Frequently Asked Questions on Bankruptcy, Tax Liability, and Debt Relief
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How can I get the IRS to release a levy when I have not filed my tax returns?
Bad news and good news…
Here’s the bad news: If you have not filed your return and you’re getting levied, the IRS is going to demand you file your return before they agree to release the levy.
Now here’s the good news. By demonstrating that the levy is preventing you from paying your bills, the levy will be released without filing the returns.
In the case of Vinatieri v. Commissioner, 133 T. C. 892 (2009), the United States Tax Court held that the IRS is required to release levies even if tax returns are not filed as long as the taxpayer can show that the levy is causing economic hardship.
If you have not filed your tax returns, you’re not alone. Since 1998 Faith Firm has helped thousands of tax payers. Give us a call and we’ll ease your mind.
To receive a free of charge tax problem analysis that may provide real peace of mind, give us a call. Or get the Faith Firm free book, How to Get Tax Forgiveness.
How can I file back tax returns when I’m missing receipts, checks and documents?
Yes. You are not required to be 100% accurate. You are not required to have every document, receipt, check and paycheck. These are myths.
Start by asking businesses you worked for if they can send you copies of a 1099 or W-2. If they don’t have those records, contact the IRS at 1 800 829 1040 and request a computer printout with the income information from the years you did not file. The printout will show the minimum amount of income you must report on your tax return.
Another method to reconstruct income is by IRS Form 4852, Substitute W-2. Attach it to the front of your tax return when you file. For missing 1099 income data, make your best estimate. There is no separate form for estimating 1099 payments.
Bank account records may be available as well, but be careful so you don’t report loans, gifts, and sale of assets as income. As time passes, people forget the sources of payments and deposits. For example, I had a client who made a capital contribution to his business from another one of his businesses. The IRS claimed it was income. It was not income. We submitted a simple affidavit to put a stop the Agent’s foolishness.
As far as expenses, the IRS permits good faith estimates. You can recreate expense habits even if direct records are inadequate. The IRS allows deductions to be reasonably recreated and estimated. For example, for business use of automobiles, determine how many miles were driven in a year and what percentage was for business. Calendars can be referenced to recreate a log of business trips. If a prior-year return was filed based on actual records, it can serve as a reference point to determine a range of expenses for other returns where records are missing or incomplete.
When you’re ready to file, have your tax professional file at an IRS walk-in center. Do not mail the returns. Bring an extra copy of each return and have each return file stamped as proof of filing. It can take several months to process the returns. If you owe money, you can utilize the tax forgiveness solutions outlined in the free book, How to Get Tax Forgiveness.
I have not filed my tax returns. What should I do?
Relax! Three things to keep in mind:
One. Get advice on whether you even have to file your back returns. The obligation to file a tax return is triggered by the receipt of taxable income in excess of the statutory filing requirement for the tax year in question. Thus, first determine if you were even required to file. Furthermore, the IRS will usually not chase non-filers six years after the filing due date. IRS Policy Statement P-5-133. Exceptions are where the government believes substantial underreporting of income or fraud were involved.
Two. If you do have to file, the IRS now allows non-filers a fair opportunity to come forward without being prosecuted. However, if the IRS finds you first, you may not be granted the same leniency. You also feel a little better to know that
Three. Remember that the 10 year time limit to collect starts with an assessment of tax. Unless you file a tax return, the time to collect won’t start. So it just makes good sense to get the right tax advice and sleep well at night knowing the IRS is not about to rear its ugly head!
Get the Faith Firm free book, How to Get Tax Forgiveness. Or give us call!
How can I avoid paying estimated quarterly payments?
When you form a limited liability company (LLC), it is automatically treated as a “disregarded entity” by the IRS. One-member LLCs are taxed as sole proprietorships, and multiple member LLCs are taxed as partnerships. Business owners who operate as disregarded entities must pay quarterly estimated payments or be subject to penalties by the IRS.
In my opinion, such classification does not offer the same tax benefits of an S corporation, but on the other hand the LLC requires less formality than an S or C corporation. So how can you have the best of both worlds?
Two easy steps:
Step One: If you have not already formed an LLC, you can quickly create one, and use a tax professional to make sure you do it right. The LLC avoids many of the formalities of the S or C Corporation.
Step Two: An LLC can elect under the check-the-box rules to be classified as a corporation. The LLC files the election to be taxed as a corporation on Form 8832, Entity Classification Election, and the effective date of the classification election on Form 8832 cannot be more than 75 days before the date on which the election is filed and it cannot be more than 12 months after the date on which the election is filed. In other words, the classification change can be retroactive for up to 75 days before the entity files Form 8832.
If you need help with this or any other tax issue, call to discuss your situation initially free of charge, or get our free book, How to Get Tax Forgiveness.
What can I do if the IRS denied my innocent spouse claim?
U.S. Tax Court can be an innocent spouse’s best friend. You may go direct into the United States Tax Court under two circumstances:
- If they deny your innocent spouse claim for relief. You have ninety days from the date of the final determination in which to file a petition seeking a review. While the ninety day is pending, and while the U.S. Tax Court case is pending, the IRS cannot take collection.
- If the IRS does not rule on your innocent spouse claim within six months, you can file a petition for review directly with U.S. Tax Court even without the IRS having made a decision. This prevents the IRS from engaging in delay tactics.
Hire a tax lawyer who is specifically licensed in U.S. Tax Court. CPAs and Enrolled Agents are not licensed in U.S. Tax Court, and most lawyers are not either.
If you have been raked over the coals by a former spouse, Faith Firm is here to help you! Get a free “I want to ease my mind” consultation or read our free ebook.
Keep the faith! Now that your trouble maker spouse is out of your life, you can get the tax problem out of your life too!
How do I avoid underpayment penalties for estimated tax payments?
This is a constant issue for business owners and independent contractors. You’re required to pay the IRS quarterly, or you get hit with an expensive underpayment penalty. People often increase their income due to cashing in an investment or simply generating more income, but they fail to make adequate estimated tax payments. The underpayment penalty is also common with recently retired folks whose payroll income is replaced by pension and Social.
Here are two simple cures to avoid underpayment penalties:
- As long as your payments to the IRS are equal to or exceed 90% of your current year’s tax liability, you will meet the safe harbor amount and avoid an underpayment penalty.
- In the alternative, choose a safe harbor amount that is calculated based on the tax liability you owed in the previous tax year. As long as your current year’s estimated tax payments are equal to or exceed 100% of the amount you paid the IRS the previous tax year, you will meet the safe harbor amount and avoid an underpayment penalty.
If you are already facing an underpayment penalty or other tax problem with the IRS, it may not be too late to avoid forking over your hard earned money to the IRS.
Call Faith Firm and let’s discuss how to resolve your tax issues. Or get the free book, How to Get Tax Forgiveness.
My divorce agreement says my spouse is responsible for the tax debt, and the IRS is coming after me. What can I do?
This is a frequent problem. You’re not alone. Financial obligations, bad marriages and divorce seem to meld together into an ugly, painful mess. The innocent spouse gets stuck holding the bag for the schmuck spouse that created the mess. Fortunately, the IRS offers a way out for the innocent spouse.
If you have a divorce decree that states your ex is responsible for the tax obligations, that agreement has some influence with the IRS, and yet it is not going to make the tax problem just go away. The IRS will consider other factors like what you knew about the unpaid taxes, your involvement as an income earner, was there abuse, and how much you benefited from the income that created the tax liability for which the IRS is pursuing you.
Furthermore, if you can show that your signature on the joint return was forged or that you signed the return under fraud or duress, the IRS will convert your joint liability to a separate one, and you will be off the hook for paying your ex spouses’ tax debt.
And remember, other tax solutions are available if the innocent spouse solution doesn’t get it resolved. Consider tax solutions such as the offer in compromise, partial pay, hardship, bankruptcy and a collection time limit defense.
Bottom line is there is no such thing as a hopeless tax case. Get a free copy of the Faith Firm book, How to Get Tax Forgiveness.
Am I responsible for the tax of my ex-spouse?
Not necessarily. Most married couples file one return together with both you and your spouse’s income and deductions on it. Tax problems occur when the IRS contacts you for under reported income, unpaid taxes, underpaid taxes, improper deductions, or some other issue on the return. Even if these issues were caused by your ex, the IRS will consider you equally responsible.
Even if you later divorce, you can be on the hook. And even if a divorce decree states that your former spouse is responsible for any tax debt from previously filed joint returns, you can still be on the hook.
However, here is the good news. You may be entitled to relief from your spouses’ liability if you can show the IRS that you are an “innocent spouse.” Innocent spouse relief is a fairness doctrine. It weighs several factors in determining whether, in fairness, the innocent spouse should be held responsible for the spouse who created the mess.
We would be happy to discuss how you may qualify for innocent spouse relief.
Get a free copy of the Faith Firm book, How to Get Tax Forgiveness. It will shed some more light on solving tough tax problems. Remember, there is no such thing as a hopeless tax case.
Can I be held personally responsible for my employer’s unpaid payroll tax?
Yes. Even if you don’t own the business or work in the business, the IRS can collect unpaid payroll withholding taxes from the business, the owners of the business, as well as officers, managers, supervisors and certain employees who had control over payroll or writing checks.
To determine if you may be personally responsible for unpaid employment withholding taxes, it is important to consider these factors:
- Are you an owner of the business?
- Were you in control of the business’ financial decisions?
- Did you make the decision not to pay the IRS?
- Are you an officer or director?
If you receive a visit from an IRS Revenue Officer, it’s vital you get an experienced, tough, clever tax attorney on your side.
Get the Faith Firm free book, How to Get Tax Forgiveness. Or give us a call and we can discuss it initially free of charge. Peace of mind could quite literally be 60 seconds away!
How do I deal with unpaid payroll taxes?
An effective Trust Fund defense anticipates IRS enforcement action before it begins. It is vital to have a clear understanding of what action the IRS will take, before they take it. One strategy we use frequently is immediately getting the case out of the hands of a Revenue Officer by appealing to more agreeable IRS department.
Here are four key tips if you are concerned about trust fund or pay roll tax:
First, when it comes to trust fund tax, it’s “shoot first, and ask questions later.” The IRS is going to gather information to determine personal liability of the Trust Fund Recovery Penalty by using Form 4180, Report of Interview with Individual Relative to the Trust Fund Recovery Penalty. Take caution because this form is used to cast a wide net and hold as many individuals as possible personally responsible for the penalty. The IRS will quickly prosecute trust fund assessments even from individuals who should not be held liable.
Second, make sure the IRS applies the payments toward the trust fund liability first. The IRS will collect the tax from the business entity, but apply the payment to the non-trust fund taxes because the IRS can later hold individuals personally liable for the trust fund portion. Remember that the non-trust fund taxes are compromised of the employer’s matching social security (FICA), unemployment compensation (FUTA) and Medicare fund. These matching contributions come from the employer’s resources, rather than deducted from employee paychecks. You have a right to designate how the payments are applied.
Third, do not allow your emotions and wishful thinking to cloud your good judgment and dig yourself into a deeper financial hole. The IRS may attempt to shut down the business and force the sale of assets and receivables. You can resist this, but the IRS will not allow a business to continue without paying all current taxes on time and having a plan in place - backed by real numbers – to pay the delinquent liabilities.
Fourth, make sure you know about all solutions to eliminate the penalties as well as the unpaid tax liability. For example, the IRS has discretion to not hold you personally responsible if you can demonstrate that payment of the trust fund recovery penalty will create hardship for you and your family. See Internal Revenue Manual § 126.96.36.199(2) and § 188.8.131.52.1 for further explanation of trust fund defenses.
Get the Faith Firm free book, How to Get Tax Forgiveness. Or give us a call for a free “peace of mind” discussion.