Know Your Choices to Pay Your Tax Bill! - Part 2

On Friday, March 15, 2019 we posted Know Your Choices to Pay Your Tax Bill! - Part 1 where we discussed Paying in full within 120 days (short-term payment plan) and Installment agreements (long-term payment plan). In this Part 2we will discuss two other alternative for taxpayers who do not have the money to pay their current tax liability.

Offer in compromise (OIC). An OIC is an agreement between a taxpayer and IRS that settles the taxpayer's tax liabilities for less than the full amount owed. Taxpayers who can fully pay the liabilities through an installment agreement or other means, won't qualify for an OIC in most cases. IRS says that to qualify for an OIC, the taxpayer must have filed all tax returns, made all required estimated tax payments for the current year, and made all required federal tax deposits for the current quarter if the taxpayer is a business owner with employees. (IRS website)

IRS may compromise a tax liability on any of the following grounds:

1. Doubt as to liability. There must be a genuine dispute as to the existence of amount of the correct tax debt.
2. Doubt as to collectibility. Such doubt exists in any case where the taxpayer's assets and income are less than the full amount of the tax liability.
3. To promote effective tax administration. An offer may be accepted on this ground if: (a) collection in full of the tax owed could be achieved, but (b) requiring payment in full would either create an economic hardship, or would be unfair and inequitable because of exceptional circumstances. (Reg. § 301.7122-1(b))

To request an OIC, the taxpayer must apply using Form 656, Offer in Compromise. The taxpayer also must submit Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals, and/or Form 433-B (OIC), Collection Information Statement for Businesses.

A taxpayer submitting an OIC based on doubt as to liability must file a Form 656-L, Offer in Compromise (Doubt as to Liability), instead of Form 656 and Form 433-A (OIC) and/or Form 433-B (OIC).

The OIC application generally must be accompanied by a $186 application fee. However, the fee is waived for certain low income taxpayers or if the OIC is based on doubt as to liability. (Form 656-B, Notice 2006-68, 2006-31 IRB 105, Sec. 4.03)

Except with regard to offers filed by low-income taxpayers, or based only on doubt as to liability, an OIC must be accompanied by a nonrefundable payment that depends on how the taxpayer is offering to pay.

A taxpayer may propose to pay in a lump sum, i.e., an offer payable in five or fewer installments within five or fewer months after the offer is accepted. If such an offer is made, the taxpayer must include with the Form 656 a payment equal to 20% of the offer amount. This payment is required in addition to the $186 application fee.

A taxpayer may propose to make periodic payments, i.e., six or more monthly installments made within 24 months after the offer is accepted. When submitting a periodic payment offer, the taxpayer must include the first proposed installment payment along with the Form 656. This payment also is required in addition to the $186 application fee. (Code Sec. 7122(c)(1)

Currently Not Collectible - delay the collection process. Where a payment would create financial hardship, is to ask IRS to delay collection until the taxpayer is able to pay. If IRS determines that the taxpayer cannot pay any of his or her tax debt, it may report the taxpayer's account as currently not collectible and temporarily delay collection until the taxpayer's financial condition improves. Interest and penalties continue to accrue until the tax debt is paid in full. (https://www.irs.gov/businesses/small-businesses-self-employed/temporarily-delay-the-collection-process)

The taxpayer may be asked to complete a Collection Information Statement (Form 433-F, Form 433-A or Form 433-B) and provide proof of financial status (this may include information about assets and monthly income and expenses).

During a temporary delay, IRS will again review the taxpayer's ability to pay, and may also file a Notice of Federal Tax Lien to protect the government's interest in his assets.

Taxpayers requesting a temporary delay of the collection process or to discuss other payment options should contact IRS at 1-800-829-1040 or call the phone number on their bill or notice.

Remember to FILE YOUR RETURN,

Even if You CANNOT Pay Your Tax!

I know this is counterintuitive, since no one wants to bring attention to the fact that they cannot pay their taxes by filing a tax return showing a tax due and not paying the tax. However by filing your return,

1. You begin the running of the Statute of Limitations for assessment & collection,
2. You begin the running the two-year period for discharging this debt in bankruptcy and
3. You reduce your associative tax return penalties from 5% a month for late filing to .05% for late payment penalty. 
• The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes.
• If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date.

Need Time To Pay Your IRS Taxes?  

   

Contact the Tax Lawyers at 
Marini & Associates, P.A. 

 

 

for a FREE Tax HELP Contact us at:

www.TaxAid.com or www.OVDPLaw.com or

Toll Free at 888-8TaxAid (888) 882-9243


 



 

 

FACTA Reporting Not Working as Designed

The Internal Revenue Service is having trouble dealing with the information it’s getting from foreign banks about U.S. taxpayer assets under the Foreign Account Tax Compliance Act because of problems with the data and various mismatches, according to a new government report.

The report, from the Government Accountability Office, found that data quality and management issues have limited the effectiveness of the IRS’s efforts to implement FATCA, which was part of the HIRE Act of 2010. The law required foreign financial institutions to send information about U.S. taxpayer assets or else face stiff penalties of up to 30 percent on their income from U.S. sources. The law proved to be controversial, and the Treasury Department needed to negotiate intergovernmental agreements with the tax authorities in dozens of other countries to get them to agree to turn over data under their own banking secrecy laws.

In most cases, the foreign banks turn over the information first to their own home country’s tax authority, which in turn transmits it to the IRS. The IRS also needed to develop portals where the information could be sent, as well as forms, instructions and other guidance and technology systems to implement FATCA.

However, even with all that work, the IRS has had difficulties matching the information reported by foreign financial institutions with U.S. taxpayers' tax filings due to missing or inaccurate Taxpayer Identification Numbers provided by the foreign banks.


On top of that, the IRS lacks access to consistent and complete data on foreign financial assets and other data reported in tax filings by U.S. individual taxpayers, partly because some IRS databases don’t store foreign asset data reported from paper filings.

The "IRS Has Also Stopped Pursuing a Comprehensive Plan to Leverage FATCA Data to Improve Taxpayer Compliance Because, According to IRS Officials, IRS Moved Away from Updating Broad Strategy Documents to Focus on Individual Compliance Campaigns," According to the Report.

 

The report also found that nearly 75 percent of taxpayers reporting foreign assets to the IRS also reported them separately to the Treasury Department, indicating potential unnecessary duplication.

Another major problem for FATCA has been the hardships faced by U.S.-born expatriates. Some Americans living abroad can't get services from foreign banks that find the law too burdensome. Even American actress Megan Markle, who married Prince Harry in the U.K. last year, is expected to face difficulties with tax compliance. With the couple’s baby due soon, some observers have speculated their children could be subject to U.S. tax, unless she renounces U.S. citizenship.

The GAO found that some foreign financial institutions, or FFIs, have closed some U.S. taxpayers’ existing accounts or denied them opportunities to open new accounts after FATCA was enacted thanks to the increased costs and risks they face under FATCA. According to State Department data, annual approvals of renunciations of U.S. citizenship increased from 1,601 to 4,449 — or nearly 178 percent — from 2011 through 2016, partly because of FATCA.

 

According to a recent report that highlighted the Internal Revenue Service’s stalled enforcement of the Foreign Account Tax Compliance Act shows that although the agency has made it a priority to crack down on unreported offshore accounts, the statute’s logistical challenges are getting in the way.

 

The Treasury's inspector general for tax administration, J. Russell George, left, talks at a hearing on Capitol Hill. (AP) A report from the Treasury Inspector General for Tax Administration found that although the IRS had spent nearly $380 million to carry out FATCA, the agency “is still not prepared to enforce compliance” with it. Specialists say catching undisclosed overseas assets is still a high priority for the IRS. But the report points to logistical problems, including complex FATCA forms and inaccurate filings, that are undermining enforcement, or at least the appearance of it, which could come with its own problems.

According to the TIGTA report, published July 5, 2018 the IRS’ efforts to match information between these forms “have been significantly hindered,” primarily because FFIs submitted forms with missing taxpayer identification numbers.

The report from TIGTA noted that in a review from 2015, the IRS had put off carrying out its FATCA compliance strategy and said timelines could change because of budget limitations, including information technology funding. Of the nearly $380 million spent to carry out the FATCA program since 2010, the IRS spent a little over $222 million on technology, according to the latest report.

 

According to the report, taxpayer identification numbers were absent from “a high volume” of 8966 forms, which are the ones FFIs are required to submit. Of the approximately 8.8 million new records the IRS received on behalf of participating FFIs by Sept. 30, more than 4.3 million either had an invalid identification number or didn’t have one at all, the report said.

 

The IRS Had Warned Taxpayers in March That the Practice of Hiding Money in Unreported Offshore Accounts Remains on Its "Dirty Dozen" List of Tax Scams, Noting That As the Agency "Intensified Efforts on Offshore Issues in Recent Years, Many Taxpayers Have Voluntary Disclosed Their Participation in These Schemes."

On top of accuracy issues, the challenge of matching 8966 forms with 8938 forms, the ones individuals are required to submit, is tied to all the data the agency must process, according to Victor Jaramillo, who is of counsel at Caplin & Drysdale Chtd.

 

 Do You Have Undeclared Income From

An Offshore Bank or Financial Advisor?

 

 

Is Your Name Being Handed Over to the IRS?

  

Want to Know Which Remaining IRS Program

 is Right for You? 

 

Contact the Tax Lawyers at 

Marini & Associates, P.A.   

 

 

for a FREE Tax Consultation contact us at:

www.TaxAid.com or www.OVDPLaw.com or

Toll Free at 888-8TaxAid (888) 882-9243

 

 



 

 

 

 

2020 Budget Calls For $11.5B In IRS Funding Up $200 Million From 2019 Budget!

According to Law360, President Donald Trump’s budget for fiscal year 2020, released Monday, calls for $11.5 billion in funding for the Internal Revenue Service, up from $11.3 billion in the current fiscal year.

 

The Trump administration’s "Budget for a Better America” would work in tandem with legislation that would require employees and those attempting to claim the earned income tax credit to provide their Social Security numbers, while also encouraging general taxpayer compliance, according to the budget. The measures would yield an additional $47 billion in revenue for the IRS, the budget said.

“The proposed budget ensures Treasury has sufficient resources to continue implementing the country’s most comprehensive tax reform, which is helping American families, fueling economic growth and contributing to historically low unemployment levels,” U.S. Treasury Secretary Steven Mnuchin said Monday after the budget’s release. He was referring to the 2017 tax overhaul, the Tax Cuts and Jobs Act. 

 

The $11.5 billion request is up from the $11.3 billion currently appropriated to the IRS for fye 2019, which ends Sept. 30.

 

The proposed IRS appropriation was quickly panned by the National Treasury Employees Union.

“A slight $200 million increase in the Internal Revenue Service budget does little to make up for $845 million in lost funding over the last 10 years,” the union said in a statement.

The budget also proposes providing $50 billion in a tax credit over 10 years for families pursuing private educational options. Specifically, donors to state-sponsored scholarship-granting organizations would be eligible for the credit.
 

“This proposed tax credit isn’t intended to incentivize charitable giving; it’s a brazen effort to distort the tax code into a tool for funding private and religious schools with public dollars,” Carl Davis, the ITEP research director, said at the time.

Have an IRS Tax Problem? 

 

   

Contact the Tax Lawyers at 

Marini & Associates, P.A. 

 

 

for a FREE Tax HELP Contact us at:

www.TaxAid.com or www.OVDPLaw.com or

Toll Free at 888-8TaxAid (888) 882-9243

 

 

Failure to Report Offshore Funds Remains a Crime & it's Included in the IRS' 2019 ‘Dirty Dozen’ Scams List!

Hiding money or assets in unreported offshore accounts remains on the Internal Revenue Service’s “Dirty Dozen” list of tax scams for 2019, the agency said on March 15, 2019.

Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter anytime, including offshore schemes. Many of these peak during filing season as people prepare their tax returns or seek help with their taxes.

Taxpayers should remain wary of offshore avoidance schemes. Following the IRS intensifying efforts on offshore issues in recent years, many taxpayers have already voluntarily disclosed their participation in these schemes. The IRS conducted thousands of offshore-related civil audits that resulted in the payment of tens of millions of dollars in unpaid taxes. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitution.

"Offshore Evasion Remains a Primary Focal Point of Overall IRS Enforcement Efforts," Said IRS Commissioner Chuck Rettig.

 

 

 "Our Criminal Investigation and Civil Enforcement Teams Work Closely with the Justice Department in the International Arena to Ensure Our Nation's Tax Laws Are Followed.

 

 

Taxpayers Considering Hiding Funds or Assets Offshore Should Think Twice; the Civil Penalties and Criminal Sanctions Can Be Severe."

Illegal scams like these can lead to significant penalties as well as interest and possible criminal prosecution. The IRS Criminal Investigation Division works closely with the Department of Justice to shut down scams and prosecute the criminals behind them.

Hiding income offshore

Over the years, numerous individuals have been identified as evading U.S. taxes by attempting to hide income in offshore banks, brokerage accounts or nominee entities. They then access the funds using debit cards, credit cards or wire transfers. Others have used foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.

The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as bankers and others suspected of helping clients hide their assets overseas.

While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting requirements are breaking the law and risk significant fines, as well as the possibility of criminal prosecution.

The IRS Reminds Taxpayers Who Have Failed to Properly Report Their Offshore Investments or Pay Tax on These Investments' Income, to Come Forward.

 

Since the circumstances of taxpayers vary widely, the IRS offers several options for addressing the noncompliance.

Third-party reporting

Under the Foreign Account Tax Compliance Act (FATCA) and the network of intergovernmental agreements between the U.S. and partner jurisdictions, automatic third-party account reporting continues. The IRS receives more information regarding potential non-compliance by U.S. persons because of the Department of Justice’s Swiss Bank Program. This information makes it less likely that offshore financial accounts will go unnoticed by the IRS.

Penalties for failure to properly report offshore transactions can be severe.

Do You Have Undeclared Income From

An Offshore Bank or Financial Advisor?

 

 

Is Your Name Being Handed Over to the IRS?

  

Want to Know Which Remaining IRS Program

 is Right for You? 

 

Contact the Tax Lawyers at 

Marini & Associates, P.A.   

 

 

for a FREE Tax Consultation contact us at:

www.TaxAid.com or www.OVDPLaw.com or

Toll Free at 888-8TaxAid (888) 882-9243

Know Your Choices to Pay Your Tax Bill! - Part 1

As the April 15th deadline for filing 2018 income tax returns draws near, practitioners may encounter some clients who don't have cash to pay the balance due on their returns. Clients can avoid penalties but not interest if they can get an extension of time to pay from IRS. Financially distressed clients may be able to defer paying their income taxes, including installment agreements and offers in compromise with IRS.

 

Paying in full within 120 days (short-term payment plan). A taxpayer can pay the full amount owed within 120 days, without having to pay any fee, but interest and any applicable penalties continue to accrue until the tax is paid in full. Taxpayers can use an online payment application (IRS website) or call IRS at 800-829-1040.

Installment agreements (long-term payment plan). Taxpayers unable to pay the full amount owed within 120 days may be able to enter into an installment agreement with IRS to pay the tax. Apply using Form 9465, Installment Agreement Request, and Form 433-F, Collection Information Statement. (IRS website)

There are different installment agreement rules for taxpayers who owe $10,000 or less, and for taxpayers who owe $50,000 or less.

Taxpayers are eligible for a guaranteed installment agreement-in other words, IRS is required to enter into the agreement-if the aggregate amount of the liability (determined without regard to interest, penalties, additions to the tax, and additional amounts) is not more than $10,000 and:

• During the past five tax years, the taxpayer (and spouse if filing a joint return) have timely filed all income tax returns and paid any income tax due, and have not entered into an installment agreement under Code Sec. 6159 for payment of income tax;
• The taxpayer agrees to pay the full amount owed within three years and to comply with all Code provisions while the agreement is in effect; and
• The taxpayer is financially unable to pay the liability in full when due and submits information that IRS may require to make this determination (i.e., a financial statement). (Code Sec. 6159(c)(2); Reg. § 301.6159-1(c)(1)).

Despite the last condition, the Internal Revenue Manual 5.14.5.3, notes that as a matter of policy,

IRS grants guaranteed installment agreements even if the taxpayer can pay his or her liability in full.

 

There's a streamlined procedure for granting agreements for payment of tax in installments for amounts of $50,000 or less. IRS may accept streamlined installment agreements without requiring financial statements or managerial approval if the taxpayer

1. has an "aggregate unpaid balance of assessments" (tax, assessed penalty and interest) of $50,000 or less, 
2. has filed all returns, and 
3. will pay up within 72 months, or will pay in full before expiration of the collection statute of limitations, whichever comes first. (IRM 5.14.5.2, IRS website)

Remember to FILE YOUR RETURN,

Even if You CANNOT Pay Your Tax!

I know this is counterintuitive, since no one wants to bring attention to the fact that they cannot pay their taxes by filing a tax return showing a tax due and not paying the tax. However by filing your return,

1. You begin the running of the Statute of Limitations for assessment & collection,
2. You begin the running the two-year period for discharging this debt in bankruptcy and
3. You reduce your associative tax return penalties from 5% a month for late filing to .05% for late payment penalty. 
• The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes.
• If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date.

Need Time To Pay Your IRS Taxes?  

   

Contact the Tax Lawyers at 
Marini & Associates, P.A. 

 

 

for a FREE Tax HELP Contact us at:

www.TaxAid.com or www.OVDPLaw.com or

Toll Free at 888-8TaxAid (888) 882-9243


 



 

 

 

IRS Tax Audits of Millionaires & Large Businesses are Declining

The Internal Revenue Service is subjecting a relatively small percentage of wealthy taxpayers to tax audits, and less than half of the biggest corporations in the U.S. are now being audited, according to a new report.

The report, from Syracuse University’s Transactional Records Access Records Clearinghouse, or TRAC, found that 97 out of every 100 individual taxpayers who reported over $1 million in income weren’t audited last year, based on IRS statistics. In fiscal year 2010, such audits turned up $5.1 billion in unreported taxes. Now with just half the audits, the government uncovered only $1.9 billion in unreported taxes in fiscal 2018.

The Internal Revenue Service Has Been Dealing with a Series of Budget Cuts over the past Decade, and It Has Been Forced to Reduce the Number of Audits It Conducts As Other Priorities, ...Have Taken a Greater Priority.

Audits of Millionaires: The current situation here is the most alarming because the latest data reveal that 97 out of every 100 taxpayers reporting over a million dollars of income were not audited last year. And for these millionaires the puny number of IRS audits has been cut in half since 2010. See Figure 1.

In FY 2010, such audits turned up $5.1 billion in unreported taxes. Even then 92 out of every 100 millionaires were not audited. Now with just half the audits, the government uncovered only $1.9 billion in unreported taxes in FY 2018. Few audits means many millionaires escape paying billions of dollars owed the U.S. Treasury.  

Figure 1. Few IRS Audits of Taxpayers Reporting > $1 Million in Income*

(Click for larger image)

Audits of Corporate Giants: More than half of the 633 largest corporations in the country - those with over $20 billion in assets - were not even audited last year. This is the first year that the audit rate has slipped below 50 percent. As recently as 2010, nearly all such returns (96%) were being examined by IRS. See Figure 2.  Audits in 2010 of large corporations (>$250 million in assets) turned up $23.7 billion dollars in unreported taxes. This had dropped in half to just $12.5 billion during FY 2018.  

Figure 2. IRS Audits Less Than Half of Corporations with $20 Billion or More Assets

(Click for larger image)

Criminal Prosecutions: IRS referrals of taxpayers for criminal prosecution relative to population size have plummeted by 75 percent in the last twenty-five years, dropping by 63 percent in just the last five years. See Figure 3.

The Number of Taxpayers Convicted As a Result of IRS Investigations Reached an All-Time Low in FY 2018 – Just 928 and Only 530 of These Convictions Were for Tax Fraud!

 

The remaining 398 convictions were for other types of offenses such as identity theft, financial institution and investment frauds, money laundering, drug trafficking and organized crime. IRS of course has major responsibility for not only going after tax cheats who don't pay their taxes on legal sources of income, but also for tax evaders that fail to report and pay taxes on illegally gotten gains. See here for more details

 

Figure 3. Odds of IRS Referral for Criminal Prosecution Has Plummeted
(Click for larger image)

 

The report noted that for years, Congress has slashed the budget at the IRS, forcing it to cut back on staff dedicated to audits and criminal investigation. In 2010 IRS had more than 100,000 employees on staff. By June 2018, staffing had dropped 22 percent to just 79,071. Revenue agents and criminal investigators have fallen even more. Despite the additional responsibilities IRS was assigned to implement the Tax Cuts and Jobs Act of 2017, the IRS had 3,000 fewer employees than it had before the tax overhaul was passed. 

 

Have an IRS Tax Audit Problem? 

 

   

Contact the Tax Lawyers at 

Marini & Associates, P.A. 

 

 

for a FREE Tax HELP Contact us at:

www.TaxAid.com or www.OVDPLaw.com or

Toll Free at 888-8TaxAid (888) 882-9243