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Tax Relief

Are you having problems with settling all your tax debts? If so, you might want to avail of any of the tax relief programs provided for by the IRS. A tax relief is a negotiated solution to your tax problem and possible reduction of the entire tax amount, penalty and interest. It is a form of help from the Government so the taxpayers, be it individuals or companies or corporations, may still be able to pay the tax that is needed to sustain the Government’s needs without such taxpayer suffering penalties from non-payment of taxes. It is a form of compromise where you, as a taxpayer and with back taxes, will promise to pay a possible lesser amount to the IRS instead of the whole amount, and where the IRS will not penalize you or charge you with interests and accept your payment as sufficient.

So what are the different tax relief programs that the Government provides? There is property, personal, business, and housing tax relief. You could also avail of the disaster tax relief program if you have experienced a natural disaster or calamity in your area, or even a financial crisis. However, before you could qualify for this kind, your place or area must first be declared by the Government to be in such a state. There is also an available tax debt relief for taxpayers who are insolvent and cannot, in any way, produce the money to settle their tax obligations. There are other tax relief programs and the best way to know which among these programs you are qualified to apply for is to consult with a tax professional that has an in-depth knowledge on these matters. Such tax professionals will assist you and make your application for tax relief successful, than if you will do it by yourself, particularly because there are many requirements to submit and papers to be produced. However, you must remember that a granted tax relief will not eliminate your tax obligations; instead, it will just make it more affordable for you to pay what you can based on your ability to pay. This is a common misperception of people about tax relief.

There are many tax relief laws. An example of this is the Taxpayer Relief Act of 1997 which reduced different federal taxes of the United States. Another is the Mortgage Forgiveness Debt Relief Act of 2007 which intends to prevent the canceled debt or the forgiven death by a creditor from being treated as taxable income. Just this April 2010, the Legislature of California passed a bill involving housing-crisis California tax relief. This bill is intended to aid homeowners, whose homes and family dwellings were foreclosed, or those who cannot pay anymore mortgages on their homes and had sold it for less than what they still owe their creditors. These kinds of bills and laws are very much needed these days, because of the financial crisis that the whole world has experienced. It will definitely help taxpayers in their responsibility as citizens in assisting the Government and in turn, the Government will be able to collect the needed money to fund their projects.

Keywords: tax relief, tax debt relief, IRS tax relief

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IRS to Step up Audits of Sole Proprietors

IRS Examination, IRS Tax Examination

SOURCE: WebCPA

The Internal Revenue Service plans to check for unfiled tax returns and look for unreported income from sole proprietors of small businesses during correspondence audits and face-to-face IRS tax audits.

Estimates by the IRS show that $68 billion of the $345 billion tax gap in 2001 was due to the underreporting of income by sole proprietors. The IRS conducted more than 5.1 million correspondence examinations between fiscal year 2004 and FY 2008 that recommended the IRS collect approximately $35 billion in additional taxes, according to a new report by the Treasury Inspector General for Tax Administration. For each tax return examined, a correspondence examination generated about $6,800 in recommended additional taxes.

TIGTA found 129 audits where sole proprietors may have avoided tax and interest assessments totaling more than $1.7 million because the IRS failed to address significant potential income misstatements during compliance audits. These audits were identified from a statistically valid sample of 298 closed correspondence audits of individual returns with sole proprietorships that were closed by tax examiners in the IRS Campus Compliance Services operations during fiscal year 2007. Unlike procedures for audits conducted in the field, procedures for correspondence audits of sole proprietors do not require examiners to complete minimum checks for unfiled returns (employment tax and information returns) and to probe for unreported income.

TIGTA recommended that the IRS require correspondence examiners to check for unfiled returns, such as employment tax and information returns, and to probe for unreported income. These checks are required of IRS examiners who conduct in-person audits, but not of correspondence examiners.

“Sole proprietors who underreport their income can create an unfair burden on honest taxpayers and diminish the public’s respect for the tax system,” said TIGTA Inspector General J. Russell George in a statement. “It is imperative that the IRS institutes policies to address this problem.”

In response to TIGTA’s draft report, the IRS agreed to develop inventory selection filters to identity and refer to field examiners those sole proprietors who did not file required employment tax or information returns; and those with indicators of unreported income.

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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.

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

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Health Reform Law to Spawn More Tax Men?

IRS Says It Needs More ‘Resources’ to Implement Tax Provisions of New Law

SOURCE: ABC

By DEVIN DWYER
Ask critics of the Democrats’ health care overhaul about the law’s impact, and among the “horrors” they may describe is an army of Internal Revenue Service agents with “dangerously expanded authority.”

Republicans on the House Ways and Means Committee warn that as many as 16,500 new IRS auditors and investigators — or 17 percent of the agency’s current work force — could be needed to administer and enforce new health insurance rules under the law.

That could mean more audits, confiscated refunds and incursions into details of individuals’ health insurance plans — all at a cost of up to $10 billion over 10 years, they said in a report published last week.

“When most people think of health care reform, they think of more doctor exams, not more IRS exams,” said Rep. Kevin Brady, R-Texas, ranking member on the House Joint Economic Committee. “Isn’t the federal government already intruding enough into our lives?”
The Patient Protection and Affordable Care Act authorizes the IRS, the agency that collects taxes and enforces internal revenue laws in the U.S., to collect penalties imposed on individuals for not having health insurance, and on companies for not offering it when the mandates take effect in 2014.

But IRS Commissioner Douglas Shulman said taxpayers have nothing to fear.

“I think there have been some misconceptions out there,” Shulman told a House committee last week, insisting the new law will not fundamentally alter the relationship between the agency and taxpayers.

Shulman said the new health care law puts the onus on taxpayers to report their insurance coverage on tax forms much as they report income and interest earnings.

“All that will happen with the IRS is similar to a current 1099, where a bank sends the IRS a statement that says ‘here’s the interest’ someone owes, and they send it to the taxpayer,” he said. “We expect to get a simple form that … says this person has acceptable health coverage.”

He said the Department of Health and Human Services will set guidelines for what constitutes “acceptable” health coverage.

But just how the mandate will be enforced if a taxpayer doesn’t report coverage — or reports unacceptable coverage — is unclear. Details of how the provision will work, and IRS’s role in how it will work, are still being determined.

IRS Needs More “Resources” Under Health Reform Law
While insurance information provided on tax forms would presumably be subject to review in an audit, the IRS is prohibited from criminally prosecuting taxpayers who don’t comply with the mandates or issuing liens or levies as a penalty under the new law.

“It’s premature to be speculating about numbers of employees the IRS will need, and what they will be doing,” a Treasury Department spokesperson told ABC News. “Any analysis that assumes the IRS would dedicate most of its administrative expenses to investigating taxpayers is fundamentally flawed.”

The Congressional Budget Office estimates that administrative costs associated with implementing the health reform law could cost the IRS between $5 billion and $10 billion over 10 years. It does not say how the money would be spent, although some of the funds would likely help acquire more employees.

Shulman said the agency “will need resources,” but that they will largely be acquired to “serve the American people.”

The agency said it would need to undertake awareness campaigns to promote new affordability tax credits to families and health tax credits to small businesses. Changes to the tax code will also necessitate greater staffing of call centers and building online self-help tools, the agency said.

Rep. Charles Boustany, R-La., a member of the Ways and Means Committee, said any expansion of the tax agency as part of health reform amounts to greater incursion into citizens’ lives.

“The legislation envisions the IRS having a central role in administering a new national health insurance system and enforcing its rules,” he said in a statement.

President Obama’s budget for FY 2011 gives a $450 million increase for the IRS and describes the agency’s $8 billion allocation for enforcement and modernization programs to support “significant new revenue-generating initiatives that will target critical areas of non-compliance.”

Of the nearly 199 million income tax returns filed with the IRS last year, more than 1.5 million — or just below 1 percent — were reviewed by agency auditors.

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Tax changes affecting individuals in the 2010 health reform legislation

Mike Habib, EA

I’m writing to give you a brief overview of the key tax changes affecting individuals in the recently enacted health reform legislation. Please call our offices for details of how the new changes may affect your specific situation.

Individual mandate. The new law contains an “individual mandate”–a requirement that U.S. citizens and legal residents have qualifying health coverage or be subject to a tax penalty. Under the new law, those without qualifying health coverage will pay a tax penalty of the greater of: (a) $695 per year, up to a maximum of three times that amount ($2,085) per family, or (b) 2.5% of household income over the threshold amount of income required for income tax return filing. The penalty will be phased in according to the following schedule: $95 in 2014, $325 in 2015, and $695 in 2016 for the flat fee or 1.0% of taxable income in 2014, 2.0% of taxable income in 2015, and 2.5% of taxable income in 2016. Beginning after 2016, the penalty will be increased annually by a cost-of-living adjustment. Exemptions will be granted for financial hardship, religious objections, American Indians, those without coverage for less than three months, aliens not lawfully present in the U.S., incarcerated individuals, those for whom the lowest cost plan option exceeds 8% of household income, those with incomes below the tax filing threshold (in 2010 the threshold for taxpayers under age 65 is $9,350 for singles and $18,700 for couples), and those residing outside of the U.S.

Premium assistance tax credits for purchasing health insurance. The centerpiece of the health care legislation is its provision of tax credits to low and middle income individuals and families for the purchase of health insurance. For tax years ending after 2013, the new law creates a refundable tax credit (the “premium assistance credit”) for eligible individuals and families who purchase health insurance through an exchange. The premium assistance credit, which is refundable and payable in advance directly to the insurer, subsidizes the purchase of certain health insurance plans through an exchange. Under the provision, an eligible individual enrolls in a plan offered through an exchange and reports his or her income to the exchange. Based on the information provided to the exchange, the individual receives a premium assistance credit based on income and IRS pays the premium assistance credit amount directly to the insurance plan in which the individual is enrolled. The individual then pays to the plan in which he or she is enrolled the dollar difference between the premium assistance credit amount and the total premium charged for the plan. For employed individuals who purchase health insurance through an exchange, the premium payments are made through payroll deductions.

The premium assistance credit will be available for individuals and families with incomes up to 400% of the federal poverty level ($43,320 for an individual or $88,200 for a family of four, using 2009 poverty level figures) that are not eligible for Medicaid, employer sponsored insurance, or other acceptable coverage. The credits will be available on a sliding scale basis. The amount of the credit will be based on the percentage of income the cost of premiums represents, rising from 2% of income for those at 100% of the federal poverty level for the family size involved to 9.5% of income for those at 400% of the federal poverty level for the family size involved.

Higher Medicare taxes on high-income taxpayers. High-income taxpayers will be hit with a double whammy: a tax increase on wages and a new levy on investments.

Higher Medicare payroll tax on wages. The Medicare payroll tax is the primary source of financing for Medicare’s hospital insurance trust fund, which pays hospital bills for beneficiaries, who are 65 and older or disabled. Under current law, wages are subject to a 2.9% Medicare payroll tax. Workers and employers pay 1.45% each. Self-employed people pay both halves of the tax (but are allowed to deduct half of this amount for income tax purposes). Unlike the payroll tax for Social Security, which applies to earnings up to an annual ceiling ($106,800 for 2010), the Medicare tax is levied on all of a worker’s wages without limit.

Under the provisions of the new law, which take in 2013, most taxpayers will continue to pay the 1.45% Medicare hospital insurance tax, but single people earning more than $200,0000 and married couples earning more than $250,000 will be taxed at an additional 0.9% (2.35% in total) on the excess over those base amounts. Employers will collect the extra 0.9% on wages exceeding $200,000 just as they would withhold Medicare taxes and remit them to the IRS. Companies wouldn’t be responsible for determining whether a worker’s combined income with his or her spouse made them subject to the tax. Instead, some employees will have to remit additional Medicare taxes when they file income tax returns, and some will get a tax credit for amounts overpaid. Self-employed persons will pay 3.8% on earnings over the threshold. Married couples with combined incomes approaching $250,000 will have to keep tabs on their spouses’ pay to avoid an unexpected tax bill. It should also be noted that the $200,000/$250,000 thresholds are not indexed for inflation, so it is likely that more and more people will be subject to the higher taxes in coming years.

Medicare payroll tax extended to investments. Under current law, the Medicare payroll tax only applies to wages. Beginning in 2013, a Medicare tax will, for the first time, be applied to investment income. A new 3.8% tax will be imposed on net investment income of single taxpayers with AGI above $200,000 and joint filers over $250,000 (unindexed). Net investment income is interest, dividends, royalties, rents, gross income from a trade or business involving passive activities, and net gain from disposition of property (other than property held in a trade or business). Net investment income is reduced by properly allocable deductions to such income. However, the new tax won’t apply to income in tax-deferred retirement accounts such as 401(k) plans. Also, the new tax will apply only to income in excess of the $200,000/$250,000 thresholds. So if a couple earns $200,000 in wages and $100,000 in capital gains, $50,000 will be subject to the new tax. Because the new tax on investment income won’t take effect for three years, that leaves more time for Congress and the IRS to tinker with it. So we can expect lots of refinements and “clarifications” between now and when the tax is actually rolled out in 2013.

Floor on medical expenses deduction raised from 7.5% of adjusted gross income (AGI) to 10%. Under current law, taxpayers can take an itemized deduction for unreimbursed medical expenses for regular income tax purposes only to the extent that those expenses exceed 7.5% of the taxpayer’s AGI. The new law raises the floor beneath itemized medical expense deductions from 7.5% of AGI to 10%, effective for tax years beginning after Dec. 31, 2012. The AGI floor for individuals age 65 and older (and their spouses) will remain unchanged at 7.5% through 2016.

Limit reimbursement of over-the-counter medications from HSAs, FSAs, and MSAs. The new law excludes the costs for over-the-counter drugs not prescribed by a doctor from being reimbursed through a health reimbursement account (HRA) or health flexible savings accounts (FSAs) and from being reimbursed on a tax-free basis through a health savings account (HSA) or Archer Medical Savings Account (MSA), effective for tax years beginning after Dec. 31, 2010.

Increased penalties on nonqualified distributions from HSAs and Archer MSAs. The new law increases the tax on distributions from a health savings account or an Archer MSA that are not used for qualified medical expenses to 20% (from 10% for HSAs and from 15% for Archer MSAs) of the disbursed amount, effective for distributions made after Dec. 31, 2010.

Limit health flexible spending arrangements (FSAs) to $2,500. An FSA is one of a number of tax-advantaged financial accounts that can be set up through a cafeteria plan of an employer. An FSA allows an employee to set aside a portion of his or her earnings to pay for qualified expenses as established in the cafeteria plan, most commonly for medical expenses but often for dependent care or other expenses. Under current law, there is no limit on the amount of contributions to an FSA. Under the new law, however, allowable contributions to health FSAs will capped at $2,500 per year, effective for tax years beginning after Dec. 31, 2012. The dollar amount will be indexed for inflation after 2013.

Dependent coverage in employer health plans. Effective on the enactment date, the new law extends the general exclusion for reimbursements for medical care expenses under an employer-provided accident or health plan to any child of an employee who has not attained age 27 as of the end of the tax year. This change is also intended to apply to the exclusion for employer-provided coverage under an accident or health plan for injuries or sickness for such a child. A parallel change is made for VEBAs and 401(h) accounts. Also, self-employed individuals are permitted to take a deduction for the health insurance costs of any child of the taxpayer who has not attained age 27 as of the end of the tax year.

Excise tax on indoor tanning services. The new law imposes a 10% excise tax on indoor tanning services. The tax, which will be paid by the individual on whom the tanning services are performed but collected and remitted by the person receiving payment for the tanning services, will take effect July 1, 2010.

Liberalized adoption credit and adoption assistance rules. For tax years beginning after Dec. 31, 2009, the adoption tax credit is increased by $1,000, made refundable, and extended through 2011 The adoption assistance exclusion is also increased by $1,000.

I hope this information is helpful. If you would like more details about these provisions or any other aspect of the new law, please do not hesitate to call me at 1-877-78-TAXES (1-877-788-2937).

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IRS unveils 2010 list of tax scams — the Dirty Dozen

Tax Relief

IRS has unveiled its latest list of notorious tax scams, which it calls the “Dirty Dozen”. The IRS highlighted tax schemes involving phishing, hiding income offshore and false claims of refunds. IRS warns that these tax schemes are illegal and can lead to problems for both scam artists and taxpayers who risk significant penalties, interest and possible criminal prosecution.

Taxpayers should steer clear of these tax schemes and take corrective steps to remedy the situation for any tax schemes that you may have gotten involved in. Call us today at 1-877-78-TAXES (877-788-2937).

IRS has identified the following tax scams as this year’s Dirty Dozen:

Return preparer fraud. Dishonest tax return preparers can cause many problems for taxpayers who fall victim to their ploys. IRS is implementing a number of steps for future filing seasons. These include a requirement that all paid tax return preparers register with IRS and obtain a preparer tax identification number (PTIN), as well as both competency tests and ongoing continuing professional education for all paid tax return preparers except attorneys, certified public accountants (CPAs) and enrolled agents (see related article in Federal Taxes Weekly Alert 01/07/2010). Call us today at 1-877-78-TAXES (877-788-2937).

Hiding income offshore. IRS aggressively pursues taxpayers and promoters involved in abusive offshore transactions. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through other entities. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or life insurance plans. IRS agents continue to develop their investigations of these offshore tax avoidance transactions using information gained from over 14,700 voluntary disclosures received last year. By making a voluntary disclosure, taxpayers may mitigate their risk of criminal prosecution. For IRS’s recent settlement offer for those that voluntarily disclose unreported offshore income, see Federal Taxes Weekly Alert 04/02/2009. Call us today at 1-877-78-TAXES (877-788-2937).

Phishing. This is a tactic used by Internet-based scam artists to trick unsuspecting victims into revealing personal or financial information. The criminals use the information to steal the victim’s identity, access bank accounts, run up credit card charges or apply for loans in the victim’s name. Phishing scams often take the form of an e-mail that appears to come from a legitimate source. IRS never initiates unsolicited e-mail contact with taxpayers about their tax issues.

Filing false or misleading forms. IRS is seeing scam artists file false or misleading returns to claim refunds that they are not entitled to. Frivolous information returns, such as Form 1099-Original Issue Discount (OID), claiming false withholding credits are used to legitimize erroneous refund claims. Call us today at 1-877-78-TAXES (877-788-2937).

Nontaxable Social Security benefits with exaggerated withholding. IRS has identified returns where taxpayers report nontaxable Social Security benefits with excessive withholding. This tactic results in no income reported to IRS on the tax return. Often both the withholding amount and the reported income are incorrect. Taxpayers should avoid making these mistakes. Filings of this type of return may result in a $5,000 penalty. Call us today at 1-877-78-TAXES (877-788-2937).

Abuse of charitable organizations and deductions. IRS continues to observe the misuses of tax-exempt organizations. These include arrangements to improperly shield income or assets from taxation, as well as attempts by donors to maintain control over donated assets or income from donated property. IRS also continues to investigate various schemes involving the donation of non-cash assets, including easements on property, closely-held corporate stock and real property. Call us today at 1-877-78-TAXES (877-788-2937).

Frivolous arguments. Promoters of frivolous schemes encourage people to make unreasonable and unfounded claims to avoid paying the taxes they owe. IRS has a list of frivolous legal positions that taxpayers should stay away from. Taxpayers who file a tax return or make a submission based on one of the positions on the list are subject to a $5,000 penalty. Call us today at 1-877-78-TAXES (877-788-2937).

Abusive retirement plans. IRS continues to uncover abuses in retirement plan arrangements, including Roth IRAs. IRS is looking for transactions that taxpayers are using to avoid the limitations on contributions to IRAs as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets at less than fair market value into IRAs to circumvent annual contribution limits. Other variations have included the use of limited liability companies (LLC) to engage in activity that is considered prohibited. Call us today at 1-877-78-TAXES (877-788-2937).

Disguised corporate ownership. Some taxpayers form corporations and other entities in certain states for the primary purpose of disguising the ownership of a business or financial activity. Such entities can be used to facilitate underreporting of income, fictitious deductions, non-filing of tax returns, participating in listed transactions, money laundering, financial crimes, and even terrorist financing. IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance. Call us today at 1-877-78-TAXES (877-788-2937).

Zero wages. Filing a phony wage- or income-related information return to replace a legitimate information return has been used as an illegal method to lower the amount of taxes owed. Call us today at 1-877-78-TAXES (877-788-2937).

Misuse of trusts. For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. They promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the promised tax benefits and are being used primarily as a means to avoid income tax liability and hide assets from creditors, including IRS. Call us today at 1-877-78-TAXES (877-788-2937).

Fuel tax credit scams. IRS is receiving claims for the fuel tax credit that are unreasonable. Some taxpayers, such as farmers who use fuel for off-highway business purposes, may be eligible for the fuel tax credit. But some individuals are claiming the tax credit for nontaxable uses of fuel when their occupation or income level makes the claim unreasonable. Fraud involving the fuel tax credit is considered a frivolous tax claim, potentially subjecting those who improperly claim the credit to a $5,000 penalty. Call us today at 1-877-78-TAXES (877-788-2937).

Get tax remedy and resolve your tax problem today. We specialize in tax relief matters and can remedy your tax situation. Call Mike Habib today at 1-877-788-2937.

Keywords: tax remedy, tax problem, tax resolution services, tax relief specialist, IRS tax problem, IRS tax fraud help

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Today is the first day of the rest of your life. If things haven’t been going well lately, get a fresh start with a fresh attitude. The best is yet to come! Michael Josephson, of Character Counts.

Tax debt settlement help – get reliable tax relief

If you find yourself unable to comprehend the complexities of paying off your tax debts, then you need to get tax debt settlement help from a tax expert. Tax debt relief settlement help entails finding an experienced enrolled agent who is a tax relief expert to help you come up with the best solution for your tax problem. There are many tax negotiation companies these days offering tax debt settlement help that many people are inclined to believe that these firms are tax relief scams. Truth be told, it only takes the right choice of tax debt settlement company, enrolled agent or tax advisor to help you with your tax problem.

About tax debt settlement

Before you seek tax debt settlement help, you have to understand what tax debt settlement is. Tax debt settlement, oftentimes known as tax debt relief or tax debt negotiation, is negotiated by your tax representative, also known as power of attorney, effort to reduce your tax debt where the tax agency, or in many cases, the IRS, Internal Revenue Service, and the taxpayer agree on a calculated reduced balance that will then regard the tax debt as paid in full.

Taxpayers can negotiate for their own tax settlement terms by communicating directly with the IRS. Alternatively, they can also seek the assistance of an experienced tax relief expert who is an enrolled agent that is licensed by the IRS to help them out. Many tax relief companies that advertise heavily on TV and the internet claim that they are “tax attorneys”, and if you check their website, they do not mention anything about their unknown tax attorney, nor do they mention their licensed representative bio (biography), qualification or background. See our beware report to avoid scams. ALWAYS speak with the licensed power of attorney who will negotiate on your behalf, never speak with an unlicensed sales representative who claims that he or she is a tax consultant.

How settlement works

Essentially, getting tax debt settlement help entails you to work with a reliable tax relief company that negotiates with the IRS for you the best possible payment terms based on your financial condition. The aim of the tax settlement company is to resolve your tax debt and for you to be able to afford the tax payment that will suit your financial situation.

The first step

When it comes to effectuating a tax debt settlement, our firm starts by reviewing and analyzing your tax debt and your financial ability to pay off your tax debts. We go over the entries on your income tax return to find out if you’re eligible for certain refunds and make sure that the return is accurate, or if needed amended and revised accordingly. In many cases were the taxpayer did not file their tax return for many back years, we directly obtain from the IRS, all the needed W2’s, 1099’s, 1098’s etc to accurately prepare all the unfiled tax returns as well. From there, we will coordinate with the IRS to put a hold on your account, or release a tax levy on your wages or bank account, we then negotiate with the IRS your settlement based on your financial condition and finally reach an agreement that the taxpayer can afford and can live with. While we’re representing you, the IRS will cease and hold all collection efforts for a specified duration so we can assess and resolve your tax matter.

Do-it-yourself

It is important to note that taxpayers can represent themselves, and attempt to negotiate a tax debt settlement on their own without the need for a licensed tax professional, power of attorney. In dealing with tax problems on your own, timing is key. The good news is that the IRS is usually more accommodating of taxpayers who are actively coordinating with them to pay their mounting tax debt. The agency is also bound by certain statutes and regulations that require it to approve certain requests for tax debt relief so long as certain criteria are fulfilled.

Getting the right help

If you opt to seek professional help to settle your tax debt, then we encourage you to consult with our firm. Mike Habib, EA is a tax relief expert who actively helps his client effectuate negotiated tax debt settlements. Mike Habib offers a free consultation with him directly to assess your tax debt and your ability to pay. You can reach Mike at 1-877-78-TAXES, 1-877-788-2937 or at myirstaxrelief.com

Keywords: tax debt settlement help, tax debt settlement, unpaid taxes settlement, tax relief settlement, tax debt relief.

Tax debt settlement help is available in areas such as: Los Angeles, 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, Colorado Springs, Arlington, Wichita, Birmingham, Montgomery, Tampa

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Tax Attorney – Get the power of attorney for tax representation

A tax relief attorney may represent taxpayers with a tax deficiency, which is the excess of the correct tax liability over the tax shown on the taxpayer’s return plus amounts previously assessed (or collected without assessment) as a tax deficiency, and minus any credits made to the taxpayer.

The IRS is mainly authorized to assess taxes to individual and business taxpayers. The tax attorney would usually get involved as the collection process begins when a notice of deficiency is sent to the taxpayer’s last known address by registered or certified mail. In each deficiency notice, the IRS must provide a description of the basis for the assessment, an identification of the amount of tax, interest and penalties assessed and the date determined to be the last day on which the taxpayer may file a petition with the Tax Court. However, the failure by the IRS to specify the last day on which to file a petition will not invalidate an otherwise valid deficiency notice if the taxpayer was not prejudiced by the omission.

Within 90 days after the IRS’ notice of the deficiency is mailed, the taxpayer, or the tax attorney, may file a petition with the Tax Court for a redetermination of the deficiency. Payment of the assessed amount after the deficiency notice is mailed does not deprive the Tax Court of jurisdiction over the deficiency.

If the taxpayer, or the tax attorney, does not file a Tax Court petition within the required time period, the tax may be collected by the IRS. A taxpayer’s property may be seized to enforce collection if there is a failure to pay an assessed tax within 30 days after notice of levy. However, the notice and waiting period does not apply if the IRS finds that the collection of tax is in jeopardy. Notices of levy must provide a description of the levy process in simple and nontechnical terms.

Compromise and settlement of tax and penalty

The IRS may compromise the tax liability in most civil or criminal cases before referral to the Department of Justice for prosecution or defense. The Attorney General or a delegate may compromise any case after the referral. However, the IRS may not compromise certain criminal liabilities arising under internal revenue laws relating to narcotics, opium, or marijuana. Interest and penalties, as well as tax, may be compromised. An offer-in-compromise is submitted on form 656 accompanied by a financial statement on form 433-A for an individual or form 433-B for businesses (if based on inability to pay). A taxpayer who faces severe or unusual economic hardship may also apply for an offer-in-compromise by submitting form 656. If the IRS accepts an offer-in-compromise, the payment is usually allocated among tax, penalties, and interest as stated in the collateral agreement with the IRS. If no allocation is specified in the agreement and the amounts paid exceed the total tax and penalties owed, the payments will be applied to tax, penalties, and interest in that order, beginning with the earliest year. If the IRS agrees to an amount that does not exceed the combined tax and penalties, and there is no agreement regarding allocation of the payment, no amount will be allocated to interest.

Partial payment requirement. Taxpayers are required to make nonrefundable partial payments with the submission of any offer-in-compromise. Taxpayers who submit a lump-sum offer (any offer that will be paid in five or fewer installments) must include a payment of 20 percent of the amount offered. Taxpayers who submit a periodic payment offer must include payment of the first proposed installment with the offer and continue making payments under the terms proposed while the offer is being evaluated. Offers that are submitted to the IRS without the required partial payments will be returned to the taxpayer as non-processible. The required partial payments are applied to the taxpayer’s unpaid liability and are not refundable. However, taxpayers may specify the liability to which they want their payments applied. Any offer that is not rejected within 24 months of the date it is submitted is deemed to be accepted. However, any period during which the tax liability to be compromised is in dispute in any judicial proceeding is not taken into account in determining the expiration of the 24-month period.

Tax Attorney for Tax Court

The primary function of the U.S. Tax Court is to review deficiencies asserted by the IRS for additional income, estate, gift, or self-employment taxes or special excise taxes imposed on taxpayers . The Tax Court is the only judicial body from which relief may be obtained without the payment of tax. The Tax Court also may issue declaratory judgments on the initial or continuing qualification of a retirement plan, a tax-exempt organization, a private foundation, a private operating foundation, or a tax-exempt farmers’ cooperative. However, a revocation of tax-exempt status for failure to file an annual information return or notice is not subject to an action for declaratory judgment relief. The Tax Court also may rule on the tax-exempt interest status of a government bond. Declaratory judgment powers are also provided for (1) estate tax installments, (2) gift tax revaluations, and (3) employment status determinations.

The Tax Court’s offices and trial rooms are located in Washington, D.C., but trials are also conducted in principal cities throughout the country. At the time of filing a petition, the taxpayer, or the tax attorney, should file a request indicating where he prefers the trial to be held. In any Tax Court case, other than small tax cases, the findings of fact and opinion must generally be reported in writing. However, in appropriate cases, a Tax Court judge may state orally, and record in the transcript of the proceedings, the findings of fact or opinion in the case . In such cases, the court must provide to all parties in the case either a copy of the transcript pages, which record the findings or opinion, or a written summary of such findings or opinion.

Also refer to our popular article of Enrolled Agent vs Tax Attorney.

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Basic Trust Taxation Rules It is estimated that $4.8 trillion in wealth will be inherited or transferred from one generation to the next by 2015, with much of it transferred through a variety of trusts. Filings of trust returns (Form 1041) are now the third most frequently filed income tax return behind individual and corporate returns. Although the vast majority of these transfers are legal, there is widespread potential for fraud.In the last few years, the Internal Revenue Service has detected a proliferation of abusive trust tax evasion schemes. These promotions are targeted towards wealthy individuals, small business owners, and professionals such as doctors and lawyers.Abusive trust arrangements typically are promoted by the promise of such benefits as:

  • Reduction or elimination of income subject to tax.
  • Deductions for personal expenses paid by the trust.
  • Depreciation deductions of an owner’s personal expenses paid by the trust.
  • Depreciation deductions of an owner’s personal residence and furnishings.
  • A stepped-up basis for property transferred to the trust.
  • The reduction or elimination of self-employment taxes.
  • The reduction or elimination of gift and estate taxes.

Abusive trust arrangements often use trusts to hide the true ownership of assets and income or to disguise the substance of transactions. Although these schemes give the appearance of separating responsibility and control from the benefits of ownership, as would be the case with legitimate trusts, the taxpayer in fact controls them.

These arrangements frequently involve more than one trust, each holding different assets of the taxpayer (the taxpayer’s business, equipment, home, automobile, etc.), as well as interests in other trusts. The trusts are vertically layered, with each trust distributing income to the next layer. Funds may flow from one trust to another trust by way of rental agreements, fees for services, purchase and sale agreements, and distributions. The goal is to use inflated or nonexistent deductions to reduce taxable income to nominal amounts.

Although the individual abusive promotions vary, two basic schemes have been identified:

  • The domestic package, and
  • The foreign package.

These schemes are often promoted by a network of promoters and sub-promoters who have charged $5,000 to $70,000 for their packages. This fee enables taxpayers to have trust documents prepared, to utilize foreign and domestic trustees as offered by promoters, and to use foreign bank accounts and corporations. In some instances, tax return preparer services are also made available.

Taxpayers should be aware that abusive trust arrangements will not produce the tax benefits advertised by their promoters and that the IRS is actively examining these types of trust arrangements. Furthermore, in appropriate circumstances, taxpayers and/or the promoters of these trust arrangements may be subject to civil and/or criminal penalties.

To understand fully the trust schemes offered today, it is important to focus on some basic trust taxation rules.

A valid trust is a legal arrangement creating a separate legal entity. The duties, powers and responsibilities of the parties to this arrangement are determined by state statute and the trust agreement. To create a trust, legal title to property is conveyed to a trustee, who is then charged with the responsibility of using that property for the benefit of another person, called the beneficiary, who really has all the benefits of ownership, except for bare legal title. The IRS recognizes numerous types of legal trust arrangements, and they are commonly used for estate planning, charitable purposes, and holding of assets for beneficiaries. The trustee manages the trust, holds legal title to trust assets, and exercises independent control.

All income a trust receives, whether from foreign or domestic sources, is taxable to the trust, to the beneficiary, or to the grantor of the trust unless specifically exempted by the Internal Revenue Code (IRC).

Foreign trusts to which a U.S. taxpayer has transferred property are treated as grantor trusts as long as the trust has at least one U.S. beneficiary. The income the trust earns is taxable to the grantor under the grantor trust rules. Grantor trusts are not recognized as separate taxable entities, because under the terms of the trust, the grantor retains one or more powers and remains the owner of the trust income. In such a case, the trust income is taxed to the grantor, whether or not the income is distributed to another party.

A legitimate trust is allowed to deduct distributions to beneficiaries from its taxable income, with a few modifications. Therefore, trusts can eliminate income by making distributions to other trusts or other entities as long as they are named as beneficiaries. This distribution of income is key to understanding the nature of the abusive schemes. In the abusive schemes, bogus expenses are charged against trust income at each trust layer. After the deduction of these expenses, the remaining income is distributed to another trust, and the process is repeated. The result of the distributions and deductions is to reduce the amount of income ultimately reported to the IRS.

Filing requirements for legitimate trusts are discussed below:

  • A domestic trust must file a Form 1041, U.S. Income Tax Return for Estates and Trusts, for each taxable year. If the trust is classified as a Domestic Grantor Trust, it is not generally required to file a Form 1041, provided that the individual taxpayer reports all items of income on his own Form 1040, U.S. Individual Income Tax Return. Thus, the individual pays the total tax liability upon the filing of his return for that taxable year. All income received by a trust, whether from foreign or domestic sources, is taxable to the trust, to the beneficiary, or to the grantor unless specifically exempted by the Internal Revenue Code.
  • Foreign trusts are subject to special filing requirements. If a trust has income that is effectively connected with a U.S. trade or business, it must file Form 1040NR, U.S. Nonresident Alien Income Tax Return. Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Foreign Gifts, must be filed on the creation of or transfer of property to certain foreign trusts. Form 3520-A, Annual Information Return of Foreign Trusts With U.S. Owner, must also be filed annually. Foreign trusts may be required to file other forms as well.
  • In addition to filing trust returns as just described, a taxpayer may be required to file U.S. Treasury Form TD F 90-22.1, Foreign Bank and Financial Accounts Report, if the taxpayer has an interest of over $10,000 in foreign bank accounts, securities, or other financial account. Also, a taxpayer may be required to acknowledge an interest in a foreign bank account, security account or foreign trust on Schedule B, Interest and Dividend Income, that is attached to Form 1040.

Keywords: trust tax help, estate tax help, estate taxes, IRS Estate Tax, 706 tax help
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About Mike Habib, EA

Mike Habib is an IRS licensed Enrolled Agent who concentrates his tax practice on helping individuals and businesses solve their IRS & State tax problems. Mike has over 20 years experience in taxation and financial advisory to individuals, small businesses and fortune 500 companies.

Tax problems do not go away unless you take some action! Get Tax Relief today by calling me at 1-877-78-TAXES . You can reach me from 8:00 am to 8:00 pm, 7 days a week.

Also online at http://www.MyIRSTaxRelief.com

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Senate Unveil Tax Reform Bill

Senate Finance Committee members Ron Wyden, D-Ore., and Judd Gregg, R-N.H., on February 23 unveiled a broad tax reform proposal that they say would create a simpler and fairer system by lowering tax rates and eliminating narrow tax breaks that benefit special interests. The plan would also simplify tax returns into a one-page Form 1040.

The most significant individual provisions of the Bipartisan Tax Fairness and Simplification Bill of 2010 would reduce the number of income tax brackets from six to three –15 percent, 25 percent and 35 percent –increase the amounts of the standard deduction, eliminate the alternative minimum tax and allow an exclusion for capital gains. On the business side, the proposal would establish a single corporate income tax rate of 24 percent and allow a simplified cash flow accounting for businesses with gross receipts of less than $1 million per year.

“By simplifying the tax code and scaling back tax breaks for special interests, we can give everyone an opportunity to get ahead. Businesses of all sizes will be in a better position to compete and grow jobs. Working families will keep more of their hard-earned dollars, and everyone will spend a lot less time filling out tax forms,” said Wyden.

Preliminary revenue projections for the measure provided by the Congressional Research Service and based on Joint Committee of Taxation estimates of similar legislation introduced in 2007 (the Fair Flat Tax Bill of 2007 (Sen 1111)) indicated that the proposal would be deficit neutral. Much of the revenue for reform would be generated by closing corporate tax loopholes and eliminating what Wyden and Gregg termed “corporate welfare.”

The legislation also would eliminate incentives for companies to export jobs and keep their foreign earnings overseas by repealing the rule that allows U.S. companies to defer taxes on their foreign income. The bill would also require banks to identify all individuals who benefit from foreign accounts and to withhold 30 percent of all withholdable income, such as interest sent to beneficiaries that disguise their identities.

The Senate is unlikely to address the proposal in the near future given the abbreviated legislative calendar due to the 2010 elections. House Ways and Means Committee Chairman Charles E. Rangel, D-N.Y., and Senate Finance Committee Chairman Max Baucus, D-Mont., have said that comprehensive tax reform is on their agenda.

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About Mike Habib, EA

Mike Habib is an IRS licensed Enrolled Agent who concentrates his tax practice on helping individuals and businesses solve their IRS & State tax problems. Mike has over 20 years experience in taxation and financial advisory to individuals, small businesses and fortune 500 companies.

Tax problems do not go away unless you take some action! Get Tax Relief today by calling me at 1-877-78-TAXES . You can reach me from 8:00 am to 8:00 pm, 7 days a week.

Also online at http://www.MyIRSTaxRelief.com