I.R.S. Secret Agent

Quote of the Week:

"In this world nothing can be said to be certain, except death and taxes."

-Benjamin Franklin

The IRS Took My Paycheck

After several notifications from the IRS, you receive a "CP 504" as a certified letter like the one shown in the picture above. This letter is not like the others you have received. This letter has "ATTENTION PLEASE" written all over it. First, it's delivered certified mail which is always an eye opener. Next, the letter serves to notify you that since the IRS has not received a response or payment for your back taxes (in spite of all the notices they sent you) they have decided to levy your paycheck. Since you decided not to send any money to the IRS they decided to help you out by saving you the cost of a stamp and remove it themselves. That way you don't have to mail them a check for up to 85% of your net paycheck each pay period.

The fact is, that as "off the wall" as the above comments may sound, the IRS can remove up to 85% of your net paycheck each and every pay period for as long as it takes to eliminate the entire liability. This is done through a process called a wage levy. This can be removed once you have entered into a negotiated agreement of tax resolution. If this has happened to you please make sure you contact a professional tax resolution company to help you in the negotiation process.

So if you receive a certified letter CP 504 in the mail notifying you that the IRS is planning to send your employer a wage levy request, please make sure you don't waste any time getting this taken care of. Once the levy is in place it will take more effort, time and money to get it released. And if that letter is on a form L1058 (noted in the bottom right hand of the letter) a levy is eminent in a very short period of time. This is a final notice that can come after the CP 504 and before the levy...or not at all before being levied. Don't wait once you get a certified letter in the mail. GET HELP SOON!

I.R.S. Secret Agent

Quote of the Week:

"People who complain about taxes can be divided in two classes: men and women."

-Author Unknown

Caution: Pennies on the Dollar Part IV

In the first three parts of this series on an Offer In Compromise (OIC) we have discussed some of the pitfalls and things to look out for when using this as a resolution. We have attempted to make you a little more aware and a little more educated on the process and what will be acceptable by the IRS. We also went over the first two areas where an OIC might be an option for taxpayers which are "Doubt as to Collectibility" and "Doubt as to Liability."



Finally, let's take a look at the last area where an OIC might be accepted. It is known as Effective Tax Administration (ETA). This is an area where there is NO DOUBT as to the liability and there is potential to collect the liability in full but other circumstances are present that would allow the IRS to consider an OIC. There is no monthly disposable income, equity in assets owned is equal to or greater than offer submitted, the customer is not able to procure a loan on such assets, and extreme circumstances are involved such as health or sickness of an individual. To be eligible for this extreme circumstance the taxpayer must demonstrate that the collection of the tax would create an economic hardship or be unfair or inequitable. These offers are very rare.



Some other things to keep in mind...you cannot be in bankruptcy or have bankruptcy pending, you must pay a $150 application fee, you must submit 20% of your submitted offer up front if you are submitting a lump sum cash offer, you must be in full compliance with filing (no unfiled returns), you must be current with any quarterly estimated tax payments if you are self-employed, and 941 taxes are not eligible for an OIC.



So to wrap it all up - you absolutely need a professional to work on your tax resolution on your behalf but BEWARE of the company you choose. I recomend you do your due diligence and research their reputation as well as their BBB ratings and history. You must be aware that you actually qualify under the restrictions of the program we discussed before you submit an OIC or you will only waste time and money but your tax liability will still be there. Whatever you do, DO NOT WAIT to get your tax liability resolved...seek professional help immediately.

IRS Cash Withdrawl

Just an ordinary trip to the bank turns into an alarming realization. The IRS has helped themselves to your entire account balance through what is known as a Bank Levy. Your bank has informed you that the IRS has requested the current balance in your account to be sent to them as a payment on your past due tax debt. This, unfortunately, is money you will not get back but here are a few things you should know if this happens to you.

First of all, the IRS levy will remove all the money in your account up to the balance of your tax debt. If you have more money in your account than you owe in taxes they will only remove the amount of your tax debt. If you owe more than what is in your account the bank will remove it all and send it to the IRS. The levy is only set to remove what is in your account on the 1st day the account is levied. The amount in your account will be frozen for 21 days. On the 21st day only the amount that was in your account on day one will be sent to the IRS. After the 1st day any subsequent deposits should be available to you in your account for normal banking activity. Some smaller banks who may not understand the policy of an IRS Bank Levy routinely freeze the account for the required 21 days including all subsequent deposits and send the entire balance to the IRS on the 21st day not providing you access to normal bank activity during the 21 day process. The initial balance will be removed but the subsequent deposits can be restored if action is taken quickly with a professional tax resolution company.

The levy process can also cause a number of bounced checks which can add up plenty of penalties for each check depending on the banking policies of the financial institution you are working with. However, there are warning signs that this action is being considered by the IRS. Within the due process that the IRS must follow you will receive several letters regarding payments on your tax liability. The final notices are sent via certified mail stating the IRS intends to levy you. This can be a bank levy, a wage levy or both. Check back next week and we will discuss the details of a wage levy.

The moral of this story...keep your tax returns filed and up to date and pay your taxes! If you cannot pay the tax amounts owed on your returns, please call a professional tax consultant.

I.R.S. Secret Agent

Quote of the Week:

"Did you ever notice that when you put the words 'The' and 'IRS' together it spells THEIRS?"

-Author Unknown

Caution: "Pennies on the Dollar" Part III

In the first two parts of this series we have taken an inside look at a program called an Offer In Compromise or OIC for short. This is advertised by many companies who offer "Pennies on the Dollar" settlements. Be very careful before you attempt this type of settlement or use a company who uses this as the primary way to resolve your tax debt.



The IRS will generally accept an OIC when it is unlikely that the tax liability can be fully collected AND when the offered settlement amount reasonably reflects the potential collectibility from the taxpayer. However, there are several reasons that an OIC can be accepted. In part two we discussed a classification known as "doubt as to collectibility." In this part we discuss "doubt as to liability."



Doubt as to liability occurs when a legitimate doubt exists that the taxpayer owes part or all of the assessed tax liability. This can be used to re-open an audit. The taxpayer must refile amended tax returns to show proof that they don't owe part or all of the tax liability. This is a rare case and has a less than 5% success rate. There must be some very complete and accurate documentation from the taxpayer in order for this to be considered because you nobody wants to re-open an IRS audit.



Next week we will look at an Effective Tax Administration OIC. We will also look at some other issues that may keep you from reaching a settlement through an Offer In Compromise.

Tax Tip of the Week

Tired of trying to keep up with all of the legislation changes in the IRS tax code? Feel like you don't understand some of the laws and the ones you do understand change every year? Well, here is your weekly tax tip on a new penalty you may want to be aware of if you file your own taxes.



If you file a claim for refund or credit of income in an excessive amount without a reasonable basis for the claim you will encur a penalty. This penalty can apply to any claim made after May 25, 2007. This penalty does not apply to any amount that a fraud penalty or accuracy-related penalty has been applied.



So the bottom line is if you are not sure about income credits or refund claims on your tax returns consult a proffesional tax advisor. It is better to pay for the advice up front than pay any penalties to the IRS for errors on a tax return. The penalties will cost even more and if not taken care of immediately will lead to loss of time and money as you attempt to resolve the debt over time.

I.R.S. Secret Agent

Quote of the Week:

"I'm proud to be paying taxes in the United States. The only thing is --I could be just as proud for half the money."


-Arthur Godfrey