Wednesday, October 8, 2008

What Is Considered Nontaxable Income ?

Believe it or not, some types of income you receive are not taxable. Be careful when you add up your gross income to determine whether you have a filing requirement that you do not include any non-taxable income.

- Some types of income that are not taxable include:
-Child support payments,
-Welfare benefits,
-Life insurance proceeds received because of the death of an individual,
-Interest on certain state or local government obligations,
-Accident and health insurance proceeds, including certain long term care insurance contracts,
-Certain property received as a gift or inheritance,
-Benefits received under any law administered by the Department of Veteran's Affairs,
-Amounts received under a worker's compensation act for an occupational sickness or injury,
-Qualified distributions from Coverdell Education Savings Accounts (formerly called Education IRAs); refer to Individual Retirement Arrangements (IRAs) for more information,
-Certain Roth IRA distributions; refer to Roth IRA Distributions for more information,
-Certain amounts withdrawn from Medical Savings Accounts (MSA's) to pay medical expenses, and
-Limited amounts of dependent care assistance paid through a dependent care assistance program.
-Death gratuity benefits paid to survivors of deceased armed forces members for deaths occurring after September 10, 2001.
-Homeowners assistance program payments, subject to certain limits, paid after November 11, 2003, by the Department of Defense.

For tax years after 2002, Dependent Care Assistance Program paid by the military for military personnel.

All or a part of your Social Security or Railroad Retirement Benefits may be nontaxable.
Some scholarship and fellowship grants may be non-taxable.

Are child support payments considered taxable income?

There are more and more calls coming into tax resolution firms concerning child support issues. Even if clients call in for other issues, somewhere in the tax consultation it still comes up more often than not.

I hate to break it to clients but the answer to the question is no. Child support payments are neither deductible by the payer nor taxable to the payee. Child support payments cannot be considered when calculating if you have enough income to be required to file, either. A lot of clients have made the mistake of adding the total of the money paid to child support and deducting it from their total gross income. This is also done in the reverse. If you add child support money to your gross income you are not accurately assessing your filing requirement.
Clients call in thinking they only have a certain amount of years to file and are rudely awakened to find out otherwise.

I had a client today who was wondering why he didn't get a refund for three years. After doing some home work by doing a practitioner call, I discovered through another senior tax consultant that if a client owes child support they are in a position to get their refund taken. It actually happens all the time. So if you're a deadbeat Dad or Mom and you think Uncle Sam is gonna let you slide, think again!

Tuesday, October 7, 2008

Tax & Accounting Acronyms

In a world where we must communicate on many different levels and styles, such as my daughter Brionna just a few minutes ago informed me about: LMHO—laugh my head off, JK—just kidding, SUP—whats up, NM—not much, and WBU—what about you. All are very common IM and text language or acronyms used to communicate. Is there any wonder that there is a tax language and accounting language? Some of the words I am glad there is an acronym so I don't have to get tongue tied every time I want to speak about or say a term. This is not The List, but here are some really common ones used in their world:

Accumulated Adjustment Account
Adjusted Current Earnings
Accumulated Earnings and Profits
Applicable Federal Rate
Adjusted Gross Income
Alternative Minimum Tax
Alternative Minimum Taxable Income
Additional Paid In Capital
Assessment Statute Expiration Date
Beginning of Year
Carryback; e.g., NOL C/B
Cumulative Bulletin - Issued by the IRS
Chief Counsel's Advice (IRS writing)
Carryforward; e.g., NOL C/F
Certified Fraud Examiner
Closely Held Corporation
Charitable Lead Annuity Trust
Charitable Lead Unitrust
Charitable Remainder Annuity Trust
Charitable Remainder Trust
Charitable Remainder Unitrust
Collection Statute Expiration Date
Debit Memo
Distributable Net Income of a fiduciary 1041 income tax return
Date of Death
Domestic Production Activities Deduction (IRC Sec. 199)
Domestic Production Gross Receipts (IRC Sec. 199)
Employee Business Expenses
Errors & Omissions, as in E & O Insurance
Earnings & Profits
End of Year
Employee Stock Ownership Plan
Family Limited Partnership
Fair Market Value
Foreign Personal Holding Company Income
Field Service Advice (IRS writing)
Fiscal Year End
Generally Accepted Accounting Principles
General Counsel Memorandum (IRS writing)
Internal Legal Memorandum (IRS writing)
Internal Revenue Bulletin
Internal Revenue Code
Income in Respect of a Decedent - IRD
Internal Revenue Manual
Limited Liability Company
Limited Liability Partnership
More Likely Than Not
Multi Member LLC
Minimum Required Distribution
Net Operating Loss
Not for Profit Organization
NonCash Fringe Benefit (per Paychex)
Other Adjustments Account
Personal Holding Company
Private Letter Ruling
Personal Service Corporation
Publicly Traded Partnership
Personal Use Company Car (Paychex)
Qualified Domestric Relations Order
Qualified Production Activity Income (IRC Sec. 199)
Required Beginning Date
Required Minimum Distribution
Record of Federal Tax Liability (not to be confused with ROTFL)
Same As Last Year
Service Center Advice
Single Member LLC
Technical Advice Memoranda (IRS writing)
Tax Court (i.e. United States Tax Court)
Trust Fund Recovery Penalty
Tenants in Common
Tentative Minimum Tax
Unrelated Business Income Tax
Uniform Gift to Minors Act
Unreimbursed Partnership Expenses
Uniform Principal and Income Act - used by trusts ; note that some states have adopted different versions, look yours up here
Uniform Transfers to Minors Act
Zero Balance Account (used by controlled corporations)
Discussion Forum / Other Acronyms
For Your Information
In My Opinion
In My Humble Opinion
In Other Words
Laughing out loud
Original Poster - the person who originally asked the question
Rolling on the Floor Laughing (Not to be confused with ROFTL)
(Not Related to NOL), S*** Out of Luck

Retrieved from ""

How To Write Off Your Home Office Without Getting Audited

If you use a portion of your home regularly and only for your business purposes, you can deduct a part of the operating expenses and depreciation of your home on your tax return.

Qualifying for a home office deduction means the owner must meet two tests. First, the home office must be the primary place of business for the activities of the business. It is not a requirement that the activity be full-time. A home office is determined to be a primary place of business if it is used for the majority of managerial or administrative purposes such as scheduling appointments, ordering supplies and keeping records. There can be no other fixed location for such activities.

Second, the space used must be used regularly and exclusively for the activity. You are not required to dedicate a full room to the activity but the space allotted cannot be used for personal purposes. In 2007, the United States Tax Court did hold that keeping some personal papers in a home office will not void the exclusive use test.

An office in the home deduction cannot exceed the gross income derived from the home-based activity. Any unused losses can be carried forward until used.
Will the deduction of a home office cause the IRS to audit my tax return? While there is no statistical evidence to support a such a claim, you should be aware of the requirements to claim an office in home deduction and keep all the necessary paper work and documents to use a home office.

The following is a list of pro-ratable deductible items which can be used on Form 8829: mortgage interest, real estate taxes, insurance, repairs and maintenance, utilities and of course depreciation. If you have doubts about whether you can accurately prepare your own return using this deduction, retain the help of a tax professional or tax resolution firm. The deduction can help reduce your tax liability, but if prepared incorrectly, you will be AUDITED.

Ammending Or Correcting Tax Returns

Many tax returns are submitted every year that are not correct in either math or missing forms. Sometimes the service center will make corrections for tax preparers. Other times you are not required to amend these returns. A tax consultant at a reputable tax resolution firm can give you good advice by looking at the filings to determine if they must be amended.

If you used the wrong filing status, your total income is incorrect, or your deductions or credits are wrong, you need to amend the return to insure you are not assessed inaccuracy penalties and to avoid audit situations.

To amend a return you would use a form 1040x to correct a form 1040, 1040a or a 1040EZ.If you are filing to claim an additional refund, wait until you have received your original refund (you may cash that check)]. Be sure to enter the year of the return you are amending at the top of Form 1040X. The form has three columns. Column A is used to show original or adjusted figures from the original return. Column C is used to show the corrected figures. The difference between the figures in Columns A and C is shown in Column B. There is an area on the back of the form where you explain the specific changes being made on the return and the reason for each change. If the changes involve another schedule or form, attach it to the 1040X. For example, if you are filing a 1040X because you have a qualifying child and now want to claim the Earned Income Credit, you must attach a Form 1040 Schedule EIC (PDF) to show the qualifying person's name, year of birth, and social security number.

Generally, to claim a refund, Form 1040X must be received within 3 years from the date you filed your original return or within 2 years from the date you paid the tax, whichever is later.
Just remember when you make adjustments on a federal return this can effect your state returns also. Make sure your tax preparer looks at your state returns to see if they must be adjusted or amended.

Corporations would use Form 1130 Corporation Application for Tentative Refund in order to carry back a net operating loss from the current year in lieu of filing Form 1120X. The filing deadline for this form is December 31, 2005 to carryback a 2004 net operating loss to 2002 and 2003.

Retrieved from ""

Monday, October 6, 2008

IRS Humor

I know this is usually a some what serious blog but I couldn't resist these jokes and humor. I hope know one is offended. I mean to just lighten things a bit.

Q: Ever wonder why the IRS calls it Form 1040?A: Because for every $50 that you earn, you get $10 and they get $40.

Income tax forms should be printed on Kleenex because so many of us have to pay through the nose.

The latest income-tax form has been greatly simplified. It consists of only three parts:1. How much did you make last year?2. How much do you have left?3. Send amount listed in part 2.
"65% of people say that cheating on your income tax is worse than cheating on your spouse. The other 35% were women." --Jay Leno

"The IRS said today anyone with a refund coming from their 2001 taxes will lose it if they don't pick it up by April 15th. If it is more then three years they will just keep it. How come it doesn't work that way with back taxes?" —Jay Leno

A new arrival, about to enter hospital, saw two white coated doctors searching through the flower beds."Excuse me," he said. "Have you lost something?""No," replied one of the doctors. "We're doing a heart transplant for an income-tax inspector and want to find a suitable stone."

What did the terrorist that hijacked a jumbo-jet full of I.R.S. agents do?He threatened to release one every hour if his demands weren’t met.

Post Office just recalled their newest stamps:They had pictures of IRS agents on them, and people couldn’t figure out which side to spit on.

Sunday, September 28, 2008

Politic's And Taxes: Sarah Palin VP

Sarah Palin is John McCain's choice for Vice President and for a couple reasons. One of the biggest is she knows how important taxes are to a community. Sarah Palin ran on a campaign of " Tax Cut Promises" so she is a veteran in this arena. At the age of 28 she started her political career. She won on the promise to cut taxes. Here are quotes by her,or on tax issues that she has had to tackle.
Raising taxes hurts small business and hurts jobs. (Sep 2008)
Elected mayor based on tax cut promise. (Aug 2008)
As mayor, cut property taxes & increased sales tax. (Aug 2008)
$60M annually for municipal revenue sharing. (Mar 2008)
Eliminate taxes that inhibit business. (Jan 2008)
Repeal "nuisance taxes" including the tire tax. (Jan 2007)
Mitigate impact of new $50M annual cruise ship tourism tax. (Oct 2006)
No income tax; no taking the people's dividends. (Oct 2006)
Would support a seasonal sales tax, but no income tax. (Oct 2006)
John McCain and Sarah Palin have the same views on taxes. They want to give tax cuts to small business owners to stimulate the economy, and encourage people to buy American and do business here in the United States.

Politic's And Taxes : John McCain's plan

"Innovation Tax Policy: John McCain believes we must make a commitment to innovation and new technologies to sustain our global competitiveness, meet our national security challenges, achieve less costly and more effective health care, reduce dangerous dependence on foreign sources of oil, and raise the quality of education in the United States". He believes must be ahead of the rest of the world when it comes to this.He believes we must be in a red hot frenzy to attack these challenges like are future depends on it , and he believes it must be done now!A example would be that John McCain has been a leader in keeping the Internet free of taxes. As President, he will seek a permanent ban on taxes that threaten this engine of economic growth and prosperity. Like wise he would "Ban New Cell Phone Taxes: John McCain understands that the same people that would tax e-mail will tax every text message - and even 911 calls. John McCain will prohibit new cellular telephone taxes. "

Politic's And Taxes : John McCain's plan

This is a continuation on the tax policies of John McCain. Our economic future, American jobs imports, and taxes are directly related according to the McCain camp. Part of there plan in tax structure is to "Allow First-Year Deduction, Or "Expensing", Of Equipment And Technology Investments: American workers need the finest technologies to compete. Expensing of equipment and technology will provide an immediate boost to capital expenditures and reward investments in cutting-edge technologies. Establish Permanent Tax Credit Equal To 10 Percent Of Wages Spent On R&D: This reform will simplify the tax code, reward activity in the United States, and make us more competitive with other countries. A permanent credit will provide an incentive to innovate and remove uncertainty. At a time when our companies need to be more competitive, we need to provide a permanent incentive to innovate, and remove the uncertainty now hanging over businesses as they make R&D investment decisions." This is a direct quote from his presidential website where I will be covering the rest of his public policy on taxes.

Thursday, September 25, 2008

Politics And Taxes ; John McCain's plan

I recently went to John McCain's web site to see just what is his tax policy will look like if he is elected and is able to implement his ideas. They have a whole section called " Taxes: Simpler, Fair, Pro-Growth and Competitive". Then the first section under that is "Keep Taxes Low". In this section they speak about the importance of the nations entrepreneurs, and how they are the heart of the economy as far as innovation, growth and the overall prosperity. They create new jobs if you lose your current one.

He thinks they should keep the top tax rate for them at 35%,maintain the 15% rates on dividends and capital gains, and phase out the alternative minimum tax. He feels raising taxes on the small business is a deterrent to our to the potential future growth of those wanting to start needed new jobs.

On my next post we will look at the next heading in Senator John McCain's section on taxes. When we get done. We will have covered all of his potential tax policies. Then we will look at presidential candidate Barrack Obama's tax policies.

Monday, September 22, 2008

Better Business Bureau Rating Scale

The Better Business Bureau has for years been the only reliable source for checking on the credibility of a company. They have also been the only outlet to warn other consumers about these companies. Over the years they have designed a system to filter all this information and summarize it in a composite score to let you know efficiently if a company is treating their clients or customers in a proper manner, and their willingness to correct mistakes. Here below is their system and how they score a company. Use this as a tool whenever you are looking for a tax resolution company or any other company.

The rating the Better Business Bureau assigns a business is determined by our composite score of such factors as its type of business, length of time in business, compliance with competency licensing requirements, complaint volume, complaint history, seriousness of complaints, how the company responds to complaints, and our experience with the company’s industry in general. The scoring system takes into account the importance we feel each factor is to the company’s reliability.The highest rating assigned to a company is AAA; the lowest is F. Between those two ratings are nine others in order from higher to lower. The ratings are defined as follows:Our rating of a company and our reliability report on a company reflect our conclusions and opinion about the company based upon information in our files and our experience with the company. Neither the rating nor the report is a guarantee of reliability. Readers should not rely solely upon a company’s rating, but should read and consider the entire report, including complaint and response details, before deciding whether or not to do business with the company.

An exemplary rating. This means that nothing in our files causes us to have any doubt about the company’s reliability.
An extremely high rating. The condition that lowers this grade from AAA is not what we believe to be a significant one.
An excellent rating. A company with this rating may not rate higher because of a greater number of rate-lowering factors, but we do not consider them to be factors that would likely adversely affect consumer transactions.
A very high rating. A company with this rating would not have a significant number of complaints or other considerations that could pose a problem to consumers.
A high rating. The company would generally have demonstrated good business-consumer relations, and we would expect any consumer complaints not to be of a serious nature and to be satisfactorily handled by the company.
A good rating that still implies reputability. The rating may relate to length of time in business, a past problem that’s been corrected, or something else that does not cause problems for consumers. We believe a company with this rating would generally conduct business and respond to any complaints satisfactorily.
A good rating. We would expect nothing less than a satisfactory business transaction, but read our full report to determine if you have any questions or concerns.
Average rating. We would expect consumer transactions to be satisfactory. Since each transaction is individual, read our full report to determine if you have questions or concerns.
Acceptable rating. We know of no reason not to do business with this company. If the level of this rating relates to anything specific that we know might be of concern to consumers, it is stated in this report. Read our full report to determine if you have questions or concerns.
We have enough concerns about this company (for example, their offer, customer complaints, advertising, etc.) that we recommend caution in doing business with it.
We strongly question the company’s reliability for reasons such as that they have failed to respond to complaints, their advertising is grossly misleading, they are not in compliance with the law’s licensing or registration requirements, their complaints contain especially serious allegations, or the company’s industry is known for its fraudulent business practices.
"NR" is displayed when another Better Business Bureau issues the report on the subject company, or when the Bureau is conducting system maintenance.

© Copyright 2008 The Better Business Bureau of the Southland, Inc. All Rights Reserved.

Wednesday, September 17, 2008

Problem Alert: The IRS Warns of Scam e-Mails or Phone Calls

This blog is so important I thought it would be ok to break my series in OIC'S to share this IRS warning. Please read this article from the web site.
The IRS warns taxpayers to be on the alert for e-mails and phone calls they may receive which claim to come from the IRS or other federal agency and which mention their tax refund or economic stimulus payment. These are almost certainly a scam whose purpose is to obtain personal and financial information — such as name, Social Security number, bank account and credit card or even PIN numbers — from taxpayers which can be used by the scammers to commit identity theft. The e-mails and calls usually state that the IRS needs the information to process a refund or stimulus payment or deposit it into the taxpayer's bank account. The e-mails often contain links or attachments to what appears to be the IRS Web site or an IRS "refund application form." However genuine in appearance, these phonies are designed to elicit the information the scammers are looking for.
The IRS does not send taxpayers e-mails about their tax accounts. Additionally, the only way to get a tax refund or stimulus payment, or to arrange for a direct deposit, is to file a tax return.

When tax resolution firms do practitioner calls the IRS always tries to update your info on the records. If the one doing the call only has an web form with an email address they will flat out tell you never mind we don't accept email address.
For more information on consumer scams, see
Suspicious e-Mails and Identity Theft.

OIC 101: Effective Tax Administration

An Effective Tax Administration OIC , aka ETA is not well known when it comes to OIC'S. The reason for that will be very apparent as we go through the qualifications to successfully get one accepted. First of all there can be no doubt you owe the tax. So if your the typical delinquent tax fugitive who thinks they shouldn't owe that stinking tax anyway. Hang it up! There has to be no doubt that you owe the tax. You also cannot be a candidate for a doubt as to collectability. Another words you got the money to pay it in full or the ability to pay it over time.Compared to Doubt as to Collectibility (DATC) In a Doubt as to Collectibility (DATC) offer, the tax liability equals or exceeds the taxpayer's reasonable collection potential (RCP) which is:
Net equity, plus
Future income
In an Effective Tax Administration (ETA) offer, the tax liability is less than the taxpayer's reasonable collection potential (RCP). The taxes owed can be collected in full either:
In a lump sum, or
Through an installment agreement (IA) as stated previously.

Now that you know what will disqualify you what does a tax payer have to do to get an ETA offer accepted ?Here are the 3 basics.

Before we can consider a compromise based on economic hardship or public policy/equity considerations, three factors must exist:
A liability has been or will be assessed against taxpayer(s) before acceptance of the offer.
The net equity in assets plus future income or reasonable collection potential (RCP) must be greater than the amount owed.
Exceptional circumstances exist, such as the collection of the tax would create an economic hardship, or there is compelling public policy or equity considerations that provide sufficient basis for compromise.

A very narrow amount of these offers are accepted. Only a tax resolution firm usually has the expert staff IE enrolled agents to get a ETA offer accepted.

Tuesday, September 16, 2008

OIC 101: Doubt As To Liability

In some cases tax payers are convinced they either don't owe their tax liability at all or in part. This is known as "Doubt As To Liability ." Normally you file an OIC on a form 656-A. In this case you would be referred to the alternatives to offers and compromise section in the IRM (Internal Revenue Manual). You may also use these remedies if you disagree with the accuracy of the tax. These alternatives are usually allot less complicated than OICs.

If you choose to compromise the tax amount, you must submit in writing why you think you don't owe the tax. You must also describe in detail the circumstances how the said totals are inaccurate. Include any documentation and evidence you have to support your claim. If you believe you owe none of the tax, see the alternatives section. One thing to consider is that an OIC will not be accepted on any tax that has been finally determined by tax court, any other courts or by the commissioners final closing agreement.

Thursday, September 11, 2008

OIC 101: Doubt As to Collectibility

With this OIC you get to bare your soul and say "I did it! I owe it! But I cant pay in this life time or in two life times. Woo I feel better ! NOW that I got that off my chest."

Actually it is a little less dramatic than that. If you owe a tax and there is not enough time left on the statute of limitations to pay it, you could qualify for this offer. There are some circumstances that could disqualify you—namely assets that could be liquidated. Also, if you have a high enough monthly income the IRS feels you could pay enough of a payment. They will look at these first by doing a full financial investigation. This will include documentation proving your monthly income, assets, and liabilities.

To have a chance at the OIC do not attempt to put this information together on form 433 by yourself. This is a common mistake of your "do it yourself people". The IRS loves this but you will not like the outcome. Seek out a professional tax resolution firm.

Tuesday, September 9, 2008

OIC 101:Which One Fits ?

There are several different types of OICs.
A professional tax resolution firm needs to assess your individual situation to submit the proper OIC or you can waste a lot of time and money. One of the keys to getting a OIC accepted is ensuring it is processable. This is only possible when you have submitted a offer consistent with the qualifications necessary to qualify for the type of OIC you are trying to get.

There are actually 4 completely different types to look at:
OIC doubt as to liability, OIC doubt as to collectibity
OIC effective tax administration
○ OIC partial pay installment agreement.

A reputable tax resolution firm will verify your qualification for each of these.

Monday, September 8, 2008

OIC 101: In The Governments Best Interest

Have you ever tried to get ahead of your car payments or mortgage? You thought I've got to get this balance down. Maybe if I take and make some double payments on some of my bills I can get them knocked out. SURPRISE! The IRS is just like the mortgage companies and car loan places in as much as they like interest and penalties.

In 2006 the new TIPRA law was introduced . This is basically the introduction (as you know from prior blog posts) of the 20% plus $150 filing requirements. Taxpayers are not required to but may designate the application of the TIPRA payments. The designation must be made in writing when the offer is submitted or when they make their first payment on the offer. If not submitted in writing the IRS will apply the 20% "In The Governments Best Interest" A professional tax resolution firm can, and should be used to set this up. This will insure your best interest is protected instead of you just paying more interest.

Thursday, September 4, 2008

OIC 101: I'm Free! Are You?

It's not over until it's over! Even after you've had an OIC successfully negotiated for you, there are stipulations that could jeopardise all the hard work and money you invested. It is expected the taxpayer will have no further delinquencies. If taxpayers do not abide by all the terms of the agreement (including filing all future returns on time and making all payments when required for 5 years or until the offered amount is paid in full, whichever is longer), their OIC may be declared in default.

The IRS will not give you a second chance or allow you to say "whoops." This is another reason to consider whether an OIC is your best option. There are 20 other resolutions, viable options, that could satisfy your obligation to the IRS. If you can't pay all the required payments as scheduled, you risk defaulting.

Financial hardship is not taken into consideration after an OIC has been accepted. Under-reporting, or not paying current taxes is not an option. A fresh start or freedom from enforced collections can be realized through many other resolutions.

OIC 101:How Do You Eat An Elephant?

There are many misconceptions concerning OICs. I would have to say one of the biggest is how you take care of such a large debt, or elephant. There is an old saying or question: "how do you eat an elephant?"

Answer... one bite at a time! Most people who qualify for an OIC are dealing with large liabilities which seem overwhelming.

"Taxpayers may choose to pay the offer amount in a lump sum, in monthly payments over the remainder of the statutory time allowed for collection, or a combination of a lump sum and monthly payments. Generally, it is to the taxpayer’s advantage to pay the amount in the shortest time possible because longer payment terms will require a larger offer amount."

A professional tax resolution firm can look at your finances and advise you on the pros and cons of any option you are considering. Many taxpayers who don't consult a tax resolution firm run the risk of accepting terms dictated by either the Treasury who only have their own interests at heart or a third party with little or no knowledge of the potential long-term effects of the different options available.

Tuesday, September 2, 2008

OIC 101 : No Double Dipping

Frequently I hear clients tell me they are on the verge of bankruptcy. In fact, many have it in their mind to fix all their problems by filing bankruptcy and filing for an OIC for their tax liability. Unfortunately the current bankruptcy laws prohibit the filing of any type of resolution with the IRS simultaneously. While you are in bankruptcy all collections are suspended for the period you are in bankruptcy plus 6 months. Some tax resolution companies will file an OIC and never even ask you if you are in bankruptcy. It will not come up until you have already paid them and you have a denial letter. These tax resolution companies are concerned about generating revenue. This type of information should be disclosed in some type of free consultation to determine if you qualify for an OIC. If the Tax resolution firm is genuinely trying to help you, they will avoid wasting your time and money by making a frivolous offer.

Thursday, August 28, 2008

OIC 101: First Things First

Often, as a senior tax consultant, I'll get phone calls from clients who want to bypass everything and get into a conversation about settling their tax debt. Clients do not understand taxpayers requesting an OIC must have filed all required federal tax returns. If in business, they must also have filed and paid any required employment tax returns on time for the two quarters prior to filing the OIC, and to get themselves current with deposits for the quarter in which the offer in compromise was submitted.

Recently, actor Westley Snipes discovered that it is a federal offense to refuse or to neglect to file your taxes. In such a case, there are two aspects to be considered:
1) Criminal Aspect, non filing and
2) the Civil or Monetary Aspect

One cannot come before the other. The IRS will not even allow a tax resolution firm to file an OIC on behalf of a client who has any unfiled years of taxes. The IRS considers them criminals.

Wednesday, August 27, 2008

OIC 101: What Can I Offer?

This would be a comical subject if it were not such a serious problem. I would not be exaggerating to say that over 3/4 of the OICs I see offered probably should have been given a second look. The amount offered often looks like the taxpayer and the CPA sat across from each other and said "what do you feel like you want to offer them?" As if they were buying a house.

Another trend is to offer too much, usually due to lack of information and expertise. When I have browsed through our software system and the minimum offer amount is revealed, it is usually lower than the client's proposed amount (originating from advice from non "tax resolution" sources). This is an expensive way to play darts and hope you hit a bull's eye. If you have filed an OIC and you did not consult a Professional tax resolution firm, withdraw your offer immediately, BEFORE you get a denial letter. All minimum offer amounts must generally be equal to, or greater than, a taxpayer's reasonable collection potential (RCP). The RCP is defined as the total of the taxpayer's realizable value in real and personal assets, plus future income. Sound like you could just whip that data up real quick? Right.

Tuesday, August 26, 2008

OIC 101: When All Else Fails

The OIC is a very important component to the IRS 's programs for a select group who qualify. The only problem is many companies are charging large fees and are delivering so little. The OIC can be considered only after all other avenues of payment have been exhausted. Monthly installment plans and full paying the tax must be turned down first. Make no mistake that the IRS wants all the money if they see there is any way to get it. There are actually 21 different options beside the OIC when all else fails. They leave the best for last. It is the ultimate solution to your tax problem.

Thursday, August 21, 2008

OICs 101 : Do You Feel Lucky, Punk?

Have you ever known that guy or girl who always wins raffles or contests, or they win stuff from radio stations by being the 8th caller? Do you personally know anyone who has won a jack pot in Vegas? I wish there was at least someone in my family who won the lottery. That would be close enough to lucky for me.

For the rest of us, here are the odds we have to beat to be one of the lucky ones with the IRS. As of last count, there are 8.2 MILLION delinquent tax payer accounts actively in the IRS's system for the year of 2007. Out of those delinquent accounts there were 12 thousand OICs accepted. I hate math but this math I really didn't enjoy. You have less than ONE % chance with those numbers to come out with an OIC accepted.

I mentioned luck in my title. There really isn't any room at all to rely on luck. Self representation (doing it yourself) or calling a firm that promises everyone an OIC is definitely a good way to be another statistic. Tax offers or OICs need to be done the first time by a reputable tax resolution firm.

Wednesday, August 20, 2008


Yes, it will cost you money right up front to even submit an OIC. Starting in 2001 the IRS started off setting costs of frivolous OICs being submitted. This due to alot of "do it yourself", "self representation" being attempted by the public. There were also many inappropriate offers submitted by less-than-scrupulous tax firms, CPAs and/or tax lawyers to delay enforced collections. This $150.00 filing fee, according to the Commissioner of Small Business/Self-Employed Division, will help redirect resources to the processing of acceptable offers.

"Taxpayers who file an OIC will have to pay the application fee with their submission unless the offer is based solely on doubt as to liability, or the taxpayer’s total monthly income falls at or below income levels based on the Department of Health and Human Services poverty guidelines. Taxpayers who claim the poverty guideline exception must certify their eligibility."

OICs 101

Today's post begins a series of blogs where I will shed some light on OICs (Offers In Compromise), the most advertised and sought after option for handling IRS debt. I will give you the "inside scoop" from enrolled agents, who have the daunting task of negotiating correctly this calculated, complicated resolution that seems to be a cure-all for IRS debt. I will cover and uncover numerous myths about OICs during this series of blogs. So hang on and see where it takes you !

Wednesday, August 13, 2008


Have you seen the news lately?According to the Us Treasury, Business are creating a huge tax gap, and it has been going on for year's. This means they owe the taxes but they are just not voluntarily paying, and in most cases not reporting the tax. The same business are reporting great gains to their investment boards and share holders. They do this in order to keep investment money, and lines of credit flowing into the company.

"There are three key characteristics of the tax gap:
• Over 70 percent of the gross tax gap is attributable to the individual income tax,
which is the largest single source of Federal receipts.
• Over 80 percent of the gross tax gap is caused by under reporting of tax (i.e., by
under reporting income or overstating deductions and credits), with roughly half this
amount (including self-employment tax) attributable to under reporting of net business
income by individuals. Eighteen percent of the gross tax gap is attributable to
underpayments of taxes or failure to file tax returns.
Noncompliance is highest among taxpayers whose income is not subject to third party
information reporting or withholding requirements.
These characteristics suggest a targeted response designed to address the most significant
areas of noncompliance. The following overview discusses these characteristics
As indicated above, the IRS estimates that over 70 percent of the gross tax gap is
attributable to the individual income tax. "

"Moreover, while it may be possible to develop a comprehensive strategy that reduces the
tax gap, it is not possible to implement a policy that would come close to eliminating the
tax gap without an unacceptable change in the fundamental nature of our tax compliance system"

Tax Gap Strategy Timeline for Fiscal Year 2007

• Taxpayer Advocate’s Annual Report to Congress
• Update of 2006-2007 Treasury Department/IRS Priority Guidance Plan
• Launch of Federal/State Electronic Federal Tax Payment System (EFTPS).
• Deliver Taxpayer Assistance Blueprint Phase II Report to Congress

• Administration’s fiscal year 2008 budget request, including anticipated legislative proposals for compliance initiatives, tax code simplification and IRS funding

• Detailed outline of IRS tax gap strategy reflecting provisions in Administration’s fiscal year 2008 budget request
o Outline steps to reduce opportunities for evasion
o Outline IRS research initiatives
o Outline IRS information technology initiatives
o Outline IRS compliance initiatives
o Outline IRS taxpayer service initiatives
o Outline steps to reform and simplify the tax law

• Stakeholder meetings to discuss Administration’s fiscal year2008 budget request

• Treasury Department review of practitioner compliance initiatives

• 2007-2008 Treasury Department/IRS Priority Guidance Plan.

The IRS and US TREASURY are committed to flushing out these companies. Revenue Officers are getting tougher on compliance and enforcement trying to make examples out of the business they are able to get now. My advice as a Tax Consultant in a prominent firm is to seek legal representation NOW

Tuesday, August 12, 2008


I constantly remember the words of my mother (a wise woman), "The future is always closer than you think." Here is a word to the wise, a flashing red light!

A train is coming when you dip into your 401K/IRAaccount. More and more, tax resolution firms receive calls from clients who have made this tragic mistake. The effects are not momentary as many would surmise. When you rob Peter to pay Paul, Paul always comes back when you don't have the money to pay him, needing it the most.

I talk to clients every other day who have felt the pressure to dip into their "retirement funds." They use the money to pay for vocational or educational needs. Some are using the money for basic living expenses now, not realizing they are about to be double-taxed and charged a 10% early withdrawal penalty. This is mandatory if you are younger than 59-1/2. That money will then not be available in the future when you are ready to retire. Most of the time, brokerage firms do not withhold the correct amount of taxes for you to avoid this double taxation.

In most cases, you would be much better off borrowing money from private lenders, friends, specialty loans for vocational retraining, relatives, or do without until you find some other way.

Friday, August 8, 2008

Haven't filed a tax return in awhile? You may owe the IRS!

If you haven't filed a tax return in a few years, you may still owe the IRS. You may have even been suprised when you received a Balance Due Notice in the mail from the IRS for years you haven't filed.

The reason for this is the SFR. An SFR stand for Substitute for Return. When you go more than 2 years without filing a return, the IRS might prepare a return for you. They will file you single with standard deductions. You will not get any other deductions that might be beneficial to you. Once they prepare a return for you and you owe tax, they will file that return and assess the tax against you. If they prepare a return for you and you are due a refund, they will not file that return. Thus, you will not get your refund. It is not in the best interest of the Treasury to hand out money on returns not filed by the tax payer.

Once your tax has been assessed, they will put you in the collections letter cycle.

Even though you have a SFR, you can still file a return on top of it with all of your deductions included and you correct filing status. This will file over the SFR and adjust your tax liability, but it will take months to process, so in the meantime, you need to be in a resolution with your supposed liability or the IRS will enforce collections (even if your return shows you don't owe). Doesn't seem fair but that's the way it is.

This is one of those areas where professional representation might be your best bet. It is very tricky when filing over SFRs and when filing old returns. If your returns don't match up to IRS records, you will be red-flagged for an audit for sure, delaying the whole process and even resulting in more penalties.

Thursday, August 7, 2008

Thats not your money!

The IRS takes the civil trust fund very seriously. If you own a business, you know exactly what the civil trust fund is. When you pay employees, the IRS "trusts" you to collect their withholding and FICA taxes. At that point, you have to give that money to the IRS and file a form 941 to reconcile what you have paid the IRS.

What happens a lot of times is a business will get into a cash crunch and not pay their civil trust fund deposits to pay other bills instead. They think they can catch up with it the next month and when that doesn't happen, the next. Slowly they realize that they are now behind 3 months and have not filed their form 941. The IRS sees this as stealing. This is not unpaid taxes of the business; instead, it is other people's money that was intended to pay their own taxes, medicare and social security retirement. It must be paid back and in full. The IRS does not negotiate on this type of liability.

This potentially places a business in great jeopardy. By not paying and/or filing for 3 months, they have earned themselves a Revenue Officer, the highest level of collections enforcement the IRS has. It is the Revenue Officer's job to collect the civil trust fund money. They will levy a business to collect the money. They can levy bank accounts and accounts receivables. They can even shut down a business to collect the civil trust fund.

It does not have to be the end of the road for your business. There are ways of handling this situation with the IRS. You need professional representation to help you navigate through these kinds of rough waters. There is help if you want it!

Wednesday, August 6, 2008


I love the commercial where the shirtless guy is talking to the doctor on the phone. The doctor tells the guy “oh, it's a fairly easy procedure.” Now I just want you to make a 3-inch incision in your abdomen. The guy’s face cracks me up. He looks like what!? It's funny, but we all do it all the time. We surf the net and read a couple articles or see a how-to site, and all of a sudden we can fly, fix cars, build a house, diagnose and treat ourselves like a doctor, and even take on the IRS with the skill of an enrolled agent! Intellectually, does that even add up?

According to the IRS manual, "There are two tracks to becoming an enrolled agent. These tracks are described in Federal regulations contained in a pamphlet known as Treasury Department Circular 230, Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries, and Appraisers Before the Internal Revenue Service. The two tracks are:
Written examination. You can become an enrolled agent by demonstrating special competence in tax matters by taking a written examination. This track requires that you -
Apply to take the Special Enrollment Examination (SEE);;

Achieve passing scores on all parts of the SEE;

Apply for enrollment; and

Pass a background check to ensure that you have not engaged in any conduct that would justify the suspension or disbarment of an attorney, CPA, or enrolled agent from practice before the IRS.

IRS experience. You can become an enrolled agent by virtue of past service and technical experience with the IRS that qualifies you for enrollment. This track requires that you -

Possess the years of past service and technical experience specified in Circular 230;

Apply for enrollment; and

Pass a background check to ensure that you have not engaged in any conduct that would justify the suspension or disbarment of an attorney, CPA, or enrolled agent from practice before the IRS. "

Now are you ready to put what you know up against the knowledge that is required to practice before the IRS? Do you feel qualified? The outcomes you read here or see on TV are done by professionals. Please do not attempt any of these complicated negotiations without the help of a trained negotiator.

Monday, August 4, 2008


The IRS doesn't care that it stinks! Organizations operating vehicles for business get a token small break, but no one else gets any relief. Deductions for medical and moving purposes, along with charitable organizations, went down or stayed the same. As of Jan. 1, 2008 the IRS standard mileage rates (including vans, pick ups or panel trucks) have increased for business. The new rates are in response to ever increasing gas operating costs for these organizations. Business mileage increased from 48.5 cents to 50.5 cents per mile driven, a 2 cent increase from 2007. Conversely, medical and moving rates fell from 20 cents per mile to 19 cents per mile. Charitable organizations (governed by law, not the IRS) had no change in their deduction. Tax payers deducting for mileage are not eligible for depreciation deductions. With these changes, the bottom line is the IRS has not helped business owners in America lower their bottom line.

Wednesday, July 30, 2008


If it's free it's for me! In a world where the cost of everything continues to go up I am all over anything I can get free. More and more service based companies are cutting back on the things they use to offer as incentive to do business with them. The tax industry is riding that wave also. There is good news though. If you call the right tax firm they have the ability to get information for you when you're not sure what’s going on. The fee for this service can range from 650- 900 dollars. A lazy tax consultant will just guess as to your actual liability amount and you get charged for what he "guesses" you owe. Many companies base their fees on what you owe so they guess high and hope you don't object. This service is called a practitioner call. They can provide you any information they need to handle your case. This is especially important if you have any tax returns from previous years. These older returns are very suspect to the IRS, therefore each one of these returns will be hand audited. A good tax company will use the information they get from the IRS to file your returns. Why? To get you through step one of the audit process. The first thing an auditor looks for is accuracy of the numbers. Down to the penny! This is just one benefit of the practitioner call. For more info on this potentially free service, call around and see who will offer it.


The economy is hurting and we all know it. The IRS knows it too. We have been receiving more and more calls about folks getting 1099-C's turned in on them. This takes most people by surprise. They thought that they were done with the whole ordeal, and then they get a notice saying they owe the IRS money. Most of the time it gets blown off as a mistake by the IRS. It is no mistake! On December 20, 2007, the Mortgage Forgiveness Debt Relief Act was put into effect. Usually when you have a cancellation of debt by a lender, it has to be included as income on your taxes. This act now allows tax relief from a portion of that forgiven debt. The act only applies to your primary residence and only to forgiveness or cancellation on money used to buy, build or substantially improve your primary residence. You can also apply the act to refinancing debt incurred up to the amount of the principal balance of the old mortgage right before the refinance. There are a lot of details that can't be covered in a short post. For more info consult with a PROFESSIONAL.


The Nike philosophy is a universal truth that can save you money! As a senior tax consultant in a major tax resolution firm, I see cases all the time that could have been half the price for resolution. Every 4 years you don't handle a tax liability, it DOUBLES! I understand when folks tell me that they got scared. Fear and procrastination will cost them much more than they think. The common symptom most people have with tax problems is analysis paralysis. Action is what ignites every success. Action is what produces results. Knowledge is only potential power until it comes to someone who knows how to get himself to take effective action. If you want to reduce the amount you have to pay the IRS, then do your home work on some PROFESSIONAL TAX RESOLUTION FIRMS and JUST DO IT!

Tuesday, July 29, 2008


Have you ever greeted someone with a hug or kiss and you could feel them knifing you in the back? If you have been around for more than a week I'm sure you have run into people who are nice to your face but really don't care a thing about you.
Unfortunately, the IRS has figured out that they can get much more information from tax payers by acting like they are there to help you. They will be down to earth and friendly. BEWARE… they have an agenda. They want you to tell them important information they need to do their job, COLLECTING YOUR MONEY! They need banking info, job info, anything they can use to ENFORCE COLLECTIONS! The IRS is a SUPER COLLECTIONS AGENCY. All their employees are trained to lull you into a false sense of security that they're going to HELP YOU. Make no mistake, they are there for one purpose and that is to collect. In 2007, over 4 million LEVIES and LIENS were issued. To do that, they need SOURCES (ie. banks, job etc.) A lot of times they get you to volunteer to write it all down and send them all the info they need to ENFORCE COLLECTIONS on you via a form called a 433 a, b or f. If you fill this out and send it to them, THEY HAVE YOU! Don't be unaware of their tactics. Get a PROFESSIONAL ORGANIZATION to help you.

Thursday, July 24, 2008

Do you have a tax lien?

Tax liens can be filed by the IRS 10 days after a balance due notice or demand for payment has been sent to the tax payer. Lien's are a public notice to the tax payer's creditors that the goverment has claim against the tax payer's property.

The IRS will only release a notice of federal tax lien within 30 days of the tax payer paying their liability in full or if an offer in compromise is accepted and the terms of the agreement fulfilled.

Liens are filled in the courthouse of the county of residence of the taxpayer. Most people believe that the IRS reports this to the credit bureaus. This is not the case. The federal tax lien is public notice and the credit bureaus pick it up there. Having a lien on your creidt reort will damage your credit score.

If you questions about tax liens or other tax problems contact Effectur.

Taking Care of Your IRS Problem

When you owe the IRS, or are behind in filing your tax returns; there are three things you can do.

The first is to do nothing and let the IRS enforce collections and take care of your problem for you. This is never a good idea. Although the IRS can prepare and file a return for you, known as a substitute for return or SFR, they will prepare it in the best interest of the treasury. Meaning, they will not take into account any deductions you may be able to take advantage of, and then they will assess a tax liability against you. This will put you into the collections process; mandating that you take action or have the full collection forces of the IRS come after you.

The second thing you can do is handle it yourself. This is also not a good idea. Unless you know how the IRS works and what options are available for you, you will never know if you have gotten the best deal that is available for you. It is not the IRS’s job to get you into your best possible result, it is their job to collect from you. AND it is never a good idea to prepare your own tax return. Always have a professional do it for you so that you can be sure to take advantage of all possible deductions you may have and to avoid costly mistakes and errors that can cause you many many headaches.

The Third and best way to handle your situation is to hire a reputable tax resolution firm. They will know how the IRS works, what options are available to you and get you the best result possible. You wouldn't go to court without a lawyer would you? So why would you want to face the largest bill collector on your own. A reputable firm will have your best interest in mind. Have great communication with clients, have great customer satisfaction scores and deliver what they promise.

You always want to be proactive with the IRS and deal with them on your own terms.

Coming soon: How to know your tax resolution firm is reputable.

Levy notice from the IRS and what it means to you.

Like so many tax payers, this could happen to you. You get a certified letter form the IRS. When you pick it up from the post office and open it, you read that the IRS intends on levying certain assets.

Don't panic!

This means that you have not responded to the IRS's other letters they have been sending you. The IRS can not levy you until you have been through the collection due process. Simply put, they have to notify you of a balance due and give you time to respond.
If you get a CP 504, intent to levy, there is still time to handle your problem.
You do need to get moving right away, because doing nothing will only result in the IRS taking your assets away.

If you are unsure of what steps to take next, it might be time to hire a reputable tax resolution firm. A tax resolution firm can help you out tremendously; they know how to deal with the IRS and can get you back onto the road to recovery and peace of mind.

Tuesday, July 15, 2008

The Collections Process and the IRS

The IRS is required by law to follow specific steps when notifying a tax payer of a tax liability. This is the Collections Due Process. The IRS has to follow these rules step for step. They only need to send notices to the last know address of the tax payer.

The process starts with a balance due notice, form CP14 or CP11. The balance due notice states how much is due and from which tax year.

After 10 days of sending the Balance Due Notice the IRS will send a second notice of demand for payment with form CP 501.

10 days after the CP501, a CP503 is sent with the same demand for payment.

When all the above notices are ignored, the IRS will send a CP504, Notice of Intent to Levy. This is always sent via certified mail.

In most cases a final notice of intent to levy is sent. This is letter L 1058. This step may be skipped by the IRS.

If the taxpayer ignores or fails to respond to all the notices, a Levy is placed against the taxpayer and a notice is then sent to the taxpayer informing them of the levy. The Levy Notice is form 668.

If you are in IRS collections, you may need help to handle the IRS. You want to act quickly when you start receiving these notices and not wait until you are levied which can leave you with no money that may be used to get help. It is always best to be proactive with the IRS. You want to deal with the IRS on your terms not theirs.

Monday, July 7, 2008

Never Say Never

The very first thing you have to know is there many blogs on the net that tell you they know how the IRS works.They will tell you the IRS works one way and if you have a problem the IRS will do this every time because after all they are a methodical organization.The problem with that is they are living in a test tube world .They base all there outcomes on generic circumstances and the letter of the law.They are the same people who believe one day computers will replace you at your job.After all computers are capable of doing anything we can right?
To dispel this myth I will only be using real actual cases to show you there is another realm of possibilities that are availble to the common tax payor who has
representation for there IRS issues.

Friday, May 23, 2008