpayers have to pay much more than the actual amount owed or end up doing nothing at all.

Offer in Compromise (OIC) is obviously the best way out of IRS back taxes as you have to pay a reduced percentage of the total tax debt. In the current prevalent gloomy fiscal conditions, most of the taxpayers with unpaid back taxes and who are in financial distress and special circumstances due to different hardships, could qualify for an OIC. But as said earlier, many individuals try to negotiate with the IRS on their own and due to lack of tax knowledge and specialized skill set, their OIC request is rejected.

If you want to end your IRS back tax nightmare, you should contact a qualified and reliable tax relief expert. Mike Habib focuses his tax practice on representing his clients before all administrative levels of the IRS. Hire a reliable tax relief professional today, start a tax debt-free life tomorrow!

IRS tax debt relief offered in areas such as: Los Angeles, Whittier, Pasadena, Glendale, Burbank, Orange County, Riverside, Palm Springs, San Bernardino, Palmdale, Bakersfield, New York, New Jersey, Chicago, Houston, Phoenix, Philadelphia, San Antonio, San Diego, Dallas, San Jose, Detroit, Jacksonville, Indianapolis, San Francisco, Columbus, Austin, Memphis, Fort Worth, Baltimore, Charlotte, El Paso, Boston, Seattle, Washington DC, Milwaukee, Denver, Louisville, Jefferson, Las Vegas, Reno, Hempstead, Tucson, Nashville, Davidson, Portland, Tucson, Albuquerque, Santa Fe, Anchorage, Atlanta, Long Beach, Fresno, Sacramento, Mesa, Kansas City, Cleveland, Virginia Beach, Omaha, Miami, Oakland, Tulsa, Honolulu, Minneapolis, Pittsburgh, Colorado Springs, Arlington, Wichita, Birmingham, Montgomery, Tampa, Orlando

Life is a mixture of sunshine and rain, happiness and sadness, success and obstacles, ups and downs. As a matter of fact, majority of people experience more sorrows and less pleasure during their lives. But there are some grave problems than can make you forget all other problems. IRS tax problems are obviously one of these. The worst thing is that most of the people do not know where to go for help and then there are those who even do not bother trying to seek help.

IRS is the considered the most cruel collection agency on the globe and they care about only one thing, their money and they will do anything to recover it. IRS bank levy, IRS tax lien, IRS wage garnishment are the most lethal collection weapons of IRS that can cause immense problems even for well-heeled individuals and organizations.

There are many tax resolution firms that try to rip off their clients but we understand that our clients are already facing financial problems. Our prime target is to solve your problems and that is how we have built our reputation and credibility.

If you are facing IRS tax problems and you cannot find a way to resolve them, we can take this burden off your shoulders. Dealing with IRS problems and pressure is our everyday job. We have a history of solving such problems which you can learn more at myirstaxrelief.com. There would be enough other problems in your life to keep you busy, leave the IRS problems to us. Whenever you are in fear of tax levies, tax liens, wage garnishment, unpaid tax debt or any other IRS tax issue, Mike Habib, EA Tax Relief Services is here for you.

Bringing in to practice our experience and expertise, we handle each case with utmost confidence and carefulness. You will be bothered by the aggressive IRS officers no more and we will help you to find the best resolution by making better accurate analysis of your case.

Remember, every problem has a solution. No matter you have received a notice from the IRS, your wages have been garnished, you simply need advice or whatever the problem is, when Mike Habib, EA Tax Relief Services takes on your case, you should expect positive results.

IRS Problem Solvers is who you need If you have tax problems, we can help. Millions of American taxpayers are stressed by their tax problems because it’s hard to address it with the IRS on their own. Our firm specializes in tax problem resolution, we represent taxpayers with unpaid back taxes, unfiled tax returns, and we represent the audited taxpayer before all administrative levels of the IRS.

Tax problems are usually complex matters and should be handled by a specialized tax firm, the principal of our firm, Mike Habib is an IRS problem solver, he provides solutions to tax problems and will explain your options and protect your rights. Most taxpayers ignore their tax problems by doing nothing assuming that it will go away by itself, not knowing that the only sure thing about tax problems is that they do not go away!

If you owe back taxes, or have unfiled tax returns, the IRS will send you notices that are hard to understand, but they are serious! I consider the IRS the largest and most aggressive collection agency in the world! You do not want to ignore them anymore, as there are many options to resolve your tax matters and get peace of mind. You should also be informed that the IRS can garnish your wages, levy your bank account, levy your pensions, your savings, your property and even your social security checks.

Contact Mike Habib, your trusted IRS problem solver at 1-877-788-2937.

Haven’t filed your tax returns in years? No worries, we can get your tax documents that are necessary to professionally prepare your delinquent and unfiled tax returns. The IRS states that there are more than 6,000,000 Americans who didn’t file, don’t let the IRS punish you in their own way. If you have not filed past tax returns, you should consider professional help. To avoid criminal charges and/or to add to the civil charges, it is vital to file your tax return even if it is late or if you cannot pay all the taxes owed.

Let us assist you in organizing your tax documents and getting you back in compliance with the tax laws. Our job is to work with the IRS to negotiate a resolution that you can live with and does not cause any financial hardship. Tax problem resolution is a complicated process and you need someone on your side that has the expertise to find the way through the clutter and be an advocate for you.

We provide IRS problem solving in all 50 states including Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Guam, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming.

Important tax developments in the first quarter of 2010

IRS Tax Relief

While the new law tax changes in the health reform legislation and the hiring legislation were the most significant developments in the first quarter of 2010, many other tax developments may affect you, your family, and your livelihood. These other key developments in the first quarter of 2010 are summarized below. Please call us for more information about any of these developments and what steps you should implement to take advantage of favorable developments and to minimize the impact of those that are unfavorable.

Estate planning uncertainty. As of now, there is no estate or generation-skipping transfer tax for individuals who die this year. Because of changes to the income tax basis rules for property acquired from a decedent in 2010, some heirs could actually face higher combined estate and income tax costs if their loved one dies in 2010 than would have been the case if death had occurred in 2009. Congress could still retroactively reinstate the estate and generation-skipping transfers taxes to the beginning of this year and restore the favorable prior income basis rules that wipe out income tax on pre-death appreciation in asset values. But, so far, this is no clear indication of what lawmakers will do. Apart from tax uncertainty, the continuing inaction could also pose a problem for individuals with wills using formula clauses. These clauses work well when the estate tax is in force but they may produce unintended consequences when there is no estate tax. Action may need to be taken if it becomes clear that Congress will not be addressing the situation.

Like-kind exchange relief for those snared by QIs in bankruptcy or receivership. In general, no gain or loss is recognized on the exchange of property held for productive use in a trade or business or for investment if the property is exchanged solely for property of a like kind which is held either for productive use in a trade or business or for investment. When a taxpayer uses a qualified intermediary (QI), generally he will transfer the relinquished property to the QI, who will sell the property to a buyer. The QI will then take the proceeds of the sale of the relinquished property, purchase the replacement property, and transfer the replacement property to the taxpayer. If the taxpayer receives the replacement property within a specified period and meets other requirements, he is considered to have engaged in a like-kind exchange of property with the QI and he won’t recognize gain on the exchange.

Unfortunately, many QIs went bankrupt in the last few years thus posing a problem for taxpayers who used them. However, the IRS has now granted relief for taxpayers who were unable to timely complete a like-kind exchange because their qualified intermediary (QI) entered into bankruptcy or receivership. The IRS won’t treat taxpayers as being in actual or constructive receipt of exchange proceeds if they can’t complete an exchange because of a default of a QI in bankruptcy or receivership. Affected taxpayers may use a special safe harbor method to report gain or loss.

Reporting of uncertain tax positions. The IRS has announced that it is developing a schedule to require certain business taxpayers to report uncertain tax positions on their tax returns. Specifically, the schedule will require a concise description of those positions and information on the maximum amount of potential Federal tax liability attributable to each uncertain tax position (determined without regard to the taxpayer’s risk analysis regarding its likelihood of prevailing on the merits). It would be filed with the Form 1120, U.S. Corporation Income Tax Return or other business returns. The IRS intends the new schedule to be filed by a business taxpayer with total assets in excess of $10 million if the taxpayer has one or more uncertain tax positions of the type required to be reported on the new schedule. The IRS plans to require the filing of the new schedule for returns relating to the calendar year 2010 and for fiscal years that begin in 2010.

Chances of being audited. IRS has issued its annual data book, which provides statistical data on its fiscal year 2009 activities, including how many tax returns it examines (audits), and what categories of returns it focuses its resources on. Of the 138,788,744 total individual income tax returns with a filing requirement (this excludes returns filed only to receive an economic stimulus payment) in calendar year 2008, 1,425,888 (1%) were audited. For business returns other than farm returns showing total gross receipts of $100,000 to $200,000, 4.2% of returns were audited. For business returns other than farm returns showing total gross receipts of $200,000 or more, 3.2% of returns were audited. For returns showing total positive income of $200,000 to $1 million, 2.3% of returns not showing business activity were audited, and 3.1% of returns showing business activity were audited.

IRS honoring medical resident FICA refund claims for pre-April 1, 2005 periods. The IRS made an administrative determination to accept the position that medical residents are excepted from FICA taxes based on the student exception for tax periods ending before April 1, 2005, when new regs went into effect. The IRS intends to contact hospitals, universities and medical residents who filed FICA (Social Security and Medicare tax) refund claims for these periods with more information and procedures. The period of limitations for filing a claim for tax periods before April 1, 2005 has expired. An individual who is or was a medical resident, and did not file an individual FICA refund claim, may be covered by a FICA refund claim filed by his employer for the period he was a medical resident. The individual should contact his employer (or former employer) to see if it filed a FICA refund claim. On April 1, 2005, new IRS regulations regarding the student FICA exception became effective. Under these regulations, an employee including a medical resident who works 40 hours or more for a school, college or university is not eligible for the student exception.

Payments for use of trademarks. A prestigious Federal Appellate Court has ruled that a corporation that manufactured kitchen knives and tools could currently deduct the royalties it paid under trademark licensing agreements. In so deciding the Appeals Court rejected the IRS’s position (which had been sustained in the lower court) that the payments had to be capitalized under complex statutory provisions. The immediate deduction produced a quicker tax break than would have been the case had the Appeals Court agreed with the IRS.

Boosted housing allowances for those working abroad in high-cost areas. Guidance from the IRS increases the maximum housing cost exclusion for some U.S. citizens and residents working abroad in specified high-cost locations in 2010. The increases are based on geographic differences in foreign housing costs relative to U.S. housing costs. For example, assume a U.S. taxpayer is posted to Tokyo, Japan for all of 2010. Under the new IRS guidance, his maximum housing cost exclusion is $93,260 ($107,900 full year limit on housing expense in Tokyo minus $14,640 base amount). Before the 2010 table was issued, the IRS had last issued a table for 2008, which is also used for 2009. However, the 2010 table can be used for 2009 if it produces a better result for the taxpayer. In some cases, the 2010 allowances are lower than the 2008 allowances.

Moratorium on selective enforcement of tax shelter penalty continues. Continuing a previously announced policy, the IRS has suspended through May 31, 2010 its efforts to collect penalties under Code Sec. 6707A in some cases. This provision imposes a penalty of $100,000 per individual and $200,000 per entity for each failure to make special disclosures with respect to a transaction that the IRS characterizes as a “listed transaction” or “substantially similar” to a listed transaction. The suspension applies where the annual tax benefit from the transaction is less than $100,000 for individuals or $200,000 for other taxpayers. The IRS originally implemented the suspension after Congressional leaders complained that Code Sec. 6707A can result in disproportionate penalties for small businesses that thought they were investing in legitimate benefits plans, but unknowingly invested in listed tax shelter transactions. Legislation that would ease Code Sec. 6707A ‘s application has passed the Senate and has been introduced in the House.

Government seeks input on annuitization of retirement plan payments. The Department of Labor and the Department of the Treasury are currently reviewing the law to determine whether (and, if so, how) they could or should enhance the retirement security of participants in employer-sponsored retirement plans and IRAs by facilitating access to, and use of, lifetime income or other arrangements designed to provide a lifetime stream of income after retirement. To that end, they are seeking input on this subject from plan participants, employers and other plan sponsors, plan service providers, and members of the financial community, as well as the general public. The concern is that many employers no longer provide fixed lifetime pensions but rather provide 401(k) plans. With these plans, employees bear investment risks and can choose lump sums. Accordingly, employees are not only increasingly responsible for the adequacy of their savings at the time of retirement, but also for ensuring that their savings last throughout their retirement years.


IRS Tax Help and Tax Relief Services by Mike Habib, EA at 1-877-78-TAXES (877-788-2937)

IRS Tax Penalties in Detail

Mike Habib, EA Tax Relief & Tax Problem Resolution

The Internal Revenue Code imposes many different kinds of penalties, ranging from civil fines to imprisonment for criminal tax evasion.

If you do not file your return and pay your tax by the due date, you may have to pay a penalty. You may also have to pay a penalty if you substantially understate your tax, understate a reportable transaction, file an erroneous claim for refund or credit, or file a frivolous tax submission. If you provide fraudulent information on your return, you may have to pay a civil fraud penalty.

Penalties are generally payable upon notice and demand. Penalties are generally assessed, collected and paid in the same manner as taxes. The notice will contain the name of the penalty, the applicable code section, and how the penalty was computed (or information on how to obtain the computation if not included).

This fact sheet is the 22nd in the Tax Gap series. It provides additional guidance to taxpayers regarding civil penalties and the consequences for understating income and overstating expenses.

Estimated Tax-Related Penalties

Employees have taxes withheld from their paychecks by their employer. When you have income that is not subject to withholding you may have to make estimated tax payments during the year.

This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes, and awards. You also may have to pay estimated tax if the amount being withheld from your salary, pension, or other income is not enough to pay your tax liability.

Estimated tax payments are used to pay income tax and self-employment tax, as well as other taxes and amounts reported on your tax return. If you do not pay enough through withholding or estimated tax payments, you may have to pay a penalty. If you do not pay enough by the due date of each payment period you may be charged a penalty even if you are due a refund when you file your tax return.

Penalties for filing or paying taxes late

The most common penalties are for filing late or paying taxes late.

Filing late: If you do not file your return by the due date (including extensions), you may have to pay a failure-to-file penalty. The penalty is usually 5 percent for each month or part of a month that a return is late, but not more than 25 percent. The penalty is based on the tax not paid by the due date (without regard to extensions).

If you file your return more than 60 days after the due date, the minimum penalty is $100 or, if less, 100 percent of the tax on your return.

Paying tax late: You will have to pay a failure-to-pay penalty of ½ of 1 percent (0.5 percent) of your unpaid taxes for each month, or part of a month, after the due date that the tax is not paid. This penalty does not apply during the automatic six-month extension of time to file period if you paid at least 90 percent of your actual tax liability on or before the original due date of your return and pay the balance when you file the return.

The failure-to-pay penalty rate increases to a full 1 percent per month for any tax that remains unpaid the day after a demand for immediate payment is issued, or 10 days after notice of intent to levy certain assets is issued.

For taxpayers who filed on time, the failure-to-pay penalty rate is reduced to ¼ of 1 percent (0.25 percent) per month during any month in which the taxpayer has a valid installment agreement in force.

Combined penalties: For any month both the penalty for filing late and the penalty for paying late apply, the penalty for filing late is reduced by the penalty for paying late for that month, unless the minimum penalty for filing late is charged.

Accuracy Related Penalties

The two most common accuracy related penalties are the “substantial understatement” penalty and the “negligence or disregard of the rules or regulations” penalty. These penalties are calculated as a flat 20 percent of the net understatement of tax.

Penalty for substantial understatement

You understate your tax if the tax shown on your return is less than the correct tax. The understatement is substantial if it is more than the larger of 10 percent of the correct tax or $5,000for individuals. For corporations, the understatement is considered substantial if the tax shown on your return exceeds the lesser of 10 percent (or if greater, $10,000) or $10,000,000.

You may avoid the substantial understatement penalty if you have substantial authority for your tax treatment of the item or through adequate disclosure. To avoid the substantial understatement penalty by adequate disclosure, you must properly disclose the position on the tax return and there must at least be a reasonable basis for the position.

To properly disclose the position, complete and attach IRS Form 8275 to your tax return and disclose all relevant facts. A reasonable basis is one that has approximately 10 percent or greater chance of success if challenged. This means that the position must be more than just arguable. There must be some authority supporting the position.

Penalty for negligence and disregard of the rules and regulations

“Negligence” includes (but is not limited to) any failure to:

  • make a reasonable attempt to comply with the internal revenue laws
  • exercise ordinary and reasonable care in preparation of a tax return or
  • keep adequate books and records or to substantiate items properly

This penalty may be asserted if you carelessly, recklessly or intentionally disregard IRS rules and regulations – by taking a position on your return with little or no effort to determine whether the position is correct or knowingly taking a position that is incorrect. You will not have to pay a negligence penalty if there was a reasonable cause for a position you took and you acted in good faith.

Civil Fraud penalty

If there is any underpayment of tax on your return due to fraud, a penalty of 75 percent of the underpayment due to fraud will be added to your tax. The fraud penalty on a joint return does not apply to a spouse unless some part of the underpayment is due to the fraud of that spouse.

Negligence or ignorance of the law does not constitute fraud.

Typically, IRS examiners who find strong evidence of fraud will refer the case to the Internal Revenue Service Criminal Investigation Division for possible criminal prosecution. Keep in mind that both civil sanctions and criminal prosecution may be imposed.

Frivolous Tax Return penalty

You may have to pay a penalty of $5,000 if you file a frivolous tax return or other frivolous submissions. If you jointly file a frivolous tax return with your spouse, both you and your spouse each may have to pay a penalty of $5,000. A frivolous tax return is one that does not include enough information to figure the correct tax or that contains information clearly showing that the tax you reported is substantially incorrect.

You will have to pay the penalty if you filed this kind of return or submission based on a frivolous position or a desire to delay or interfere with the administration of federal tax laws. This includes altering or striking out the preprinted language above the space provided for your signature.

This penalty is added to any other penalty provided by law.

Penalty for bounced checks

If you write a check to pay your taxes and the check bounces, the IRS may impose a penalty. The penalty is either 2 percent of the amount of the check – unless the check is under $1,250, in which case the penalty is the amount of the check or $25, whichever is less.

The bottom line is that you must report all your income, file your return and pay your tax by the due date to avoid interest and penalty charges.

Get tax relief and resolve your tax matters by contacting the tax firm of Mike Habib, EA at 1-877-78-TAXES or online at myirstaxrelief.com

Keywords: IRS penalty, avoid IRS penalty, tax penalty abatement

Summary of IRS tax penalty rules

Mike Habib, EA Tax Relief & Tax Problem Resolution

Taxpayers who do not file their tax return and pay their tax by the due date may have to pay a penalty. Here are seven things you should know about failure-to-file and failure-to-pay penalties.

    1. The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return and explore other payment options in the meantime.
    2. The penalty for filing late is usually 5 percent of the unpaid taxes for each month of part of a month that a return is late. This penalty will not exceed 25 percent of the taxpayer’s unpaid taxes.
    3. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
    4. You will not have to pay a failure-to-file penalty if you can show that you failed to file on time because of reasonable cause and not because of willful neglect.
    5. You will have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid.
    6. If you filed an extension and you paid at least 90 percent of your actual tax liability by the due date, you will not be faced with a failure-to-pay penalty.
    7. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.

Get tax relief and resolve your tax matters by contacting the tax firm of Mike Habib, EA at 1-877-78-TAXES or online at myirstaxrelief.com

Keywords: IRS penalty, avoid IRS penalty, tax penalty abatement

No More Tax Problems in 2009

Mike Habib, EA

Here is a New Year resolution you can’t afford to ignore… No more tax problems!! Yes, you can get rid of your tax problems in 2009.

You can solve your tax problems and get tax relief through our tax resolution services. You can finally get a fresh start by getting rid of your looming tax problem.

Are you asking yourself … if I have tax problems whom should I contact?

You have many options to settle your tax account and move on with your life. Here are some options that should entice you to get your life in order:

  • Offer In Compromise: an offer in compromise, OIC, will usually be accepted by the taxing authority to resolve your tax problem if the amount offered to settle your tax problem is equal or exceed the taxpayer’s Reasonable Collection Potential, RCP. The IRS, or the State, or the Sales Tax Agency determines RCP by using the financial analysis tools like the 433-A for individuals and 433-B for business entities.

  • Installment Agreement: paying the tax amount through a negotiated installment agreement is a common way to resolve your tax problem. You should seek our professional tax advice, as the taxing authority will usually request a large monthly payment, while our firm will work on attaining an installment agreement that is reasonable and you can live with without causing a financial and economic hardship on you and your family.

  • Currently Non Collectible – CNC Currently Non Collectible – CNC is accomplished when the IRS holds off an individual or business taxpayer’s account from active enforcement collection efforts. There are specific rules and requirements that a taxpayer must meet before a CNC status be accomplished. The IRS would not pursue enforcement collection activity against the taxpayer and possibly the statute of limitations on the entire tax liability will run.

It makes far more sense, and will probably be less costly in the long run, to resolve your tax problem with the IRS now, rather than dealing with the potential embarrassment and financial burden of having your employer garnish and levy your wages / paycheck or the IRS freezes and levy your bank accounts.

The IRS released tax records on their most famous tax problem cases that imprisoned Al Capone, they inadvertently nabbed the Governor of New York allegedly spending tens of thousands of dollars for what they least expected. From Will Smith, to Wesley Snipes to Nicolas Cage IRS audits and collection activities are on the rise, and is expected to continue in 2009 and for many years to come!

Tax problems do not go away by themselves… Take action today by contacting Mike Habib, EA directly at 1-877-78-TAXES or CLICK HERE

As an IRS licensed Enrolled Agent (EA) specializing in Tax Relief and Tax Resolution Services, I can represent individuals and businesses in all of the following states, counties, and metro cities, Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Puerto Rico Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington D.C. West Virginia Wisconsin Wyoming. AL AK AZ AR CA CO CT DE DC FL GA HI ID IL IN IA KS KY LA ME MD MA MI MN MS MO MT NE NV NH NJ NM NY NC ND OH OK OR PA RI SC SD TN TX UT VT VA WA WV WI WY New York, Los Angeles, Orange County, Riverside, San Bernardino, San Francisco, Ventura, Lancaster, Palmdale, Santa Barbara, Chicago, Washington D. C., Silicon Valley, Philadelphia, Boston, Detroit, Dallas, Houston, Atlanta, Miami, Seattle, Phoenix, Minneapolis, Cleveland, San Diego, St Louis, Denver, San Juan, Tampa, Pittsburgh, Portland, Cincinnati, Sacramento, Kansas City, Milwaukee, Orlando, Indianapolis, San Antonio, Norfolk & VB, Las Vegas, Columbus, Charlotte, New Orleans, Salt Lake City, Greensboro, Austin, Nashville, Providence, Raleigh, Hartford, Buffalo, Memphis, West Palm Beach, Jacksonville, Rochester, Grand Rapids, Reno, Oklahoma City, Louisville, Richmond, Greenville, Dayton, Fresno, Birmingham, Honolulu, Albany, Tucson, Tulsa, Tempe, Syracuse, Omaha, Albuquerque, Knoxville, El Paso, Bakersfield, Allentown, Harrisburg, Scranton, Toledo, Baton Rouge, Youngstown, Springfield, Sarasota, Little Rock, Orlando, McAllen, Stockton, Charleston, Wichita, Mobile, Columbia, Colorado Springs, Fort Wayne, Daytona Beach, Lakeland, Johnson City, Lexington, Augusta, Melbourne, Lancaster, Chattanooga, Des Moines, Kalamazoo, Lansing, Modesto, Fort Myers, Jackson, Boise, Billings, Madison, Spokane, Montgomery, and Pensacola

Capital contributions did not restore or increase shareholders’ tax bases in loans to S corporations Nathel, (2008) 131 TC No. 17

Mike Habib, EA

The Tax Court has held that taxpayers’ capital contributions to S corporations did not constitute income to the S corporations and that the contributions did not restore or increase their tax bases in their loans to the S corporations.

Background. Generally, under Code Sec. 1367 a shareholder’s tax bases in the stock in, and in the loans to, an S corporation are adjusted to reflect the shareholder’s share of income, losses, deductions, and credits of the S corporation as calculated under Code Sec. 1366(a)(1). Under Code Sec. 1367(a)(1), a shareholder’s tax basis in his S corporation stock is increased by, among other things, the shareholder’s share of the S corporation’s income items (including tax-exempt income). Under Code Sec. 1367(a)(2), a shareholder’s tax basis in his S corporation stock is decreased (but not below zero) by, among other things, the shareholder’s share of losses and deductions. If a shareholder’s tax basis in his stock in an S corporation is reduced to zero by his share of the losses of the S corporation, any further share of the S corporation’s losses decreases, but not below zero, the shareholder’s tax basis in outstanding loans the shareholder has made to the S corporation. (Code Sec. 1367(b)(2)(A), Reg. § 1.1367-2(b)(1)) Thus, a shareholder’s tax basis in loans the shareholder has made to an S corporation may be lower than their face amount or zero because of downward adjustments in such basis caused by losses of the S corporation that are passed through to the shareholder. (Code Sec. 1367(b)(2)(A))

Facts. In calculating ordinary income relating to $1,622,050 in loan payments received from two S corporations, for purposes of Code Sec. 1366(a)(1), brothers Ira and Sheldon Nathel treated $1,437,248 in capital contributions they made to the S corporations as income to the S corporations and as restoring or increasing under Code Sec. 1367(b)(2)(B), their tax bases in loans that they previously had made to the S corporations. Ira and Sheldon then used the restored or increased tax bases in the loans they made to the S corporations to offset ordinary income that otherwise would have been reportable by them on their receipt from the S corporations of the $1,622,050 loan payments.

On audit, IRS determined that Ira’s and Sheldon’s $1,437,248 capital contributions were not to be treated as restoring or increasing their tax bases in their loans to the S corporations but as increasing their tax bases in their stock in the S corporations, resulting in additional ordinary income being charged to them on receipt of the S corporation loan payments.

Court’s conclusion. The Tax Court held that for purposes of Code Sec. 1366(a)(1), Ira and Sheldon’s $1,437,248 capital contributions to the S corporations did not constitute income to the S corporations and that under Code Sec. 1367(b)(2)(B), Ira and Sheldon’s capital contributions did not restore or increase their tax bases in their loans to the S corporations.

The Court reasoned that by attempting to treat their capital contributions to the S corporations as income to the S corporations, Ira and Sheldon in effect sought to undermine three cardinal and longstanding principles of the tax law: (1) that a shareholder’s contributions to the capital of a corporation increase the basis of the shareholder’s stock in the corporation; (2) that equity (i.e., a shareholder’s contribution to the capital of a corporation) and debt (i.e., a shareholder’s loan to the corporation) are distinguishable and are treated differently by both the Code and the courts; and (3) that contributions to the capital of a corporation do not constitute income to the corporation.

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