If the taxpayer still doesn’t pay, the IRS can file a Notice of Federal Tax Lien. This lien gives the IRS the legal claim to the person’s property as a payment for the debt. This lien is the first step to try to acquire all the money the taxpayer owes.

The tax levy is another step in the tax collection process. After receiving a thirty-day warning, the taxpayer is served with a Notice of Levy. Using this levy, the IRS starts to seize assets belonging to the taxpayer. The most common type of levy is wage garnishment, followed by the bank levy where money is taken out of the person’s bank accounts. Other vulnerable assets include homes, vehicles and 401k accounts.

Before paying the amount owed, it is best to consult a lawyer. The tax lawyer may be able to help settle for less than what is owed the IRS or can possibly get penalties removed (abated). With help from their attorney, the taxpayer will collect documentation, file tax returns and arrange for paying their tax bill, either as a lump sum or on an installment plan.

The attorney may also be able to obtain an abatement of penalties. There are several circumstances that could secure an abatement, including major family problems, illness or incarceration. Lengthy unemployment, bad advice from a tax specialist, or harm from an act of God are also reasons for an abatement. Those whose spouses have created a major tax liability can be helped to obtain Innocent Spouse Relief by their attorney.

Most taxpayers delay seeking the assistance of an IRS tax attorney. While they wait, penalties and interest keep growing. Liens and levies may start piling up, and their credit record gets shattered. Using a legal advocate will help you through these tax problems, and may even help you pay less than what’s owed.

Taxpayers should be wary of scams and offers that advertise settling debts for extremely low dollar amounts. An OIC agreement is not likely to be that cheap, unless the person is really suffering financial hardship.

The IRS may only consider an OIC if there is considerable doubt that someone will not be able to pay the entire amount of taxes owed within the collection period. If there is doubt as to liability in the amount someone owes, the IRS may also consider an OIC. There can be doubt as to liability in many situations, such as if they can produce new evidence or show that an examiner failed to consider the taxpayer’s evidence.

Another situation in which an OIC may be accepted is if there are exceptional circumstances. This can be in the form of upcoming medical expenses or the expenses for an ill dependent child. Even if there is no doubt that the tax is correct and the person is liable, an OIC can sometimes be accepted if there are desperate circumstances that would cause economic hardships for the taxpayer.

If an offer in compromise is accepted, the taxpayer has options for repayment. They can choose to pay the settlement in a lump sum of cash, a short term payment plan, or a deferred payment plan.

An application for this type of settlement can be made by filing form 656 and paying the application fee. A typical application fee runs around $150. The first payment is often required when filing for this type of settlement.

Using a tax attorney can help you make sure you don’t get into tax trouble in the future. A tax attorney can also negotiate with the IRS on your behalf, so your payments aren’t overwhelming. By making payments throughout the year, it makes paying taxes more manageable.

Business owners find themselves in a unique tax position. They must not only pay the taxes on their own income earned from the business, but the business must also file tax returns for the business. This requires two different sets of returns to fill out. Getting someone to help you or show you how to do it right can help you avoid tax pitfalls. It’s easy to miss something when juggling these complicated taxes on your own.

Business partners have an even different set of circumstances to deal with. Business partnerships involve a completely different set of tax returns, filed on completely separate forms. It is especially helpful for business partners to use a tax attorney to make sure everything is filed properly with the IRS.

If a small business is taking deductions, they need to make sure to only deduct the proper amounts of the proper kinds of things. Some things, like mileage on a car, donations, and so forth can be tricky if not handled properly. Someone knowledgeable in tax law can help you make sure to put down the right deductions without adding something resulting in an audit.

Requesting help with taxes isn’t something to be ashamed of. Many of the wisest people have accountants working for them on a daily basis. Whether you are self-employed, a business owner, business partner, or just want help with your deductions, seeking out professional help can benefit you immensely.

IRS penalties constitute a large portion of past due tax liabilities. They, together with interest, can soon equal or exceed the amount of the tax liability.

IRS Penalties are huge. Some of the most common ones are:

Late Filing
(If the tax return is more than 60 days late, the minimum penalty is the smaller of $100 or 100% of the tax owed.) 5% per month of the net tax due (maximum 25%)

Late filing due to fraud
15% per month of the net tax due (maximum 75%)

Late tax payments
0.5% per month of the unpaid tax due (maximum 25%) The 0.5% rate increases to 1% after the IRS issues a notice of intent to levy.

Negligence or disregard of tax rules and regulations
20% of tax underpayment

Fraud
75% of tax underpayment

Substantial understatements of income tax
(tax underpayments that exceed the greater of 10% of the correct tax liability or $5,000) 20% of tax underpayment

After submitting an OIC for these people, and many months later they advise their client that the IRS has rejected their Offer in Compromise. In many of these cases, they never should have filed an OIC in the first place, because the client simply didn’t qualify for one. For more information about this shady business, please see our website: www.martellelaw.org/oic.html

What can a consumer do to protect themselves from these shady firms? I suggest that people contact the Better Business Bureau to investigate anyone they are planning on hiring.

Aside from hiring unscrupulous firms, there are other reasons why people have Offers rejected. In our office, we have identified a few main reasons for rejections.

When an Offer in Compromise is filed, taxpayers are required to file every tax return on time and pay every single tax that comes due after the filing of the Offer. Some people are just unable to stay in compliance and lose their OIC for that reason.

If a taxpayer’s financial circumstances change for the better, while they are in the Offer processing period, they might not qualify for an OIC due to too much income.

These reasons for rejection can be dealt with if a competent IRS law firm designs the OIC and assists the client in staying in compliance with the tax returns and payments to the IRS during the Offer process.

Our firm has a very high percentage of our Offers in Compromise accepted by the IRS. If you would like an honest, competent evaluation of whether you qualify for an Offer, please visit our website at: www.martellelaw.org/oic.html

2. Two years since the tax since the tax return was filed.

a. The tax return must have actually been filed by the taxpayer. Substitute for Returns filed by the IRS do not count.

3. Two hundred and forty days since the tax was assessed.

a. This issue often arises if there is an Examination and an assessment after the return has been filed.

4. Obtain and review tax transcripts to show your clients history

a. We always obtain tax transcripts when there are taxes involved. They will show whether a return has been filed, when it was filed and other necessary information.

5. Tolling events on the time periods. There are numerous events which will toll the periods required for discharge. They may include (depending on which principle they apply to):

a. Prior Bankruptcy
b. Offer in Compromise
c. IRS administrative appeals
d. These tolling events are complicated and research is needed to see if a particular event is applicable to individual cases.

II. ASSESSABLE BUT NOT ASSESSED

1. 11 USC 507 (a) (8) (A) (iii) provides that if a tax is not assessed, but is assessable, it is a priority tax. This usually occurs when Debtor has taxes which are over 3 years old. If the taxpayer filed the return between 2 and 3 years before the Bankruptcy Petition, the tax remains assessable until the tax is over 3 years old. (The IRS has 3 years from when the tax return was filed to assess the tax, with some exceptions). There may be a gap where the IRS can assess the tax and if so, the tax is assessable but not assessed. This may arise in a situation where the IRS is doing an examination of the taxpayers returns.

III. TAX CLAIMS IN BANKRUPTCY

The Internal Revenue Service in Chapter 11 and 13 cases will file a Proof of Claim breaking down their claim into Priority Claims, Secured Claims, and Unsecured General Claims.

1. Priority Taxes: Priority taxes are those taxes which do not meet the test for discharge. That is, they are:

a. Less than three years old, or;
b. Less than two years since the tax return has been filed,or;
c. Less than 240 days since assessment.
d. Payroll Withholding Taxes
e. Other Priority Taxes

2. Secured Tax Claim: If the IRS has filed a valid tax lien, the taxes subject to the lien may be treated as secured. In Chapter 11 or 13, the secured portion of the claim is only up to the value of the Debtors property. It should be noted that the security for the claim includes ALL of the Debtors property, without any deduction for the exemptions which the Debtor may otherwise claim.

3. Unsecured General Claims: This is the category that we try to fit as much of the tax as possible into. This category of tax is treated the same as any other general unsecured debt. That is, the IRS will receive its pro rata share of any dividend to unsecured creditors.

4. Payroll Taxes: The general rule is that Payroll taxes are trust fund taxes and are not subject to Bankruptcy Discharge. They are treated as priority taxes or secured if a tax lien has been filed. They must be paid through the Chapter 11 or 13 plan and are not subject to discharge in a Chapter 7. Priority Taxes are not paid interest in Chapter 11 or 13, however. Penalties are sometimes treated as unsecured. This favorable treatment often allows a Chapter 11 or 13 plan to deal with the taxes on a more favorable basis.

5. Sales Tax: If the sales tax a tax on the buyer, (it is in Idaho) it is treated as a trust fund tax which is not subject to discharge. In some states it is a tax on the seller and may be subject to discharge.

IV. Tax Liens and Bankruptcy

1. The rule in Chapter 7, where the taxes owed exceed the value of the Debtor’s property, that the lien may NOT be stripped down to the value of the debtors property.

2. The lien survives Bankruptcy and even though the tax might have been discharged, the lien remains on the Debtor’s property for its full amount. This creates a trap for the unwary.

3. If a lien is not released, it remains and attaches to all of the debtors property. The issue may arise years later. An example of how onerous this can be arises where a client has real property, there is a tax lien and a Bankruptcy is filed. In that situation, if the lien is not released and the property appreciates (not likely these days), or the Mortgage is paid down, significantly, the lien creditor (the IRS or ISTC) gains the benefit of the appreciation or principal reduction in the property value.

4. For a thorough discussion, holding that the lien is not stripped down to the value of the collateral see Dewsnup v. Timm 112 S.Ct. 773.

5. Methodology for dealing with Tax Liens:

a. Challenge the validity of an invalid Tax Lien.
b. Requesting a Certificate of Release from the IRS.
c. Negotiate a release for an amount to be paid.
d. Advise client to wait out the Statute of Limitations.
e. Liquidate the assets and pay the funds to the IRS.

V. OTHER BANKRUPTCY TAX ISSUES

a.Means testing does not apply to Tax Discharge matters.
b. Taxes are not Consumer Debt.
c. Taxes are involuntary.

Offers in Compromise

The IRS is also expanding a new streamlined Offer in Compromise (OIC) program to cover a larger group of struggling taxpayers.

This streamlined OIC is being expanded to allow taxpayers with annual incomes up to $100,000 to participate. In addition, participants must have tax liability of less than $50,000, doubling the current limit of $25,000 or less.

OICs are subject to acceptance based on legal requirements. An offer-in-compromise is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. Generally, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay.

This will create a situation where taxpayers who qualify will be able to submit an Offer with less paperwork and less cost to have a competent professional submit an OIC for them. For more information about Offers in Compromise, visit our website: www.martellelaw.com/oic.html

Significantly increasing the dollar threshold when liens are generally issued, resulting in fewer tax liens. This amount has been updated to adjust for inflation.

Making it easier for taxpayers to obtain lien withdrawals after paying a tax bill. Liens will be able to be withdrawn once the bill is paid in full, and streamlined internal IRS procedures will enable collections employees to withdraw the liens.

Withdrawing liens in most cases where a taxpayer enters into a Direct Debit Installment Agreement. Liens will be withdrawn after a probationary period demonstrating that direct debit payments will be honored.

Open streamlined Installment Agreements to small businesses with $25,000 or less in unpaid tax, including those that file as individuals. Small businesses with an unpaid assessment balance greater than $25,000 would qualify for the streamlined Installment Agreement if they pay down the balance to $25,000 or less. Small businesses need to enroll in a Direct Debit Installment Agreement to participate.

Expanding a streamlined Offer in Compromise program to cover taxpayers with annual incomes up to $100,000 and tax liability of less than $50,000.

“Small businesses are an important part of the nation’s economy, and the IRS should help them when we can,” IRS Commissioner Doug Shulman said. “By expanding payment options, we can help small businesses pay their tax bill while freeing up cash flow to keep funding their operations.”

This relaxing of financial standards should result in it being easier for tax professionals to resolve their clients tax problems.

Many companies promise to settle your taxes for a small portion of what you owe through an offer in Compromise.

The following is an exerpt from an article that was recently published:

With the April 18th tax deadline a month away, tax relief companies have increased late night advertising and Internet promotions promising to settle delinquent IRS debt for pennies on the dollar. Several of these companies are under investigation for deceptive practices.

Florida Attorney General Pam Bondi’s office has initiated a civil inquiry into Texas based Tax Masters and South Carolina based JK Harris and Company following the receipt of 26 and 92 complaints respectively. These companies solicit clients nationwide promising to reduce anxiety and debt to the IRS.

Tax Masters is being investigated for allegations of unfair competition and deceptive trade. The Texas and Minnesota attorneys general also filed civil charges of deceptive and unfair trade practices against them in 2010.

JK Harris and Company is under investigation for allegedly violating a 2008 settlement with Florida and 17 other states over what regulators said were misleading sales tactics. Among the allegations were false claims that case processors were former IRS agents or tax experts and that the company failed to provide refunds for clients it was unable to help. State officials say JK Harris is cooperating with the investigation.

Buyers Beware of False Promises

The best thing a consumer can do is to check the Better Business Bureau for ratings on any Law Firm or other company they hire. Check the website of anyone you are thinking about hiring for the BBB logo.

It is always safer to hire an attorney than an non attorney, because the Bar Associations provide consumers with protection.

For real, honest information about an OIC, and more information about Offer in Compromise Scams, visit our website: www.martellelaw.org/oic.html

Have you filed your 2007 Federal tax return? If you have not, you may be entitled to an unclaimed refund. Currently, the Internal Revenue Service is holding over 1 billion dollars in unclaimed tax money and some of it could be yours!

The IRS approximates that there are nearly 1.5 million people who would be entitled to a refund for the year 2007 if they filed their return. If you have not filed a Federal tax return for 2007, you need to act fast if you want to receive the refund you’re entitled to!

The IRS allows tax payers three years from the date the taxes are due to file a return and claim their refund. That means that if the IRS owes you a Federal tax refund for 2007, you must file the return on or before April 15, 2011. If you do not file a return to formally claim your refund by this time, the money will become legal property of the United States Treasury and you will lose the opportunity at receiving the money you are owed.

For more information visit our website at http://martellelaw.org/unfiledreturns.html
There are many reasons a tax return may go unfiled however there is always a way to catch up. If the IRS owes you a refund, you need to file your taxes immediately! Please contact our office to schedule a no obligation consultation to discuss your tax matter with an experienced, skilled attorney who can help.

If you have tax problems, please visit our main website at www.martellelaw.org