Is the IRS Holding Your Unclaimed Refund Check?

Finally, a happy thought when it comes to taxes: The IRS may be holding money that is yours, and they really, really do want to give it to you!

If you had a job and had income taxes withheld from your paycheck, but you didn’t file a return either because you didn’t have to because of your income level or because you thought you wouldn’t get the money back, you may actually be in for a surprise. It may not necessarily be a lot of money, but I believe you should even file your claim for a $1 refund merely on principle if it’s owed to you.

The IRS keeps millions of dollars every year that they are not legally entitled to keep, simply because taxpayers didn’t realize they could get the money back. In order to file a return for the express purpose of getting a refund, even if you weren’t legally obligated to file a tax return, you need to file the return and request the refund within 3 years of when the tax return was originally due, which is generally April 15th of each year for personal income tax returns. After this three year period, the government says, “Too bad, so sad” and gets to legally keep your money.

If you file a tax return late, but are due a refund, there are no penalties for late filing. They only whack you with late filing penalties if you OWE money, and then it’s a percentage of what you owe (Caution: It’s a BIG percentage if it’s been a while).

If you’re not sure if you would end up owing or getting a refund, here’s a quick tip: Most tax preparers will run the numbers through their computer for you for free, and only charge you if you actually FILE the return. Most franchises of the big tax prep retail chains (H&R Block, Liberty, and Jackson Hewitt) will do this, as will most independent tax preparers. It’s worth at least looking into.

In addition, the IRS receives millions of dollars of refund checks back in the mail every year. If you were expecting a refund check, and it didn’t come, then don’t forget to give the IRS a call (800-829-1040) and ask them where your refund is. There is also a simple and handy “Where’s My Refund?” feature on their web site, at irs.gov.

Lastly, be sure to take every tax break you’re entitled to. If you think your tax preparer either missed some deductions or skipped a tax credit that would pump up your refund (the Earned Income Credit and the Additional Child Tax Credit are two of the big ones), then don’t hesitate to take your tax return to somebody else for a second opinion. Most tax preparers will do this either for free or for a very nominal charge, so if you think you should have gotten a bigger refund, have another tax preparer look over your return.

IRS Penalty Abatement Sample Letter

The penalties assessed by the IRS are the often the biggest thing that people dislike about having a tax problem, and for good reason: The penalties added to your tax liability can often DOUBLE how much you owe.

The process of obtaining a reduction of IRS penalties is called a “penalty abatement”. While there is a form for claiming a refund of taxes paid in and requesting an abatement of some limited penalties under limited circumstances, there is no general form for requesting an abatement of penalties under special circumstances, even circumstances that meet the IRS reasonable cause criteria.

I’ve been using a very successful template letter for several years as my starting point in all my penalty abatement cases. Half the time, this letter is all I need, but it sets the groundwork for Appeals if necessary. This letter has actually been the basis for achieving millions of dollars in IRS penalty abatements.

This particular penalty abatement letter template is the result of over 100 hours of case review in search of the perfect U.S. court cases to support the arguments, and dozens more hours of tweaking and perfecting the exact language used so as to create the perfect penalty abatement letter for use with clients.

This letter does require some finesse to use, as it is meant to be used by tax professionals knowledgeable about tax code and with experience preparing penalty abatements. Because of that, I’m also going to provide you with a short “Quick Start Guide” showing you how to use this penalty abatement sample letter.

In addition, you’re also going to receive a handy guide for what to do if the IRS rejects your initial application for relief from penalties. If they reject your application, they are required to tell you why, and you also have Appeals rights that come with that rejection. It never ceases to amaze me the simple, straightforward penalty abatement applications that are initially rejected, but then accepted almost immediately by an Appeals officer.

Hiring a tax professional to write your penalty abatement application letter will typically cost between $750 and $1,000. To get instant access to the most powerful penalty abatement letter templates available for a tiny investment of only $97, simply click the “Buy Now” button below and proceed to our secure payment processor.

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Do I Need To Include My Wife’s Income In My Offer in Compromise?

Earlier this week, a reader inquired about whether or not he was required to include his spouse’s income when filing his Offer in Compromise. The reason it was in question is because they maintain completely separate financial lives. They file separate tax returns, have separate bank accounts, and don’t even title anything jointly.

Before you question why somebody would do something like that, there are actually numerous reasons for doing so, especially in regards to various aspects of state law. There are also business and asset protection reasons for keeping things separate. For example, if one spouse owns a business or is involved in a profession or activity with a high degree of litigation, then keeping different financial houses can be a good idea.

Here’s the answer to the question: Believe it or not, even if only one person owes the tax liability, the income (and allowable expenses) of everybody in a household must be included in an Offer in Compromise amount. This applies to everybody living in the home — even people just renting a room from you.

Now of course, we work to get the non-responsible party’s income and expenses taken off the reporting requirements, and I’ve never failed in achieving this objective. Under the tax code, the only person responsible for an IRS tax debt is the person against whom it is assessed, and nobody else.

If you need help with your Offer in Compromise, give me a call – (877) 632-5083.

Did Roni Deutch Leave You Hanging?

Were you a customer of tax resolution firm Roni Deutch?

If so, you are obviously aware of the recent actions against the company by the California Attorney General, which has seized all the company’s assets. In fact, Rony Lynn Deutch herself was disbarred and is facing criminal charges stemming from the AG’s investigation.

This situation has left many of Roni Deutch’s customers in a bind. If you are one of them, we understand and want to help you out. My name is Jassen Bowman, and I’m an IRS-licensed Enrolled Agent. I’ve been in the business for several years, and your case will be handled by myself personally. If you were left hanging by Roni Deutch, I’ll not only give you a huge break on fees, and also work something out so that you can pay the fee over time.

Call me directly at (877) 632-5083 so we can discuss your situation, and mention Roni Deutch.

Evaluating Your Tax Resolution Options

When it comes to resolving your tax debt, you have a number of possible routes you could take. In this article, I’ll go into some of the pros and cons of each option so that you have the information you need to make the best decision for yourself.

Do It Yourself Tax Resolution

Probably the route most people take, doing it yourself seems like the obvious or only choice for most people and small businesses. Tax resolution companies and independent tax professionals don’t want to hear this, but the reality is that most people can fix their tax problem without professional help. Simple tax debt problems that only cover a year or two, especially cases where the tax debt is under $10,000 (or under $25,000 if it’s only income taxes) are fairly easy to resolve with only a few phone calls (one phone call, in some cases).

If you can follow written instructions, are good with forms and paperwork, and have your personal financial paperwork in good order, then representing yourself is neither difficult nor time consuming. You need to be able to read and understand IRS notices and publications and forms, and keep good financial records for yourself.

Here’s a quick test: If you file your own tax return every year and have no problem doing so, then you can probably represent yourself. If you struggle with doing your tax return, even if you use step-by-step software, then you might want to consider getting help with the situation.

Let Your Tax Preparer Handle It

Most people don’t know this, but even if your tax preparer isn’t a licensed attorney, CPA, or Enrolled Agent, they can actually still represent you in most cases if they prepared the tax return from which the tax debt comes. If you trust your tax preparer to do this for you, chances are they can do it for much, much cheaper than a licensed tax practitioner, and will most likely obtain similar results for you. This is especially true, again, if the debt is under $25,000 and consists solely of income taxes.

Hire a Licensed Tax Professional

If your tax situation is complex, consists of multiple different types of taxes over multiple tax periods, involves any sort of business taxes, or exceeds $25,000, you MIGHT want to take hiring professional licensed representation into consideration.

I want to stress the word licensed. In my article about 5 Reasons To Use Professional Representation To Resolve Your IRS Tax Debt I gave some warnings about some companies that only do tax resolution work. You want to make sure that the person doing the actual WORK is licensed. Some of the less reputable companies in this industry have assistants do all the work, and a licensed person is just there to sign the Power of Attorney (POA). Some of these POA signers literally have THOUSANDS of POA’s that they are signed onto at any one time. Don’t for a second think that they even know who you are. Always ask to speak to an actual licensed person before signing up with one of these companies — don’t just talk to a sales guy. If the sales guy refuses to let you speak with a licensed person, then run away — very, very quickly!

There are, in general, three kinds of licensed tax professionals that can legally assist you: a CPA, attorney, or Enrolled Agent.

While a license to practice means one thing, obtaining competent representation from a licensed practitioner is another. CPA’s are licensed by the state in which they practice, and most CPA’s are NOT experienced with tax resolution work. The vast majority of CPA’s do just accounting or just tax preparation. The same thing actually goes for Enrolled Agents, who are licensed directly by the IRS to represent taxpayers. Less than 2% of all Enrolled Agents have any experience at all doing tax resolution work. It should also be noted that the CPA personality stereotype is mostly true — fairly timid number crunching geeks. When it comes down to pure negotiation skills, most EAs and CPAs just don’t have the personality to hold ground against an IRS officer.

Attorneys, while often much more skilled at and experienced in the world of negotiation, usually don’t have much in the way of accounting skills, and may have a hard time with numbers in general. It should also be noted that you want an attorney that specializes in tax law, not just a garden variety lawyer.

Personally, I believe that you should ONLY hire a CPA, EA, or tax attorney that is heavily experienced in tax resolution work. In fact, I may be so bold as to suggest working with a licensed tax professional that ONLY does tax resolution work, and doesn’t do seasonal tax preparation at all, doesn’t run a payroll service, etc. Most large metropolitan areas of the United States will have several local professionals that specialize just in this type of work. In addition, there are dozens of nationwide firms that offer these services, and it’s ALL they do.

As with anything involving your finances, always do your homework on any practitioner or firm before hiring them. Get comparison quotes, and make sure you know what services you are being quoted for so that you can compare apples with apples. Check out BBB reports, and do Google searches using the name of the company combined with phrases such as “scam”, “rip off”, and “complaints”.

I hope this article will help you in selecting the best option for resolving your tax debt situation. In future articles on this blog, I’m going to focus on the “do it yourself” side of things, and show you how to do things on your own, or at least provide you with information to understand what your tax practitioner is doing or is quoting to you.

Unfiled Tax Returns

Do you have past due tax returns? If so, you’re not alone. While the IRS does not publish statistics on this, nor are they really able to track this number, but my own research and statistical analysis (because I’m a numbers geek and do stuff like that), estimates that there are between 5 and 8 million outstanding personal income tax returns in the United States for the past three years alone.

If you owe a tax debt to the government and are seeking to get that situation resolved, you will first need to file any missing returns. The IRS will NOT negotiate a payment plan or a reduced settlement if you have past due tax returns. The reason for this is pretty simple: If you don’t file the returns, they don’t know how much you really owe.

While any tax preparer, CPA, or Enrolled Agent can probably assist you with filing your past due tax returns, it is important to note that many of these tax preparers focus their practices solely on current year tax return filings. Since the tax laws change literally every year, it’s a daunting task just to keep up with the tax code for the current year, so many tax preparers don’t bother trying to keep up with prior year tax matters.

Our firm, on the other hand, does exactly the opposite. As a general rule, we don’t even offer current year personal income tax preparation, unless it’s for an existing tax client. Since the tax code as applicable to prior years is fixed and no longer changes, we can maintain our skills and knowledge on prior years quite readily since we focus almost exclusively on preparing older tax returns. This lack of change in the past tax code and our experience preparing these returns also lets us complete them fairly quickly, since we don’t have to spend time researching the old laws, and therefore you don’t have to pay for that research time, keeping our fees lower for this sort of service.

IRS Penalty Abatement Reasonable Cause Criteria

One of the most common questions we are asked has to do with the reduction of interest and penalties on IRS accounts. Any reader of this blog knows that I am adamant about correcting the myths, lies, and half-truths perpetuated by tax resolution salespeople, and the IRS penalty abatement is one of the things least understood and grossly overhyped by salespeople in our industry.

First of all, let’s get this out of the way: There is no reasonable cause interest abatement application process within the IRS. It simply doesn’t exist, period. If somebody is telling you they can get your interest reduced, you’re straight up being lied to, and you should seek assistance elsewhere.

There are two, and precisely two, instances in which interest is reduced:

  1. Any IRS employee gives you false information, which you acted on and resulted in the interest. This is one reason why all IRS correspondence should be conducted and follow up in writing.
  2. Since interest is calculated based on the tax liability, if an amended return is filed and the tax itself is lowered, then the interest is also reduced.

Now, on to penalties. The IRS charges dozens of different types of penalties, but the three that we most commonly talk about are the late filing penalty, the late payment penalty, and the penalty for not making Federal Tax Deposits. These three penalties combined can add a whopping 65% to your total IRS bill. If your tax debt is more than two years old, you’ve maxed out all these penalties, and therefore over half your total debt is penalties.

The IRS does actually have a compassionate side, and it’s generally found in the penalty abatement process. Penalty abatement applications can also be appealed if initially denied, so you can always get a second set of eyeballs on the issue. The thing to keep in mind is that the IRS has very strict guidelines for granting penalty abatements, and these guidelines are referred to as “reasonable cause criteria”.

It should be noted up front that “we didn’t have the money” is NOT a reasonable cause criteria. A drop in revenue, by itself, is insufficient argument for obtaining penalty relief. Any request for penalty abatement simply citing the economic recession will be immediately denied.

Why is this? Here is the IRS’ logic: You made the money, and should have paid the taxes at the time on that money. If you are self-employed and receive a check, then you HAD the money, you simply didn’t give the IRS their chunk of it. Same goes with payroll taxes, particularly trust fund taxes (money you withhold from employee paychecks for income tax and Medicare/Social Security): If you had the expectation to pay some amount of wage, then you theoretically HAD the money sitting somewhere to pay that person, and should have withheld it and turned it over to the IRS. If you couldn’t cover the taxes, you shouldn’t have had the employee and should have laid people off or cut back their hours.

There are ways to argue around this, and we have done so very successfully, but there has to be some other circumstance. For example, you had the money to pay the tax, but paying the tax instead of something else would have created an “undue hardship”. Examples could include a large medical expense that unpaid would have left a condition untreated, or a court ordered payment that would have resulted in other legal consequences, or a bill such as a large automobile repair which would have left you unable to work and resulted in job loss. These arguments are difficult to make and require significantly more work than standard reasonable cause criteria applications, but they CAN be won.

The primary IRS penalty abatement reasonable cause criteria center around natural disasters, loss or destruction of vital business records, bad advice from the IRS or an accounting professional, criminal activity, medical issues, substance abuse problems, and other serious circumstances.

A couple years ago I developed a standard list of questions to ask clients to assist me in preparing their penalty abatement. This list of questions should be given some serious thought before requesting penalty abatement, as you are more likely to get what you want if it covers one of these areas:

  • Were any business records lost or destroyed?
  • Were there any circumstances that led to a substantial drop in collecting on accounts receivable?
  • Was there any transition in the business that lead to the failure to pay taxes?
  • Was there a death or serious illness that directly affected the business or personal wages?
  • Was there any embezzlement of funds, theft of valuable property, or identity theft?
  • Were there any alcohol or drug abuse issues that affected the business or wage earning capability?
  • Was there a natural disaster that impacted you or your business?
  • Did you rely on the advice of a CPA or IRS employee in making tax decisions?
  • Were there any circumstances that created substantial financial hardship, to the point where your business was close to going bankrupt?

These questions cover all of the IRS reasonable cause criteria to one extent or another, so finding an answer to your personal or business situation that covers one or more of these questions is the key to a successful penalty abatement application.

Ready to apply for your own IRS penalty abatement? With my IRS Penalty Abatement Sample Letter Kit, you’ll receive several successful sample application letters, a complete guide to writing and submitting your application, as well as complete instructions for appealing a penalty abatement denial. Click here to learn more.

 

The Simple Truth About IRS Offer in Compromise Fees

Most tax resolution companies give you a quote for services based primarily on three things:

  1. How much you owe the IRS
  2. What kind of taxes you owe
  3. How much the sales person thinks you can afford to pay THEM

Here’s a dirty little secret of the tax resolution industry that nobody else will tell you: The actual WORK required to resolve a case has very, very little to do with how much you owe or what kind of tax it is, and obviously nothing to do with how much of a fee you can pay for representation.

What makes a tax resolution case more complex has much, much more to do with other factors, such as:

  • the existence of other creditors
  • the status of your assets
  • whether or not their are existing levies or wage garnishments
  • how long you’ve been accruing a tax liability
  • your past efforts (or lack thereof) to resolve the issue
  • your ability to file missing returns quickly
  • whether or not your accounting is up to date
  • whether or not you are able to “stop the bleeding” and become current with present day filing and payment requirements (this is actually the single biggest factor)

Most companies have a minimum fee quote for doing an Offer in Compromise for you, and it’s generally higher than for doing a payment plan, because the OIC process takes 6 to 12 months from start to finish. Most companies will charge you anywhere from $2500 to $4000 for doing a BASIC Offer in Compromise for you, and this may or may not include filing appeals and dealing with levies, and most definitely does not include filing any tax returns for you.

Here’s the thing, though: Filing an Offer in Compromise is actually pretty simple, and the size of your tax debt and the tax type does NOT make it any more difficult. It’s the same form, the same financial analysis, whether you owe $14,000 in personal income taxes or you owe $4.5 million in unpaid employment taxes. Big surprise: The detailed financial analysis required for the business with the payroll tax debt isn’t that much more involved than the smaller personal tax liability, assuming you have proper financial records for the business.

Instead of getting a fee quote based mainly on how much you owe and what a salesperson gets a “vibe” that you can afford to pay, make sure you get a firm fee quote from reputable firms.

Basic Rules Regarding Claiming Dependents for 2010 Returns

Question:

What are the basic rules regarding who I can and can’t claim as a dependent on my 2010 tax return?

Answer:

In general, dependents are people that you provide financial support to. However, for tax purposes, there are specific requirements that have to be met in order to claim somebody as your dependent. Dependents are important for tax purposes because, for each dependent you can claim, you are allowed a $3,650 per person deduction on your income tax return, which reduces your taxable income and therefore, your tax liability.

An important thing to keep in mind is that each and every person in the United States that CAN be somebody’s dependent for tax purposes can only be claimed ONCE. So, if somebody claims you as a dependent, you are not allowed to claim an exemption for yourself. Also, a married person cannot generally be claimed as a dependent by anybody else (although there are a few exceptions). Also, your spouse is never a dependent, but you are allowed an exemption for them if filing a joint return.

So what is a dependent? A dependent is a qualifying child or qualifying relative that you provide support for. A qualifying child must be related to you by one of the following means:

–Your son, daughter, stepchild, foster child, or a descendant (for example, your grandchild) of any of them, or
–Your brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant (for example, your niece or nephew) of any of them.

Also, the child must be a U.S. citizen or permanent alien, have lived with you for more than half the year, and you must have provided at least half the financial support for the child.

There is also an age test that applies to claiming a child as a dependent. The child must be under 19 and younger than you or your spouse if you file jointly. If the child is a full time college student, the age cap changes, and then the child must be under 24 at the end of the tax year. The only exception to this age rule is if the child is totally and permanently disabled, in which case there is no age restriction.

These are the general rules for claiming a child as a dependent. The rules for another type of relative are quite similar. This relative can be almost any blood relative or step-relative (yep, your mother in law counts!).

Things tend to get a little trickier when there are divorce decrees and joint custody arrangements in place, and there are a slew of “tiebreaker” rules that come into effect to determine who gets to claim a dependent if there is any dispute over whom should claim the dependent. In these cases, talk to your tax professional to make that more in-depth determination.