Author Archives: Carol Coburn

What is Offers in Compromise

Owed IRS Taxes? Here Is One of Solutions You Might Qualify to Wipe Out Your Debt

What is Offers in Compromise (Pennies-On-The-Dollar)?

-By Sean Tang, EA, Tax Resolution Specialist

 

The Offer in Compromise is probably the most commonly known tax resolution strategy. This is what you hear about in TV commercials and radio ads, particularly when they talk about settling your tax debt for “pennies on the dollar”

It is important to keep in mind that not everybody even qualifies for an Offer in Compromise, not to mention that this is only one of the many options that might be available to you. Each option must be explored in relation to the specific facts and circumstances surrounding your tax problem and then the best option can be selected and implemented.

In some instances, it may be necessary to employ two or more options to settle your tax obligations. Keep in mind that the ultimate goal is to solve your tax problem permanently and for the lowest amount allowed by law.

The IRS Offer in Compromise program allows you to pay the IRS less than the full amount of your tax, penalties, and interest, and pay only a small amount as a full and final settlement. This program also has an option for Doubt as to Liability. In these cases you disagree with the amount of the tax assessment and this gives you a chance to file an Offer in Compromise and have your tax assessment itself reconsidered.

The Offer in Compromise program allows taxpayers to get a fresh start. In this process, all back tax liabilities are settled with the amount of the Offer in Compromise. Once the payment amount of the Offer in Compromise is fully paid off, all Federal tax liens are released. An Offer in Compromise filed based on your inability to pay the IRS looks at your current financial position, considers your ability to pay (income minus expenses), as well as your equity in assets. Based on these factors, an offer amount is determined. You can compromise all types of IRS taxes, penalties, and interest in one fell swoop. Even payroll taxes, which are often the most difficult to resolve, can be compromised. If you qualify for the Offer in Compromise program, you may be able to save thousands and thousands of dollars in tax, penalty, and interest.

I will explain more in detail in my future article about this solution. Please keep in tune and if you have any question, feel free to give me a call at 814-769-0202 or jtang@taxsolutionspractice.com for a FREE Tax Debt & Transcript Analysis and Choices of Alternative Solutions Session

How To Legally Remove IRS Tax Liens Filed Against You

Federal Tax Lien Removal Guide

How To Legally Remove IRS Tax Liens Filed Against You

Presented to you by:

Jushun “Sean” Tang, EA

IRS Licensed Enrolled Agent

Tax Resolution Specialist

Represent Troubled Taxpayers before the IRS and State Agency

 814-769-0202

www.taxsolutionspractice.com

 

 There are four (4) ways to remove negative impacts of Federal Tax Lien to your life:

(1) Lien Withdrawal

(2) Lien Release

(3) Lien Discharge

(4) Lien Subordination

 (1) Certificate of Release of Paid or Unenforceable Lien

The IRS is required to issue a certificate of release of lien no later than 30 days after one of the following events occur:

  • The tax liability is paid in full.
  • The tax liability is no longer collectible. In other words, the 10-year statute of limitations on collections has expired.
  • The IRS accepts the bond of a surety company or payment of all taxes owed is to be made no later than six months before the expiration of the 10-year collection statute.
  • The taxpayer delivers a cashier’s check to the IRS and receives a Certificate of Release of Tax Lien.

(2) Lien Withdrawal

There are rare occasions when obtaining an outright release of the entire Federal tax lien is actually the best way to progress towards a resolution of your tax liabilities. If a case can be made that the withdrawal of the lien will facilitate payment of the tax liability, or is otherwise in the best interest of both the taxpayer and the government, then the government may be open to this.

Another case where a lien withdrawal can be applied for is when you have entered into an Installment Agreement to pay the back taxes and the agreement did not mandate that a lien be filed, particularly a payment plan where the payments are directly withdrawn from your bank account. In these cases, you can often get the lien released as long as you are current with your payments and other tax obligations.

As part of the IRS Fresh Start Initiative launched in March 2012, the IRS will permit individuals that are on Direct Debit Installment Agreements to have their lien withdrawn completely if you owe $25,000 or less, without having to prove that the lien is causing any sort of hardship. If you are on or are soon obtaining a payment plan, and you owe less than $25,000, set the Installment Agreement up so that the IRS is getting paid directly from your checking account each month, and request that they remove the tax lien within the following 30 days.

(3) Certificate of Discharge

A Certificate of Discharge (COD) is the process of removing a single piece of property from being subject to the tax lien, usually so that the property can be legally transferred. For example, if you are trying to sell your house but the presence of the lien is preventing this from occurring, then you would need to obtain a Certificate of Discharge to release the tax lien against your house.

In the vast majority of cases, the IRS will not release a lien against a particular piece of property unless they are somehow going to benefit from it. They will generally approve a Certificate of Discharge if the lien discharge will facilitate the sale of the property in such a way that the IRS will get some money out of it. In other words, releasing the lien will facilitate collection of the tax.

If the government isn’t going to see any money out of releasing a piece of property from the lien, it’s possible to still obtain a Certificate of Discharge if there is a valid reason. In particular, if the IRS won’t be receiving any money, but getting rid of the property will free up cash flow and put you in a better financial position in regards to your income and expenses so that later on down the road you can start paying on your taxes, then the IRS will likely approve a Certificate of Discharge.

If the property in question has no significant fair market value, the COD may also be granted, but this is much more of a hit-or-miss situation.

(4) Lien Subordination

A lien subordination is the process of moving the tax lien down a notch in the prioritization of claims against a piece of property. For example, if you own a house free and clear, and the tax lien is in first position against the house, you can’t obtain a mortgage against the house. No lender in their right mind is going to loan you money against that house unless their lien is going to take first position.

The answer to this problem is the lien subordination. The IRS will usually approve the subordination of their lien against a property if the lien that will be taking first position ahead of the tax lien will result in money going to your tax liability.

In the house example, obtaining a subordination of the tax lien in order to obtain a mortgage against the house will result in cash coming from that mortgage. At closing, that cash will go directly to the IRS, the mortgage will move into first position, and the tax lien gets re-recorded in second position.

Remember, paying interest on a loan is almost always going to be cheaper than paying penalties and interest to the IRS.

There are other conditions where a lien subordination will still be approved, even if the IRS isn’t going to obtain direct proceeds from doing so. For example, many trucking companies will finance their accounts receivable through a process called factoring. In factoring, a lender pays the trucking company some percentage of their accounts receivable (usually 75% to 90%) up front, and then the lender takes the responsibility of collecting on that account receivable when it’s due, usually 30 to 90 days down the road. This way, the trucking company gets money now so that they can buy fuel and make payroll.

When a tax lien is filed, most factoring lenders stop funding. In that case, the trucking company suddenly loses all it’s cash flow. In order to enable the funding to continue, a lien subordination can be obtained that move the tax lien to a position below the factoring lender, thereby protecting the lender’s claim on those accounts receivable.

What is IRS Tax Lien? Can I Still Get a Loan, Sell My House or Apply for A Credit Card?

IRS Notice of Federal Tax Lien

 

A Notice of Federal Tax Lien (NFTL) is an encumbrance that establishes a legal claim by the government. It does not result in the physical seizure of your property. A levy, on the other hand, allows the IRS to actually seize wages, cash, or property.

In general, a tax lien gives the IRS a claim against everything you own, from your home and car all the way to the rusted bicycle in your backyard. The lien also technically attaches to your wages, money in you bank accounts, your retirement accounts, and even the cash in your wallet.

A Federal Tax Lien also impacts your credit score, since it shows up on your credit report. Therefore, the tax lien can impact your ability to obtain loans, rent an apartment, and can even impact your insurance rates and ability to obtain employment if you are a job seeker.

In most cases, a tax lien will jump ahead of many other liens against your property after a 180 day period, unless a particular piece of property is used as collateral for a loan. For example, a tax lien does not jump ahead in priority position over a car loan or a first, second, or third mortgage against your home. It will, however, usually jump ahead of, say, a mechanic’s lien against your home.

You may have circumstances where having the lien released would be of benefit to helping you resolve the tax situation. There are three types of lien releases available to a taxpayer that may help you resolve tax liabilities with the IRS.

Checklist of Common Errors When Preparing Your Tax Return

The IRS created the following checklist based on common

filing errors.

  • Did you choose the correct filing status?
  • Did you check the appropriate exemption boxes for

your personal, spousal and dependency exemptions?

  • Did you enter the total number of exemptions?
  • Did you enter the names and Social Security numbers

for everyone listed on your return exactly as those

names and numbers appear on each person’s Social

Security card? If there have been any name changes,

be sure to contact the Social Security Administration

at ssa.gov or call them at 800-772-1213.

  • Did you enter your income on the correct lines?
  • Did you calculate deductions and credits correctly,

put them on the right lines and attached the necessary

forms or schedules?

  • Did you figure the tax correctly?
  • Did you sign and date the return?
  • If you filed a paper return, did you use the correct

mailing address from your tax form instructions?

  • If you are due a refund and requested direct deposit,

did you double-check your routing and account numbers

for your financial institution?

  • Did you make a copy of the signed return and all

schedules for your own records?

Starting 2017 Off Right From A Tax/Accounting Perspective

It’s a great day here at Tax Solutions Practice, LLC and as the weeks pass and we start to look towards  April 15th  and the collective sigh of relief, I wanted to reiterate to all you guys that you can never document too much.  After decades of dealing with the IRS as a tax professional, I’ve come to the conclusion that while some of those folks are mean-spirited, many of them are really “normal”.

You know what worries me about “normal”?  It’s a perfectly normal person that loses your luggage at the airport.  A normal person made my sandwich wrong the other day at the deli.  A normal person took the last doughnut in the break room.

Normal can be trouble.

Let’s take a look at a client from years ago who had suffered some real tax liability in the real estate meltdown and as a result, could not pay anywhere near what he owed.  Now, the IRS agreed to let him make payments – surprisingly over a period of years instead of just quarters, and this gentleman did.  While he could have – and should have – declared bankruptcy, he felt that was the wrong thing and so he slogged his way back to solvency.

Every quarter, he sent a check to the IRS and documented that in his own paperwork.  After three years, he had finally paid down his debt and sent in the last check.

Guess what?

Our beloved IRS had lost his paperwork and told him to simply keep making payments until they figured it out.

Many of you who know me know how I reacted to such lunacy.  Now, years later with the benefit of hindsight and a few more years under my belt and I can see that the reaction of the IRS was perfectly “normal.”  Not right, but not unexpected.  The truly fortunate thing was that this man had documented every payment every step of the way and when the IRS couldn’t keep track, he could.  That one habit – documentation – saved him thousands of dollars and who knows how much stress.

…And that is when you need a tax expert to make sure that you keep your money and don’t misspend one penny of it.

How do we do that?  Well, as you might expect, copious documentation and clear communication.  We make sure that our clients know the standards of the tax code – all 74,000 pages of it.  The number of business deductions available to small companies in the LLC, S-, and C- corporate designations are immense and to expect any normal person to know all these – or even your average desktop software – is asking too much.

So I’m not “normal” and I’m okay with that.  The sheer amount of continuing education that we take on as tax professionals each year is prodigious and covers so much more than a software update.  The great news is that we speak in plain language to our clients on what their best moves are for their tax liability and we help them in using a system that they can truly benefit from.

Now, to get back to “normal” – it is January.  Most of us, especially in the middle of winter, cannot focus on the idea of Spring or that April 15th is just around the corner.  My suggestions?  Now is a good time to be abnormal and go ahead and schedule an appointment to start sorting out 2016’s returns.  Just email me at jtang@taxsolutionspractice.com or info@taxsolutionspractice.com or give me a call at 814-769-0202 to schedule a meeting that can take all the worry away and give you a clear strategy for this year’s return and an amazing plan as we look forward to 2017.