Contacting a tax attorney for your Offer in Compromise

Blog – When to contact, and when to retain, a tax attorney for your Offer in Compromise

When considering an Offer in Compromise it is important to understand that the Internal Revenue Service is in the business of collecting taxes and any information provided to it will be used for that purpose. In the event you submit an offer and your offer is rejected by the Internal Revenue Service, all information provided to it through this process will be used to take collection action against you.

Employment information can be used to garnish your earnings, bank account information can be used to levy the full balance of any account you have, and information surrounding assets you have can be used to seize and sell them to satisfy your liability with the Internal Revenue Service. For the above reasons, it is important to know if you are a good candidate for an offer before filing and you will want to contact a tax attorney to do a full analysis, determine your eligibility, and advise you on any risks that could be involved.
After completion of your analysis, you may determine that an offer is not right for you or that an offer is a good option. The OIC process is very complicated and taxpayers who attempt their own often come to us in despair, because they are unable to get an OIC accepted by themselves. A good tax attorney is almost necessary to get an Offer accepted.
However if you will realize any savings, there is no reason not to hire an experienced tax attorney to handle your offer.

The offer process is largely based on the preparer’s ability to make sound arguments to the Internal Revenue Service on what can and should be the bases for the offer. Knowing where the Internal Revenue Service is flexible, where it draws a hard line, and where you can claim future expense is key to making the lowest possible offer. Being able to qualify an expense of $500.00 per month, where without the experience in preparing these you would not know, could reduce your offer by $6,000.00. In most cases this additional savings would be more than the cost of the offer all together.
If you are considering an Offer in Compromise, our office would be happy to discuss the possibility of doing an analysis of your financial situation to make a determination of what a reasonable amount to offer would be.

Are tax concerns keeping you up at night?

Call Martelle Bratton and Associates today and start sleeping again…
– Teresa M. Bode J.D.

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Current State of IRS Collections

It is no secret that the IRS has stepped up collection enforcement of past due taxes.  They have been very aggressive lately about attempting to collect taxes that are past due.  We have also noticed an increase in the number of audits being conducted.

What this means to taxpayers is that once the IRS has sent out the notices required before pursuing forced collection, the time period is very short before they start seizures.

The Internal Revenue Service has powerful tools at its disposal for the collection of taxes.  The main way the IRS collects past due taxes is through levies.  They also can file liens that affect taxpayers.

A levy is an actual seizure of an asset.  The two main assets seized by the IRS are  bank accounts and wages.

When the IRS serves a Notice of Levy on a bank account, the bank must freeze any money in the account when the levy hits and after a period of time turn the money over to the IRS.  It does not matter if there are outstanding checks written against the funds.  They are frozen and turned over to the IRS.  If there is a levy of a bank account, prompt action may result in the release of the funds.

A wage levy is one of the most devastating things that can happen to a taxpayer.  The IRS can seize the majority of a taxpayer’s earnings, leaving them without enough to live on.  Worse yet, a wage levy is continuous and remains in effect until the whole tax liability is paid or until the levy is lifted by action of the taxpayer’s representative.

We can help!  We routinely are able to get levies lifted if they do not leave the taxpayer with enough income to pay necessary living expenses.  It is a complicated process to get a levy lifted in most cases.  There are a number of steps which must be taken to obtain a levy release.

There is no doubt that the Internal Revenue Service has incredible power to collect taxes.  Where a regular creditor must obtain a judgment to levy against someone, the IRS doesn’t have that restriction.  After sending the necessary notices, they are free to start collection by seizure of assets.

The single most important thing a taxpayer can do if they have a large tax liability is to obtain a competent tax attorney to assist them.

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After a Divorce, Who Gets the Tax Benefits of Children?

In a divorce, parents often dispute who gets custody of the child. The answer to that question can have serious personal and financial consequences. One of the often overlooked long term effects of this decision is on who gets to take the tax break for having the children.

Can't lookThe most important tax break a parent receives is the dependency exemption. This exemption allows a taxpayer to treat a portion of their income as non-taxable. The exemption for the 2013 tax year is $3,900 per child (and adult). But who gets to claim this exemption?

The general rule is that whichever parent has the child for the longest period of time in the tax year gets to claim the dependency exemption. This general rule does have one big caveat, the parents collectively must have custody of the child for more than six months of the year. If the combined days of custody for each parent is less than half of the year, neither parent can take the personal exemption because the child will not be considered a dependent. There are also other requirements for establishing that the child is your dependent that must be met, such as the child must be younger than 19 (or 24 if they are in college). For more information on whether a child is your dependent, see this IRS guide.

If you are a non-custodial parent, all is not lost. There is an exception to this rule which permits the custodial parent to give the exemption to the non-custodial parent. To pass the exemption, the parents must sign a written declaration giving the non-custodial parent the right to take the tax break. Prior to 2009 this written declaration could have been included in the divorce decree. Now, however, the IRS requires a separate document signed by both parents. The best practice is to fill out IRS form 8332 which will define the custodial and non-custodial parents’ rights.

To claim the exemption as a non-custodial parent, the non-custodial parent should include a copy of the signed 8332 or similar document for every year that you are claiming the exemption. The IRS will apply the exemption to the account with the submitted 8332 or similar document.

For all other tax breaks that you can get from having a child, such as an earned income credit, only the custodial parent may receive that credit. Only the dependency exemption can be passed to the non-custodial parent.

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A Tax Holiday? Not Quite: The Effect of the Government Shut Down on the IRS and on Taxpayers

U.S. CapitolThe two branches of the U.S. Congress cannot see eye to eye on nearly anything these days. In fact, the only piece of legislation they have agreed on recently has been a bill on managing the nation’s helium supply. Since then, it has been nothing but hot air.

For the IRS, this shutdown means that little business will take place. The IRS has confirmed that 90% of their employees are taking an unpaid holiday from their posts during this shutdown. This means that scheduled audits are being missed, collectors are not collecting, and appeals are not being processed. Essentially any non-automated service of the IRS is taking a break, at least for a little while.

I have made phone calls to a few of the IRS employees I have been working with closely. Each one has recorded a new message explaining that they will not be working until this budget standoff is resolved.

With the IRS taking some time off, does that mean you can too? No. The IRS has said today that it not only will accept tax returns and payments during the shutdown, it expects them. You won’t get a holiday just because the government is taking one.

This means that if you are a small business owner making monthly tax deposits, a taxpayer paying back the IRS through an installment agreement, or have some other arrangement with the IRS—it is just business as usual for you.

While the IRS expects you to pay them, they are not going to pay you. The IRS has said, “Tax refunds will not be issued until normal government operations resume.”

So, for those that have refunds outstanding or for those IRS agents whose mountain of work is just growing, let’s all hope that this gets resolved soon and that the IRS can get back to work.

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IRS Steps Up Collection Enforcement

It is no secret among tax professionals that the Internal Revenue Service has begun attempting to collect past due taxes with a vengeance.  It appears from what we are seeing that there is a definite trend towards the IRS taking a much harsher position with taxpayers who have past due taxes.

The IRS has an incredible amount of power available to them to collect taxes.  Once they have sent a series of notices they can seize assets such as vehicles or business assets.  They can levy on bank accounts and take all funds in the account.  They can also levy on paychecks taking most of the paycheck.  A paycheck levy continues until the total of taxes, penalties and interest is paid in full, unless it is released.  In some circumstances they can even sell a person’s home out from under them and apply the proceeds to the tax liability.

The stunning part of these collection alternatives is that once they have sent the notices they can seize the assets, bank accounts or paycheck without any court action or other notices to the taxpayer.

What this means to taxpayers is that once they start getting collection notices from the IRS that they should contact a Tax Attorney and take steps to insure that the matter is resolved without seizure.  There are a number of things that a Tax Professional can do to avoid levy.  Some of them are(for more information click on the item):

If you have Tax Problems, you need Tax Help from a Tax Attorney NOW!

For a free consultation, please CLICK HERE

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What to do with your tax problems?

If you are faced with IRS or state tax problems, it can be an awful experience.  The IRS and most state taxing authorities can be relentless in trying to collect past due taxes.

The Internal Revenue Service has incredible powers to collect past due taxes.  After having sent the required notices, they can actually seize property without a court order.  They can Levy wages, take bank accounts and file liens against property.  Wage levies are ongoing.  Once they start taking a paycheck, they won’t stop until the tax, interest and penalties are paid in full.

These actions can leave people without the means to pay necessary living expenses.  Fortunately, there are a variety of things that can be done to resolve tax problems.  They include (click on subject for more information)

These are a few of the most common ways of resolving tax problems.  For more information, please visit our website at www.martellelaw.org

Our tax attorneys are able to provide you with a free consultation to determine if we can help with your tax problems.  To contact us CLICK HERE

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Questions and Answers on Offer in Compromise

When clients contact us with tax problems, one of the most frequent questions we hear is: “can we settle with the IRS for less than we owe?” or “can we just pay the tax and have the penalties and interest forgiven?”

The simple answer is that if you qualify for an Offer in Compromise, then yes, you can settle for what you can afford to pay, rather than what you owe.  Other than an OIC, the only relief will be Penalty Abatement, where the penalties are forgiven.

In order to settle for what you can afford to pay in an Offer, you must qualify.  It has become more and more difficult with the current  Internal Revenue Service climate.  The current focus in on collection of past due taxes rather than helping delinquent taxpayers.

But, even now, if you qualify, you may be able to settle for only a fraction of what you owe.  The Offer in Compromise program may let you settle for what you can afford to pay rather than what you owe.

Generally, the IRS wants what they believe they would be able to collect from you over the next 5 years.  They will evaluate the value of all of your assets, except your household items and what tools or other items you need to make a living.  Then they will deduct the loans against y our home, vehicles or other items of value.  The amount of value in your property is the first part of what  you will be required to pay to the IRS.

Then they will look at your future earning capacity.  They will calculate how much you will be able to earn and deduct what they consider to be reasonable living expenses.  The difference is what they could expect to collect from you.  They will want the excess income multiplied by either 48 or 60 depending on whether you are making  a cash offer or an offer where you pay them over 2 years.

About 90% of offers that are filed by individuals without the help of a tax professional who knows offers in Compromise inside and out are rejected.  You definitely need a Tax Attorney to help with your  OIC.

At Martelle Law Offices we have handled many, many Offers in Compromise for our clients.  We can give you a free consultation and an analysis of whether an OIC will help  you.  Just click here to contact us for a FREE evaluation!

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To settle an OIC (Offer in Compromise), how much will I have to pay the IRS?

In an Offer in Compromise (OIC), how much is required to be paid to the IRS?

Usually the determining factor in deciding whether to file an Offer in Compromise is the amount necessary to settle with the Internal Revenue Service.

How does the IRS determine how much a Taxpayer must pay to settle an OIC?

There are basically 2 criteria: the amount of the equity in the taxpayers assets and the amount the IRS could get from the taxpayers excess income, after deducting reasonable living expenses.  This article will deal with the amount of equity in assets.  This is the starting point to calculate how much it will take to settle an Offer in Compromise.  The information in this article is simplified and general.  For specific information, contact a Tax Attorney.

Value of Assets in an Offer in Compromise

The IRS starts with the equity in assets, based on a quick sale value.  This amount must be paid in an OIC.  The IRS starts with the quick sale value of the asset.  This is usually considered to be 80% of its actual value.  Then they deduct any exemption.

For example if a taxpayer has a car worth $10,000, the IRS considers the value to be 80% of that or $8,000.  If the taxpayer owes $2,000 on the car, that amount is deducted from the value, leaving $6,000 in value.  The IRS allows in an Offer in Compromise a $3,500 exemption.  So, the value that must be paid to the IRS in an OIC is $6,000 less $3,500 or $2500.

Each asset is valued in a similar fashion.  There are many nuances concerning exemptions.  If a taxpayer is in business, any assets, such as equipment that are used for the production of income are not included.

This is a huge change, which has made it far easier for taxpayers in business to file Offers in Compromise.  It used to be that taxpayers had to pay the value of all business assets.  That made it difficult for small businesses to file an OIC.

There are many items that are exempt and are not included in calculating the amount necessary to pay the Internal Revenue Service to settle an OIC.  Examples include furniture and personal items, exemptions for vehicles, some money in the bank and a variety of other exemptions.  To determine how these exemptions apply to your particular situation, please contact us.

This is the first test for how much must be paid to settle an Offer in Compromise (OIC).  The second test is how much of a taxpayers future income must be paid to the IRS.  That will be discussed in the next post.  For more information about Offers in Compromise, please visit our website

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What is an installment agreement with the IRS?

If you owe the IRS money for unpaid taxes, it wants the money as soon as possible. While the IRS will sometimes take harsh actions, such as a levy (for information on levies, see our previous blog post), it also understands that most taxpayers cannot pay what they owe immediately. For this reason, the IRS allows taxpayers to enter into installment agreements to pay down their liability over time. The simplest installment agreement is the Streamlined Installment Agreement. This agreement allows a taxpayer with less than $50,000 of liability to pay down their tax debt in equal monthly installment payments over 72 months, or six years.

But, what if I can’t pay my entire liability, but still want to enter into an installment agreement to avoid the IRS taking other actions?

The IRS has a Partial Pay Installment Agreement which permits taxpayers to pay what they can, allowing the remaining liability to be excused. The IRS will expect the taxpayer to pay the excess of their income and necessary liabilities to the IRS. The length of the installment agreement is determined either by a number of years chosen by the IRS, usually six years, or by the length of time left on the IRS’s ability to collect. To this latter measure, the IRS may only collect for back taxes for a limited number of years; after their collection power expires, so does a taxpayer’s liability.

How do I enter into an installment agreement with the IRS?

Entering into an installment agreement with the IRS can be complicated and it is wise to seek the help of a tax attorney. The first thing to understand is that the IRS wants substantiation for all claims that you make. So to enter into an installment agreement you will have to gather documentation, usually for a three month period, of all of your income and expenses that you have. The IRS will also want to see three months of bank statements.

The next thing to know is that the IRS does not treat all expenses equally. The IRS has defined certain national standards that it uses to define what your expenses are. Even if you spend more in a month on certain expenses than the IRS’s standards, the IRS may not allow you to take your full expense.

After navigating these hurdles, the final step is to fill out the forms and submit your offer to the IRS.

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What is the difference between an IRS Levy and an IRS Lien?

Many of our clients retain us after receiving a paper that shouts the word levy or lien at them. An example of one of these letters from the IRS reads:

CALL IMMEDIATELY TO PREVENT PROPERTY LOSS FINAL NOTICE OF INTENT TO LEVY AND NOTICE OF YOUR RIGHT TO A HEARING”

Or they can receive something in the mail simply but ominously titled:

“Notice of Federal Tax Lien.”

But what does the word levy or lien even mean, and what is the difference between these powers?

A Levy and a Lien, in General.

A levy and lien are two of the IRS’s most powerful collection tools. They use these tools to assert their priority over other claimants and to seize property or income from taxpayers. The major difference between these two actions is that a lien only asserts a right to seize a taxpayer’s assets and a levy is used to seize such assets.

Examining the Lien

An IRS lien on your property is a way for the IRS to notify the world that they have an interest in your property due to a tax liability. This lien does not presently authorize a seizure, but it does provide the taxpayer and all other creditors or potential creditors notice that the IRS has an interest in the taxpayer’ assets.

Examining a Levy

A levy is the IRS’s mechanism for seizure or garnishment a taxpayer’s assets. Before the IRS may execute their levy power, they must notify the taxpayer who they are acting against that they will presently levy their assets.

Upon receiving a Notice of Intent to Levy letter, a taxpayer has thirty days to appeal the levy action. If the taxpayer fails to appeal, then the IRS may levy the assets of the taxpayer.

Upon receiving either an Notice of a Tax Lien or a Notice of an Intent to Levy, a person should immediately contact a tax expert to help them navigate their tax problems.

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