Mar 26, 2009

Don't have last year's Form W-2? Here's what to do:

Okay, so you haven't filed last year's return or you have several years of unfiled returns and you have finally decided to get them filed. However, you don't have your Forms W-2 and/or Forms 1099. Don't despair, you can request them from the IRS.

The IRS keeps a database of your reported income information. These are called your IRP files, which stands for Income Reported from Payee. The IRS keeps this information for each individual tax year for all taxpayers who had reported income.

Each IRP file will list all of your income sources for that year, whether it is Form W-2 income, Form 1099 income, mortgage interest, retirement account distributions, stock transactions and even student loan interest and tuition payments. The IRS will have all of it!

There is one catch though. If you had W-2 income and had state tax withholdings, your IRP will not tell you what your state tax withholding amounts are. The IRS does not keep track of that information and unfortunately most states that have a state income tax do not keep track of it either. So you might have to go back to your employer you worked for that year and request a copy of your Form W-2 from them.

The few states that keep an IRP database like the IRS are...
1. California
2. Minnesota
3. Michigan
4. Louisiana
5. Georgia
6. New York
7. West Virginia
8. Pennsylvania
9. Maryland
10. Delaware

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Mar 11, 2009

Can I get my penalties abated or removed?

That is one of the most common questions that I receive from my clients and there is no simple answer for it. The only answer is...it depends! So what does it depend on?

It depends on the what penalties are assessed and it depends on reasonable cause. Certain penalties are assessed by the examination function of the IRS (think audit and Revenue Agent) and other penalties are assessed by the collections function (think levies, liens and Revenue Officer), however it mainly depends on your reasonable cause.

Reasonable Cause is an event or circumstance beyond your control that prevented you from being able to comply with tax law. Meaning the cause prevented you from either being able to file the return, file it correctly and accurately, prevent you from paying the tax owed, or a combination of any of those types of events. Some examples of reasonable cause are the following.


  • Medical condition (includes addictions) that does not allow you to file/pay your taxes (needs to also impair the client’s ability to maintain other aspects of their life: e.g. personal finances, ability to work, ability to obtain professional advice, etc.)
    Documentation includes: medical notes from physicians, medical bills, other financial bills/bankruptcy, disability claims (SSA), lack of income, lack of employment, etc.

  • A reliance on a tax professional or other professional for your tax preparation, tax deposits, and tax filings (includes incorrect advice if the client can show the advice received, e.g. in writing).
    Documentation includes: Engagement Agreement with the professional, lawsuits filed against the professional, if the professional was an employee- documentation on the dismissal of the employee and analysis of reasons for dismissal that relate to tax non-compliance, etc.

  • An Act of God occurred that caused a hardship that did not allow the client to comply: e.g. Fire, flood, hurricane, tornado, etc. (needs to also impair the client’s ability to maintain other aspects of their life: e.g. personal finances, ability to work)
    Documentation includes: evidence of the disaster, insurance claims, description of property/records lost, etc.

  • Loss or theft of records that were outside of the client’s control, e.g. papers destroyed by employee, etc.
    Documentation includes: police reports, employee dismissal documentation, etc.
  • The client was a victim of a crime, e.g. embezzlement
    Documentation includes: police reports, insurance claims, etc.

  • The IRS makes an error and the client relies on the information provided, e.g. they inform the client (and there is proof of the advice- preferably in writing) that an item is non-taxable and it is taxable.
    Documentation includes: IRS person that the advice was received (including badge ID #), written advice received by the IRS


The IRS will review all the facts and circumstances in considering abatement of penalties. This includes:

• The taxpayer’s reason for the delinquency or error,
• The taxpayer’s previous history of compliance,
• The length of time between the taxpayer’s reason cited for noncompliance and the taxpayer's subsequent compliance, and
• Whether the circumstances were beyond the taxpayer’s control, e.g. reasonable cause

Proving “reasonable cause"however is not always enough.

For example:
• The accuracy-related penalty (e.g. negligence): The taxpayer must also prove that he acted in good faith.
The failure to file and failure to pay penalties: The taxpayer must also show that the failure was not due to willful neglect

So when asking if the penalties can be abated, you need to ask yourself this first. Do I have reasonable cause!

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Does the IRS want you to take a loan from them?

IRS Interest Rates at an all time low- 4%

Effective 4/1/2009, the IRS will charge the lowest interest rate that it has ever charged since the inception of the 1954 tax code: 4%. It has only been this low on one other occasion: the 10/1/03 through 3/31/04. The previous quarter interest rate was 5%.

Is this the kindler, gentler IRS? Is this another government bailout program by charging lower interest rates on tax debt to stimulate the economy?

Hardly, the IRS is just following the rules for determining the interest rates. The rate is the federal short term rate plus three % and is compounded daily.

That means when interest rates are low, even the IRS cannot charge you a larger amount. However, the normal failure to pay penalty rate is still one-half percent per month on taxpayers not in an agreement with the IRS (then it is one-quarter of a percent) and not in IRS Collection Enforcement (then it is 1% per month while in enforcement).

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Mar 5, 2009

You Have Mail...IRS Certified

If you have received certified mail from the IRS, you more than likely owe taxes and the IRS is about to begin enforcing collection of those taxes. You also more than likely have received other IRS letters that were not certified regarding your tax liability.

What most people do not understand is that the IRS letter cycle is their warning system and they are trying to warn you that you need to resolve your tax issue or they will begin enforcement of that liability through liens and Levies. And the letters that they send just before they begin issuing liens and Levies come certified.

Why? Because the IRS is required to by law. DO NOT think that by not going to the post office to sign and receive your certified mail is going to stop them from enforcing collection of your past due taxes. That is irrelevant. The fact that they sent the notice via certified mail fulfills their judicial obligation before they can begin levying your assets, such as your wages and bank accounts.

Here is how the IRS letter cycle normally works when you owe taxes.

First Letter- Notice of Balance Due (Letter code CP14 or CP11, you can find these codes normally in the top right corner or bottom right corner of the notice) This notifies you that they are attempting to collect past due taxes.

Second Letter- 1st Payment Notice (CP501)- "You need to pay your balance". If you owe for multiple years the IRS can skip this notice and move to the third letter

Third Letter- 2nd Payment Notice (CP503)- "You need to pay your balance immediately"

Fourth Letter/Certified Mail-Notice of Intent to Levy (CP504) "If you do not pay your balance, enforced collection will begin"

Fifth Letter/Certified Mail*- Final Notice of Intent to Levy and Your rights to a Hearing (CP90, CP91, CP92, CP242, L1058, L11, L1085) "A Levy is Imminent"
*if no CP504 issued

The above list is just a fraction of all the notices and correspondence that the IRS issues for every possible tax issue and it is not exhaustive, however that is the normal collection notice cycle.

The point is this. If you have received certified mail from the IRS, you have a limited amount of time to react before they begin to levy your assets. This means you need to react now and be proactive in resolving your tax situation. Obviously it would be in your best interest to be proactive from the first letter you receive to give you and/or your representative the most amount of time to resolve the issue since dealing with the IRS on any tax issue is time consuming and time is of the essence.

If you do not understand any notice or letter that the IRS has sent you, then seek an expert Tax Professional to help you.

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