Wednesday, November 26, 2008

Tax Resolution Integrity

So you find yourself being the subject of the IRS collections process. You have a tax liability with the IRS. You have unfiled returns for past tax years. Maybe you even owe money to the state for same reason. How are YOU going to get it resolved?

The answer is fairly simple. Most taxpayers cannot get their tax liabilities resolved on their own. Mostly because of a lack of knowledge of how the IRS works or because they simply don't have the time to spend hours, days and weeks on the phone negotiating the tax debt they have accrued. If it is simply tax returns from years past the taxpayer can usually file these as long as they understand the guidelines of what can be deducted or included on the tax return for that particular year, have access to all of their financial information, and can access the correct years tax return forms. Simple right? Tax returns are the easy one. If it is a tax debt owed of substantial amounts the IRS would love for all taxpayers to handle this on their own without any representation whatsoever...this is the easiest way for them to get all of their money.

OK, so you need a tax advisor who can handle filing past due returns and negotiate your past due tax liability. How do you find one? Even more do you find the right one? Here are some important tips to consider:

  • Make sure they are a member in good standing with the Better Business Bureau. Also look to see how many complaints they have had each year. Some companies may have a satisfactory rating but have a high number of customer complaints.
  • Make sure they are licensed for both preparation of tax returns and tax resolution.
  • Make sure they are licensed to operate in the state for which you have tax issues...there are several who do not or cannot operate in all 50 states due to improper business practices.
  • Make sure you are dealing with a company who is financially today's economy there are a lot of "fly-by-night" companies who simply do not have the financial structure to make it through tough times and you may find out the company you sent money to yesterday is out of business today. Make sure they have been in business for at least four years...most new businesses fail financially in the first three years so if you have a business in year four you probably have a strong company financially.
  • Make sure they do not have any pending litigation from civil lawsuits from unsatisfied clients.
  • How long does the average resolution take? Anything outside of 180 days is unsatisfactory.
  • Do they simply submit all clients under one program (Offer in Compromise) or do they have multiple options for resolution.
  • Do they have a good reputation on the industry? This can be done online through a google search. Keep in mind most companies (good and bad) have varying reports. Not all customers who get tax resolution get the resolution they wanted so there will always be complaints with just about every company but look at the reasons and more specifically the number of complaints. Ask the company you are talking with to furnish customer testimonies on services rendered.
  • Are they a member of the Net Promoter Score Program which is designed to identify companies who have excellent customer service. (Here's a hint: review the program guidelines and see what the company's score actually is.)

I hope this helps you in your search but keep in mind...this is something in my opinion the average taxpayer cannot handle themselves. Make sure you get the right help with your tax situation and hire a professional tax resolution company.

Monday, November 24, 2008

IRS Secret Agent

Quote of the Week:

"Friends and neighbors complain that taxes are indeed very heavy, and if those laid on by the government were the only ones we had to pay we might the more easily discharge them; but we have many others, and much more grievous to some of us. We are taxed twice as much by our idleness, three times as much by our pride, and four times as much by our folly."

-Benjamin Franklin

Wednesday, November 19, 2008

Can the IRS Require More Taxes From Your Check?

In a conversation I had with a customer this week, we discussed why he owed so much money each year to the IRS. He is an employee from which taxes are taken directly, and at the end of the year he receives a W-2 detailing the amount of earnings and taxes paid. If he pays his taxes out of each paycheck, how does he owe more at the end of the year? Well, he did not have the correct amount of taxes witheld from his paycheck. Therefore, at the end of the year he had not paid what he owed to the IRS.

He asked me if the IRS can make him change this. The answer to this question is...YES! The IRS may direct your employer to withold additional taxes from your paycheck to cover the appropriate amount needed which is done through a "Lock-in Letter." At this point the amount of witholdings on your W-4 Form become null and void and your employer MUST increase the tax rate on your paycheck. You will also be sent a copy of the letter and given a period of time before the changes are effective. If there are specific circumstances for the decreased witholdings or proof that they are accurate, you can submit a new W-4 Form with documentation directly to the IRS to try and reverse the changes made. However, once a Lock-in Letter has been issued only the IRS can make those changes, so your employer cannot do anything until a change confirmation has been received from the IRS. So keep your witholdings correct, your returns filed and your taxes paid and you won't have to worry about any IRS interventions on your next paycheck.

Sunday, November 16, 2008

IRS Secret Agent

Quote of the Week:

"The only thing that hurts more than paying an income tax is not having to pay an income tax."

-Lord Thomas Robert Dewar

Thursday, November 13, 2008

E-file Frenzy

Do you remember the good ole days where you would have a friend or family member who thought they knew tax returns show you how to fill out your returns. You would then, armed with a ton of energy and ambition ready to tackle your own returns, wait until 11:50 pm on April 15th and drive to the post office in order to hand your package to the post office by midnight so it would get postmarked correctly and the ENORMOUS dreadful event would then be over for another year. If someone would have told me fifteen years ago that one day I would file my taxes on my computer and never leave the house I believe I would have felt deprived of the annual trip to the post office. How else would I get to know the postmaster at my local office if I did not see them in mid April every year?

In fact we are as a nation headed in that very direction and in 2008 almost 60% of this country filed their returns via e-file. We crossed the halfway mark in 2005 (just six short years after the beginning of the program) but hit the highest point of 57.8% in 2008. This number is projected to be over 60% in 2009. Do we really trust these programs? Do we really like to be online that much? Have we become too lazy for the "old school" train of thought? Maybe we need to reconnect with our local postmaster again this coming year. As for me, any tax returns I prepare will be with a pen and a calculator and delivered promptly at midnight to the post office on April 15th.

IRS Secret Agent

Quote of the Week:

"What at first was plunder assumed the softer name of revenue."

-Thomas Paine

Thursday, November 6, 2008

Help Yourself by Filing Past Due Tax Returns

So you have tax returns from previous years that are unfiled. The IRS has not contacted you, so why should you file them? Maye the IRS forgot about you... they didn't forget! So here are some reasons to go back and file those late tax returns:

  • If you have a child moving into higher education and you are in need of federal financial assistance...a review a filed tax returns is a requirement in order to receive that assistance.
  • Lending institutions may require tax returns for you to qualify for a loan.
  • Social Security income, medicare and disability benefits are all figured on the basis of a tax payer's lifetime earnings which is based from information obtained from the tax returns filed.
  • Just like Social Security, Medicare and Disability income listed above, Unemployment income is also based on tax returns filed.

If you do not file your returns you can incur failure to file penalties, forfeit tax refunds, lose your Earned Income Tax Credit, and open yourself up to criminal charges for failure to file.

The bottom line is: make sure you file your returns. Even if you DO NOT have the money to pay what you owe the IRS you still need to file the returns. For more information, please consult a tax professional.

IRS Secret Agent

Quote of the Week:

Question: " I understand that Congress is considering a so-called 'flat' tax system. How would this work?"

Answer: "If Congress were to pass a 'flat' tax, you'd simply pay a fixed percentage of your income, and you wouldn't have to fill out any complicated forms, and there would be no loopholes for politically connected groups, and normal people would actually understand the tax laws, and giant talking broccoli stalks would come around and mow your lawn for free, because Congress is NOT going to pass a flat tax."

-Dave Barry