Debt Settlement Programs by Debt Alternative Center

General facts

240 million tax returns are currently being filed annually.

One percent or around 240,000 tax returns are be reviewed annually or audited

In 2008 the IRS saw a four and half percent drop returns filed large due to the US recession and new tax laws

An IRS audit is a tactic typically used to scare people

If you’re your need of help with Tax Relief or IRS Debt feel free to contact us or call us 877-282-0555. We offer free advice as to which route to take for your particular situation.

Audits

The IRS has 3 years to audit a return from the time that it is filed. If a return is not filed, there is no timeline to assess a debt on the taxable year. If a taxpayer is found to have omitted 25% or more of his or her income, the timeline for completing an audit goes up to 6 years in favor of the IRS. Three types of audit exist:

• Correspondence audit: written letters from the IRS to address a minor error, such as a math mistake or omission of an auto generated form such as a 1099.
• Office audit: an audit that takes place in the offices of IRS. This is a more investigative process, whereby the IRS can interfere with an individual’s life by contacting third parties. For example, a doctor’s record may indicate that a particular patient paid $600. The IRS may call that patient to verify amount paid. Bank records and expense receipt can be requested – and any omission or loss if records will likely work against taxpayer.
• Field audit: an audit that takes place at the business location of the taxpayer. Typically considered least desired as this audit may disrupt daily operations. Same liberties described above are available to the IRS as an investigative tool

At the end of an audit, a report is issued by the IRS. The taxpayer then makes a choice to agree to those changes or to challenge the findings. Many individuals without professional representation agree to those changes in fear of taking next step or in desire of ending the entire process. Those are agreements that can be challenged thru an “audit reconsideration” if there is cause with new information.

In the alternative, a taxpayer may decide to challenge the audit report via appeal. Should no agreement be reached as to the amount owned, or if the audit report is agreed to by the taxpayer but not paid immediately, a Notice of Deficiency (NOD) is issued.

This NOD triggers many of the taxpayer’s rights as well as the rights of the IRS to pursue collection. The taxpayer may bring a lawsuit if it is desired at this juncture to challenge the amount owed, but few will do so. If the taxpayer could not or would not pay for professional representation during the audit process, he or she is unlikely to do so at this juncture. Thus, collection action typically proceeds.

Non-filing

A non-filer is not typically pursued after 6 years have elapsed path the filing deadline.

Non-filing is a criminal offense punishable by one year in prison and a fine of $25,000 for each year not filed. To prosecute criminally, the IRS must establish that the returns were not filed willfully or intentionally. This is a tough sell for most individual cases.

The IRS locates non-filers by matching documents submitted by banks employers, and other such typically filed agencies or institutions against the return required by an individual’s file (located via social security number). The IRS will next attempt to reach a non-filer via written request – three notices timed approximately 30 days apart. If the correspondence is successful, service representatives may contact the non-filer via telephone, and ultimately via physical visit from a revenue agent or officer.

After these efforts are exhausted by the IRS, non-filers typically are given a deadline for filing with an offer to help prepare the returns. Should the returns not be filed at this juncture, the IRS may legally prepare & file those missing returns for the non-filer via substitute for return (SFR – file Single, 0, no deductions). Should a debt be generated because the IRS has filed for an individual, that debt is legitimate and the IRS may collect it the same as any others. Debts maximize or utilized deductions on an individual basis.

Additionally, the IRS may levy a variety of penalties for a failure to file a return. The failure to file penalty is currently set at 5% per month up to a 25% maximum. The failure to pay (typically coinciding with failure to file) penalty is an additional 0.5% per month up to a 25% maximum. If no money is owed in either case, there is no penalty. Thus, the penalty is a percentage of that is owed.

A request for a standard extension is most certainly better than suffering the above described penalties and actions, and is typically given without any explanation for at least 6 months past the initial due date.

Due dates: March 15 – corporations, schedule K (partnerships, LLC’s). April 15 – Individuals.

An individual must be under the age of 65 and earn a gross income of less than $8,750 to lawfully not file a return in any given year. However, if that income amount is substantially less than the income earned in previous years, it may be a good idea for that taxpayer to file a return to simply alert the IRS to his or her personal financial condition.

The IRS is typically more gracious and be willing to give an individual a break if he or she comes forward willingly to file returns. The end game is that each individual will be located and found eventually, and that it is better to come forward voluntarily. Additional considerations are that all returns have a 3 year timeline to collect a refund (from the date the return should have been filed), but the statute to collect on an amount due to the IRS in 10 years from the time the return is filed or audited. Thus, the taxpayer is in best gear to either collect a refund or resolve a debt by filing timely or as soon as possible.

Lastly, in certain cases where the IRS has filed on behalf of a taxpayer, the taxpayer may reduce or eliminate debt simply by gathering the appropriate documentation, preparing and submitting the returns that are missing. The IRS sometimes makes educated guesses about the information that is required on a tax return, and does not particularly worry about maximizing deductions. Thus, a correct return that is filed may have the effect of negating debt. The older the tax return, the more help the average consumer will require in preparing the documentation correctly.

Statute of Limitations The statute of limitations is a legal term that refers to the maximum time the IRS can take any particular action. As discussed above, the IRS generally has a 3 year statute of limitation (SOL) to audit a return. That number is flexible however, and varies according to when the return was filed. For example, if a return is due on April 15, 2009 but is filed a month early on March 15, 2009, then the IRS has 3 years from the due date of April 15, 2009rather than March 15, 2009. If a return is filed late, past the April 15 due date, the 3 years begins to run from the date the return is filed. As discussed above, that general 3 year SOL is extended to 6 years under certain circumstances. These SOL’s do not apply if the IRS has prepared and filed the return for the taxpayer due to non-filing or if the return was deemed to have been filed falsely or fraudulently with the intent to evade taxes. Average consumers typically do not know if either of these actions have occurred, and will not be able to communicate these items effectively. Generally, if a taxpayer has not filed in many years, a review of his or her transcript is absolutely necessary to accurately gauge the individual situation.

The IRS generally has a 10 year SOL to collect on a tax debt. That 10 year period begins to run at the time the assessment is made. Thus, this may occur up to 6 years after a particular return is filed and practically extends the time to collect on a debt. For example, should a taxpayer is file a return not showing more than 25% of gross income in the year 2000 (for tax year 1999), and is audited 5 years later than 2005 with an adjustment that concludes in an assessment. Discharging debt via SOL is a relatively simple procedure, but making a valid evaluation of whether or not that is possible is not an option without reviewing the taxpayer’s IRS transcript first. Discharging debt via SOL should never be sold as a standalone service, but can be sold as one of the options Tax Relief will pursue for the taxpayer should it be available.

The SOL in place for the federal IRS is one place where the collection of debt varies greatly on the federal level from the state level. California, for example, has no SOL for the collection of back taxes.

A taxpayer also has some SOL’s imposed on him or her, as a trade off for the above listed limitations. A taxpayer can make a claim for a refund that is due to him or her only 3 years from the original due date of the return. Thus, if a return was due in the year 2000 (for the year 1999), but no return is filed by the taxpayer until 2004 no claim for a refund may be made successfully. Refunds due past 3 year SOL are lost and cannot be applied to any other tax due.

Certain actions serve to extend any given SOL by “tolling” the statute as a condition of the action. For example, the IRS cannot collect against any given individual during bankruptcy proceedings, thus the taxpayer is saved from any aggressive collection techniques. The price for such an abatement in collection is that the total SOL for collection is suspended or tolled. The period of time during the bankruptcy, CNC Status, and OIC is not considered, the SOL is tolled. Out of the country for more than 9 months will also suspend the SOL.

Enforced Collection Activity

Levy (What is Levy)

A levy is a legal seizure of property to satisfy a tax debt. The IRS has the ability and may seize any and all type of real or personal property, including bank account contents, retirement account, homes, cars, boats, etc. Some items, such as real property, are less likely to be taken than funds available within bank accounts or wages.

Timeline of a Levy:

• Assessment of a debt is made; taxpayer receives notification of the existence of the debt. This can happen via audit after changes to the tax return are established, or when a taxpayer files a return without enclosing payment. The assessment of debt letter will also include information regarding the penalties and interest applied.
• Approximately 30 days later, a notice and demand of payment letter will be issued to demand payment or urging the taxpayer to call the IRS to make arrangements.
• Approximately 30 days after that, a final notice of intent to levy and notice of your right to a hearing is sent to give the taxpayer notice of the levy.
• Approximately 30 days after that, the levy takes place.

Most typically, each of these notices is sent via a certified or registered letters. The IRS does reserve the right to leave a copy of such letter at the taxpayer’s home, place of business, last known address or left with the taxpayer in person. The timeline described above is the most usual method the IRS employs. Certain taxpayers will have significant variations; for example, if the ITS believes the funds to be at risk for asst flight, whereby the taxpayer moves such funds off shore or into another person’s name to avoid collection, the timeline may be moved up. In contrast, some people are able to live below the radar for years and years, and thus suffer no real collection activity. The letters are most typically numbered as CP 90, CP 279, and CP 279a. Is the letter which says a levy is imminent, most likely within 30 days for the date of the letter regardless of the receipt date. Cp 504 and Letter 1058 also very urgent notices!

Bank Account Levy

An IRS bank account levy is technically a onetime event. The above listed notices should be sent, in order and with the timelines discussed above, the 1st time the bank account is levied to satisfy back taxes. No further notices are required to do it again. The bank typically removes all funds available on the account up to the amount listed within the levy and “freezes” the account for 21 days. The exact procedures will vary from bank to bank, but they will remove the funds and hold them for 21 days. During the period of time, the taxpayer has the opportunity to attempt to release the funds or work something out with the IRS. At the end of 21 day period, the bank forwards the funds to the IRS.

Bank levies in process (within the 21 days) are very difficult to release or stop midstream. However, Tax Relief can always attempt to do so on behalf of a taxpayer, but the potential client should be notified that success is unlikely. Additionally, Tax Relief can work quickly to ensure that no further bank levies are instituted against the taxpayer.

Most consumers believe that a bank levy is continuous, similar to a wage garnishment (discussed below), but it is a onetime event in that the notice process is renewed. Of course, the notice process and ultimately, the bank levy can be entered into by the IRS as many times as desired by the taxing agency.

Wage Garnishment

A wage garnishment or levy is a written notice sent by the IRS to the taxpayer’s employer which requires that employer to withhold a percentage of the employees pay on behalf of the IRS. The withhold amount is typically taken from the gross amount (rather than the net amount), and usually looks like 30-70%of the total gross amount. The rest is taxed for current amounts due and very often, the taxpayer is left with little after both past and current taxes are removed. Wage garnishments can also be sent to self employed taxpayers account receivables at 100%.

A wage garnishment is typically left in place until the debt is satisfied, resolved, or the taxpayer moves onto another job. The amount that the IRS can keep from any wage garnishment will vary greatly based on the individual circumstances, but can be summed up as adding the standard deduction that can be claimed to the amount that can be claimed by exemption, and divided by 52. This is another area that varies greatly from federal to state regulations – the state of California for example, can collect up to 25% of a taxpayer’s disposable income only. Some specific circumstances, like paying child support, will reduce the total amount the IRS will take from a paycheck. Wage garnishment are easier to lift than bank levies, but can still be very challenging. Specifically, if a taxpayer has his or her wages garnished, but has other source of income that garnishment will be difficult to lift. If that garnishment is stretching the taxpayer extremely thin and basic necessities are not being met, there is a higher chance for lifting the garnishment quickly. The process to lift garnishment may require the taxpayer to prepare and submit the same types of forms as for an offer in Compromise. Because the procedure for working with a garnishee vary so greatly, Tax Relief cannot make any promises in regards to the timing of the release or the relative completion level. For example, Tax Relief may be able to reduce the total percentage of the garnishment if not lift it completely.

In order to accurately evaluate what Tax Relief can do, a complete review of a taxpayer’s debt and financial situation will be required.

Also commonly touched, even monies like Social Security can be garnished – up to 15% specifically for this particular type of income. Other retirement distributions can certainly be reached as well.

Liens

Liens give the IRS a legal claim to taxpayer property as security or payment on a tax debt. The timeline for filing an action tax lien is similar to that of a levy. The liability must be fully assessed, a Notice of Demand for payment must be sent, and that notice must be neglected for at least 10 days after the taxpayer is notified about it. The IRS may or may not file the lien at any time after that – there is no requirement or deadline for them to file. The IRS will typically hurry to file in a case where there is a perceived risk of asset flight, or where the taxpayer is making decisions such as to file bankruptcy that may threaten collection.

A lien placed on real property typically will take first priority in a line of creditors. It will generally be filed in the country where the property is located. The IRS has wide latitude to utilize the lien in a way that best helps speed collection. For example, if subordinating or releasing the lien will help a homemaker refinance or sell a property to satisfy the debt, they are able to do so. A bond may be required by the IRS to guarantee payment, but the point is that there is no room to work around lien if the taxpayer so desires or has too much equity for anything else.

Tax Lien Withdrawals

The IRS is just made a change to liens in particular cases where tax payers entering a DDIA also know as a Direct Debit Installment Agreement. These tax payers with assessments of $25,000 or less, are now allowed to have lien withdrawals within the following scenarios:

• Lien withdrawals for all taxpayers who are entering into a DDIA
• IRS will now withdraw a lien if the taxpayer is on a regular Installment Agreement and then converts to a Direct Debit Installment Agreement and withdraw liens on any existing DDIA Installment agreements upon taxpayer request

Liens are typically withdrawn after the probationary period thus demonstrating the DDIA payments are honored.

Installment Agreement

An installment agreement (I/A) is a contract between a taxpayer and the IRS for the payment of past due tax debt. This is a timed contract for a specified amount for the payment of all amounts due. All penalties and interest are typically applied and paid as well and the payment is made on a monthly basis. There are four types of installment agreements, as described below but the nuances of each are not usually explained to a consumer.

Generally, the taxpayer makes a commitment and agreement to file and pay on time in the future in order to effect an installment agreement and give up future refunds towards the tax debt.

Fee for initial I/A $105, taken from 1^st payment. Fee to reinstate I/A $43.

Failure to make a payment on an installment agreement will generally trigger enforced collection activity very quickly (30) days. If a taxpayer is unable to make or meet his or her monthly obligations, contact with the IRS should be made immediately to avoid such collection actions. Tax Relief cannot tell any given person that he or she should not make their next monthly payment unless a review of transcript is made first and a definitive course of action has been discussed and agreed upon first.

Guaranteed Installment Agreement (IA)

The IRS is required to agree to an IA if the total amount due is $10,000 or under and the following criteria is also met: no returns have been filed or paid in the last 5 years, all tax returns are filed, the monthly payment will pay off total balances in 35 months or less and no other IA has been in effect over the last 5 years. The minimum payment that will be accepted is the grand total of the debt (including penalties and interest) divided by thirty. The Primary benefit to this IA is that the IRS will not pursue any collection efforts and will not file a federal tax lien. Additionally, the IRS will not request financial statements for more information about the taxpayer’s current financial condition.

A debtor who owes this amount and is looking for this service will not generally spend the money to hire a professional.

Streamlined Installment Agreement (IA)

The IRS will agree to an IA if the balance owed is $25,000 or less and the taxpayer agrees to pay off the balance within 60 months or less. If the balance due will expire within 60 months due to a SOL collections, then the IRS will require full payment within the statute period. The minimum payment the IRS will accept is a grand total of the balance due to divided by 50. As above, all returns must be filed and the taxpayer must agree to file and pay all future returns timely.

Partial Payment Installment Agreement (IA)

This type of IA is for people who do not qualify for either of the IA’s described above. The monthly payment amount is based on what the taxpayer can afford after monthly income and expenses are calculated by the IRS. As in the offer in compromise, those monthly expenses are compared to national standards for items like housing, clothing, food and other basic expenses. Some cost will be counted or eliminated completely. For example, if a taxpayer mortgage is $3,000 per month, but the IRS housing standards for the area is $2,500, the maximum the taxpayer will be Able to claim is that $2,500. The excess $500 will be considered available to pay the IRS. Ultimately, this plan can be negotiated for the taxpayer to pay a more comfortable monthly amount over a longer period of time.

At the end of the payment plan, the taxpayer may be able to conclude the experience by paying less than the total amount that is owed, especially if the SOL is upcoming. Negotiating this type of IA is an involved as negotiating an Offer in Compromise because full financials and backup documentation is required. The IRS will likely file a federal tax lien to protect its interest during the payment plan, and will require somewhat frequent re-evaluations. Such re-evaluations will require the taxpayer to prepare and submit analogous documentation as first submitted. Typically this re-evaluation takes place every 2 years during the repayment term. This taxpayer will require periodical help by a professional and this is not a long term resolution strategy, but may be an individual’s best option in certain cases.

Non Streamlined Installment Agreement (IA)

If a taxpayer debt is over $25,000, or a repayment term longer than 5 years is required, and/or the criteria for the above IA’s is not met, this IA may be the taxpayers only option to enter into repayment. These agreements must be negotiated directly with the IRS and have few broad generalizations than can be made. Often taxpayer will be asked for the type of financials and backup documentation that is required in an offer of Compromise. The IRS is likely to file a federal tax lien to protect its interest. These IA’s that are done vary greatly in a case by case basis.

Offer in Compromise (OIC)

The OIC program has been in existence for years, decades even, but had previously been available to certain business owners only. In 1998, as part of the taxpayer Bill of Rights III, the IRS expanded the program and made it easier to apply or qualify. More recently, in 2006, the IRS has adjusted the program to include the payment options discussed below for the actual offer amount. The program is a longer process, typically 9-18 months to complete, and is an intense process analyzing the taxpayer’s current financial situation to accurately gauge his or her ability to pay the debt within the SOL.

The last provided statistics for the OIC program are available for the year 2004 and states that only 16% of all submitted offers were accepted. However, the larger fail rate does not specify how many offers were submitted with professional help and how many individuals prepare and submitted the offer themselves. Because of the technical nature of the documentation required, as well as the frequent maintenance of any file, few individuals are able to complete the process without professional help. Each OIC is evaluated on its individual merits – the IRS is not forced to accept any given offer nor are any granted automatically. The OIC must prepare and submitted under one of the following premises:

• Doubt as to Collectibility:  doubt exists that the taxpayer could ever pay the full amount of the tax liability owed within the remainder of the SOL.
• Doubt as to Liability:   A legitimate doubt exists that the assessed tax liability is correct. This is typically utilized if an audit proceeded and the taxpayer must prove that the examiner (1) made a mistake in interpreting the law, or (2) failed to consider the taxpayer evidence, or (3) the tax payer has new evidence to contest the debt.
• Effective Tax Administration: In this scenario, the taxpayer agrees that there is no doubt that the tax is correct and there is no potential to collect the full amount owed, but some kind of exceptional circumstances exist that would allow the IRS to consider an OIC. To be eligible, the taxpayer must be able to demonstrate that the collection of the tax would create economic hardship or would be unfair or inequitable. For example, significant medical issues may exist or the taxpayer may be receiving social security as his or her only source of income.

In the vast majority of cases, the IRS will not accept an OIC, only if the amount offered by the individual is equal to or greater than the RCP (reasonable collection potential).  RCP is tool used by the IRS using the taxpayer’s assets and other property, along with anticipated future income, minus basic living expenses.

Those assets are all devalued for quick sale amounts, and are offset by debt. Basic living expenses are set by IRS with nationwide standards that are brought down to a regional level. If taxpayer’s expenses exceed to those standards, the excess is disregarded and counted towards the ability to pay. The vast majorities of people do not know about these standards nor are aware of how to list them correctly in the documentation required to file an OIC properly, and fail in their attempt at this juncture. National standards are revised frequently, on an annual basis, and are necessarily that close to actual living costs in any given area. The software purchased and utilized for gauging will do the heavy lifting in this arena, but additional considerations must be made.

All taxpayers must meet some basic eligibility criteria:

• All tax returns must have been filed.
• Pay a $150 processing fee.
• The tax payer is current on estimated tax payments or income tax withholding.
• The taxpayer has a complete set of backup documentation (at least 3 months worth of all pay studs, bank statements, mortgage statements, retirement account statement, appraisal of real estate and household expenses).
• There is no pending bankruptcy case.

Additionally, a business must have filed and paid employment tax returns for the two previous quarters, and is current with payroll tax deposits for the current quarter.

It is of paramount importance that the potential client be convinced that they must provide Tax Relief with full, accurate and truthful information in order to evaluate what kind of offer can be made on his or her behalf. Although dollar and cents amount are not required, large deviations will skew all results.

Should an offer be accepted, the taxpayer is additionally agreeing to the following items:

• To pay the offer amount made.
• To file and pay tax returns and amount timely for the next five years minimally.
• Allows the IRS to keep tax refunds, payment and credit applied to the debt prior to the submission of the OIC for 5 years.
• Allow the IRS to keep any tax refunds that would have been payable to the taxpayer during the calendar year that the OIC is approved.

If a taxpayer has an OIC that is approved, but does not fulfill the above terms, the IRS may and probably will revoke the OIC in its entirety. As such the debt is reinstated in its entirety and the taxpayer is typically forced to appeal and apply again.

If you’re your need of help with Tax Relief or IRS Debt feel free to contact us or call us 877-282-0555. We offer free advice as to which route to take for your particular situation.