The Process Of Settling Your Debt With the IRS + Former Agent Speaks

 

Fresh Start Tax

 

The process of settling Your Tax Debt with the IRS

 

We are true tax experts for the IRS offer in Compromise. As a former Agent, I worked the offer program for the IRS. We are true experts in the process of settling your tax debt.

There are ads all over the television and the Internet is draped with splash ads and companies advertising you can settle your tax debt for pennies on the dollar through the IRS offer in compromise program.

You can contact us today for a free initial consultation and we can walk you through the offer in compromise program at the Internal Revenue Service.

The Internal Revenue Service receives about 60,000 offers in compromise each year and accepts about 38% of those filed.

Most of those offers and compromises that are accepted are filed by professional firms that have on staff tax attorneys, tax lawyers, certified public accountants, enrolled agents or former IRS agents.

Before we tell you everything you need to know please understand that I would not contemplate filing an offer in compromise on your own because of the very specific standards that IRS uses to qualify a taxpayer for an offer in compromise.

The average Internal Revenue Service agent probably spends about 20 hours investigating every offer in compromise and the IRS have very tight financials formulas and acceptance standards for the OIC.

The offer in compromise is not for everybody.

The IRS Pre-qualifier tool for the IRS Offer in Compromise used in the process of tax debt settlement

 

You should also know that there is a pre-qualifier tool that is available to you.

You can find on our website and any taxpayer/ client can walk through to find out if they are a qualified candidate for the offer in compromise or tax settlement program.

No offer in compromise should be filed unless the individual has walked through the pre-qualifier tool to make sure they have a solid chance of getting their offer in compromise accepted.

If you qualify through the IRS pre-qualifier tool for the offer in compromise you have an excellent chance of getting your offer in compromise accepted by the Internal Revenue Service.

You will find below all the questions that are asked on the pre-qualifier tool and the financial statement that is required to be turned into Internal Revenue Service for the offer in compromise program.

The pre- qualifier tool is used by Internal Revenue Service to make sure taxpayers understand the offer in compromise program.

Below you will find out the questions that are asked on the pre-qualifier tool.

So be apprised, these are the questions you will to be asked by the Internal Revenue Service for your offer in compromise.

Also it should be noted that this tool is used by the IRS collection division anytime you owe the IRS money on back taxes.

The questions asked on the Pre-qualifier Tool

 

This tool should only be used as a guide.

The reason that I say that this should be used as a guide is simple.

Sometimes there are very unique circumstances that shape a particular offer in compromise and sometimes IRS is willing to settle for less if the theory of the effective tax administration comes in the play.

Preliminary Questions that are asked :

Before IRS can proceed to accept your offer in compromise you must answer yes to these questions:

 

1. Are you in an open bankruptcy proceeding?
2. Have you filed all required federal tax returns?
3. Have you made all required estimated tax payments?
4. If you are self-employed and have employees, have you submitted all required federal
tax deposits?

If you answer NO to these questions IRS has the right to stop the offer in compromise and rejected immediately. In nine times out of 10 you can bet they will stop the offer in compromise because they are too lazy to work the case.

IRS cannot work your offer in compromise if you were are in an open bankruptcy proceeding and they can choose to reject your offer if you have not filed all your federal income tax returns and are not current in the year you are filing the offer.

Being current simply means you have made all required estimated tax payments or you have the proper amount of withholding being taken out of your payroll check to cover your taxes.

I hate to say this but, as a general rule on IRS will look to reject any offer in compromise before they accept it because of the sheer amount of work it takes for a person to get an offer in compromise accepted.

It must be signed off by their manager, by the regional manager in the district Council of the Internal Revenue Service. The reason these cases are reviewed so much is because of the simply fact they are open for public expect inspection for one year at the district office.

As a former IRS agent I can tell you it’s a lot easier to find reasons to reject the OIC than to bring them to managers to have them accepted, sad but true.

 

The IRS is only interested in two assets to settle your case with an offer in compromise and they are:

 

1. Your income,

2. Your assets.

 

General Information the IRS will want to acquire. The income and expense side.

The Internal Revenue Service will only allow certain necessary living expenses and those only.

They will plug your expenses against the national, regional, and geographical expense standards and allow you the “average monthly expenses”.

IRS will only accept reasonable expenses to make sure you’re living within your means therefore in every area in the United States the Department of Labor have come out with statistics to show what average reasonable expenses .

IRS will expect you fall within those means.

The Internal Revenue Service will disallow the expenses over above the standard. The sum total of the expenses over the standard are thus multiplied by 12 and become part of the income side of the offer in compromise.

 

Information relative to the National Standards used by the IRS

 

Collection Financial Standards are used to help determine a taxpayer’s ability to pay a delinquent tax liability.

Allowable living expenses include those expenses that meet the necessary expense test. The necessary expense test is defined as expenses that are necessary to provide for a taxpayer’s (and his or her family’s) health and welfare and/or production of income.

National Standards for food, clothing and other items apply nationwide. Taxpayers are allowed the total National Standards amount for their family size, without questioning the amount actually spent.

National Standards have also been established for minimum allowances for out-of-pocket health care expenses. Taxpayers and their dependents are allowed the standard amount on a per person basis, without questioning the amount actually spent.

Maximum allowances for housing and utilities and transportation, known as the Local Standards, vary by location. In most cases, the taxpayer is allowed the amount actually spent, or the local standard, whichever is less.

Generally, the total number of persons allowed for necessary living expenses should be the same as those allowed as exemptions on the taxpayer’s most recent year income tax return.

If the IRS determines that the facts and circumstances of a taxpayer’s situation indicate that using the standards is inadequate to provide for basic living expenses, we may allow for actual expenses. However, taxpayers must provide documentation that supports a determination that using national and local expense standards leaves them an inadequate means of providing for basic living expenses.

As far as the asset side:

As far as the asset side is considered IRS wants 100% of the total liquidation value of all your assets. You will find out below what list of assets IRS will consider.

 

Information required by the Pre-Qualifier Tool

 

IRS will want you to enter information about your location, household and tax debt. They will want to know your:

1. ZIP or postal code

2. State

3. County

4. Total members of household

5. Total members of household 65 years or older.

The IRS wants this information to apply the national standards for expenses in the area and the location you have plus the number of exemptions.

 

Total IRS tax debt (whole dollars)

1. What is the most recent tax year you are requesting to compromise?

Your Assets – These are the assets IRS will be inquiring about.

The Internal Revenue Service will require all liquidation values to be part of your offer. If you add up the following liquidation values on the below assets IRS will accept nothing less.

Total bank balances (checking, savings, money market, CDs, etc.)

Home market value

Home loan balance

Vehicles

All Retirement account equity (401k, IRA, etc.)

Other real property (rental, business, land, timeshare, etc.)

Other asset equity (airplane, motorcycle, recreational vehicle, etc.)

Stocks, bonds and other investments

Miscellaneous (art, coin and gun collections, etc.)

Information about your monthly household income.

The Internal Revenue Service will use the accurate/LEXIS-NEXIS and Google search engines to inquire about you and your assets.

Make sure you turn in an accurate and complete financial statement.

 

IRS will want proof of:

a. Gross wages

b. Interest and dividends

c. Distributions from partnerships, sub-S corporations, etc.

d. Net rental income

e. Net business income

f. Child support received

g. Alimony received

h. Rent or mortgage and utilities

i. Vehicle 1 loan or lease payment

j. Vehicle operating costs (gas, repairs, etc.)

k. Total vehicles owned

l. Public transportation costs

m. Health insurance premiums

n. Federal, state and local taxes (Enter a 0 if no taxes)

o. Court-ordered payments (child support, alimony, etc.)

p. Child dependent care costs

q. Life insurance premiums and cash surrender values

 

Selecting a payment option for tax debt settlement

Your initial payment will vary based on your offer and the payment option you choose:

Lump Sum Cash:

Submit an initial payment of 20 percent of the total offer amount with your application. Wait for written acceptance, then pay the remaining balance of the offer in five or fewer payments.

Periodic Payment:

Submit your initial payment with your application. Continue to pay the remaining balance in monthly installments while the IRS considers your offer. If accepted, continue to pay monthly until it is paid in full.

 

Downside to Submitting an OIC, yes there is a downside.

Completing the forms is just the beginning. After you submit the forms, the IRS will ask you for rafts of financial documentation — pay stubs, bank records, vehicle registrations, and myriad other items.

This is an exhaustive, time-consuming process on the part of the Agent.

Some taxpayers wind up submitting files upon files of documents to the IRS to support their OIC request. If your OIC is rejected, the disclosures you made about your assets give the IRS all the information it needs to accelerate its collection efforts against you. It gives the Internal Revenue Service or road map to collect your money.

For this reason, it makes sense not to submit an offer unless it is likely to be accepted. That is why going through the pre-qualifier tool on our website to help assure you have a more likely chance of acceptance.

Remember that interest keeps accruing during the offer in compromise negotiation process, meaning you’ll end up owing more than ever if you cannot make a deal.

Contact us today to learn more about the filing of an offer in compromise. When dealing with our firm you will be talking to a tax attorney, tax lawyer, certified public accountant or former IRS agent, manager tax instructor.

Free consultations are available upon request.

Remember if you are in a higher tax firm make sure you check on their Better Business Bureau rating, their fees and costs, and asked to speak to the person directly that will be handling your case.

The New Offer in Compromise Program by the IRS

 

Fresh Start Tax

 

We are true tax experts for the IRS offer in Compromise. As a former Agent, I worked the offer program for the IRS.

 

There are ads all over the television and the Internet is draped with splash ads and companies advertising you can settle your tax debt for pennies on the dollar through the IRS offer in compromise program.

The fact of the matter that’s true however I would make sure you fill out the IRS qualifier or tool before filing an offer in compromise.

Take my word on this I am a former IRS agent in teaching instructor who taught the offer in compromise program while at the Internal Revenue Service. I am a tax expert in the offer in compromise.

You can contact us today for a free initial consultation and we can walk you through the offer in compromise program at the Internal Revenue Service.

The Internal Revenue Service receives about 60,000 offers in compromise each year and accepts about 38% of those filed.

Most of those offers and compromises that are accepted are filed by professional firms that have on staff tax attorneys, tax lawyers, certified public accountants, enrolled agents or former IRS agents.

Before we tell you everything you need to know please understand that I would not contemplate filing an offer in compromise on your own because of the very specific standards that IRS uses to qualify a taxpayer for an offer in compromise.

The average Internal Revenue Service agent probably spends about 20 hours investigating every offer in compromise and the IRS have very tight financials formulas and acceptance standards for the OIC.

The offer in compromise is not for everybody.

 

The IRS Pre-qualifier tool for the IRS Offer in Compromise

You should also know that there is a pre-qualifier tool that is available to you.

You can find on our website and any taxpayer/ client can walk through to find out if they are a qualified candidate for the offer in compromise or tax settlement program.

No offer in compromise should be filed unless the individual has walked through the pre-qualifier tool to make sure they have a solid chance of getting their offer in compromise accepted. If you qualify through the IRS pre-qualifier tool for the offer in compromise you have an excellent chance of getting your offer in compromise accepted by the Internal Revenue Service.

You will find below all the questions that are asked on the pre-qualifier tool and the financial statement that is required to be turned into Internal Revenue Service for the offer in compromise program.

The pre- qualifier tool is used by Internal Revenue Service to make sure taxpayers understand the offer in compromise program.

Below you will find out the questions that are asked on the pre-qualifier tool.

So be apprised, these are the questions you will to be asked by the Internal Revenue Service for your offer in compromise.

Also it should be noted that this tool is used by the IRS collection division anytime you owe the IRS money on back taxes.

 

The questions asked on the Pre-qualifier Tool

This tool should only be used as a guide. The reason that I say that this should be used as a guide is simple.

Sometimes there are very unique circumstances that shape a particular offer in compromise and sometimes IRS is willing to settle for less if the theory of the effective tax administration comes in the play.

 

Preliminary Questions that are asked :

Before IRS can proceed to accept your offer in compromise you must answer yes to these questions:
1. Are you in an open bankruptcy proceeding?
2. Have you filed all required federal tax returns?
3. Have you made all required estimated tax payments?
4. If you are self-employed and have employees, have you submitted all required federal
tax deposits?

If you answer NO to these questions IRS has the right to stop the offer in compromise and rejected immediately. In nine times out of 10 you can bet they will stop the offer in compromise because they are too lazy to work the case.

IRS cannot work your offer in compromise if you were are in an open bankruptcy proceeding and they can choose to reject your offer if you have not filed all your federal income tax returns and are not current in the year you are filing the offer. Being current simply means you have made all required estimated tax payments or you have the proper amount of withholding being taken out of your payroll check to cover your taxes.

I hate to say this but, as a general rule on IRS will look to reject any offer in compromise before they accept it because of the sheer amount of work it takes for a person to get an offer in compromise accepted.

It must be signed off by their manager, by the regional manager in the district Council of the Internal Revenue Service. The reason these cases are reviewed so much is because of the simply fact they are open for public expect inspection for one year at the district office.

As a former IRS agent I can tell you it’s a lot easier to find reasons to reject the OIC than to bring them to managers to have them accepted, sad but true.

 

The IRS is only interested in two assets to settle your case with an offer in compromise and they are:

1. Your income,

2. Your assets.

General Information the IRS will want to acquire. The income and expense side.

The Internal Revenue Service will only allow certain necessary living expenses and those only.

They will plug your expenses against the national, regional, and geographical expense standards and allow you the “average monthly expenses”.

IRS will only accept reasonable expenses to make sure you’re living within your means therefore in every area in the United States the Department of Labor have come out with statistics to show what average reasonable expenses .

IRS will expect you fall within those means.

The Internal Revenue Service will disallow the expenses over above the standard. The sum total of the expenses over the standard are thus multiplied by 12 and become part of the income side of the offer in compromise.

Information relative to the National Standards

Collection Financial Standards are used to help determine a taxpayer’s ability to pay a delinquent tax liability.

Allowable living expenses include those expenses that meet the necessary expense test. The necessary expense test is defined as expenses that are necessary to provide for a taxpayer’s (and his or her family’s) health and welfare and/or production of income.

National Standards for food, clothing and other items apply nationwide. Taxpayers are allowed the total National Standards amount for their family size, without questioning the amount actually spent.

National Standards have also been established for minimum allowances for out-of-pocket health care expenses. Taxpayers and their dependents are allowed the standard amount on a per person basis, without questioning the amount actually spent.

Maximum allowances for housing and utilities and transportation, known as the Local Standards, vary by location. In most cases, the taxpayer is allowed the amount actually spent, or the local standard, whichever is less.

Generally, the total number of persons allowed for necessary living expenses should be the same as those allowed as exemptions on the taxpayer’s most recent year income tax return.

If the IRS determines that the facts and circumstances of a taxpayer’s situation indicate that using the standards is inadequate to provide for basic living expenses, we may allow for actual expenses. However, taxpayers must provide documentation that supports a determination that using national and local expense standards leaves them an inadequate means of providing for basic living expenses.

As far as the asset side

As far as the asset side is considered IRS wants 100% of the total liquidation value of all your assets. You will find out below what list of assets IRS will consider.

Information required by the Pre-Qualifier Tool

IRS will want you to enter information about your location, household and tax debt. They will want to know your:

1. ZIP or postal code

2. State

3. County

4. Total members of household

5. Total members of household 65 years or older.

The IRS wants this information to apply the national standards for expenses in the area and the location you have plus the number of exemptions.

Total IRS tax debt (whole dollars)

1. What is the most recent tax year you are requesting to compromise?

Your Assets – These are the assets IRS will be inquiring about.

The Internal Revenue Service will require all liquidation values to be part of your offer. If you add up the following liquidation values on the below assets IRS will accept nothing less.

Total bank balances (checking, savings, money market, CDs, etc.)

Home market value

Home loan balance

Vehicles

All Retirement account equity (401k, IRA, etc.)

Other real property (rental, business, land, timeshare, etc.)

Other asset equity (airplane, motorcycle, recreational vehicle, etc.)

Stocks, bonds and other investments

Miscellaneous (art, coin and gun collections, etc.)

Information about your monthly household income.

The Internal Revenue Service will use the accurate/LEXIS-NEXIS and Google search engines to inquire about you and your assets.

Make sure you turn in an accurate and complete financial statement.

IRS will want proof of:

a. Gross wages

b. Interest and dividends

c. Distributions from partnerships, sub-S corporations, etc.

d. Net rental income

e. Net business income

f. Child support received

g. Alimony received

h. Rent or mortgage and utilities

i. Vehicle 1 loan or lease payment

j. Vehicle operating costs (gas, repairs, etc.)

k. Total vehicles owned

l. Public transportation costs

m. Health insurance premiums

n. Federal, state and local taxes (Enter a 0 if no taxes)

o. Court-ordered payments (child support, alimony, etc.)

p. Child dependent care costs

q. Life insurance premiums and cash surrender values

Selecting a payment option

Your initial payment will vary based on your offer and the payment option you choose:

Lump Sum Cash: Submit an initial payment of 20 percent of the total offer amount with your application. Wait for written acceptance, then pay the remaining balance of the offer in five or fewer payments.
Periodic Payment: Submit your initial payment with your application. Continue to pay the remaining balance in monthly installments while the IRS considers your offer. If accepted, continue to pay monthly until it is paid in full.

Downside to Submitting an OIC, yes there is a downside.

Completing the forms is just the beginning. After you submit the forms, the IRS will ask you for rafts of financial documentation — pay stubs, bank records, vehicle registrations, and myriad other items.

This is an exhaustive, time-consuming process on the part of the Agent.

Some taxpayers wind up submitting files upon files of documents to the IRS to support their OIC request. If your OIC is rejected, the disclosures you made about your assets give the IRS all the information it needs to accelerate its collection efforts against you. It gives the Internal Revenue Service or road map to collect your money.

For this reason, it makes sense not to submit an offer unless it is likely to be accepted. That is why going through the pre-qualifier tool on our website to help assure you have a more likely chance of acceptance.

Remember that interest keeps accruing during the offer in compromise negotiation process, meaning you’ll end up owing more than ever if you cannot make a deal.

Contact us today to learn more about the filing of an offer in compromise. When dealing with our firm you will be talking to a tax attorney, tax lawyer, certified public accountant or former IRS agent, manager tax instructor.

Free consultations are available upon request.

You can also go to the IRS website@IRS.gov to fill out the pre-qualifier.

Remember if you are in a higher tax firm make sure you check on their Better Business Bureau rating, their fees and costs, and asked to speak to the person directly that will be handling your case.

IRS Improving Tax ID Theft + Here is What is New

 

Fresh Start Tax

 

IRS, Security Summit Partners Expand Identity Theft Safeguards for 2017 Filing Season, Build on 2016 Successes

The Internal Revenue Service, state tax agencies and industry partners today finalized plans for 2017 to improve identity theft protections for individual and business taxpayers after making significant inroads this year against fraudulent returns.

Public and private sector leaders announced today that their collective efforts through the Security Summit initiative have led to a marked improvement in the battle against identity theft during 2016.

This is highlighted by the number of new people reporting stolen identities on federal tax returns falling by more than 50 percent, with nearly 275,000 fewer victims compared to a year ago.

At a Washington press conference, Summit leaders also detailed new and expanded safeguards for taxpayers in the upcoming 2017 tax season.

The 2017 focus revolves around “trusted customer” features that will help ensure the authenticity of the taxpayer and the tax return – before, during and after a tax return is filed. The additional protections will build on the 2016 successes that prevented fraudulent returns and protected tax refunds.

 

Summit Helps Produce Successes in 2016 Against Identity Theft; Victims Down by Half

Security Summit initiatives put in place in 2016 had a dramatic impact on the collective ability to identify and stop fraudulent returns. Key IRS statistics show decreases because Summit efforts were successful at preventing fraudulent returns from entering tax processing systems. This meant fewer bad returns, fewer bad refunds and fewer taxpayers becoming victims.

Among the examples seen by the IRS:

 

Identity theft affidavits fell sharply.

The number of people who filed affidavits with the IRS saying they were victims of identity theft dropped 50 percent during the first nine months of this year compared to 2015. The number of new affidavits filed fell to 237,750 compared to 512,278 for the first nine months of 2015.

 

More fraudulent returns stopped before processing.

IRS statistics show a nearly 50 percent drop in the number of fraudulent returns that made it into the IRS tax processing systems– another sign the Summit efforts are working up front in the tax process. Through September of this year, the IRS stopped 787,000 confirmed identity theft returns, totaling more than $4 billion. For the same nine-month period in 2015, the IRS stopped 1.2 million confirmed identity theft returns, totaling about $7.2 billion.

 

Fraudulent refunds fell.

The number of bank partners grew to 620 institutions from 514 institutions in 2015, enabling internal processes to continue improving. The number of suspect refunds stopped by banks and returned to the IRS dropped by more than 50 percent, to 108,539 in 2016 compared to 243,361 in 2015, demonstrating our improved ability to stop fraudulent returns before refunds are paid. The dollar amount of suspect refunds dropped to $239 million from $829 million in 2015.

 

Shared information stopped more bad returns.

Industry and state partners provided information that helped improve IRS fraud filters and stop additional bad tax returns, including 57,000 that would have bypassed IRS processing filters without Summit assistance.

Shared data elements helped identify new areas. Several new data elements shared on tax returns from Summit partners helped the IRS stop over 74,000 suspicious returns, representing over $372 million in refunds that were prevented from being paid.

 

More Steps Planned for 2017 Tax Season

 

For the 2017 filing season, the IRS and Summit partners will take additional actions. As with 2016, many of the new features will not be visible to taxpayers but will provide the IRS and states with the information they need to identify and stop fraudulent identity theft returns.

Among the new or expanded features for 2017 that will protect taxpayers and the tax system:

New data elements transmitted by the tax industry with every tax return have been updated and expanded.

In all, 37 new data elements will be added for 2017, providing additional information to strengthen the authentication that a tax return is being filed by the real taxpayer.

The tax industry will share with the IRS and states 32 data elements from business tax returns – extending more identity theft protections to business filers as well as individuals.

More than 20 states are working with the financial services industry to create their own version of a program that allows the industry to flag suspicious refunds before they are deposited into taxpayer accounts.

Also, private sector partners are enhancing efforts to identify the “ultimate bank account” to ensure that the refunds go into the true taxpayers’ accounts – not fraudsters.

The Form W-2 Verification Code initiative started by the IRS last year will expand to 50 million forms in 2017 from 2 million in 2016. When completing a tax return, the 16-digit verification code should be entered when prompted by tax software used by both individuals and tax professionals to validate the information on the Form W-2.

The IRS anticipates the verification code will be expanded in future years for all Forms W-2.

The software industry will continue to enhance software password requirements for individuals and tax professional users – providing additional safety prior to filing.
Taken together, these “trusted customer” features will help the IRS and states do an even better job of detecting fraudulent returns and protecting taxpayers.

As part of that effort, the Summit partners will launch a new Identity Theft Tax Refund Fraud Information Sharing and Analysis Center, or ISAC.

This project, in its initial stages for 2017, will serve as an improved early warning system – identifying emerging identity theft schemes and quickly sharing that information among Summit partners so that all of the participants can enact safeguards.

Summit partners believe an ISAC ultimately promises significant gains in detecting and preventing identity theft refund fraud and will provide better data to law enforcement to investigate and prosecute identity thieves.

This effort will provide all Summit partners with a threat assessment capability, early warnings about problems and insights about identity theft fraud schemes through nimble and agile information sharing.

 

IRS Improving Tax ID Theft + Here is What is New

IRS Tax Audits Experts + Hobby Loss Tax Audits + New Report + Expert IRS Tax Audit Help

 

Fresh Start Tax

 

The treasury Inspector General audits the Internal Revenue Service from time to time on different issues.

After a thorough and detailed review of the IRS procedure the Inspector General found many areas of improvement that the Internal Revenue Service should employ,below is that report.

 

Opportunities Exist to Identify and Examine Individual Taxpayers Who Deduct Potential

 

Hobby Losses to Offset Other Income

The Treasury Inspector General for Tax Administration (TIGTA) today publicly released its audit report of the Internal Revenue Service’s (IRS) methods of addressing taxpayers who take business tax deductions for activities not engaged in for profit.

TIGTA found that the IRS can improve its methods for identifying high-income taxpayers who may be offsetting their income with “hobby losses” from unprofitable business activity.

The tax code allows taxpayers to deduct all ordinary and necessary expenses paid or incurred in carrying on a trade or business.  However, in the “hobby loss” provision in the tax code, the IRS generally disallows business tax deductions for activities not engaged in for profit.

TIGTA found that the IRS does not maximize the use of all relevant and available taxpayer information to identify hobby losses, and when returns containing potential hobby losses are selected for audit, the examiners do not always address the hobby loss issues.

A September 2007 TIGTA report found that approximately 1.2 million taxpayers in Tax Year 2005 may have used hobby losses to reduce their taxable incomes to potentially avoid paying $2.8 billion in taxes.

Identifying and auditing additional individual returns that improperly deduct hobby losses could help to reduce noncompliance in this area.

This audit was initiated as a follow-up to that previous 2007 report to determine whether the IRS was maximizing opportunities to identify the most significant Schedule C, Profit or Loss From Business, noncompliance.

The overall objective of this review was to determine whether the IRS is taking sufficient action to minimize improper Schedule C losses claimed by taxpayers.

TIGTA’s evaluation of IRS data from Processing Years 2011 through 2014 identified 9,699 individual returns from Tax Year 2013 that claimed a Schedule C loss of at least $20,000, gross receipts of $20,000 or less, and reported wages of at least $100,000.

The taxpayers also reported losses in four consecutive years (Tax Years 2010 to 2013).

TIGTA’s review of a statistically valid sample of 100 returns determined that 88 returns (88 percent) showed an indication that the Schedule C businesses were not engaged in for profit.  TIGTA estimates that 7,511 returns in the total sample population of taxpayers may have inappropriately used hobby loss expenses to reduce taxes by as much as $70.9 million for Tax Year 2013.

“Taxpayers with significant amounts of income from other sources may attempt to reduce their tax liability by including losses from activities not engaged in for profit,” said J. Russell George, the Treasury Inspector General for Tax Administration.  “The IRS needs to effectively identify these taxpayers in order to deter future non-compliance,” he added.

TIGTA recommended that the IRS:

1) make use of its research capabilities to identify high-income individual returns with multiyear Schedule C losses and other factors that indicate the taxpayer may not have a profit or capital gain motive for the activity, and

2) emphasize the importance of the required checks of filed tax returns in the preliminary determination of whether to pursue a hobby loss issue and provide tools to assist examiners in documenting their conclusion.

 

IRS Tax Audits Hobby Loss Tax Audits + New Report + IRS Tax Audit Help

 

IRS Audits + Many Have No Collection Potential

Fresh Start Tax

 

Office of Audit

Examination Collectibility Procedures Need to Be Clarified and Applied Consistently

Final Report Issued on September 7, 2016
Highlights
Highlights of Reference Number:  2016-30-070 to the Internal Revenue Service Commissioner for the Small Business/Self-Employed Division.

IMPACT ON TAXPAYERS

Throughout an examination, examiners are expected to follow Internal Revenue Manual procedures to consider the taxpayer’s ability to pay a potential assessment.

Taxpayers who have financial difficulties and cannot afford to make tax payments may be further burdened if the IRS audits them for additional assessments that they cannot pay.  Further, taxpayers may be treated inconsistently when examiners do not follow procedures to consider a taxpayer’s ability to make payments.

WHY TIGTA DID THE AUDIT

In Fiscal Year 2015, 50 percent of all Field Collection closures and 19 percent of all Automated Collection System closures of taxpayer delinquent accounts resulting from an examination were closed currently not collectible.

This audit was initiated to determine whether the Small Business/Self-Employed Division Examination function is properly and accurately performing collectibility determinations before and during Field and Office examinations.

 

WHAT TIGTA FOUND

Examiners did not follow collectibility procedures in 62 (56 percent) of 110 sampled cases, which involved 101 separate instances in which procedures were not followed.

Specifically, examiners did not always consider collectibility, document their collectibility evaluations, or discuss collectibility issues with their managers.

Additionally, examiners did not always contact the Collection function when Examination function procedures required them to do so, refer required cases to the Collection function, or complete financial information needed to assist in future collection efforts.

TIGTA estimates there were 1,731 Office examination cases and 1,445 Field examination cases in which employees did not follow established collectibility procedures and the case was later worked and closed by the Collection function as currently not collectible—with the IRS having received no taxpayer payments.

Further, while examiners survey cases (i.e., close the case without conducting an examination) for some reasons, examiners rarely survey cases due to collectibility concerns.

Following collectibility procedures and coordinating with the Collection function helps ensure that both Examination and Collection function personnel are using their limited resources efficiently.

TIGTA also determined the Examination function has no reports or measurement systems related to the collectibility of examiner assessments.  Without this information, IRS management does not have complete information to make changes or improvements to meet goals.

The ultimate goal of considering collectibility during an examination is to decrease accounts receivable and increase the quality of assessments.

Meanwhile, from Fiscal Years 2010 to 2015, gross accounts receivable increased from $138 billion to $171 billion (24 percent), while the amount written off as uncollectible receivables increased from $103 billion to $130 billion (26 percent).

Examination management informed us they were not aware that the Enforcement Revenue Information System allowed them to track collectibility data, so it was not being used for that purpose.

WHAT TIGTA RECOMMENDED

TIGTA recommended that the IRS take several corrective actions to improve collectibility determinations and communication between the Examination and Collection functions and use available data resources to measure and track collectibility as it relates to examination assessments.

60 day New Procedure Helps People Making IRA and Retirement Plan Rollovers Easier

Fresh Start Tax

 

New Procedure Helps People Making IRA and Retirement Plan Rollovers
IR-2016-113, Aug. 24, 2016

The Internal Revenue Service today provided a self-certification procedure designed to help recipients of retirement plan distributions who inadvertently miss the 60-day time limit for properly rolling these amounts into another retirement plan or individual retirement arrangement (IRA).

In Revenue Procedure 2016-47, posted today on IRS.gov, the IRS explained how eligible taxpayers, encountering a variety of mitigating circumstances, can qualify for a waiver of the 60-day time limit and avoid possible early distribution taxes.

In addition, the revenue procedure includes a sample self-certification letter that a taxpayer can use to notify the administrator or trustee of the retirement plan or IRA receiving the rollover that they qualify for the waiver.

Normally, an eligible distribution from an IRA or workplace retirement plan can only qualify for tax-free rollover treatment if it is contributed to another IRA or workplace plan by the 60th day after it was received. In most cases, taxpayers who fail to meet the time limit could only obtain a waiver by requesting a private letter ruling from the IRS.

A taxpayer who missed the time limit will now ordinarily qualify for a waiver if one or more of 11 circumstances, listed in the revenue procedure, apply to them.

They include a distribution check that was misplaced and never cashed, the taxpayer’s home was severely damaged, a family member died, the taxpayer or a family member was seriously ill, the taxpayer was incarcerated or restrictions were imposed by a foreign country.

Ordinarily, the IRS and plan administrators and trustees will honor a taxpayer’s truthful self-certification that they qualify for a waiver under these circumstances. Moreover, even if a taxpayer does not self-certify, the IRS now has the authority to grant a waiver during a subsequent examination. Other requirements, along with a copy of a sample self-certification letter, can be found in the revenue procedure.

The IRS encourages eligible taxpayers wishing to transfer retirement plan or IRA distributions to another retirement plan or IRA to consider requesting that the administrator or trustee make a direct trustee-to-trustee transfer, rather than doing a rollover.

Doing so can avoid some of the delays and restrictions that often arise during the rollover process.

 

Waiver of 60-Day Rollover Requirement Rev. Proc. 2016-47

SECTION 1. PURPOSE

This revenue procedure provides guidance concerning waivers of the 60-day rollover requirement contained in §§ 402(c)(3) and 408(d)(3) of the Internal Revenue Code (“Code”). Specifically, it provides for a self-certification procedure (subject to verification on audit) that may be used by a taxpayer claiming eligibility for a waiver under §§ 402(c)(3)(B) or 408(d)(3)(I) with respect to a rollover into a plan or individual retirement arrangement (“IRA”).

It provides that a plan administrator, or an IRA trustee, custodian, or issuer (“IRA trustee”), may rely on the certification in accepting and reporting receipt of a rollover contribution. It also modifies Rev. Proc. 2003-16, 2003-4 I.R.B. 359, by providing that the Internal Revenue Service may grant a waiver during an examination of the taxpayer’s income tax return. An appendix contains a model letter that may be used for self-certification.

 

SECTION 2. BACKGROUND
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01 Sections 402(c)(3) and 408(d)(3) provide that any amount distributed from a qualified plan or IRA will be excluded from income if it is transferred to an eligible retirement plan no later than the 60th day following the day of receipt. A similar rule applies to § 403(a) annuity plans, § 403(b) tax sheltered annuities, and § 457 eligible governmental plans. See §§ 403(a)(4)(B), 403(b)(8)(B), and 457(e)(16)(B).

.02 Section 401(a)(31) requires that a plan qualified under § 401(a) provide for the direct transfer of eligible rollover distributions. A similar rule applies to § 403(a) annuity plans, § 403(b) tax-sheltered annuities, and § 457 eligible governmental plans. See §§ 403(a)(1), 403(b)(10), and 457(d)(1)(C). Section 1.401(a)(31)-1, Q&A-14, provides examples of situations in which a plan administrator may reasonably conclude that a contribution, whether made via a direct transfer or a 60-day rollover, is a valid rollover contribution to a § 401(a) or 403(a) plan.

Several of the examples illustrate circumstances under which a plan administrator may rely on certain certifications and documentation that a rollover contribution that is not a direct transfer is being made no later than 60 days following receipt.

.03 An IRA trustee reports a rollover contribution received during a year on a Form 5498, IRA Contribution Information, for that year.

.04 Sections 402(c)(3)(B) and 408(d)(3)(I) provide that the Secretary may waive the 60-day rollover requirement “where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement.”

.05 Under §§ 7508 and 7508A, the time for making a rollover may be postponed in
the event of service in a combat zone or in the case of a Presidentially declared disaster or a terroristic or military action. See § 301.7508-1 and Rev. Proc. 2007-56, 2007-34 I.R.B. 388.

.06 Rev. Proc. 2003-16 establishes a letter-ruling procedure for taxpayers to apply to the IRS for a waiver of the 60-day rollover requirement under § 402(c)(3)(B) or 408(d)(3)(I). Section 3.03 of Rev. Proc. 2003-16 also provides for automatic approval for a waiver of the 60-day rollover requirement in certain circumstances in which a rollover is not made timely due to an error on the part of a financial institution.

.07 Rev. Proc. 2016-4, 2016-1 I.R.B. 142, provides the procedures for issuing letter rulings on matters under the jurisdiction of the Commissioner, Tax Exempt and Government Entities Division.

SECTION 3. SELF-CERTIFICATION

.01 Written self-certification. A taxpayer may make a written certification to a plan administrator or an IRA trustee that a contribution satisfies the conditions in Section 3.02 of this revenue procedure. This self-certification has the effects described in Section 3.04 of this revenue procedure. Taxpayers may make the certification by using the model letter in the appendix on a word-for-word basis or by using a letter that is substantially similar in all material respects. A copy of the certification should be kept in the taxpayer’s files and be available if requested on audit.

.02 Conditions for self-certification.

(1) No prior denial by the IRS. The IRS must not have previously denied a waiver request with respect to a rollover of all or part of the distribution to which the contribution relates.
(2) Reason for missing 60-day deadline. The taxpayer must have missed the 60- day deadline because of the taxpayer’s inability to complete a rollover due to one or more of the following reasons:
(a) an error was committed by the financial institution receiving the contribution or making the distribution to which the contribution relates;
(b) the distribution, having been made in the form of a check, was misplaced and never cashed;

(c) the distribution was deposited into and remained in an account that the taxpayer mistakenly thought was an eligible retirement plan;

(d) the taxpayer’s principal residence was severely damaged; (e) a member of the taxpayer’s family died;
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(f) the taxpayer or a member of the taxpayer’s family was seriously ill; (g) the taxpayer was incarcerated;
(h) restrictions were imposed by a foreign country;
(i) a postal error occurred;
(j) the distribution was made on account of a levy under § 6331 and the proceeds of the levy have been returned to the taxpayer; or
(k) the party making the distribution to which the rollover relates delayed providing information that the receiving plan or IRA required to complete the rollover despite the taxpayer’s reasonable efforts to obtain the information.
(3) Contribution as soon as practicable; 30-day safe harbor. The contribution must be made to the plan or IRA as soon as practicable after the reason or reasons listed in the preceding paragraph no longer prevent the taxpayer from making the contribution. This requirement is deemed to be satisfied if the contribution is made within 30 days after the reason or reasons no longer prevent the taxpayer from making the contribution.

.03 Reporting on Form 5498. The IRS intends to modify the instructions to Form 5498 to require that an IRA trustee that accepts a rollover contribution after the 60-day deadline report that the contribution was accepted after the 60-day deadline.

.04 Effect of self-certification.
(1) Effect on plan administrator or IRA trustee. For purposes of accepting and reporting a rollover contribution into a plan or IRA, a plan administrator or IRA trustee may rely on a taxpayer’s self-certification described in this Section 3 in determining whether the taxpayer has satisfied the conditions for a waiver of the 60-day rollover requirement under § 402(c)(3)(B) or 408(d)(3)(I). However, a plan administrator or an IRA trustee may not rely on the self-certification for other purposes or if the plan administrator or IRA trustee has actual knowledge that is contrary to the self-certification.
(2) Effect on taxpayer. A self-certification is not a waiver by the IRS of the 60-day rollover requirement. However, a taxpayer may report the contribution as a valid rollover unless later informed otherwise by the IRS. The IRS, in the course of an examination, may consider whether a taxpayer’s contribution meets the requirements for a waiver. For example, the IRS may determine that the requirements for a waiver were not met because of a material misstatement in the self-certification, the reason or reasons claimed by the taxpayer for missing the 60-day deadline did not prevent the taxpayer from completing the rollover within 60 days following receipt, or the taxpayer failed to make the contribution as soon as practicable after the reason or reasons no longer prevented the taxpayer from making the contribution. In such a case, the taxpayer may be subject to
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additions to income and penalties, such as the penalty for failure to pay the proper amount of tax under § 6651.
SECTION 4. ADDITIONAL WAIVERS DURING EXAM
In addition to automatic waivers and waivers through application to the IRS under Section 3 of Rev. Proc. 2003-16, the IRS, in the course of examining a taxpayer’s individual income tax return, may determine that the taxpayer qualifies for a waiver of the 60-day rollover requirement under § 402(c)(3)(B) or 408(d)(3)(I).
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective on August 24, 2016.
SECTION 6. EFFECT ON OTHER DOCUMENTS
Rev. Proc. 2003-16 is modified by Section 4 of this revenue procedure.
SECTION 7. PAPERWORK REDUCTION ACT
The collections of information contained in this revenue procedure have been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U.S.C. § 3507) under control number 1545-2269.
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number.
The collections of information in this revenue procedure are in Section 3.01. The collection of information relates to a certification by taxpayers wanting a waiver of the 60- day requirement for rollovers of distributions from plans or IRAs. The collections of information are required to obtain a benefit.
The likely recordkeepers are individuals. Estimates of the annualized cost to respondents are not relevant, because each collection of information in this revenue procedure is a one-time collection.
Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by § 6103.

DRAFTING INFORMATION

The principal author of this revenue procedure is Roger Kuehnle of the Office of Associate Chief Counsel (Tax Exempt and Government Entities).
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Plan Administrator/Financial Institution Address
City, State, ZIP Code
Dear Sir or Madam:

Appendix
Certification for Late Rollover Contribution

Pursuant to Internal Revenue Service Revenue Procedure 2016-47, I certify that my contribution of $ [ENTER AMOUNT] missed the 60-day rollover deadline for the reason(s) listed below under Reasons for Late Contribution. I am making this contribution as soon as practicable after the reason or reasons listed below no longer prevent me from making the contribution. I understand that this certification concerns only the 60-day requirement for a rollover and that, to complete the rollover, I must comply with all other tax law requirements for a valid rollover and with your rollover procedures.
Pursuant to Revenue Procedure 2016-47, unless you have actual knowledge to the contrary, you may rely on this certification to show that I have satisfied the conditions for a waiver of the 60-day rollover requirement for the amount identified above. You may not rely on this certification in determining whether the contribution satisfies other requirements for a valid rollover.

Reasons for Late Contribution

I intended to make the rollover within 60 days after receiving the distribution but was unable to do so for the following reason(s) (check all that apply):
___  An error was committed by the financial institution making the distribution or receiving the contribution.
___  The distribution was in the form of a check and the check was misplaced and never cashed.
___  The distribution was deposited into and remained in an account that I mistakenly thought was a retirement plan or IRA.
___  My principal residence was severely damaged.
___  One of my family members died.
___  I or one of my family members was seriously ill.
___  I was incarcerated.
___  Restrictions were imposed by a foreign country.
___  A postal error occurred.

Name
Address
City, State, ZIP Code
Date: ______________________

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___ The distribution was made on account of an IRS levy and the proceeds of the levy have been returned to me.
___ The party making the distribution delayed providing information that the receiving plan or IRA required to complete the rollover despite my reasonable efforts to obtain the information.
Signature
I declare that the representations made in this document are true and that the IRS has not previously denied a request for a waiver of the 60-day rollover requirement with respect to a rollover of all or part of the distribution to which this contribution relates. I understand that in the event I am audited and the IRS does not grant a waiver for this contribution, I may be subject to income and excise taxes, interest, and penalties. If the contribution is made to an IRA, I understand you will be required to report the contribution to the IRS. I also understand that I should retain a copy of this signed certification with my tax records.
Signature: ________________________________