Jun 19, 2009

Reviewing legalbitstream.com, a comprehensive tax law database

So, Jim sent me an email earlier this morning to share that he and Tal had found a Tax Law and IRS Material database called Legal bitstream. This site has some value and some opportunity for improvement. Before we get into that, here is a brief description of Legal bitstream.

The site is owned and operated by Mayfield Publishing Company, located in Houston, TX, and has been live since 2003. It offers the ability to search all Tax cases from 1990 to the present. Also, you have the option of searching various IRS materials, including revenue rulings, executive orders, and Treasury decisions. The IRS materials date back to 1954, depending on the type of materials. In addition to those two database search capabilities, Legal bitstream provides links to government pages such as the Internal Revenue Code and IRS Forms & Publications.

Value

  • A comprehensive one-stop shop for tax law and IRS-related information
  • The ability to search all of these documents for particular keywords and phrases
  • It's Free!
Opportunity for Improvement

The search feature needs some work. Search results include any documents that contains your keyword phrase. This means that it could be mentioned one time, way down near the bottom, as a part of the case description, while you were looking for cases that have that phrase as part of the subject (perhaps the plaintiff or defendant). Being able to search the subject and not the detailed description could help users find information much quicker.

Think about when you do a book search in a library database. It gives you the option of isolating your search among book titles, authors, publishers, or descriptions. If you don't choose any of those options, you can still search among all of those segments simultaneously. Having the same functionality on this site would be extremely powerful and would add so much value to what's already there.

Additionally, search is the only way to find information. There is no browse feature. So, you better know what you're looking for ahead of time.

Give Legal bitstream a shot. On the About Us page, they remind you that the site is free to use...for now. They are still deciding if and when this will be a fee based site.

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Jun 17, 2009

IRS Debt...Avoiding the headaches

I currently manage a client base that typically owes the IRS in excess of $10,000 and one of the most common issues that I run into when trying to explain what options my clients have in resolving their tax debt is getting them to understand that they may have to adjust their lifestyle in order to obtain a successful resolution.

So what does "adjusting their lifestyle" mean? It means that when you owe the IRS, especially if you owe in excess of $25,000, you more than likely are going to have to give up some luxuries or some expenses that you have grown accustom to.

You see, the IRS is not a creditor and they are not a bank. Your debt with them is more serious and carries more consequences than any debt that you may owe, including credit cards and mortgage payments.

I often hear my clients complain that they cannot afford what the IRS is trying to make them pay per month, however what they often fail to understand is that the IRS is not going to allow you to have an extravagant lifestyle when you owe them money.

Now, that is not to say that most of my clients live an extravagant lifestyle, however the way the IRS views this, especially if you owe for multiple years and well in excess of $25,000, you would not have been able to afford the lifestyle that you are/were living had you actually paid the taxes you owed.

This is especially a problem for my clients who were from the mortgage or financial services industries. They once made enormous salaries, and in the process, also incurred enormous expenses, such as large car payments, huge mortgage payments and increased their debt load on their credit cards. Well, now their income is drastically less, however they still have the large expenses that they acquired during their booming years and to top if off, now the IRS is enforcing collection against them.

The problem is that the clients, are spending every nickel they have to pay the $900 a month car payment, the $4500 a month mortgage payment and their $750 a month credit card bills, but they are still not paying the IRS. They, then don't understand why the IRS wants them to pay $1200 a month, when from their perspective they are broke. In actuality, yes, they are broke, but from the IRS's perspective they can afford to make a payment. Why, because they are living above their means and the IRS isn't going to allow them to live in excess of their means when there is a balance owed to them.

First, the IRS isn't going to allow the credit card payment at all. That means the client can pay at least $750 per month to the IRS. Next the IRS isn't going to allow the entire car payment nor the entire mortgage payment either. The IRS will allow up to $489 for a car payment and the housing and utility standards for the clients area will determine the monthly total that they will allow. Any amount in excess of the allowable living standards, the IRS will construe as disposable income and will want it as part of an installment agreement.

In short, do yourself a favor... if you owe the IRS, take a good look at your expenses that you are paying on a monthly basis and ask yourself...."if someone owed me money, would I allow them to pay this expense before they paid me?"

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Jun 11, 2009

Have an Offshore Account- It is Official- the IRS will be geared to chase you...

It is official...the IRS has asked the US Senate for over $128 million to hire 800 new IRS Agents to track down high income Americans who hide their assets overseas.

According to Treasury Secretary Timothy Geithner:

"A total of $332 million would be devoted to new Internal Revenue Service (IRS) enforcement efforts, including $128.1 million to add nearly 800 new IRS employees to combat offshore tax evasion and improve compliance with U.S. international tax laws by businesses and high-income individuals. Another $130 million would go to bolster the security of the IRS information technology, improve the efficiency of its business systems and upgrade its fraud detection capabilities."

The IRS appears, at least politically, serious about chasing down clandestine foreign bank accounts. Whether this will bear any fruit remains to be seen.

The deadline for filing the Treasury Form TD F 90-22.1 is June 30th. Miss the deadline or past deadlines and the IRS promises it will use its resources to find you and enforce penalties for non-compliance.

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Jun 7, 2009

Unemployed and Owe Tax Debt?

Times are tough.

Here are the obvious economic signs as of June 1, 2009:

1. Unemployment is almost at 10% and is expected job losses are to continue at least through the end of 2009
2. Property values are dropping in most sectors of the United States
3. The Stock Market is almost 5000 points from its all time high
4. Businesses are failing as the economy weakens
5. The price of gas is approaching $2.50 a gallon nationwide again after a relief period that saw prices under $2 for some time (I still beleive that this is the most significant economic indicator for the past forty years and beyond until we rid ourselves of dependency on a foreign cartel- but that is another story)
6. Savings for Americans is dropping in order to pay for their rough times

Americans have sometimes coped with these tough times with certain transactions that, at the end of the year, translate into a significant tax bill that they are not able to pay. Here are some common transctions that are resulting in tax debt:

1. Liquidating 401(k)retirement accounts and Individual Retirement Accounts prematurely- these transctions, if classified as premature distributions, result in significant tax bills due to putting the recipient into a much higher than normal tax bracket (the highest bracket is 38%) if their distribution is significant PLUS an additional 10% penalty on early withdrawal of the pension/IRA funds. This rate can be as much as 48%. Becuase the "normal" withholding rule is only 20% of the distribution, this distribution can leave the recipient with a large tax bill at the end of the year.
2. Cancellation of Debt Income due to not paying credit cards or foreclosure on your home/other property- when credit card and mortgage/debt holders stop paying their debts, the lender may "write off" the debt or foreclose on the property. This transaction will lead to cancellation of debt income. Whether this income is taxable or not is based on a complex set of rules. If the income is taxable, it can have a resulting tax bill that significant. In fact, the IRS is expected to have almost 2 million debt cancellation income transctions reported to them in 2008. There is no federal income tax withheld on these transctions and thus, a potential tax bill if the income is fully or even partially taxable.
3. Changes made to withholding or not making required estimated tax payments- many Americans are changing their federal income tax withheld from their paychecks (this is done by changing the exemptions and/or filing status for withholding on a Form W-4with the employer). Furthermore, business owners and individuals who have significant investment income, are foregoing paying their quarterly estimated tax payments. Thus, at the end of the year, there is a signifcant tax bill due if their business income or investments have produced gains.
4. Extending unemployment income- normally, most people do not realize that unemployment income is taxable. In fact, there are many new filers for unemployment that they may beleive that the income will not be significant or even taxable. To make matters worse, most people who draw unemployment have no federal income tax withheld. An extended period of unemployment may have taxes due from the sources of income that do not have withholding, like unemployment, which results in a tax bill.
5. Businesses not remitting their payroll taxes to the IRS- businesses who are also "employers" are required to withhold FICA and federal withholding from their employees and remit these funds over to the Treasury. However, in tough times, some of these businesses withhold the funds, but do not pay them to the Treasury. Not paying withheld employment taxes to the IRS has serious consequences. The IRS takes this non-payment of taxes as the highest collection priority as the Treasury is paying refunds to taxpayer/employees despite not having the funds that the employer has not sent the IRS. If you are in this position, you have serious IRS problems.

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Jun 3, 2009

IRS Levy, Certified Letters, Wage Garnishment...Don't wait

It's that time of the year for the IRS to being stepping up their enforcement. So, what does that mean? It means liens and levies...lots of them.

So what do you do if you receive a notice of intent to levy?
Well, first don't wait and do nothing, because they are coming and they are not going to wait on you. You need to be proactive and do several things.

1. Make sure all of your tax returns are filed, at least for the past 6 years. Why, you ask? Because the IRS is going to require them before they stop any enforced collection or release any type of levy.

If all of your returns are not filed, then find a tax preparer who can file outstanding returns and one who will verify your income against IRS records to ensure they are properly prepared. Make sure that they also date stamp your returns to ensure IRS compliance is met.

2. Determine the total amount that you owe for all years, not just the years that are listed on the levy notice if you know you owe for more years. This will be important to getting your levy released or to prevent the levy before it happens.

Why is this important? Because the IRS is going to require that you resolve all of your outstanding tax issues at once before they are going to release or stop any levies.

The total amount of taxes owed for all years combined will help determine what options are available to you to resolve your tax debts. The rest is determined by your current financial situation.

If your liability is less then $25,000 in total for all years, then the simplest and easiest resolution to obtain to prevent or release any levies is what is know as a "Streamlined Installment Agreement".

This will allow you to pay of your entire liability at a set payment per month over a 60 month period. As long as you make that payment then the IRS will simply leave you alone.

If you owe over $25,000 or if you cannot afford to make the streamlined payment amount then be prepared to go through a full financial investigation. This investigation will compare your current household income and expenses to what the IRS will allow as necessary living expenses for the area in which you live in. There are expenses that the IRS allows and there are expenses that the IRS does not allow, such as credit card payments.

So if you owe less than $25,000 and the only reason you cannot afford the streamlined amount is due to a monthly credit card payment, do yourself a favor, save yourself some time and headaches by forgetting about the credit card payment and agree to the streamlined payment, because the IRS isn't going to allow the payment anyway if you decide to go through the full financial disclosure, and they will then want at least the amount of that payment as a monthly payment to them and potentially more.

If you don't feel you understand the information that the IRS is requesting from you or you don't understand the documents and forms they are sending to you, then seek professional help.

In General, you should seek help anytime you owe in excess of $25,000, as it substantially more difficult to get into resolution with the IRS when you are in excess of $25,000.

Don't seek someone who is going to promise you a "settlement" as there is a 99% change that it will never happen. They know it, and you shouldn't fall for it. Find someone that will be brutally honest with you and tell you exactly what can be done, rather than giving you false promises that will never come true.

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