by steve | Jun 3, 2010 | IRS Tax Advice
Economic Hardship as defined by the Internal Revenue Service
Everyone has their own definition of what an economic hardship might be in their own situation. When you have an IRS problem, the Internal Revenue Service has it’s own definition of an economic hardship. Below, is the standard that the IRS will use to determine ECONOMIC HARDSHIP. The standard has been a problem area for practitioners and taxpayers over the years. The IRS very rarely deviates from their Economic Hardship standard. This is from irs.gov made available to our client base.
SUMMARY OF ECONOMIC HARDSHIP
When the taxpayer’s liability can be collected in full, but collection of the federal tax would create an economic hardship, the IRS will consider all facts before taking collection action or enforcement action such as federal tax liens or federal tax levies.
The definition of economic hardship is derived from Treasury Regulations § 301.6343-1. An Economic hardship occurs when a taxpayer is unable to pay reasonable basic living expenses.
The determination of a reasonable amount for basic living expenses will be made by the Internal Revenue Service and will vary according to the unique circumstances of every individual taxpayer.
Unique circumstances, however, do not include the maintenance of an affluent or luxurious standard of living. The IRS in accordance with the United States Departmental of Labor have set up platforms to determine these hardship and living standards.
These standards are also being used by the United States Department of Justice in the normal course of U.S. bankruptcy proceedings.Because economic hardship is defined as the inability to meet reasonable basic living expenses, it applies only to individuals (including sole proprietorship entities).
Compromise on economic hardship grounds is not available to corporations, partnerships, or other non-individual entities.
The taxpayer’s financial information and special circumstances must be examined and fully documented to determine if they qualify for an economic hardship.
Financial analysis includes reviewing basic living expenses as well as other considerations. The IRS may go back for the last 3 years, examine all canceled checks and will complete a full asset check.They will examine credit reports and loan applications and sale of assets for the last 3 years. The IRS will also look to see if the taxpayer has placed assets beyond the IRS’ reach.
The taxpayer’s income and basic living expenses must be considered to determine if the claim for economic hardship should be accepted. Basic living expenses are those expenses that provide for health, welfare, and production of income of the taxpayer and the taxpayers family.
National and local standard expense amounts are designed to provide accuracy and consistency in determining taxpayers basic living expenses. These standards are guidelines and if it is determined that a standard amount is inadequate to provide for a specific taxpayers basic living expenses, allow for some change.
A check on our website can explain this more fully. The IRS will require the taxpayer to provide reasonable substantiation and document the case file. A 433-A financial statement is required by Internal Revenue Service on all these cases.
In addition to the basic living expenses, other factors to consider that have impact upon the taxpayers financial condition include:
a. The taxpayers age and employment status,
b. Number, age, and health of the taxpayers dependents,
c. Cost of living in the area the taxpayer resides, and
d. Any extraordinary circumstances such as special education expenses or natural disaster.
e. Medical situations that have effected the life of the taxpayer or others in his family.
f. The education of the taxpayer is sometimes considered as well.
g. This list is not all-inclusive. Other factors may be considered in making an economic hardship determination.
Factors that support an economic hardship determination may include:
The taxpayer is incapable of earning a living because of a long term illness, medical condition or disability, and it is reasonably foreseeable that the financial resources will be exhausted providing for care and support during the course of the condition.
The taxpayer may have a set monthly income and no other means of support and the income is exhausted each month in providing for the care of dependents.
The taxpayer has assets, but is unable to borrow against the equity in those assets, and liquidation to pay the outstanding tax liabilities would render the taxpayer unable to meet basic living expenses.
Someone in the immediate family of the taxpayer has been hit with a catastrophe.
An act of God causing an unforeseen occurrence.
Remember, each situation is different and each and every case is based on its own merit. No two cases are ever the same.
Fresh Start Tax can help guide you though each and every IRS situation that comes up. Call us today. 866-700-1040 Check us out on the web.
by steve | Jun 3, 2010 | IRS Tax Advice, Tax News
1.
The IRS will compare information, such as taxpayer income, expenses, etc., to information already on the IRS system of asset gathering. It is information gathered over the years through tax returns, 3 parties and levy sources.
2.
Full credit reports are required when conducting financial analysis and verification on the Large dollar Accounts, those over $100,000.00. In these cases, the IRS will do the following:
3.
Identify past residences and employers of the taxpayers. The IRS already has this information available.
Verify competing lien holders, balances due, and payment history of the taxpayer.
Identify indicators of potential assets not listed on the Collection Information Statement. The IRS also looks for badges of fraud.
Identify other creditors as lead for undisclosed assets.
4.
The IRS will also find out if you have given a financial statement to other 3 third parties and can summons for them as well.
5.
The IRS can Google your name and find out information about your case.
There may be instances when the balance due on an account in a Large Dollar Team is below the dollar amount for the above referenced LEM criteria; a full credit report may be considered to assist in locating taxpayer assets or as an aid in the verification of financial information prior to granting an Installment Agreement or closing as Unable to Pay.
6.
Secure pay stubs from all wage sources, only when necessary.
7.
Validate any unreasonable expenses to see if they should be included as necessary expenses.
8.
Verify and correct Form W-4 or estimated payments.
9.
Consider a withholding compliance referral for possible business accounts.
10.
If necessary, the IRS will secure banking records or other verification of income/expenses. Compare data to income and expense information provided by the taxpayer.
11.
Document the Account Management System in the case history and resolve all discrepancies. The IRS will continue to build an asset history on all taxpayers. Big Brother is watching.
12.
If proof of self employment income is required, secure proof for at least two months.
Invoices, bank statements, accounts receivable, commission statements,things of this sort, etc.
13.
Verify compliance with estimated tax payments and/or Federal Tax Deposit payments.
14.
Check to determine if the taxpayer previously defaulted on an Installment Agreement. If this is the case, the IRS will take a tougher approach.
15.
Strongly suggest use of a Payroll Deduction Installment Agreement or Direct Debit Installment Agreement.
16.
Advise taxpayers to submit voluntary payments if and whenever possible.
17.
If the taxpayer cannot full pay within the Collection Status Expiration Date, and does not meet Currently Not Collectible hardship criteria, follow Partial Pay Installment Agreement procedures.
18.
If unable to enter into an Installment Agreement, the IRS will refer to Installment Agreement rejection procedures and send the case out to a field agent.
Should you have any question, please call us at Fresh Start Tax today. 1-866-700-1040
by steve | Jun 3, 2010 | IRS Tax Advice
Eight ( 8) great tips if you owe money to the IRS on back taxes
Without question, these tips sum up everything you will need to know about owing monies to the IRS on your back individual income taxes.
1. When you get a tax bill from the IRS on back taxes, you are expected to promptly pay the tax owed including any additional penalties and interest. If you are unable to pay the amount due, it is often in your best interest to get a loan to pay the bill in full rather than to make installment payments to the Internal Revenue Service.
2. Most taxpayers do not know that they can also pay the bill by credit card. The nice thing about this, you can rack up some extra points on your credit card. To pay by credit card contact either Official Payments Corporation at 800-2PAYTAX, www.officialpayments.com, Link2Gov at 888-PAY-1040, or www.pay1040.com. These links get you right into the system to get your back tax situation cleared up immediately.
3. Another important factor to keep in mind is the fact that the interest rate on a credit card or bank loan may be lower than the combination of interest and penalties imposed by the Internal Revenue Code and by Congress. The IRS sends quarterly notifications on how much the interest rate will be. It fluctuates quarter by quarter.
4. You can also pay the Internal Revenue Service balance owed by electronic funds transfer, check, money order, cashier’s check or cash. To pay by using electronic funds transfer you can take advantage of the Electronic Federal Tax Payment System by calling 800-555-4477 or 800-945-8400 or online at www.eftps.gov. Should you have questions about this option feel free to call us at any time.
5. An installment agreement or part pay agreement by you the taxpayer may be requested if you cannot pay the tax liability in full. This is an agreement between you and the Internal Revenue Service for the collection of tax and the amount due in monthly installment payments. To be eligible for an installment agreement, you must first file all returns that are required and be current with estimated tax payments. The IRS will never enter into a payment agreement unless ALL tax returns have been filed.
6. If you owe $25,000 or less in combined tax, penalties and interest, you can request an installment agreement using the web-based application called Online Payment Agreement found at IRS.gov. Once again, all tax returns on any back years MUST be filed or IRS will not accept any agreement. These are easy, simple and free.
7. Another option is for you to complete and mail to Internal Revenue Service, Form 9465, Installment Agreement Request, along with your bill in the envelope that you have received from the Internal Revenue Service. The IRS will inform you usually within 30 days whether your request is approved, denied, or if additional information is needed. If the amount you owe is $25,000 or less, provide the monthly amount you wish to pay with your request. At a minimum, the monthly amount you will be allowed to pay without completing a Collection Information Statement, Form 433 A,B,or F, ( collection information statement ) is an amount that will full pay the total balance owed within 5 years or 60 months. Many times this is the single best option.
The taxpayer may still qualify for an installment agreement if you owe more than $25,000, but a Form 433F, Collection Information Statement, is required to be completed before an installment agreement can be considered. This financial statement will have to be fully documented with copies of pay stubs and all bills to support each and every expense. If your balance is over $25,000, consider your financial situation and you should propose the highest payment amount possible, as that is how the IRS will arrive at your payment amount based upon your financial information. Caution should be used when giving the IRS a financial statement. If the IRS is not comfortable with the terms and conditions of your proposal, you have given them a road map to your assets.
8. If a payment agreement is approved, a one-time user fee is charged. The user fee for a new agreement is $105 or $52 for agreements where payments are deducted directly from your bank account. For eligible individuals taxpayers with incomes at or below certain levels, a reduced fee of $43 will be charged, and is automatically figured based on your income.
Keep in mind if you cannot afford to pay your taxes at any time, the IRS has another program where the Service can suspend your case because it is considered a HARDSHIP. This is also called Currently Not Collectible (CNC) Check out our website for the topic and see if you qualify. If you do, Fresh Start Tax can help walk you through the process to make this happen.
by steve | Jun 3, 2010 | IRS Tax Advice, Tax News
Internal Revenue Service will pre-screening all potential Non-filers Badges of Fraud
1.
On the initial screening of a non-filer case, the IRS compliance employee must determine if the facts indicate potential fraud. Indicators of fraud to be considered. some of the Fraud indicators are as follows:
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History of non-filing or late filing and an apparent ability to pay;
This indicator of fraud is insufficient support for assertion of the FFTF penalty when not in combination with any of the other fraud indicators listed below.
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Repeated contacts by the Internal Revenue Service;
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Knowledge of the filing requirements such as advanced education (college), business (especially tax) experience, record of previous filing etc.);
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Failure to reveal or attempts to conceal assets;
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Age and occupation of the taxpayer;
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Substantial tax liability after withholding credits and estimated tax payments;
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Large number of cash transactions , payment of personal and business expenses in cash when cash payment is unusual and/or the cashing (as opposed to the deposit) of business receipts;
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Indications of significant income per Information Return Processing or Taxpayer Delinquency Investigation documents substantial interest and dividends earned, investments in IRA accounts, stock and bond transactions, high mortgage interest paid);
Consideration should be given to any allowable expenses the taxpayer may have to offset self-employment income.
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Refuses or is unable to explain the failure to file;
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Experience of the taxpayer in tax matters such as a law professor, financial sector experience ,CPA or tax attorney; and,
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Prior history of criminal tax prosecutions for Title 26 violations.
2.
If indications of fraud exist, the IRS compliance employee will discuss the case with the group manager. If the group manager concurs that the possibility of fraud exists, the fraud technical advisor will be contacted. Whenever feasible, a meeting will be held between the compliance employee, group manager and FTA to discuss the need for fraud development.Thre individuals are usually involved in this process.
3.
If the possibility of fraud exists:IRS will not
1.
DO NOT SOLICIT tax returns. If returns are submitted, they should be accepted.
2.
DO NOT VOLUNTEER ADVICE to the taxpayer concerning any course of action he/she should follow.
3.
DO NOT DISCUSS tax liabilities, penalties, fraud, or criminal referral possibilities with the taxpayer.
by steve | Jun 3, 2010 | IRS Tax Advice, Tax News
Development of Fraud Case by the Internal Revenue Service Key Question IRS will ask
1.
The following actions should assist the IRS employee in establishing affirmative acts of tax fraud:
1.
Interview the taxpayer to determine the reason or the intent of the taxpayers noncompliance.
2.
Ask sufficient questions to determine the extent of the delinquency, including the periods and tax due.
3.
Document verbatim, if possible, the questions asked and the taxpayers response or lack of response.
4.
Identify any personal reasons that could affect the taxpayers ability to comply.
5.
Attempt to get a definitive statement from the taxpayer regarding additional expenses not listed in the books and records. These expenses could include, but are not limited to, expenses paid in cash or “under-the-table ” payments to employees.Good luck.
6.
Attempt to establish year-end cash on hand for each year under investigation.
2.
Verify income from all available sources. Methods of income verification include, but are not limited to:
1.
Currency, Banking, and Retrieval System Information
2.
Information Data Retrieval System on the IRS’s own internal system
3.
Securing copies of Forms W?2 from employers and Forms 1099 from customers. IRS has on file the records for the past 7 years
4.
Securing copies of checks issued to the taxpayer from Form 1099 issuer(s);
5.
Examining the taxpayers books and records of income and expenses;
6.
Reviewing the last return filed. This will assist in identifying income sources as well as deductions and exemptions used in tax computations; and
7.
Securing current financial information including a check of public records for assets, and a physical observation of the taxpayers residence, place of business and/or other identified properties. This information will be used to determine whether the taxpayer had the ability to pay the taxes owed when the return(s) was required to be filed.
3.
IRS will access to a full credit report is governed by the Fair Credit Reporting Act (Act). The IRS will pull up credit reports from all the agencies and do a full check on financial applications given to third parties. since most individuals tend to spike up their financial information, it is a great source of information to the IRS Agent.
by steve | Jun 2, 2010 | IRS Tax Advice
Audits are on the rise will you be one.
The number of IRS Tax Audits has risen every year. Fresh Start Tax experts expect that trend to continue, with the ballooning federal deficit and the additional $400 million earmarked for tax enforcement in the upcoming fiscal year, IRS has also more federal agents to make this happen. The government needs to collect the money’s somehow and this is part of the plan.
You should know that your audit risk in any one given year is very slim, marginal at best. IRS statistics show the percentage to be just over 1% if your income is under $200,000, 2% from there to $1 million, and 6% for the super super super rich, based on 2009 data. You can check the data out yourself on the IRS.GOV website Those selected tend to be self-employed or have unusually large write-offs. DIF scores are used by IRS to determine who gets audited for the most part. Audit letters typically go out 18 months after the filing date.
If you are one of the unlucky few to get the dreaded nasty letter from the Internal Revenue Service, be sure to take the action required within the time frame allotted, usually 30 days. Otherwise the dispute becomes a final assessment and moves on to the collections department of the IRS they will take enforcement action if you do not respond to the letters being sent..Open all mail from the IRS and be responsive to it, met all deadline they give you in the letter. Notify IRS of any address changes so you get all your mail.
Hire a professional tax firm like Fresh Start Tax, former IRS agents.
Three-quarters of audits are conducted by mail, They are called mail correspondence audits. With the IRS simply requesting documentation on a specific parts of the return. You can handle this type of audit on your own. But if someone else prepared your taxes, they should be able to help you for free. The fee you paid the professional many times may covers such help, and the agreement you have may put the person on the hook for mistakes. Most professional are very willing to help their clients.
Watch what comes out of your mouth
In any audit, avoid offering information beyond what’s asked for. You might unwittingly give evidence that could expand the scope of the investigation.Some questions IRS asks are set up questions, that is in fact just what I would do when I worked for the IRS. People have no idea what is coming there way.
Be friendly, get in and get out.
If you do not like the results, go to the auditor boss and remember you can always appeal the proposed assessment.
A rule of thumb to keep in mind, if you have nothing to fear, be your own representative, if you have tax issues, pull out the wallet. It will save you monies in the long run.
For more comprehensive examination check out our site for in-depth detail.
