FAQs – Tax Resolution
What is an Installment Agreement?
An Installment Agreement allows a taxpayer to take monthly payments to the Internal Revenue Service in order to repay a tax debt over time. In some cases, an Installment Agreement may repay only a portion of the tax debt which is referred to as a Partial Pay Installment Agreement.
What is fresh start?
Payment Plans, Installment Agreements
You can make monthly payments through an installment agreement if you’re not financially able to pay your tax debt immediately. However, you will reduce or eliminate the amount of penalties and interest you pay and avoid the fee associated with setting up an installment agreement if you pay your tax bill in full. Before you apply:
• File all required tax returns;
• Consider other sources (loan or credit card) to pay your tax debt in full to save money;
• Determine the largest monthly payment you can make; and
• Know that your future refunds will be applied to your tax debt until it is paid in full.
Fees for setting up an installment agreement:
• $52 for a direct debit agreement;
• $120 for a standard agreement or payroll deduction agreement; or
• $43 if your income is below a certain level.
Individuals: apply for an installment agreement
• Apply online if you owe $50,000 or less in combined individual income tax, penalties and interest;
• Complete and mail Form 9465, Installment Agreement Request (PDF);
• If you owe more than $50,000, complete and mail Form 9465 and attach Form 433-F, Collection Information Statement (PDF);
• Call 800-829-1040 or the phone number on your bill or notice.
Small Businesses: apply for an In-Business Trust Fund Express installment agreement
• Apply online if you owe $25,000 or less in payroll taxes;
• Call the IRS Business and Specialty Tax assistance line 800-829-4933;
• Call the number on your bill or notice;
• More information
Understand your agreement, avoid default
To keep your account in good standing:
• Pay at least your minimum monthly payment when it’s due (direct debit or payroll deductions make this easy);
• Include your name, address, SSN, daytime phone number, tax year and return type on your payment;
• File all required tax returns on time;
• Pay all taxes you owe in full and on time (contact us to change your existing agreement if you cannot);
• Continue to make all scheduled payments even if we apply your refund to your account balance; and
• Ensure your statement is sent to the correct address, contact us if you move or complete and mail Form 8822, Change of Address (PDF).
If you don’t receive your statement, send your payment to the address listed in your agreement.
There may be a reinstatement fee if your agreement goes into default. Penalties and interest continue to accrue until your balance is paid in full. If you are in danger of defaulting on your payment agreement for any reason, contact the IRS immediately. The IRS will generally not take enforced collection actions:
• When an installment agreement is being considered;
• While an agreement is in effect;
• For 30 days after a request is rejected, or
• During the period the IRS evaluates an appeal of a rejected or terminated agreement.
What is an Offer In Compromise?
An Offer In Compromise allows a taxpayer to settle a tax debt with the Internal Revenue Service for an amount that is less than the amount owed. There are three basic types of Offers In Compromise: Doubt as to Collectibility, Doubt as to Liability, and Effective Tax Administration (ETA). Doubt as to Collectibility means that doubt exists that the taxpayer could ever pay the full amount of the tax liability owed within the remainder of the statutory period for collection. Doubt as to Liability means that a legitimate doubt exists that the taxpayer owes part or all of the assessed tax liability. ETA means that the taxpayer does not have any doubt that the tax is correct and there is potential to collect the full amount of the tax owed, but an exceptional circumstance exists that would allow the Internal Revenue Service to consider an offer. For an ETA offer, the taxpayer must demonstrate that collection of the tax would create an economic hardship, or would be unfair or inequitable. ETA offers are extremely rare.
What is Currently Not Collectible Status?
Currently Not Collectible status is for taxpayers facing serious financial hardship. By demonstrating financial hardship to the Internal Revenue Service, the IRS will place a collection hold on a taxpayer’s delinquent account. During the collection hold, the IRS will not attempt enforced collections or require payments from the taxpayer. The Internal Revenue Service will keep any refunds or overpayments that may be due a taxpayer and apply them to the outstanding tax debt owed to the Internal Revenue Service while the taxpayer is in Currently Not Collectible status. Currently Not Collectible status allows taxpayers a chance to get back on their feet.
What is a Federal Tax Lien?
Many people do not realize that an IRS tax lien arises as a matter of law if a taxpayer fails to pay their tax debt within a specified time after the Internal Revenue Service issues its first notice and demand for payment. The tax lien attaches to all of a taxpayer’s real, personal, and intangible property. This means that the Internal Revenue Service becomes a secured creditor. The Internal Revenue Service can then record the tax lien, by issuing a Notice of Federal Tax Lien. This gives notice to the public that the Internal Revenue Service has a secured interest in the taxpayer’s property to the extent of the tax debt, which gives the Internal Revenue Service superior rights to a taxpayer’s property over any subsequent secured interest in the taxpayer’s property.
What happened to my refund?
If a taxpayer owes a tax debt to the IRS, the IRS will keep any refunds or overpayments on any subsequent tax period and apply them to the outstanding tax debt. The IRS will keep a refund even if a taxpayer is on an approved installment agreement or in currently not collectible status. The IRS will continue to keep refunds and overpayments until the tax debt is paid in full or it expires due to the statute of limitations, also known as the collection statute expiration date. If an Offer in Compromise is accepted, the IRS will only keep the refund for the year in which the offer in compromise was accepted. However, if the offer in compromise is defaulted the IRS may resume keeping refunds and overpayments. Taxpayers may also lose out on a refund if the statute of limitations for claiming the refund expires.
How much will the IRS take if they Levy my wages?
The IRS sets forth a table in IRS Publication 1494 identifying the income amount exempt from an IRS levy on wages. Many taxpayers faced with an IRS wage garnishment are shocked at how much of their income the IRS can take. In many instances taxpayers are left unable to pay all of their basic expenses. This is why it is so important to address IRS tax problems and make them a priority to resolve. Once the IRS issues a wage levy it is possible to obtain a levy release, but it can be an extremely stressful thing for a taxpayer to deal with.
What is the Collection Statute Expiration Date?
The Collection Statute Expiration Date (CSED) is the length of time the IRS has to collect on a delinquent tax. The IRS has ten years from the time a tax is assessed to collect the tax and any accrued interest and penalties. If the CSED passes, the IRS is no longer permitted to collect from the taxpayer. There are events that can extend the CSED such as filing an Offer In Compromise, or filing bankruptcy. The IRS can also file a lawsuit against a taxpayer to obtain a court judgment on a delinquent tax debt giving the IRS a much longer time period to collect on the tax debt.
How do I adjust my tax withholdings?
Form W-4 is used to set or adjust withholdings with an employer. IRS Publication 919 explains to taxpayers how to set the appropriate tax withholdings. It is very important to set tax withholdings correctly. Under withholding can lead to a tax balance too big to pay. If a taxpayer under withholds year after year, the IRS may issue the employer a “lock-in” letter that specifies the maximum number of withholding allowances. The IRS suggests taxpayers check their withholdings anytime there is a change in financial circumstances that affects the taxpayer’s tax liability, there is a change in the tax law, when a taxpayer gets a big refund, or when there is balance due subject to a penalty or that is more than a taxpayer can comfortably pay.
Do I owe tax on cancelled debt?
Debt that is forgiven or cancelled generally must be included as part of a taxpayers taxable income. There are numerous exceptions that allow cancelled debt to be excluded as taxable income such as the one created by the Mortgage Forgiveness Debt Relief Act of 2007, the insolvency exception, or debt discharged in bankruptcy. The IRS provides an overview of cancelled debt in IRS Publication 4681.
How does an IRS bank levy work?
When a bank receives an IRS levy on a customer’s account, the bank will place a hold on funds in the account up to the amount of the levy for a period of 21 days. Only those funds in the account at the time the levy is received by the bank are subject to the levy. A taxpayer can use the 21 day time period to negotiate with the IRS for a release or modification of the levy.
What is the Federal Levy Program?
The Federal Levy Program was initiated in 2000 by the IRS, Department of the Treasury, and Financial Management Service. The Federal Levy Program allows the IRS to collect delinquent taxes by having the Financial Management Service withhold funds from certain types of federal payments. It is quite common for the IRS to use the Federal Levy Program to levy Social Security income. This type of levy is usually ongoing until a taxpayer’s delinquent tax debt is satisfied.
What is an IRS Revenue Officers?
IRS Revenue Officers are the IRS’s field collection professionals. The Revenue Officer’s primary objective is to protect the government’s interest as they attempt to collect delinquent taxes. They are well trained and notoriously difficult to deal with. Revenue Officers, commonly referred to as ROs, are well versed in locating income sources and assets in their effort to collect delinquent taxes. Revenue Officers have numerous tools at their disposal to help the collect back taxes. They can file Notices of Federal Tax Lien, issue levies on wages and bank accounts, and recommend asset seizures. If a Revenue Officer is assigned to your case, you should consider immediately consulting a tax attorney regarding your options.
What is reasonable collection potential?
Reasonable collection potential is the amount of delinquent taxes the IRS believes it can collect from a taxpayer in a given period of time. Reasonable collection potential is calculated using a number of factors including income, allowable expenses, equity in assets, retiring debt, and dissipated assets.
IRS Collection Financial Standards: Allowable Expenses
What expenses will the IRS allow when determining ability to pay delinquent tax debts? The IRS has established expense standards for several categories of expenses. In order to claim an expense, taxpayers must show the expense meets 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, welfare and/or production of income.
In order to help ensure taxpayers have adequate means of providing for basic living expenses, the IRS has developed national and local expense standards. These standards aid the IRS in evaluating a taxpayer’s ability to pay on back taxes. A national standard is one that is the same for everyone regardless of where they live. A local standard will vary with location due to regional cost differences.
National standards include:
1. Food, clothing and other items
This category of expenses includes five specific types of expenses. The categories are food, housekeeping supplies, clothing and clothing services, personal care products and services, and miscellaneous items. Each of the individual categories has their own standard defined.
2. Out of pocket medical
Out of pocket medical expenses include: prescriptions, medical and dental co-pays, and medical or dental bills. The IRS generally allows a set amount for each person in the household and the amount can vary based on age of the individuals that comprise the household. The IRS will frequently allow expense amounts that exceed the standard for this category with proper documentation.
Local standards include:
1. Housing and utilities
Housing and utilities include mortgage or rent, property taxes, homeowners or renters insurance, electricity, heat, water, sewer, garbage, phone, etc. Unfortunately, the IRS standard is not realistic. Many households will exceed the expense standard for this category resulting in some taxpayers having an artificially inflated ability to pay in the eyes of the IRS. While the IRS may allow expenses over the standard, the circumstances in which the IRS will do so are limited.
2. Vehicle ownership
IRS will allow vehicle loan or lease payments up to a set amount per vehicle. The IRS generally does not allow individuals to claim, as an expense, payments for extra vehicles such as a family’s third car driven by a child of driving age. Vehicles used in business require a bit more analysis determine how the vehicle expense should be treated. Although the vehicle ownership expense is the same regardless of location, it is still considered a local standard by the IRS.
4. Public transportation
Taxpayers that do not own a vehicle do not have the costs associated with operating a vehicle; therefore, the IRS will not allow a vehicle operating expense. The IRS does recognize that taxpayers without a vehicle must still get to work, the grocery store, the doctor’s, office, etc. The public transportation allowance is granted to acknowledge this expense. In some cases, taxpayer’s with a vehicle may also be entitled to the public transportation expense. For example, a taxpayer with impaired vision may be able to drive during the day, but is prohibited from driving in low light. Thus, the taxpayer relies on public transportation when driving conditions are not ideal. In this situation the IRS will generally allow the public transportation in addition to the vehicle operating with proper documentation of the reason why public transportation is actually used in addition to the operation of a vehicle. Like the vehicle ownership expense, the IRS considers public transportation to be a local standard even though it is the same amount for all taxpayers regardless of location.
5. Transportation operating
Transportation operating expense is the expensem a taxpayer spends to operate their vehicle and includes expense items such as fuel, insurance and maintenance.
Some standards are governed by household size. For example, the expense standards for food, clothing, etc. and housing expenses are set based on household size. When determining household size, the IRS often looks to a taxpyers income tax return and the number of exemptions claimed to help determine the proper number of persons in a household.
Other expenses are those expenses that meet the necessary expense test and are therefore allowed expenses. Other expenses commonly include, health insurance, court ordered payments, term life insurance, union dues, mandatory retirement. Other expenses generally require documentation before the IRS will agree to allow them as an expense in order to offset income.
Conditional expenses do not meet the necessary expense test. Generally, the IRS will not allow a conditional expense. Common expenses considered to be conditional expenses are credit card payments, tuition, and charitable contributions. However, the IRS may allow these expenses if tax debts, including projected accruals, can be fully paid within six years. Additionally, the IRS may allow up to one year to adjust conditional expenses in some cases.
Taxpayers are only allowed expenses they are required to pay. A non-liable party is a person that lives in the same household with a taxpayer responsible for a delinquent tax debt. When this is the case, the IRS will generally look at the income of both the liable party and the non-liable party and may allocate some expenses according to the percentage of income each brings into the household. This is called prorating expenses or a proration analysis.
FAQs – Business
What type of business structure is right for my business?
There are several ways to structure a business which include sole proprietorship, partnership, corporation, limited liability company, limited partnership, and limited liability partnership. The structure of any business should coincide with the specific needs of the business owner or owners. There are many variables to consider when forming a business and the Dunbar Law Group can assist in choosing the right structure for any business.
What is an Employer Identification Number?
An Employer Identification Number (EIN) is a tax identification number assigned to businesses by the Internal Revenue Service. An EIN is required for corporations, LLCs, LLPs, partnerships, and for sole proprietors under certain circumstances. For example, a sole proprietor will need an EIN when they have employees, or if they pay certain types of taxes like an excise tax.
What is California’s minimum franchise tax?
The California minimum franchise tax is the minimum tax amount that must be paid for the privilege of operating a corporation, LLC, LP or LLP. The current amount of the minimum tax is $800.00. The tax is imposed regardless of whether the entity is active, inactive or operating at a loss.
Will my personal assets be exposed to liability resulting from business activities?
The degree to which your personal assets are exposed to liability for business activities depends on the type of structure you choose for your business, whether personal guarantees are signed on debts of the business, and how well the business has conformed to applicable formalities, such as keeping personal and business assets separate, maintaining proper records, etc.
What is an S Corporation?
An S Corporation is a corporation that has filed an election with the IRS to be taxed as a pass through entity. This allows shareholders to avoid double taxation by reporting income and losses on their personal income tax return. A corporation must meet specific requirements in order to elect S Corporation status. The Dunbar Law Group can help determine if it is appropriate to elect to be taxed as an S Corporation.
How does a corporation issue stock?
A corporation must carefully consider both state and federal securities regulations before issuing stock. Generally, an offer or sale of stock must be qualified or registered with the Securities Exchange Commission (SEC) and the state unless an exemption applies. Common federal exemptions include the intrastate exemption and the exemptions set forth in Regulation D. Common California exemptions are those set forth in California Corporations Code sections 25102(f) and 25102(h). Even when an exemption applies, a filing is often required to notify the SEC or state that an offer or sale is being made in reliance on an exemption. Securities regulations are very complex and usually require an attorney to help ensure compliance.
What is a shareholders agreement?
A shareholders agreement is an agreement or contract between shareholders of a corporation. While a shareholders agreement is not required to form and operate a corporation, in some situations a well drafted shareholders agreement can help shareholders maintain positive working relationships. The shareholders agreement covers such things as shareholder voting, management, capital contributions, what happens when a shareholders wants out or dies, dispute resolution, etc.
What is an operating agreement?
An operating agreement is an agreement between members of a limited liability company (LLC). Even a single member LLC needs an operating agreement. It helps maintain the limitation on personal liability provided by the LLC. The operating agreement outlines such things as how the LLC will be managed, how profits and losses will be distributed, what happens when a member wants to leave the LLC or dies, etc.
For any other tax questions, please check www.irs.gov.
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