Tax Relief Blog

Penalty abatement is a form of tax debt relief you can avail to significantly reduce the total tax you owe to the IRS.

What is Penalty Abatement?
If you have a tax debt, the IRS will calculate penalties and interest on the amount owed. The penalties include a 'failure to file' penalty if you have failed to file your returns on time (including extensions), a 'failure to pay' penalty if the tax amount has not been paid in full and which is calculated on the basis of the amount you owe. These two penalties are charged on a monthly basis for the entire period until resolution. Further the IRS charges a daily interest on the tax amount you owe. All in all, the each penalty may contribute up to 25% of your total tax bill.

If your failure to pay taxes has been due to financial difficulties, such difficulties are further compounded by the penalties, which continuously keep adding to the total tax debt. So penalty abatement is an option you should definitely consider to achieve some degree of tax debt relief. As professional enrolled agent, Mike Habib can guide you in this matter if you do not feel confident enough to handle it on your own.

You recently asked what will happen and what you should do in the event that you cannot pay your taxes on time. First and most importantly, don't let your inability to pay your tax liability in full keep you from filing your tax return properly and on time. It is also important to remember that an extension of time to file your tax return doesn't also extend the time to pay your tax bill. Get tax resolution services at 1-877-788-2937.

Even if you can't make full payment of your liabilities, timely filing your return and making the largest partial payment you can will save you substantial amounts in interest and penalties. Additionally, there are procedures for requesting payment extensions and installment payment arrangements which will keep the IRS from instituting its collection process (liens, property seizures, etc.) against you. Get tax resolution services at 1-877-788-2937.

Overview of the most common penalties. The "failure to file" penalty accrues at the rate of 5% per month or part of a month (to a maximum of 25%, reached after five months) on the amount of tax your return should show you owe. The "failure to pay" penalty is gentler, accruing at the rate of only 0.5% per month or part of a month (to a maximum of 25% reached after fifty months) on the amount actually shown as due on the return. If both apply, the failure to file penalty drops to 4.5% per month, so the total combined penalty remains at 5%--thus, the maximum combined penalty for the first five months is 25%. Thereafter, the failure to pay penalty can continue at 0.5% per month for 45 more months, yielding an additional 22.5%. In total, these combined penalties can reach 47.5% of your unpaid liability in less than five years.

Both of these penalties are in addition to interest you will be charged for your late payment. If you also missed estimated tax payments, an additional penalty is tacked on for the period running from each payment's due date until the tax return due date, normally April 15th. This penalty is computed at 3% above the fluctuating federal short-term interest rate for the period. Get tax resolution services at 1-877-788-2937.

Borrowing money to pay taxes. Given the rate at which the above-mentioned penalties and interest accrues, it might be a good idea to borrow money to pay the taxes. In many situations, the rate of interest that you would pay to a family member, or even to a bank, is less overall than that which you would have to pay the IRS.

Loans from relatives or friends are often the simplest method to pay the bill. One advantage of such loans is that the interest rate will probably be low, but you must also consider that loans over $10,000 at below-market interest rates may trigger tax consequences. When loans from individuals are not available, a loan from a bank or other commercial source could be sought, but such loans are not likely to be made on favorable terms to a hard-pressed taxpayer. Moreover, interest on a loan to pay taxes is nondeductible personal interest. In contrast, if you can take out a home equity loan and use the proceeds to pay off your tax debts, you will probably be paying at a lower rate than with other types of loans, and the interest payments will be deductible even if the loan proceeds aren't used in connection with the house. Get tax resolution services at 1-877-788-2937.

Credit cards. It is relatively quick and easy to use credit cards to pay the income tax bill, whether you file your income tax return by mailing a paper copy or by computer. In addition, three companies (Official Payments Corporation at 888-872-9829, Link2Gov Corporation at 888-729-1040, and RBS WorldPay, Inc. at 888-972-9829) are authorized service providers for purposes of accepting credit card charges from both electronic and paper filers. However, credit card loans are likely to be at relatively high interest rates and the interest is not deductible. Moreover, the service providers typically charge an additional fee based on the amount you are paying.

Installment agreement request. If you cannot or prefer not to take out a loan, you might be able to defer your tax payments by requesting that the IRS enter into an installment payment agreement with you. This request is made on Form 9465 or by applying for a payment agreement online. There are various options for making your monthly installment agreement payments, including the direct debit and payroll deduction methods, both of which are made automatically and thus reduce the risk of default. Get tax resolution services at 1-877-788-2937.

If you file and request a payment agreement online, there are three available payment options: (1) payment in full within 10 days (which saves on interest and penalties); (2) short-term extension of up to 120 days (for which no fee is charged, but additional penalties and interest accrue); or (3) monthly payment plan (which carries an additional user fee, and interest and penalties continue to accrue on the unpaid balance).
You can also request an installment agreement on Form 9465, which can be filed along with either an e-filed or paper return. Form 9465 requires less information than the hardship extension application (described below). If the liability is under $25,000, you will not be required to submit financial statements. Even if your request to pay in installments is granted, you will be charged interest on any tax not paid by its due date. However, the late payment penalty will be half the usual rate (0.25% instead of 0.5%) if you file your return by the due date (including extensions).

The IRS charges a fee for installment agreements, which will be deducted from your first payment after your request is approved. The fee for entering into an installment agreement is regularly $105, but it is reduced to $52 when the taxpayer pays by way of a direct debit from the taxpayer's bank account. Notwithstanding the method of payment, the fee is $43 if the taxpayer is a low-income taxpayer--i.e., an individual who falls at or below 250% of the dollar criteria established by the poverty guidelines updated annually in the Federal Register by the U.S. Department of Health and Human Services. There is a $45 fee to restructure or reinstate an established installment agreement that applies regardless of income levels or method of payment.

Note that an installment agreement request can be made after the expiration of a hardship extension period (described below). Additionally, the IRS has the authority to enter into an installment agreement calling for less than full payment of the tax liability over the term of the agreement. It may do so if it determines such an agreement will facilitate partial collection of the liability.

The installment agreement may terminate, and all your taxes become due immediately, under certain circumstances (for example, if you stop making payments).

The IRS is required to enter into an installment agreement at your request (a "guaranteed installment agreement") if the following apply:
• the tax liability is $10,000 or less (not counting interest and penalties);
• within the prior 5 years you have not (i) failed to file returns or pay taxes, or (ii) entered into a previous installment agreement;
• the IRS determines the tax liability cannot be paid in full;
• the installment agreement provides for full payment within 3 years; and
• you agree to comply with the tax laws during the agreement period.
As a matter of policy, the IRS often grants guaranteed installment agreements even if taxpayers are able to fully pay their accounts.

Undue hardship extensions. You may also qualify for an extension of time to pay if you can show that payment would cause "undue hardship." Form 1127 is used to apply for an undue hardship extension, and you must attach a statement of assets and liabilities as well as an itemized list of receipts and disbursements for the 3 months preceding the tax due date. Get tax resolution services at 1-877-788-2937.

If you qualify for an undue hardship extension, you will be given an extra six months to pay the tax shown as due on your tax return. You will avoid the failure to pay penalty, but you will still be charged interest. If the IRS determines a "deficiency," i.e., that you owe taxes in excess of the amount shown on your return, the undue hardship extension can be as long as 18 months and, in exceptional cases, another 12 months can be tacked on. However, no extension will be granted if the deficiency was the result of negligence, intentional disregard of the tax rules, or fraud.

To establish undue hardship, it is not enough to show that it would just be inconvenient to pay your tax when due. For example, if you would have to sell property at a "sacrifice" price, you may qualify for an undue hardship extension. However, if a market exists, having to sell property at the current market price is not viewed as resulting in an undue hardship.

To qualify for an extension, you would have to: (i) show that you do not have enough cash and assets convertible into cash in excess of current working capital to meet your tax obligations; (ii) show you cannot borrow the amount needed except on terms that would inflict serious loss and hardship; and (iii) provide security for the tax debt. The determination of the kind of security--such as a bond, filing a notice of lien, mortgage, pledge, deed of trust, personal surety, or other form of security--will depend on the particular circumstances involved. However, no collateral is required if you have no assets.

Offer-in-compromise. Another potential way to deal with unpaid taxes is by using an offer in compromise, which is a technique that may allow you to settle your tax debt for a fraction of its face value. This option is available only if you have already filed your return but are unable to pay your taxes--in other words, it can't be requested prospectively. Get tax resolution services at 1-877-788-2937.

Like any creditor, the IRS prefers a partial payment to no payment at all. Thus, the IRS might be willing to settle your liability for less than the full amount if: (a) you aren't able to pay the full amount, (b) there is doubt as to how much the tax liability is, (c) collection of the liability would create economic hardship for you (for instance, if you are out of work due to health problems, or if sale of your assets to pay the tax would leave you without enough money to meet basic living expenses), or (d) compelling public policy or equity considerations exist, and due to the exceptional circumstances (such as a medical condition that prevents proper management of financial affairs, or reliance on erroneous advice from the IRS), the IRS's collection of the full liability would undermine public confidence in the fair and equitable administration of tax laws. Learn more about Tax Relief Options HERE.

The process is started by actually making an offer-in-compromise. If the offer is based on any reason other than doubt as to how much the tax liability is, you must submit your financial information along with the offer. If it is grounded on doubt as to the liability, the IRS is not permitted to request a financial statement. Partial payments must be made to the IRS while a periodic payment offer is being considered. For lump-sum offers, or offers involving five or fewer installments, a 20% down payment (of the total offer amount) must be made with the application.

In order to obtain an offer-in-compromise based on any of the above-mentioned grounds except doubt as to liability, you must agree to comply with all tax law rules on filing returns and paying taxes for the longer of five years or until the offered amount is paid. If you don't comply with these rules, the compromise will terminate and the IRS can seek collection of the original liability amount.

Innocent spouse relief. If you are unable to pay liabilities that are attributable to your spouse, it might be worth exploring whether you are eligible for relief under the "innocent spouse" provisions. Under limited circumstances, a taxpayer can be relieved from liabilities shown on a joint return filed with a spouse. In general, relief is potentially available for: erroneous items attributable to the other spouse of which you had no knowledge or reason to know; the separate liabilities of a spouse to whom you are no longer married or with whom you no longer reside (including deceased spouses); and liabilities for which it would otherwise be inequitable to hold you liable. This is a very specialized type of relief that carries many procedural and substantive requirements that are beyond the scope of this letter, but it's important that you're aware of it because there are strict time restrictions associated with claiming innocent spouse relief. Get tax resolution services at 1-877-788-2937.

Avoiding more serious consequences. Many taxpayers ignore their tax liabilities when they run into financial difficulties--for example, by failing to file their tax returns. However, tax liabilities do not go away if left unaddressed, and failing to deal with the problem often exacerbates it. It is very important that you timely file a properly prepared return, even if full payment cannot be made. Include as large a partial payment as you can with the return, and start working with the IRS on one (or more) of the options discussed above as soon as possible. Otherwise, you may face escalating penalties, the risk of having liens assessed against your assets and income, or even seizure and sale of your property. In many cases, these tax nightmares can be avoided by taking advantage of the arrangements offered by the IRS. Get tax resolution services at 1-877-788-2937.

Of course, I am available to discuss all of these matters with you on a strictly confidential basis and to offer advice and assistance. Please don't hesitate to call me at 1-877-788-2937.

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We offer reliable tax relief and tax resolution services 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.

Mike Habib is an IRS licensed Enrolled Agent who focuses his tax practice on helping his clients resolve their tax controversy matters. His tax relief firm is rated "A" by the better business bureau, which is quite rare for this industry as many are rated "F" or already ceased business operations like American Tax Relief and Nationwide Tax Relief and possibly many more to come.

Do you have IRS tax problems?

Don't procrastinate anymore; call Mike Habib at 1-877-788-2937 for a free analysis of your tax situation. There are solutions to your tax problems.

Tax relief services provided are:

 Stopping wage garnishments and tax levies,
 Stopping and releasing bank levies,
 IRS tax audit representation
 Filing delinquent and past due tax returns,
 Resolving back tax debts,
 Negotiated settlement agreements,
 Installment agreements you can afford,
 Offer in compromise settlements,
 Sales tax audit representation and sales tax debt settlements,
 941 payroll tax resolution,
 Penalty abatement services,
 IRS Revenue Officer matters

Don't let the IRS ruin your life! Hire the reliable tax firm of Mike Habib; he has earned an "A" rating from the better business bureau.

Don't fall for scams.

Get a confidential consultation today by calling 1-877-788-2937.

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Employment and Payroll Tax Audit & Examination:
The IRS announced its plan to audit the first 6,000 employment tax audits and small business will be their audit target. The IRS will start examining 2,000 companies every year over the next 3 years.

The IRS will utilize its audit findings to target a select group of businesses and aggressively audit their payroll tax and refine estimates to close the tax gap. IRS audit agents are specially trained to audit employment and payroll tax for the audited businesses.

Colleges and Universities Tax Audits:
The IRS will audit 400 Colleges and Universities this year. The IRS is looking for unrelated business income to focus its examination at. The IRS suspects that many universities aren't paying taxes on income from unrelated activities to their tax-exempt status, for example: stadium advertising, gym memberships, and executive pay.

Contractors with unpaid back taxes:
The IRS is cracking down hard on contractors with unpaid back taxes. The current Obama administration is developing new regulations to prevent federal contractors from receiving any government contracts as long as they owe back tax debt. In 2008, procedures were in place to prevent any contractor from bidding on government contacts if they owed $3,000 or more in tax liens and or tax judgments to the IRS.

The Revenue Service is also eyeing projects that use rehabilitation credit. IRS Agents have spotted developers claiming the 20% income tax credit on the cost of renovating certified historic buildings before they have the necessary documentation from the National Park Service to certify that the subject project is in fact historic in nature. The IRS will crack down on developers who are performing Historic structure renovations.

Employers with unpaid FICA on tips:
The IRS is sending out bills to employers such as restaurants and hotels to collect on unpaid FICA on unreported tips using data they collected from form 4137 which employees use to report tip income that they didn't disclose to their employers. The IRS is sending letters to these employers instructing them to include their calculated amount on their next scheduled payroll deposit. Employers who comply will avoid any penalties and interest on the back taxes. The IRS is also revising the 4137 form to include the employer's EIN number.

Mike Habib EA actively represents taxpayers in audits and examination before all administrative levels of the IRS. Don't compromise on your representation, contact us today.

Get your free audit consultation by calling 1-877-788-2937.

Part 2 of 2

• Dishonored Check - A penalty is charged if a taxpayer's check is returned because of insufficient funds. For checks of $1,250 or more, the penalty is 2% of the check amount. For checks less than $1,250, the penalty is the lesser of $25 or the amount of the check.

• Paying Late - The penalty is ½% of the unpaid tax for each month or part of a month the tax is unpaid. If the IRS issues a Notice of Intent to Levy and the taxpayer does not pay the balance within 10 days, the penalty increases to 1% per month. The penalty cannot be more than 25% of the tax paid late. The late payment penalty is reduced to ¼% per month for those paying in installments.

• Missing Tax ID Number - This penalty is $50 for each missing number. This penalty is charged when a taxpayer does not provide a social security number (SSN) for himself, a dependent, or another person or does not provide his/her SSN to another person when required.

• Penalty on Tips - This penalty is charged if a taxpayer does not report tips to his/her employer. It equals 50% of the social security tax on the unreported tips.

• Negligence - This "accuracy-related" penalty is 20% of the tax underpayment that is due to negligence or tax valuation misstatements.

The "accuracy-related" penalty is imposed if any part of an underpayment of tax is due either to negligence or a taxpayer's disregard of rules or regulations but without the intent to defraud. The penalty is 20% of the portion of the underpayment attributable to the negligence, etc.

"Negligence" includes any failure to make a reasonable attempt to comply with the law or to exercise ordinary and reasonable care in preparing a tax return, as well as failure to keep adequate books and records or to substantiate items properly. "Disregard" includes any careless, reckless or intentional disregard.

• Fraud - The civil fraud penalty is one of the most powerful tools that the IRS has. It applies if any part of a tax underpayment is due to fraud, and the penalty equals 75% of that portion of the taxpayer's underpayment attributable to fraud. Although IRS has the burden of proving fraud by clear and convincing evidence, if it shows that any portion of an underpayment is due to fraud, the entire underpayment is treated as attributable to fraud except for any portion that the taxpayer shows (by a preponderance of the evidence) not to be so attributable.

No time limit exists on the assessment and collection of tax if a fraudulent return is filed. Likewise, a return subject to the civil fraud penalty is treated as fraudulent for bankruptcy purposes. As a result, taxes shown on such a return are not normally discharged in a bankruptcy proceeding.

Although civil fraud is not defined by statute, some courts have defined it as an actual and deliberate, or willful, wrongdoing with specific intent to evade a tax believed to be owed.

• Fraud-Late Filing Penalty - The law allows the IRS to increase the penalty for filing late if a taxpayer did not file on time because of fraud. The penalty is 15% of the amount of tax that should have been reported on the tax return and an additional 15% for each additional month or part of a month the taxpayer didn't file a return. The penalty cannot exceed 75% of the tax unpaid.

• "Excessive" Claim Penalty - Generally, if a claim for a refund or credit for income tax is made for an "excessive amount," the person making the claim is liable for a penalty equal to 20% of the excessive amount. The "excessive amount" is the amount by which the amount of a person's claim for a refund or credit for any tax year exceeds the amount of the claim allowable under the Internal Revenue Code for that tax year.

The penalty does not apply if it is shown that the claim for the excessive amount has a reasonable basis or if any portion of the excessive amount or credit is subject to an accuracy-related or fraud penalty.

• Frivolous Return - In addition to any other penalties, the law imposes a penalty of $5,000 for filing a frivolous return. A frivolous return is one that does not contain information needed to figure the correct tax or shows a substantially incorrect tax because the taxpayer takes a frivolous position or desires to delay or interfere with the tax laws. This includes altering or striking out the preprinted language above the space where the taxpayer signs.

It is possible that some of the penalties listed above can be reduced or removed if a taxpayer can show reasonable cause. The IRS Penalty Handbook used by its agents defines reasonable cause as those reasons deemed administratively acceptable to the IRS. "Reasonable cause relief is generally granted when the taxpayer exercises ordinary business care and prudence in determining their tax obligations but is unable to comply with those obligations." The Handbook also says, "Each case must be judged individually based on the facts and circumstances at hand."

Do you have large tax penalties? Would you like to abate these penalties? Call us at 1-877-788-2937.

Most tax penalties are substantial, punitive and can dramatically increase the overall tax bill. Penalties are assessed for a many reasons. Some tax penalties are due to a taxpayer's carelessness or inattention to tax details. Other penalties are incurred due to the overstatement of deductions, the failure to report income, missing documentation, negligence, fraud or procrastination.

Recently, Congress added additional penalties for making excessive claims or filing frivolous tax returns. The following is an overview of the IRS penalties that can be imposed on a taxpayer.

The IRS assessed taxpayers over $29,000,000,000.00 (that's 29 Billion Dollars) in penalties during 2009.

• Filing and Paying Late - These penalties will apply when a taxpayer fails to timely file and does not pay the taxes he or she owes. The combined penalty is 5% of the unpaid tax for each month or part of a month the return is late, but not for more than five months. The late filing penalty is reduced by the late payment penalty. Thus, the 5% includes a 4½% penalty for filing late and a ½% penalty for paying late.

The 25% combined maximum penalty includes 22½% for filing late and 2½% for paying late. The ½% penalty for paying late is not limited to five months. This penalty will continue to increase to a maximum of 25% until the taxpayer pays the tax in full. The maximum 25% penalty for paying late is in addition to the maximum 22½% late filing penalty for a total penalty of 47½%.

If a taxpayer does not file a return within 60 days of the due date, the minimum penalty is $135 ($100 for returns required to be filed before January 1, 2009) or 100% of the balance of the tax due on the return, whichever is smaller.

• Underpayment of Estimated Tax - Our tax system is a "pay-as-you-go" system. To facilitate that concept, the IRS has provided several means of assisting taxpayers in meeting the "pay-as-you-go" requirement. These include:

• Payroll withholding for employees;
• Pension withholding for retirees; and
• Estimated tax payments for self-employed individuals and those with other sources of income not covered by withholding.

When a taxpayer fails to prepay the required tax, he or she can be subject to the underpayment penalty. This penalty is 2% higher than the prime rate and the penalty is computed on a quarter-by-quarter basis.

Federal tax law does provide ways to avoid the underpayment penalty. If the underpayment is less than $1,000, no penalty is assessed. In addition, the law provides "safe harbor" (minimum) prepayments. There are two safe harbors, which are discussed below:

1. The first safe harbor is based on the tax owed in the current year. If a taxpayer's payments equal or exceed 90% of what is owed in the current year, he or she can escape a penalty.

2. The second safe harbor is based on the tax owed in the immediately preceding tax year. This safe harbor is generally 100% of the prior year's tax liability. However, for higher-income taxpayers whose AGI exceeds $150,000 ($75,000 for married taxpayers filing separately), the prior year's safe harbor is 110%.

The IRS would consider abating their tax penalties for taxpayers with reasonable cause. If you have a substantial tax penalty and would like to abate it, call us at 1-877-788-2937.

Tax Relief - Get tax debt relief today

Reasonable Cause/Good Faith Defense: Even if the taxpayer did not have substantial authority for a position and failed to make adequate disclosure, the substantial understatement penalty does not apply if the taxpayer had reasonable cause for the tax underpayment and acted in good faith [IRC Sec. 6664(c); Reg. 1.6664-4]. This defense is applied on a "facts and circumstances" basis [Reg. 1.6664-4(b)]. However, the key factor seems to be whether the taxpayer made a reasonably energetic attempt to determine the correct tax liability. For example, an honest misunderstanding of fact or law, an isolated computational error, reliance on professional tax advice, or reliance on information returns all indicate reasonable cause/good faith. However, if the taxpayer should have known better, the defense will not apply.
Observation: According to IRM 20.1.5.6, the most important factor in determining whether the taxpayer has reasonable cause and acted in good faith is the extent of the taxpayer's effort to report the proper tax liability. For example, reliance on erroneous information reported on an information return indicates reasonable cause and good faith, provided the taxpayer did not know or have reason to know that the information was incorrect. Similarly, an isolated computational or transcription error may indicate reasonable cause and good faith. Other factors to consider are the taxpayer's experience, knowledge, sophistication, education, mental and physical condition, and reliance on the advice of a tax advisor.

Reg. 1.6664-4(c) discusses when a taxpayer is considered to have reasonably relied in good faith upon someone else's advice (including that of a professional tax advisor). According to the regulation, meeting the following requirements, while not guaranteeing that the accuracy-related penalty will be avoided, tends to indicate that the "reasonable reliance" and "good faith" aspects have been met:
a. The advice must be based on all pertinent facts and circumstances and the law as it relates to those facts and circumstances. For example, the advice must take into account the taxpayer's purposes (and the relative weight of such purposes) for entering into a transaction and for structuring a transaction in a particular manner.
b. The taxpayer must inform the adviser of all facts that are known, or should be known, to be relevant to the proper tax treatment of an item.
c. The advice must not be based on unreasonable factual or legal assumptions (including assumptions about future events) and must not unreasonably rely on the representations, statements, findings, or agreements of the taxpayer or any other person. For example, the advice must not be based upon a representation or assumption that the taxpayer knows, or has reason to know, is unlikely to be true, such as the taxpayer's purposes for entering into a transaction.
d. Reliance on the adviser may not be reasonable or in good faith if the taxpayer knew, or should have known, that the adviser lacked knowledge in the relevant aspects of federal tax law.

When taxpayers reasonably relied on the advice of an expert concerning a sham investment, the 5th Circuit Court held that the reasonable cause defense applied and stated that the taxpayers were not required to challenge the expert, seek a second opinion, or try to monitor the expert on the provisions of the Code. To require otherwise would nullify the purpose of seeking expert advice (Chamberlain).

Our firm represents taxpayers before all administrative levels of the IRS in all 50 states, get tax relief today by calling 1-877-78-TAXES (877-788-2937). Also online at http://www.myirstaxrelief.com

We provide tax relief services 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.

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ORLANDO MAN SENTENCED FOR $181 MILLION PAYROLL-TAX FRAUD

Orlando, Florida - United States Attorney A. Brian Albritton announces that U.S. District Judge John Antoon, II, today sentenced Frank L. Amodeo (age 48, of Orlando) to 22 years and six months in federal prison for conspiring to commit wire fraud, to obstruct an agency proceeding, and to impede the Internal Revenue Service (IRS); failing to remit payroll taxes; and obstructing of an agency proceeding. The Court ordered Amodeo to forfeit more than $1 million seized from various accounts, three homes, several luxury automobiles, commercial real estate, a Lear Jet and his corporations. The Court also imposed a money judgment of approximately $181 million, which is amount of the stolen payroll tax funds. Amodeo had pleaded guilty on September 23, 2008.

According to court documents, Amodeo, and his co-conspirators controlled several companies, including multiple employee leasing companies or PEOs (professional employee organizations). They conspired to absolve themselves and the companies they controlled of the responsibility for existing payroll tax liabilities and to divert payroll tax funds paid by the PEO clients to the PEOs that Amodeo and his co-conspirators controlled.

A number of companies that Amodeo and his co-conspirators controlled played a part in the scheme, they included Mirabilis Ventures (Mirabilis) and affiliates of Mirabilis, AEM, AQMI Strategy Corporation, Common Paymaster Corporation, Nexia Strategy Corporation, Presidion Corporation, Presidion Solutions, Wellington Capital Group, and various other companies.

During an IRS attempt to ascertain and collect the payroll taxes, Amodeo intentionally misled the IRS concerning the unpaid payroll taxes, which allowed the unpaid payroll taxes to increase to significant amounts.

Amodeo also knowingly failed to pay approximately $181 million in payroll taxes, including approximately $129 million in FICA and withholding taxes.

This case was investigated by the Internal Revenue Service. It was prosecuted by Assistant United States Attorneys I. Randall Gold and Anita Cream.

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Calling on all taxpayers with payroll tax problems, contact us today to resolve your payroll tax issues and get tax relief today.

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 22^nd 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

Once is enough as far as collection of the trust fund recovery penalty is concerned Chief Counsel Advice 200838027

The IRS has issued a new Chief Counsel Advice (CCA) on the trust fund recovery penalty. The IRS notes that the CCA may not be used or cited as precedent.

IRC §6672, imposes a penalty on any person who is required to collect, truthfully account for, and pay over withheld income and Social Security taxes who willfully fails to do so. The amount of the penalty is equal to the amount of the tax that was not collected and paid. The penalty is often referred to as the "trust fund recovery penalty" (TFRP). The penalty is imposed on a "responsible person." A "responsible person" is anyone within a corporation or partnership who has the duty to collect, account for, or pay over the tax. Depending on the facts of the case, a responsible person could be an officer, a director, an accountant, a comptroller, or even a payroll manager.

Facts. In this instance, a corporation failed to pay its employment taxes for a certain period of time. The IRS assessed the trust fund recovery penalty against two responsible persons. The corporation paid off the principal portion of the TFRP, but accrued interest was still outstanding. The corporation subsequently made a voluntary payment on its employment tax liability, and instructed the IRS to apply the payment to the interest portion of the TFRP. However, the corporation also had an outstanding employment tax liability that was unrelated to the TFRP. At issue was whether the IRS had to follow the corporation's instructions.

Law. Internal Revenue Manual (IRM) §1.2.14.1.3(2) states that the trust fund recovery penalty, including interest and penalties, should only be collected once (either from the business, or from one or more of its responsible persons). IRM §5.17.7.1.9(2) states that the TFRP assessment should be abated after a corporation pays the delinquent tax.

Ruling. The IRS ruled that the corporation was within its rights to request that the payment be applied to the interest portion of the TFRP. In issuing its ruling, the IRS noted that the corporation was making the payment voluntarily. The IRS said that it was unlikely that a court of law would reach a different conclusion since the IRM credits corporate trust fund payments to responsible persons.

The IRS also pointed out that case law supports its conclusion. In Botta. v. Scanlon, CA2, 11 AFTR 2d 908, 2/18/63, the U.S. Court of Appeals for the Second Circuit determined that the trust fund recovery penalty was simply a means to ensure that the tax was paid. In USLIFE Title Ins. Co. v. Harbison, CA5, 57 AFTR 2d 86-1017, 3/14/86, the U.S. Court of Appeals for the Fifth Circuit determined that although nothing in the language of IRC §6672 explicitly prevents the government from collecting and retaining from each responsible person full satisfaction of the TFRP (including interest), IRC §6672 authorizes the government to collect "only the same amount to which it was entitled by way of tax."

Are you facing a payroll tax problem, a 941 tax problem, or trust fund recovery penalty? Contact our office today for a free analysis of your tax situation. Get tax relief today!

IRS provides WHFIT penalty relief for 2008 and WHMT reporting relief for 2007 Notice 2008-77, 2008-40 IRB

In a Notice, IRS has informed trustees and middlemen of widely held fixed investment trusts (WHFITs) that it will not assert penalties under Reg. § 1.671-5(m) (dealing with WHFIT reporting rules) for calendar year 2008. In addition, it informed trustees and middlemen of widely held mortgage trusts (WHMTs) that, pending future published guidance, certain modifications of mortgages held by a WHMT that has entered into a guarantee arrangement aren't required to be reported under the WHFIT reporting rules.

Background. A WHFIT is an arrangement classified as a trust under Reg. § 301.7701-4(c), provided that: (1) the trust is a U.S. person; (2) the beneficial owners of the trust are treated as owners (under subpart E, part I, subchapter J, chapter 1 of the Code); and (3) at least one interest in the trust is held by a middleman. (Reg. § 1.671-5(b)(22)) A WHMT is a WHFIT, the assets of which consist only of mortgages, regular interests in a real estate mortgage investment company (REMIC), interests in another WHMT, reasonably required reserve funds, amounts received for these assets, and during a brief initial funding period, cash and short-term contracts to purchase these assets. (Reg. § 1.671-5(b)(23))

Reg. § 1.671-5(n) provides that the WHFIT reporting rules are applicable Jan. 1, 2007. T.D. 9308, 12/26/2006, informed trustees and middlemen that IRS wouldn't impose any penalties that would otherwise apply as a result of a failure to comply with the WHFIT reporting rules for the 2007 calendar year in cases where the trustee or middleman was unable to change its information reporting systems to comply with the WHFIT reporting rules (see Federal Taxes Weekly Alert 01/04/2007).

Penalty relief. Notice 2008-77 informs middlemen and trustees of WHFITs that IRS will not assert penalties as a result of a failure to comply with the WHFIT reporting rules with respect to calendar year 2008. Although WHFIT trustees and middlemen have taken steps to implement the WHFIT reporting rules, IRS has learned that additional time is needed to update the computer and information systems of trustees and middlemen to fully comply with them. Commentators have requested and IRS has granted this relief.

Reporting exception. IRS has also determined that pending the publication of future guidance certain modifications that are made to mortgage loans held by a WHMT don't have to be reported in cases where a guarantee arrangement compensates the trust or all the trust interest holders for any shortfalls that would otherwise be experienced as a result of the modification. Any future guidance eliminating or modifying this exception will allow trustees and middlemen reasonable time to alter their computer and information reporting systems to comply with the change. IRS requests comments on this reporting exception.

Specifically, Notice 2008-77 excepts from reporting under Reg. § 1.671-5(c)(2)(iv) any modification made to mortgage loans held by a WHMT if all of the following conditions are met:

(1) The WHMT directly holds mortgage loans that are secured by real property; (2) The WHMT modifies a mortgage loan under circumstances that do not cause the trust to be classified other than as a trust as a result of the modification (for example, because the modification doesn't result in there being a power to vary the investment under Reg. § 301.7701-4(c));

(3) The WHMT has entered into a guarantee arrangement that requires the guarantor to pay to the WHMT any shortfalls in payments from the mortgage loans held by the WHMT (including as a result of a modification) to the extent that mortgage loan payments are insufficient to make required distributions to trust interest holders under the governing documents of the WHMT; and

(4) The modification and the guarantee arrangement, taken together, are such that the stated interest rate and the aggregate amount of the principal payments paid with respect to every trust interest of the WHMT is not altered by the modification.

IRS Tax Help

by Mike Habib, EA

UNFILED BACK TAX RETURNS

IRS Tax Audit Help

If you are being audited, we can represent you before IRS and advocate your position to explain and push for every valid deduction possible under audit. If you have received an audit notice, please call us as soon as possible so that we can begin working on your case while it is in the early stage of the audit.

Offer in Compromise - OIC Tax Help

Installment Agreement - IA Tax Help

Currently Non Collectible - CNC Tax Help

Wage Levy / Wage Garnishment / Wage Attachment Tax Help

Bank Levy Release Tax Help

Payroll Tax Problem Representation Tax Help

Taxpayer Account Review Tax Help

Penalty Abatement Tax Help

Innocent Spouse Relief Tax Help

Federal Tax Lien Help

I focus my tax practice on "Tax Relief Help", as an IRS licensed Enrolled Agent (EA) specializing in solving Tax Problems, 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

To disclose or not to disclose, that is the question.

Hiding Income Offshore is not the way to go.

Mike Habib, EA

For years, offshore accounts have been a hot topic in popular culture and for the IRS; most recently Liechtenstein has been mentioned, however the IRS is interested in accounts anywhere in the world that generate income for US taxpayers. The IRS is particularly interested in locating those people trying to hide income in offshore accounts as well as the promoters of off-shore tax avoidance schemes.

Individuals continue to try to avoid paying US taxes by illegally hiding income in offshore bank and brokerage accounts or using offshore debit cards, credit cards, wire transfers, foreign trusts, employee leasing schemes, private annuities or life insurance plans.

US taxpayers are required to report all foreign financial accounts if their total value exceeds $10,000 at any point during a given year. Failure to report the accounts can result in a penalty of up to 50 percent of the amount in the accounts. Yikes!

Hiding or not reporting income from foreign sources may be a crime. And the IRS, along with its international partners is pursuing those who hide income or assets offshore to evade taxes. There are specially trained IRS examiners whose focus is to examine aggressive international tax planning, including the use of entities and structures established in foreign jurisdictions. The goal is simply to ensure that U.S. citizens and residents are accurately reporting their income and paying the correct tax.

In addition to reporting your worldwide income, you must also report whether you have any foreign bank or investment accounts. The Bank Secrecy Act requires that you file a Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), if:

· You have financial interest in, signature authority, or other authority over one or more accounts in a foreign country, and

· The aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.

Just in the past month a federal judge agreed to allow the IRS to serve legal papers on Swiss banking giant UBS AG in an expanding investigation of U.S. taxpayers who may have used overseas accounts to hide assets and avoid taxes. The summons is one that allows the IRS to investigate a full range of people as it is not limited to one particular individual. The investigation was started after a former UBS private banker pleaded guilty to defrauding the IRS, and claims that UBS has about $20 billion in assets in undeclared accounts for U.S. taxpayers.

UBS is cooperating with Swiss and U.S. investigations and will disclose records involving U.S. clients who might have broken tax laws.

The Treasury Department and the Internal Revenue Service recently announced their initiative to encourage the voluntary disclosure of unreported income hidden by taxpayers in offshore accounts. Under this new plan, eligible taxpayers have to pay back taxes, interest and accuracy and delinquency penalties, but will not face fraud and information return penalties. To obtain the benefits of the initiative, taxpayers will be required to disclose information about who promoted or solicited their participation in the offshore financial arrangement.

Do you have an offshore tax problem? Did you receive an opportunity letter? Contact us today to represent you before the IRS.