Tax Debt Could Affect Your Ability to Travel

Many of you may recall the transportation bill signed into law by President Obama. Did you also know that there is a stipulation in that bill that requires the Internal Revenue Service (IRS) to refer seriously delinquent taxpayers to the U. S. State Department for denial or revocation of your passport. The Fixing America’s Surface Transportation Act (FAST Act), P.L. 114-94, added Sec. 7345, which authorizes the IRS to certify to the secretary of State that a taxpayer is seriously delinquent with his or her taxes. The State Department can then deny, revoke, or limit the taxpayer’s passport.

To qualify as a seriously delinquent tax payer, the tax payer must have at least $50,000.00 dollars in outstanding tax debt including interest and penalties. In addition, a notice of a lien must have been filed and all administrative appeal rights exhausted or lapsed, or a notice of a levy filed. It is also required that both the notice alerting the tax payer to the filing of a tax lien, and the notice of the IRS intent to levy must include information relating to Sec. 7345, certification of seriously delinquent tax debt and the denial, revocation, or limitation of passports for individual with such tax liability.

It is also required by the U.S. State Department that the Internal Revenue Service provide contemporaneous notice to the taxpayer. Once the State Department receives certification from the IRS, no passport will be issued, and those already issued could become limited or revoked. Under certain circumstances exceptions are made, but these exceptions are generally limited to emergency or humanitarian reasons. If the tax payer is already out of the country, the State Department will limit travel to the tax payers return to the United States.

Taxpayers who meet the criteria of “seriously delinquent taxpayer” may be granted an exception if they meet one of the following:

  • They requested innocence spouse relief
  • Collection activity has been suspended due to a request for a “Due Process” hearing
  • They entered into an acceptable payment arrangement referred to as an Installment Agreement (IA)

Though Offer-In-Compromise (OIC) may be a suitable resolution and worth pursuing, waiting for the outcome of a submitted offer does not stop the State Department from affecting a seriously delinquent tax payer’s ability to travel.

Unfortunately, the only way to reverse certification once it has been made is to resolve the outstanding debt either by paying the debt in full, entering into an Installment Agreement, being granted Innocent Spouse Relief, or successful Offer-In-Compromise. Even if you pay the debt down below the $50,000.00-dollar amount, the certification will remain in place until the debt has been paid-in-full. Once the tax liability has been resolved, the IRS must contact the State Department to withdraw the certification.

Liens and Intent to levy notices sent prior to the effective date of the above bill (December 4, 2015) should not cause the taxpayer to become certifiable due to the lack of required language in notices sent. If you find yourself in the aforementioned situation, here is a few things you could do to help. Please note that nothing in this article in any way overrides the advice from a licensed tax professional. The first thing to consider is proper planning. This will help you stay current with your tax obligation(s), and avoid the situation before it gets out of hand. Secondly, if you can’t pay the balance in full try to get the balance below the $50,000.00-dollar mark before certification takes place. Remember, if the balance is below that amount you’re not in danger of being certified. It’s only after certification that reducing the balance has no affect. Next, you can avoid certification by entering into Installment Agreement, requesting innocent spouse relief, requesting “Due Process” hearing, and requesting an Offer-In-Compromise (OIC).

Kenyatta Patton, EA, MAMF

How To Settle 941Tax Debt

Many business owners focus on becoming as profitable as possible, however survival in a business is not necessarily contingent upon huge margins, or market notoriety. One of the most important aspects of being a successful entrepreneur is proper planning. Since one of the costliest expenditure business owners endure is taxes, it only makes sense to make payroll taxes, both 941 filing and remittance a top priority. A comprehensive tax plan will certainly help, however if you find yourself needing to file 941’s and owing payroll taxes this article is for you.

Payroll tax debt is number one on the list when it comes to IRS collection efforts regarding unpaid taxes. The IRS has the right to seize and sell your inventory and property, seize your accounts receivables, hold owners personally liable, and even force you to close your doors. As such, you need to take certain steps to ensure you afford yourself the best resolution option available. The first piece of advice is never ignore IRS notices. Generally, the IRS will provide you enough time to consult a professional or contact them to work through the problem. Remember, the IRS is the most powerful collection agency on the planet. They should never be feared, but they should be respected. Secondly, ensure that you are current on all payroll tax deposits, as well as unfiled tax returns. This shows that you intend to get back on track and stay in good standings after your tax debt issue has been resolved. The next step is to be prepared to provide the IRS current financial data. This will include financial statements from your business, and possibly financial information from anyone who could be held liable for the tax debt. Equally important, make sure that your personal tax situation is current. It could be difficult to settle your payroll tax debt if you have back taxes, and/or outstanding tax debt on the personal side. Make sure that you have adequate documentation to substantiate items on your financial statement. For example, if your profit and loss shows you spent $24k in rent for the year in question; make sure you can provide proof of payment. In most cases, bank statements or cancelled checks would be accepted as proof.

As a business owner, you are required to hold employee tax deposits in a trust until you make federal tax deposits in that amount. Congress enacted a law that allows the IRS, under IRC 6672 to access additional penalties known as Trust Fund Recovery Penalty (TFRP). “According to IRC 6672, the TFRP is equal to the total amount of tax evaded, not collected, or not accounted for and paid over. IRC 6672 applies to the employees’ portion of employment tax, namely, the withheld income tax and employee’s portion of FICA. It does not apply to the employers’ portion of employment taxes. The TFRP also applies to “collected” excise taxes” (IRS code section 8.25.1.2). This additional penalty may apply to you if you cannot pay the outstanding tax liability without delay.

If you have an accountant, bookkeeper, or someone else responsible for collecting, accounting for, and paying trust fund taxes; they could be held liable for the tax liability as well. However, there has to be a willfulness to avoid payment. For willfulness to be present the person(s) must have been, or should have been aware of the outstanding taxes and either intentionally ignored the law, or was otherwise indifferent to its requirements. No malicious intent is required. If a responsible party used available funds to pay other creditors and the business can’t pay employment taxes, this could be looked at as an indication of willfulness. Potential responsible parties will generally be subjected to an interview to determine that person(s) duties and responsibilities before the TFRP is accessed.

Make no mistake about it. If your business owes the IRS payroll taxes they will be very aggressive in their pursuit to collect. The reason for such aggression is the funds outstanding were supposed to be held in a fiduciary trust capacity on behalf of your employees. In other words, the funds should have never been available to spend in day to day operations to begin with. The IRS also has in place what’s known as the federal tax deposit system (FTD). Its sole purpose is to alert the IRS regarding businesses that owe payroll taxes.

Remember, every day that goes by without prompt attention being given to your tax liability is equivalent to opening up your assets, bank accounts, and account receivables for the taking. The IRS may also contact your customers and order them to send monies owed to you directly to them, or file a federal tax lien under the Uniform Commercial Code (UCC), in the state capital where your business is located. This outstanding tax debt could affect your credit, your ability to borrow, and prevent prospective customers from doing business with you. It is a given that small business owners struggle with capital needs to maintain and grow the business, and owing these taxes is in no way indicative of trying to evade paying your tax obligation. With that being understood, please know that by not making your payroll tax obligation you subject yourself to huge IRS problems. It not a matter of if the IRS comes knocking, it’s a matter of when.

The good news is help is available. If your struggling financially in your business this could also indicate you’re a good candidate for Offer-In-Compromise (OIC), Installment Agreement (IA), or many other resolution options that may be available to you. I know it takes all you have just to maintain your business day-to-day. Dealing with long hold times and understanding the IRC, as it relates to your particular situation can seem overwhelming. Please do yourself a favor and take the time to contact a licensed tax professional to further discuss options that may assist you in resolving your payroll tax liability.

 

Kenyatta Patton, EA, MAMF

Taxes Burden Small Business Owners

If you’re a small business owner I’m sure you had a distinct business plan when you started your business. Even if it was only in your head. The problem is you didn’t develop a tax plan to accommodate it.

With taxes being one of the biggest expenses for small businesses not having a tax strategy in place continues to cost owners thousands of tax dollars that could otherwise be used to buy equipment, expand operations, or even take that long overdue vacation. Unfortunately, most tax preparers spend very little time, if any helping their clients avoid paying taxes. Every tax season it’s the same routine, you send over tax forms (1099’s, etc.), receipts, and any other relevant documentation just to receive in return a reconciliation of that year’s revenues, expenses, and taxes due. Though this process is a very necessary one, it does absolutely nothing to help you save tax dollars. When was the last time your tax professional said to you, “I have a way for you to save thousands in taxes”? Even worse, some tax preparers on the web would have you believe that filing your taxes and maximizing your tax credits and deductions is as simple as pressing a button. This is ridiculous when you consider that between tax laws, regulations, tax law changes and tax court case clarifications the code is approximated to span around 70,000 pages. It’s impossible, without careful review to know if your tax benefits are being maximized. Do yourself a favor. Spend the money to hire a tax professional who is qualified to provide you with a comprehensive tax plan.

Why?

Because time is money and every second a tax pro spends figuring out tables and trying to translate the “lawyer-language” in tax forms, and applying regulations and codes to your specific tax situation could save you thousands in unnecessary tax liability. Not to mention the peace of mind you get from knowing that you have truly maximized your credits and deductions. Don’t let the complexity of tax laws, sales hype from preparers, and simply a lack of time to properly analyze and research your tax situation continue to cost you thousands.

Retired Chief Justice William H. Rehnquist, “There is nothing wrong with a strategy to avoid the payment of taxes. The Internal Revenue Code doesn’t prevent that.” Smart man. Please take his advice. Get your comprehensive tax plan today.

For a tax planning consultation please contact Advantage Tax Services, Inc. @ 404-736-6084. You will be assigned to a licensed tax professional qualified to assist you with your tax needs.

 

Kenyatta Patton, EA, MAMF

 

Tax Court Sides with Salon Owner

Keeping meticulous records is one of the most important aspects of small business operations. Particularly when it comes to taking deductions for expenses incurred in a business considered to be a hobby by the IRS. This was certainly the case for the owner of a hair salon.

In most cases, tax deductions for hobbies are limited to the amount of income from the hobby. This means that you can’t deduct a loss from a hobby, even though business losses may be allowed as deductions. As you might imagine, the characterization of borderline activities is frequently contested in the courts, especially when there’s an element of recreation or personal enjoyment involved. The controlling test is whether the taxpayer exhibits a bona fide motive of turning a profit. Under often-cited regulations (Reg. Sec. 1.183-2(b)), nine factors are examined to determine if a profit motive exists (see below).

  1. The manner in which the taxpayer carries on the activity.
  2. The expertise of the taxpayer or his or her advisers.
  3. The time and effort expended by the taxpayer in carrying on the activity.
  4. The expectation that assets used in the activity may appreciate in value.
  5. The success of the taxpayer in carrying on other similar or dissimilar activities.
  6. The taxpayer’s history of income or losses with respect to the activity.
  7. The amount of occasional profits, if any, which are earned by the taxpayer.
  8. The financial status of the taxpayer.
  9. Any elements of personal pleasure or recreation.

 

No single variable is decisive, however the IRS may give certain variables more consideration than others.

Here are the facts of the case in question. The taxpayer opened a hair-braiding salon in a shopping mall. She made reasonable, albeit somewhat limited, efforts to grow her business, such as taking out Yellowbook ads, creating brochures and advertising fliers and maintaining a website. The taxpayer kept distinct business records for the salon, including spreadsheets showing income and expenses and hard copies of some expense receipts. She also maintained a separate bank account for the salon, but eventually closed that account in a cost-cutting move. In 2011, the taxpayer started a full-time job as an event planner, but still spent most weekends at the salon in the hope of attracting walk-in customers, as well as meeting scheduled customers for weekday evening appointments. The salon had fewer than 15 customers during 2011. The taxpayer closed the salon in 2012. The taxpayer never reported a profit from her hair salon business during the eight tax years in question. For 2011, the last year of the business, she reported gross receipts of only $325, while claiming $16,131 in expenses, consisting of $13,000 in rent, $590 of hair products, $909 for a landline phone service, $600 for website maintenance, $552 for cellphone expenses and $480 for supplies. The IRS denied the loss. The Tax Court sided with the taxpayer. It said that she had conducted her hair-braiding business with an actual objective of making a profit and had taken reasonable steps to grow the business. The salon was not a source of great personal pleasure or recreation, nor was it a hobby (Berry, K., 2016). Though the tax court found in the owners favor, there were still penalties accessed due to issued related to the 2011 tax return.

If you find yourself in a situation similar to the above, or if you suspect there could be issues please contact Ken Patton, a licensed Enrolled Agent with the United States Treasury IRS for a free consultation.

Tax Increase Prevention Act

As the 2014 tax season begins early this year millions of families and businesses alike faced an increase in taxes, but the 113th congress passing of H.R. 5771, Tax Increase Prevention Act of 2014 has extended many tax breaks previously set to expire. Title I: Certain Expiring Provisions- Amends the Internal Revenue Code to extend certain expiring tax provisions relating to individuals, businesses, and the energy sector.

A few of the tax extenders for individuals, business, and the energy sector follows:

Subtitle A: Individual Tax Extenders – Extends through 2014:

  • the tax deduction of expenses of elementary and secondary school teachers;
  • the tax exclusion of imputed income from the discharge of indebtedness for a principal residence;
  • the equalization of the tax exclusion for employer-provided commuter transit and parking benefits;
  • the tax deduction of mortgage insurance premiums;
  • the tax deduction of state and local general sales taxes in lieu of state and local income taxes;

Subtitle B: Business Tax Extenders – Extends through 2014:

  • the tax credit for increasing research activities;
  • the low-income housing tax credit rate for newly constructed non-federally subsidized buildings;
  • the Indian employment tax credit;
  • the new markets tax credit;
  • the tax credit for qualified railroad track maintenance expenditures;
  • the tax credit for mine rescue team training expenses;

Subtitle C: Energy Tax Extenders – Extends through 2014:

  • the tax credit for residential energy efficiency improvements;
  • the tax credit for second generation biofuel production;
  • the income and excise tax credits for biodiesel and renewable diesel fuel mixtures;
  • the tax credit for producing electricity using Indian coal facilities placed in service before 2009;
  • the tax credit for producing electricity using wind, biomass, geothermal, landfill gas, trash, hydropower, and marine and hydrokinetic renewable energy facilities;

Subtitle D: Extenders Relating to Multiemployer Defined Benefit Pension Plans – Extends through 2015 the automatic extensions of amortization periods for multiemployer defined benefit pension plans and for multiemployer funding rules under the Pension Protection Act of 2006.

For a more detailed list of extenders, as well as technical corrections referred to as “deadwood” please visit www.jct.gov

Should you have additional questions or require assistance with a tax issue please respond in the comment section or call 866-606-3570. You will be connected to a licensed tax professional who can assist you.

 

The Difference between Injured Spouse and Innocent Spouse

DD                  With the rise in divorce and an increase in the number of people who have past-due tax liabilities, more taxpayers are seeking relief. Knowing the difference between injured spouse and innocent spouse could be very beneficial when trying to understand what options are available when you’re being penalized for a tax debt that’s not your responsibility. Here’s some distinct characteristics between the two.

There are basically three types of relief :

By requesting innocent spouse relief, you can be relieved of responsibility for paying tax, interest, and penalties if your spouse did something wrong on your tax return (IRS, 2014).

Relief by Separation of Liability
Under this type of relief, you allocate (divide) the understatement of tax (plus interest and penalties) on your joint return between you and your spouse (or former spouse) (IRS, 2014) .

Equitable Relief
If you do not qualify for innocent spouse relief or separation of liability, you may still be relieved of responsibility for tax, interest, and penalties through equitable relief (IRS, 2014).

If you can answer yes to the following questions there’s a really good chance you may qualify for relief.

– Did you file a joint return and your refund was taken to satisfy your spouse’s or former spouse’s past due tax, child support, state tax liability, or non-tax debt like student loans?

-Did you personally report income on the jointly filed tax return?

-Did you make and report payments such as income tax withheld from wages or estimated tax payments, claim EIC, or other refundable credit on a joint return?

If you think you qualify and would like to further explore your relief options with a tax professional, please call Advantage Tax Services, Inc. You will be connected with a tax professional who will work specifically on your situation to provide the answers you desire and the best program available through the IRS  for resolving your tax debt issue.

(IRS, 2014)

866-606-3570

Tax Debt and Filing Bankruptcy

In most cases, when you have an IRS tax debt liability, you have a limited amount of options. You can do the obvious, which is paying the full amount you owe, enter into a payment arrangement, attempt to settle the debt (Offer-In-Compromise), or presuming what you owe has been outstanding long enough to meet the criteria for being discharged, file bankruptcy. Recently, a Federal District Court for Northern California District over ruled a previous bankruptcy court ruling, adding a new twist to getting tax liabilities discharged in bankruptcy.

Generally, for tax debt to be dischargeable in bankruptcy, a return has to be filed before the petition is filed and the tax debt has to be at least 3 years old with timely returns filed each year. In addition, the return that generated the tax liability must have been filed at least two years before filing the petition in bankruptcy court in regards to a late filed return. This is after meeting the criteria of the first rule; and at least 240 days of assessment has passed on an audit assessment while considering the first two rules.

“In re Martin Smith, Debtor, 2014-1 U.S.T.C. ¶50,274 (Apr. 29, 2014), the Federal District Court for the Northern California determined that a taxpayer’s late filed return did not qualify as a return for purposes of discharge and the exceptions found in 11 U.S.C. §523 caused a taxpayer’s tax liability to be excepted from discharge.  In this case, Smith failed to timely file his 2001 Form 1040 for income tax purposes.  In 2006, the IRS assessed against Smith a tax liability preparing a return for him under their Substitute for Return (“SFR”) process and began proceedings to collect the assessed tax.  In 2009, Smith prepared and filed his 2001 income tax return reporting more tax owing than the IRS determined to be owing under its SFR assessment.  In 2011, Smith filed bankruptcy and the Bankruptcy Court issued an order of discharge as the late filed return had been filed more than two years prior to the petition in bankruptcy being filed” (Federal District Court for the Northern California District, 2014).

Put simply the tax payer in the above case was found to not be in compliance with self-assessment and tax payment obligations until years after IRS collection action had ensued, and the IRS had created substitute returns. The court found the tax payers handling of the outstanding liability was not done in accordance with what the courts consider a sincere and practical try at complying with tax law. This does not mean that tax payers can’t file late returns or replacement returns for substitutes that’s been prepared by the IRS. Just that the tax liability derived from a tax year which a returned was not filed timely thus rendering the tax debt non-dischargeable. Of course, each case stands on its own merits so if you need help with filing a bankruptcy due to a tax debt, by all means contact a bankruptcy attorney.

The point here is always file your taxes in a timely fashion, even if you can’t pay the tax liability. Not only could you be inadvertently extended the statute of limitations for collecting what’s owed, you could miss the chance to have your tax debt discharged in bankruptcy.

Should you need assistance with back taxes or resolving a tax debt issue, contact Advantage Tax Services, Inc. at (866) 606-3570. You will be connected with a licensed professional who can assist you with your specific situation.

Kenyatta Patton, EA, MAMF

The New Tax Payer’s Bill of Rights

Recently, the IRS implemented the new tax payer’s bill of rights. This is a great step in helping to eradicate the inherent fear that seems to plague an overwhelming amount of taxpayers. For years, the mystic that the IRS operates like some private army; taking whatever steps they want to force tax payers to pay past due tax without giving consideration to tax payer rights. Though the IRS can and will enforce action to collect taxes due, they have always had a “bill of rights” in place to protect tax payers. In other words, the bill of rights is not new, nor is there any new enforcement mechanism in place to ensure tax payer rights are respected. The action is purely symbolic and seeks, in my opinion to close the gap between fact(s) and myth(s), as it relates to tax payer interaction with the IRS.

Perhaps, even more important is the impact experienced by IRS employees. The mere mentioning of increased focus in this area may instruct better customer service in terms of call handling, response to inquiry, and other widely mentioned areas of tax payer abuse. This could be seen as a defining moment in redefining IRS culture. Employees tend to behave congruent to their environment’s tolerances. I think it’s wonderful that the IRS has taken this opportunity to reiterate the importance of treating tax payers with respect and dignity.

Obviously, gaining a complete understanding of exactly how tax payer bill of rights may affect certain tax payer issues is beyond the scope of this article; however you would be well served to read over the bill of rights to familiarize yourself with them. At least you will know which direction to take in terms of inquiry with tax professionals, as well as IRS Representatives. Sometimes, knowing what to ask saves a lot of time and unintended ambiguity.

 

Kenyatta Patton, EA, MAMF

What Your IRS Tax Notice Really Means

If you’ve received a notice from the IRS it could mean a myriad of things from a miscalculated credit to notice of intent to take further collection action. Generally, IRS notices have a number in the right hand corner that may start with the letters CP. This is the first indicator of what the letter is in regards to.

Often, receipt of an IRS notice can be resolved without taking much action at all. In most cases the letter will outline necessary steps required to address the outstanding issue. The worst thing to do is ignore the notice. This could cause an undue escalation in the nature of your tax problem(s), as well as expose you to potential fees that could otherwise be avoided.

If you what like an in-depth explanation of a letter you recently received from the IRS, please click the link below. If after learning of your tax matter you require additional assistance, contact Advantage Tax Services, Inc at (866) 606-3579. You will be connected with a licensed tax professional that can further assist you.

IRS Notices and Letters

 

Kenyatta Patton, EA, MAMF

 

Things to Know if You’re In IRS Collections

If you have an outstanding balance with the IRS chances are you’ve been entered into the IRS Collection system. The IRS is under a mandate to follow a specific process when attempting to collect past due taxes from tax payers. Being informed about how the IRS Collection system works could save you a lot of undue heartache.

 

The IRS uses a collection system called Automated Collection System (ACS). This system is completely automated and sends letters, notices, and files tax liens. The second component in this part of the system is the call center. If you’ve ever been subject to collection calls from third party agencies, the IRS collection call center, though governed differently works in similar ways. Generally, IRS representatives have strict guidelines that must be followed. They don’t have the ability to work outside of rules that have been pre-established. This could leave you wanting if you need first hand advice regarding a complex tax topic.

 

In addition to the IRS Collection system are collection Field Agents. Field Agents, often referred to as Revenue Officers are assigned geographical locations throughout the United States. They are responsible for many things related to the collection process to include on sight visits, collection of vital information, and verification of reported tax payer information. For example, if you’re hiding an asset somewhere the Revenue Officer would most likely be the person to discover and report it. Their job is to resolve the tax liability using all means afforded to them by law, and they take their jobs very seriously.

 

As I’ve stated a hundred times over, the worst thing to do is nothing. Below is a list of things that Revenue Officers look for while performing their job duties.

 

–          Does the tax payer have outstanding tax returns due? Make sure all back taxes have been filed. The IRS will not consider payment arrangement, settlements, or any other potential resolution unless you are tax compliant.

–          Has the tax payer incurred any new tax debt? Ensure that you make timely payments regarding any new taxes such as estimated taxes due, or employment tax.

–          Has the tax payer provided all relevant sources of income, assets, expenses, and other debts (i.e. State tax owed)? Based on examination of the above information, further collection action could be implemented or deferred.

–          Has the tax payer applied for the best possible resolution available given the situation? If you haven’t done so, it would be prudent to do so as soon as possible. This provides you protection from garnishments, levies, and other harsh collection tactics available to the IRS.

–          Has additional tax debt accrued since entering into an agreement or settlement? Make sure that once your agreement is in place you don’t incur additional tax debt. If you find yourself in this situation pay as much of it as possible and consult a tax pro for further assistance.

–          If a business is involved, who in the business could be held liable for Trust Fund Recovery Penalties? Anyone in a business with both access and knowledge of payments due could be held personally liable for TFRP.

–          Has all deadlines been meant? Notices are sent for a reason. Most notices provide amble time to respond. Failure to respond to IRS notices is a sure way to escalate the problem.

 

Should you require additional help with your tax issue call Advantage Tax Services (866) 606-3570, Inc. You will be connected to a licensed representative who will provide the guidance you need.