8 ways to resolve your back tax issues

Why do people get behind in paying their taxes? There are many reasons it happens – procrastination, illness, divorce, loss of job and/or income – these are probably the most common reasons we see. The IRS knows this and offers some settlement options for taxpayers who have experienced financial hardship. Although anyone can represent himself to negotiate a settlement with the IRS, it can be a painstaking and time-consuming process.

1. Full payment – This is the fastest way to resolve any back tax issue, is to send payment in full to the IRS. If you are able to do this, it should be done as soon as possible to avoid accruing further interest and penalties on you account.

2. Installment agreement (IA) – If you are unable to full pay your tax debt, you can work out an Installment Agreement to repay your tax debt to the IRS. This allows the taxpayer to repay his/her debt in manageable monthly payments. Keep in mind, the IRS will require some financial documentation in the process of negotiating your payment plan since an Installment agreement is based on comparing income to expenses. Interest and penalties will continue to accrue while payments are being made to the IRS.

3. Streamlined Installment Agreement (SIA)– A streamlined installment agreement was designed for the taxpayer who owes less than $25,000 in individual income taxes to the IRS. While the streamlined Installment Agreement is also a monthly payment made to the IRS, the streamlined installment agreement is based on how much your tax liability is. You will qualify for a SIA if your tax debt is less than $25,000 and the liability does not expire in less than five years. As with a traditional Installment Agreement based on financial ability to pay, interest and penalties will continue to accrue while payments are being made to the IRS.

4. Offer in Compromise (OIC) – An Offer in Compromise, or OIC, is a program that benefits both the taxpayer and the IRS. The taxpayer submits an offer to the IRS detailing what they will pay, based on what they can afford to pay. The OIC program requires the taxpayer(s) to provide full disclosure of financial to prove they would not be able to repay the IRS. The IRS benefits by gaining at least a portion of the taxes owed, as well as getting a compliant taxpayer back into the system. A taxpayer submitting an Offer in Compromise must be current with his/her current tax obligations by filing and making the appropriate payments to the IRS in addition to meeting any payment terms of the Offer in Compromise.

5. Currently Not Collectible (CNC) – If you are truly in dire financial straits, you may qualify for the IRS’ Currently Not Collectible status. If you qualify, the IRS will not pursue collections from you during the period you remain in CNC status. Like the Offer in Compromise, the taxpayer must be prepared to show documentation of your financial situation.

6. Innocent Spouse – In rare cases, one spouse may be considered an innocent spouse when the other spouse files a joint tax return and there is a tax liability without the one spouse’s knowledge. The burden of proof lies on the party submitting the Innocent Spouse Request (the innocent spouse), but if proven innocent, it eliminates the debt, interest and penalties from the Innocent Spouse’s taxpayer account. The spouse who filed the return will become solely liable for the taxes, interest and penalties. The Innocent Spouse must document that he/she did not have any knowledge of the tax liability, nor did the individual benefit from the items generating the tax liability.

7. Bankruptcy – The most extreme solution, a last resort for most people, would be to attempt to get your back taxes discharged in bankruptcy. Typically, more recent tax liabilities and payroll taxes cannot be discharged. You should talk to an attorney specializing in bankruptcy to see if this is an option for you.

8. Just wait it out – The statute of limitations on tax liabilities is ten years. If your back tax debt is from many years ago, you may be close to the point where the IRS can no longer collect. It is very important to note that certain things may extend your statute of limitations, so this option is generally not recommended. Also, any time that you do not have a resolution in place, you could be subject to enforced collection activity, meaning that the IRS could levy your wages or bank account. This is true even if you only have one month left on your collection statute. Unless advised by a tax professional, do not assume that the liability will go away.

If you are uncertain or even afraid of dealing with the IRS, the experienced tax team at JK Harris can help you find the settlement that will work for you. Call us today for a free consultation.

IRS Gives Details on New Small Business Health Care Tax Credit

The new Health Care law contains many tax credits for small businesses that many don’t know about. To help tax payers, the IRS just released information detailing these credits so all Americans can benefit. Read the IRS release below.

WASHINGTON — The Internal Revenue Service today issued new guidance to make it easier for small businesses to determine whether they are eligible for the new health care tax credit under the Affordable Care Act and how large a credit they will receive. The guidance makes clear that small businesses receiving state health care tax credits may still qualify for the full federal tax credit. Additionally, the guidance allows small businesses to receive the credit not only for regular health insurance but also for add-on dental and vision coverage.

Notice 2010-44 provides detailed guidelines, illustrated by more than a dozen examples, to help small employers determine whether they qualify for the credit and estimate the amount of the credit. The notice also requests public comment on issues that should be addressed in future guidance.

Included in the Affordable Care Act approved by Congress in March and signed into law by the President, the small business health care tax credit, which is in effect this year, is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.

In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees in 2010. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.

For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. The maximum credit goes to smaller employers –– those with 10 or fewer full-time equivalent (FTE) employees –– paying annual average wages of $25,000 or less. The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals.

Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011. For tax-exempt organizations, the IRS will provide further information on how to claim the credit.

More information about the credit, including a step-by-step guide and answers to frequently asked questions, is available on the Affordable Care Act page.

Posted by JK Harris & Company

There’s a reason we ask for your documents over and over again…

One of the biggest complaints we hear from our clients on the phone and on the Internet is that we ask for their “paperwork” over and over again. We are frequently accused of losing our clients’ important financial documents and I want to emphatically say that this is not so. We scan our clients’ paperwork when it comes into our mailroom, so we have it in electronic format and it is available to the case specialist or licensed taxpayer representative working your case.

If you have ever tried to buy a house, then you know what it’s like to supply a stranger – the bank, credit union, etc. with all of your personal documents. A bank is not going to loan you the thousands of dollars you need for a mortgage without verifying that your income, that your bills are what you say they are, and your assets are worth what they appear to be on paper. Just like a bank, the IRS is not going to accept an Offer in Compromise without some documentation. They want you to you to prove your income is what you say it is, your expenses are what you say they are and your assets are worth what they appear to be worth based on a Quick Sale Value asset.

The documents you need to buy a house and the documentation you need to negotiate an acceptable OIC are very similar in nature. The main difference between the two is that you only have to provide the documentation ONE TIME to your mortgage broker. The IRS requires that you provide this documentation CONTINUOUSLY. Many of our clients get so overwhelmed and frustrated when we ask for copies of their household expenses and proof of their income that they sometimes just give up. Please understand – we do not lose your documents! Unfortunately, this is an IRS requirement and it is important to provide the documents. It is just as frustrating for our tax team as it is for you, to keep up with supporting documents that are required. If you have hired JK Harris to assist you, or you want to file an OIC on your own, make sure you always have the most current 3-months of the following documents:

• Proof of gross earnings and deductions from each employer or payor.
• Proof of pension, social security, child support, rental, or other income
• Bank Statements for all accounts, showing all account and routing numbers
• Documents proving the current value of, loan amount, and monthly contribution toward all investment accounts
• Statement from life insurance company showing the type, cash value, loan amount (if any), and monthly contribution amount.
• Description of each vehicle owned.
• Description of each piece of property owned.
• Brief description and estimated value of significant household assets.
• Proof of ALL household expenses.
• A brief statement regarding: (1) how you incurred your tax debt; (2) your education, overall health, and work experience; (3) an explanation as to where you will obtain the funds necessary to resolve your tax debt.
• List of all credit accounts, showing credit limit, amount owed, and monthly payment(s)
• Copy of most recent tax return including all schedules and supporting documents
• Other documents as requested by the IRS

Do you always have the most recent three months’ worth of all of those documents stored away neatly in an area in your home? Maybe – or maybe not, since most people do not keep copies of all of their household expenses. The IRS requires this information and they will ask for it over and over and over again – in order to maintain a current and accurate picture of your household’s financial picture. The best thing to do is to be to keep your documents organized and be prepared to send them to us in a timely manner when they are requested. This may be very tedious, but it is one of the best ways you can assist us in resolving your back tax problems.

Posted by JK Harris & Company

Five things to know about getting audited

Mary Rivera, Licensed Taxpayer Representative

Audits have been on the rise, but are expected to climb in 2010 as the IRS has received more funding for enforcement. The IRS has hired 5000 new auditing employees (includes Revenue Agents, Examining Officers and Tax Compliance Officers). They are especially looking at returns with Schedule C losses, extremely high Mortgage Interest (over $50,000) and Unreimbursed Employee Business Expenses. If you do have these expenses, make sure you keep your itemized receipts for the required time (see IRS Pub 583). Be aware, there are some preparers that use these deductions to “create” a refund. We caution you to review your returns before you file them. Remember the old adage “If it seems too good to be true….”. This article by CNN Money will take you through the need-to-know facts.

1. Audits are on the rise

Now that your 1040 is out the door, you may be second-guessing yourself: Will the IRS come a-calling? Well, the number of audits has risen every year over the past 10. And experts expect that trend to continue, what with the ballooning federal deficit and the additional $400 million earmarked for tax enforcement in 2010.

Even so, your audit risk in any one year is slim — about 1% if your income is under $200,000, 2% from there to $1 million, and 6% for the über-rich, based on 2009 data. Those selected tend to be self-employed or have unusually large write-offs, says Trudy Moore, an enrolled agent in Stevensville, Mont. If you do get hit this year, it’s likely to be for 2008 taxes: Audit letters typically go out 18 months after the filing date.

2. Delaying can cost you the right to fight

If you are one of the unlucky few to get the dreaded letter from the IRS, be sure to take the action required within the time frame allotted, usually 30 days. Otherwise the dispute becomes a final assessment and moves on to the collections department, with no grace period.

Can’t get your act together in 30 days? You have the right to ask for a postponement, and the IRS should grant such a request if you say you need the time to track down records.

3. It can help you to have a pro on your side

Three-quarters of audits are conducted by mail, with the IRS simply requesting documentation (like receipts) on a specific part of the return. You can handle this type of audit on your own. But if someone else prepared your taxes, get him to weigh in. The fee you paid may cover such help, and the agreement you have may put the person on the hook for mistakes. If the audit requires an in-person meeting, it will probably get into greater depth on a certain issue. So you’ll want an advocate, ideally a CPA with audit experience. Expect to pay $500 to a few thousand bucks.

4. Anything you say can be used against you

In any audit, avoid offering information beyond what’s asked for by the examiner, says Silicon Valley CPA Alan Olsen. You might unwittingly give evidence that could expand the scope of the investigation.

It’s especially wise to remain tight-lipped at a face-to-face audit: Even by engaging in small talk you could incriminate yourself. That’s another good reason to hire representation — when you do, you don’t have to attend the meeting.

5. The auditor’s boss may be able to negotiate

Unhappy with the auditor’s finding? Ask (nicely) to speak with a supervisor. “The manager has more latitude than the front-line employee,” says Charles Hayes, a CPA in Coronado, Calif. This can be effective if the issue falls into a gray area.

Should the manager fail to see your side, file an appeal. IRS officers will consider the “hazards of litigation”– if there’s a shot the feds would lose in court, they’ll offer you a deal. Your final option is taking it to the legal system. But that may not be worth the cost unless there’s more than $10,000 at stake.

8 Things to know if you get an IRS Notice.

We have blogged in the past on what to do if you receive correspondence from the IRS. The best thing to do is to not panic and do not ignore it. Often times these letters are simply requests for further information. Read the following press release issued by the IRS on what you should know about receiving an IRS notice.

The Internal Revenue Service sends millions of letters and notices to taxpayers every year. Here are eight things taxpayers should know about IRS notices – just in case one shows up in your mailbox.

1. Don’t panic. Many of these letters can be dealt with simply and painlessly.

2. There are a number of reasons why the IRS might send you a notice. Notices may request payment of taxes, notify you of changes to your account, or request additional information. The notice you receive normally covers a very specific issue about your account or tax return.

3. Each letter and notice offers specific instructions on what you are asked to do to satisfy the inquiry.

4. If you receive a correction notice, you should review the correspondence and compare it with the information on your return.

5. If you agree with the correction to your account, then usually no reply is necessary unless a payment is due or the notice directs otherwise.

6. If you do not agree with the correction the IRS made, it is important that you respond as requested. You should send a written explanation of why you disagree and include any documents and information you want the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.

7. Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call to help us respond to your inquiry.

8. It’s important that you keep copies of any correspondence with your records.

For more information about IRS notices and bills, see Publication 594, The IRS Collection Process. Information about penalties and interest is available in Publication 17, Your Federal Income Tax for Individuals. Both publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Posted by JK Harris & Company

Another happy client shows JK Harris a little love

Gina Anton, Director of Corporate Communications

I am always happy to hear from our clients, particularly when they take the time to commend the employees who have helped them with their tax problems.

This week, I received a glowing testimonial for one of our case specialists from her very grateful client, Ms. Harris. Ms. Harris lost her job in 2006 due to a disability. Due to her disability, she was unable to regain employment and her unemployment benefits quickly ran out. She nearly lost her home to foreclosure, not once, but twice. Harris was already living under financial duress when the IRS started levying her disability funds. Already trying to get by on an extremely tight budget, she could not afford to lose any of her disability income. She finally came to us for help, on the verge of bankruptcy when she saw a JK Harris television commercial.

Her case specialist immediately got to work on her case and had the levy on her disability removed. In fact, within three days time, the levy was removed and she was placed into Currently Not Collectible Status.

“I loved how JK Harris got right onto my matter,” said Ms. Harris. “My representative emailed and communicated with me (throughout) the entire process. JK Harris was able to get lift my levy on my disability funds. I love them and appreciate their hard work.”

Currently Not Collectible status is for those taxpayers who are on a fixed or limited income, or who are currently undergoing financial difficulties. You must meet the IRS’ qualifications for the program; if you do, you are placed in a no-collection status and the IRS will not try to collect from you during the period you are placed into the status. At the expiration of the period of time the IRS has granted, the IRS will re-evaluate your ability to pay your back taxes. The amount of time the IRS grants for Currently Not Collectible status varies, but it can last until the statute of limitations expires. If that happens, the IRS can no longer collect on the tax debt.

“I would be happy to refer anyone I know that might need their help,” Ms. Harris said. “Thank you once again for everything!”

It is not always possible to get a CNC negotiated in such a short time, but sometimes it does happen that quickly. We are very glad we were able to get Ms. Harris’ levy lifted, as well as the heavy burden of stress she has been carrying.

What you need to know about checking the status of your tax refund

The tax filing deadline has come and gone; many of you may be expecting tax refunds. To help you find out when you can expect to receive your refund, the IRS is offering the following seven tips on what you should know about checking the status of your tax refund. (From: IRS Tax Tip 2010-39)

1. Online access to refund information is available. The Where’s My Refund? is an interactive tool on www.irs.gov. This is the easiest – and fastest – way to access information about your federal tax refund. It offers easy access to your refund information 24/7.

2. When should you check your refund status? If you e-filed your tax return, you can check the IRS’ website as soon as 72 hours after the IRS has acknowledged receipt of your tax return. If you mailed in a paper return, you should be able to access your information within three to four weeks after you sent in your return.

3. What will you need to check your refund status? To get your personal refund information, you will need you Social Security number or Individual Taxpayer Identification Number, your filing status, and the exact whole number of your refund amount shown on your tax return.

4. What will the IRS’ online tool tell you? When you enter your personal identifying information, you may receive the following information: acknowledgment that your return was received and is being processed, the mailing date or direct deposit of your refund, or notice that the IRS could not deliver your refund due to an incorrect address.

5. Customized Information – Where’s My Refund? also includes links to customized information depending on your own particular situation. There are links that will guide you through steps to correct any issues that could be affecting the receipt of your tax refund.

6. Assistance for visually impaired taxpayers – The Where’s My Refund? tool is also available to visually impaired taxpayers. They can utilize the Job Access with Speech screen reader with a Braille display, compatible with different JAWS modes.

7. Toll-free Number – If you do not have access to the Internet, you can check your refund status in either English or Spanish by calling the IRS hotline at 800-829-1954 or the IRS TeleTax System at 800-829-4477. Be sure to have you or your spouse’s Social Security number and the whole dollar amount of your expected refund.

The IRS issues refund checks on Fridays. If you check the status of your refund and are not given an issue date, you should wait and check again the following week before checking back.

Posted by JK Harris & Company