There are many questions and concerns that pop into a taxpayers mind when they find out that they are being audited. One of the more commonly asked questions is whether or not the IRS can take their house. Yes, the IRS can take a person’s home to collect on unpaid tax bills. This is usually a last resort however, and the taxpayer’s Bill of Rights discourages the IRS from seizing a primary residence. That doesn’t mean however, that if you own rental property or a second home that these properties will not be seized. The IRS can not just take your home though. There are standard procedures that they must go through first. They must obtain a court order, which you can contest. You can also request the Taxpayer Advocate Service to help you in stopping the seizure. Taking someone’s home gathers negative publicity when local news agencies find out. The IRS doesn’t like this kind of image, so a call to the newspaper, TV Station or government officials may be helpful.
Another frequently asked question is if one can make a deal with the IRS to pay less then the total tax bill. This is a possibility though other measures are recommended. If you absolutely want to try this path, start by filing a 656 form, which is an Offer in Compromise. This will open up your finances for thorough investigation before they decide if settling for less than what you owe would be in the best interest of the IRS. Just about half of the offers made are eventually accepted, but notably after negotiations. Rarely will the taxpayer get what he/she originally asked for. In most cases, the IRS will determine an amount that they believe is fair. Generally, contesting the IRS audit will end up with you owing less then the Tax Bill anyways, so sometimes it just pays to contest it from the beginning.
Lastly, people want to know how likely it is that they will be charged with criminal tax fraud. Fewer than 2% of taxpayers are investigated for tax fraud. Additionally, the majority of those prosecuted for tax fraud work in some type of organized crime or are public figures. Being found guilty of tax fraud by your auditor and being criminally charged with it are two different things. Out of the 2% that are investigated for it, the majority ends up paying fines.
Showing posts with label Bankrupting IRS fines. Show all posts
Showing posts with label Bankrupting IRS fines. Show all posts
Thursday, July 30, 2009
IRS Representation and why it is Important
Getting a tax advisor can help when dealing with IRS problems. In the beginning, when you consult with an advisor, you will have a good idea of what you can expect from the IRS auditor during this stressful time. You will be informed of what kinds of questions you will be asked and what documents they will request to see. The tax advisor has probably, or at least should have, experience in dealing with an IRS auditor.
Getting through an audit is much like playing a game of chess. Knowing your opponent’s next moves are critical, and having a game plan or strategy will help your situation. Since tax advisors have played this game before with this opponent, they are usually better qualified at limiting your burden.
During the audit, an attorney, public accountant or enrolled agent will meet with the auditor in your place. Your representative is less emotionally involved, less defensive but most importantly they are able to negotiate on the law. Since they speak the same language as the IRS auditor, they have a better chance of reeling in the prize, which unfortunately for you just means less scrutiny and/or penalties.
Once the audit has been completed and the report is final, you may be asked to sign some documents. It is vital at this stage that you have your representative review the form before placing your “John Hancock” at the bottom. You should fully understand and agree to what you are signing before you sign. Your signature is your word that everything in the documents for which you are signing is true and correct. Having someone carefully review and explain to you the repercussions of signing the document is your right so you should use it.
Make sure that your line of communication is always open with your representative. It is imperative that he/she knows everything about your return, situation or documentation received. If you are represented, it is recommended that you do not correspond with the auditor in anyway unless directed to do so by your representative. While an IRS audit is tough, you will get through it with some patience.
Getting through an audit is much like playing a game of chess. Knowing your opponent’s next moves are critical, and having a game plan or strategy will help your situation. Since tax advisors have played this game before with this opponent, they are usually better qualified at limiting your burden.
During the audit, an attorney, public accountant or enrolled agent will meet with the auditor in your place. Your representative is less emotionally involved, less defensive but most importantly they are able to negotiate on the law. Since they speak the same language as the IRS auditor, they have a better chance of reeling in the prize, which unfortunately for you just means less scrutiny and/or penalties.
Once the audit has been completed and the report is final, you may be asked to sign some documents. It is vital at this stage that you have your representative review the form before placing your “John Hancock” at the bottom. You should fully understand and agree to what you are signing before you sign. Your signature is your word that everything in the documents for which you are signing is true and correct. Having someone carefully review and explain to you the repercussions of signing the document is your right so you should use it.
Make sure that your line of communication is always open with your representative. It is imperative that he/she knows everything about your return, situation or documentation received. If you are represented, it is recommended that you do not correspond with the auditor in anyway unless directed to do so by your representative. While an IRS audit is tough, you will get through it with some patience.
Internal Revenue Tax Audit, IRS Audits
Being audited by the IRS is very stressful. One of the best methods of combating a bad situation is to be educated and informed. You should know what the infractions and penalties are that you could get hit with.
If you get a late filing infraction, your tax penalty could result in 5% per month of the net tax due to the IRS with a maximum of 25%. If you IRS tax return is more than 60 days late, the minimum IRS tax penalty is the smaller of $100 or 100% of the tax owed. If the late filing is due to fraud, you will get a tax penalty of 15% per month of the net tax due to the IRS with a maximum of 75%.
If you make late tax payments to the IRS, your penalty could be 0.5% per month of the unpaid tax due to the IRS with a maximum of 25%. This amount increases to 1% after the IRS issues an IRS tax notice of their intent to levy.
For negligence or disregard of IRS tax rules and regulations you could get a penalty of 20% of tax underpayment that would otherwise be due to the IRS. If you were being fraudulent then the penalty would increase to 75% of the tax underpayment that would be due to the IRS. If you substantially understate your income, which is greater than 10% of the correct tax liability or $5,000, then your penalty could be 20% of the tax underpayment due to the IRS.
If your infraction was overvaluating by 200% or more but less than 400% of the correct amount then your penalty could be 20% of the tax underpayment due to the IRS. Over Valuations of more than 400% would be subject to a penalty of 40% of the tax underpayment that would be due to the IRS.
If your infraction deals with Estate and gift tax under valuation or 50% or more of the correct valuation and if the tax underpayment exceeds $5,000 then 20% of the tax underpayment would be due to the IRS. If the same is true but the under valuation is 75% or more and the tax underpayment exceeds $5,000 then the tax underpayment penalty due to the IRS becomes 40%. I hope this helps you to determine what penalties could result from your IRS audit.
If you get a late filing infraction, your tax penalty could result in 5% per month of the net tax due to the IRS with a maximum of 25%. If you IRS tax return is more than 60 days late, the minimum IRS tax penalty is the smaller of $100 or 100% of the tax owed. If the late filing is due to fraud, you will get a tax penalty of 15% per month of the net tax due to the IRS with a maximum of 75%.
If you make late tax payments to the IRS, your penalty could be 0.5% per month of the unpaid tax due to the IRS with a maximum of 25%. This amount increases to 1% after the IRS issues an IRS tax notice of their intent to levy.
For negligence or disregard of IRS tax rules and regulations you could get a penalty of 20% of tax underpayment that would otherwise be due to the IRS. If you were being fraudulent then the penalty would increase to 75% of the tax underpayment that would be due to the IRS. If you substantially understate your income, which is greater than 10% of the correct tax liability or $5,000, then your penalty could be 20% of the tax underpayment due to the IRS.
If your infraction was overvaluating by 200% or more but less than 400% of the correct amount then your penalty could be 20% of the tax underpayment due to the IRS. Over Valuations of more than 400% would be subject to a penalty of 40% of the tax underpayment that would be due to the IRS.
If your infraction deals with Estate and gift tax under valuation or 50% or more of the correct valuation and if the tax underpayment exceeds $5,000 then 20% of the tax underpayment would be due to the IRS. If the same is true but the under valuation is 75% or more and the tax underpayment exceeds $5,000 then the tax underpayment penalty due to the IRS becomes 40%. I hope this helps you to determine what penalties could result from your IRS audit.
Wednesday, July 29, 2009
IRS Tax Bill and the ability to Bankrupt it.
It is a common misconception that tax bills can not be bankrupted. There are some cases where the tax liabilities are not eligible to be included, but other times, bankruptcy code does allow the tax bills to be relieved from the debtor.
One way to quickly assure that the debt is going to be yours, regardless of bankruptcy filing is to be found guilty of tax fraud. This is serious and the government will not allow you to bankrupt any of the tax fees, fines or assessments. Other situations where bankruptcy will not help you include not filing a tax return or not listing the tax bill as a liability when you file the bankruptcy.
If you filed a tax return, even if you were audited, and no fraud was determined then there does come a point when you can include the tax bill amount in the bankruptcy and have the debt discharged. Once you do this, the IRS can no longer attempt to collect the tax bill and must stop any proceedings accordingly.
The Bankruptcy code sections 523 and 527 permits IRS taxes to be included and discharged in some situations. Tax penalties for non-filing, late payments, late deposits, and tax penalties for late estimated payments can usually be included and discharged. Additionally, income tax, excise tax, and gift tax which is three years old is usually acceptable to be included in you bankruptcy filing. The key here is that the aforementioned must have been filed at least two years prior to the bankruptcy petition and/or it must have been assessed as an IRS tax audit deficiency for at least 240 days.
While including tax bills in a bankruptcy filing can be tricky, it is possible. Because tax law and bankruptcy code is so extensive and complicated, it is strongly recommended that you seek the advice and the services of a professional. Attempting to include a tax bill in a bankruptcy yourself may result in even more fines, penalties, interest and possibly even loss. Perhaps looking for a tax attorney who can file a bankruptcy or a bankruptcy attorney with tax experience may be the best idea.
One way to quickly assure that the debt is going to be yours, regardless of bankruptcy filing is to be found guilty of tax fraud. This is serious and the government will not allow you to bankrupt any of the tax fees, fines or assessments. Other situations where bankruptcy will not help you include not filing a tax return or not listing the tax bill as a liability when you file the bankruptcy.
If you filed a tax return, even if you were audited, and no fraud was determined then there does come a point when you can include the tax bill amount in the bankruptcy and have the debt discharged. Once you do this, the IRS can no longer attempt to collect the tax bill and must stop any proceedings accordingly.
The Bankruptcy code sections 523 and 527 permits IRS taxes to be included and discharged in some situations. Tax penalties for non-filing, late payments, late deposits, and tax penalties for late estimated payments can usually be included and discharged. Additionally, income tax, excise tax, and gift tax which is three years old is usually acceptable to be included in you bankruptcy filing. The key here is that the aforementioned must have been filed at least two years prior to the bankruptcy petition and/or it must have been assessed as an IRS tax audit deficiency for at least 240 days.
While including tax bills in a bankruptcy filing can be tricky, it is possible. Because tax law and bankruptcy code is so extensive and complicated, it is strongly recommended that you seek the advice and the services of a professional. Attempting to include a tax bill in a bankruptcy yourself may result in even more fines, penalties, interest and possibly even loss. Perhaps looking for a tax attorney who can file a bankruptcy or a bankruptcy attorney with tax experience may be the best idea.
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