Apr 28, 2010

Identity Theft and Taxes- It happens to 1.2 million of us - and the IRS has no power to stop it- here is how you can!

In 2007, over 1.2 million "employees" had someone else using their Social Security Number. Identity theft cases at the IRS Taxpayer Advocates Office increased 93% from 2008 to 2009.

But that is not the worst of it.

If your identity is being stolen for employment purposes, the IRS cannot stop it (keep reading to see what you can do about it!). The IRS cannot notify the legitimate owner of the Social Security Number that he or she may be the victim of identity theft and take steps to address employment-related identity theft issues. So the misery lives on for the person whose SSN was stolen.

The reason that the IRS cannot notify the owner is due to very strict disclosure laws put on the IRS in identifying taxpayer information to third parties.

In addition, the IRS does not have sufficient enforcement resources to address most of these cases and it would not be worthwhile to pursue employment-related identity theft cases for unreported tax liabilities because, according to IRS officials, the taxes owed on most of these cases are not significant.

Tell that to the person who annually is struggling with their identity being stolen and having to worry about the IRS saying their tax return is incorrect. Here is what can and likely does happen to those who are victim of employment-related ID theft: When you do not report all of your Forms W-2 or 1099 income on your tax return, the IRS issues you a CP 2000 - Notice of Income Underreporting and proceeds to access you additional taxes. Those who have prior ID theft and have reported and proven it to the IRS have a "ID Theft" indicator on their account which may avoid additional inquiry into their account by the IRS. Those who do not have this ID Theft Indicator incur the wrath of an IRS inquiry or even an audit.

But here is Congress to the rescue.

In an effort to get through the IRS disclosure rules, Congress is proposing legislation that will allow the IRS to contact a victim of ID Theft if it arises in an IRS investigation.

Now let's be practical:

- the IRS is under-resourced in this area- it appears that the Taxpayer Advocate is the preferred route of many, and with ID Theft growing at 93%- it will soon be overwhelmed
- the victim of the ID theft usually brings the allegation forward - and after the damage has been done; if the IRS is to be proactively effective in ID Theft, it should implement procedures to notify individuals on wage and income statement irregularities before the damage is done

Now, here is what you can do about it-

If you believe you are a victim of employment related ID Theft or just want to check, you can do this just after you file your tax return on April 15th each year.

Here's how:

Each year the IRS keeps all of your Wage and Income information on a document called an "IRP". The IRP for all of your previous year's information on wages and other tax transactions reported under your SSN. You can get a copy of this by calling the IRS at 1-800-829-1040 and asking the representative to send it to you. It is normally available for the previous year around Memorial Day (i.e. 2009 wage and income statements are available to you around June 1, 2010).

When you get the Wage and Income statement, look at it closely for someone else using your SSN for employment purposes. The wage and income statement will have the name of the employer or payor and their address and employer identification number. You can use this to track down the employer and let them know that they have an employee that is using your SSN!!

By taking these actions, you can stop the cycle. The best news in this approach is that it is free. You will just need to do the detective work with the use of IRS documents.


Apr 26, 2010

2010 Tax Law Changes will provide relief for more with tax debt burdens

The Taxpayer Assistance Act of 2010, as proposed by the House Ways and Means Committee, has a critical amendment to section 7122 of the Internal Revenue Code.

What is section 7122 reference?
The Offer in Compromise (referred to by most as "Offer" or "OIC") for those with unpaid tax debts.

Specifically, Section 202 of the Act (not yet passed into law) removes the section 7122(c) "down payment" requirement of 20% of the amount of the Offer to the IRS to settle their tax liability. This would repeal the 2005 TIPRA law that required the 20% non-refundable down payment that was effective for all Offers submitted on or after July 16, 2006.

What was the the 2005 TIPRA (enacted in 2006) law's effect on the Offer in Compromise program?
The statistics speak for themselves. In 2005, there were almost 5.9 million new IRS inquiries into back taxes owed. In 2005, there were also approximately 74,000 OIC filed (about 12 filed an OIC for every 1,000 who owed and were being pursued by the IRS) with about 19,000 being accepted (about 1 in 4 allowed based on what was submitted).

In comparison, 2008 OIC statistics show the effects of the 20% down payment requirement. In 2008, there were 7.1 million new tax debtors being pursued by the IRS with only approximately 44,000 OIC submitted (that is a decrease to 6 out of every 1,000) with the same amount (25%) being accepted. Despite economic slowdowns and more qualifying in 2009, there was not a measurable increase in OIC submitted (about 7 in 1,000 who owed submitted but only 21% were accepted).

In fact, the IRS Taxpayer Advocate cites the 20% down payment requirement as the major obstacle for tax debt relief. The TAO states that this provision is actually a deterrent from tax compliance because it does not encourage those who are "over their head" to stay in the tax system. Also, the TAO argues the economics of the OIC: the IRS would get more money from the OIC v. the little the Treasury would collect if they started on a payment plan (approximately 39% of taxpayers incur additional tax liabilities that go unpaid).

The bottom line: when the 20% down payment requirement is repealed, more taxpayers will try the Offer in Compromise because there will be no significant barriers.


When does payment deferral or "currently not collectible" end with the IRS?

If you cannot pay your taxes, the IRS may have (at your request and providing of evidence to support not being able to pay) put you in currently not collectible status (IRS calls this "CNC" or "Status 53"). What this means is that you cannot pay now, but you may be able to pay later.

The question for most who obtain this status is: when will the IRS start to ask me to start paying again?

The answer lies in how the IRS put you into CNC.

The IRS can put you in CNC for several reasons:
1. You proved your basic living expenses (as allowed by the IRS) is greater than your income, or
2. The IRS could not locate you or your assets and "defaulted" you into CNC due to little or no collection potential

For our purposes, I will assume dituation #1 above - that your documented living expenses that you gave the IRS is greater than your income. When the IRS eventually grants you CNC status (after you have provided extensive documentation of your income, expenses and assets), it will be reviewed annually based on the total positive income ("TPI" is the gross income amounts you report on your return - not just the amounts that are taxable) you reported on your return OR the total positive income reported to the IRS under your SSN (if you did not file a return).

The IRS will assign a "closing code" to your CNC approval that will correspond to your annual expenses that you provided to the IRS to meet your basic, allowable living costs. These closing codes are in $8,000 increments starting at $20,000 and ending in $84,000. For example, if you were able to prove $39,000 a year in basic living expenses as allowed by IRS standards and you had income under that amount and no assets to liquidate, the IRS would put you in CNC with closing code "27" (TPI would have to be above $44,000 - i.e. you would not leave CNC until your TPI is above $44,000.

So, when will the IRS ask you to pay again? The answer is: when your income exceeds your expenses.


Apr 25, 2010

IRS must release levy in case of hardship- even if you have not filed all your returns

In a recent Taxpayer Advocate memorandum to its employees, the TAO has determined the IRS should follow a very unusual ruling in the Tax Court case, Vinatieri v Commissioner. In fact, the TAO informs its employees that it will grant relief to such taxpayers that are similarly defined as in the Vinatieri case.

Let me explain the situation:

- Taxpayer has tax debt
- By the IRS determination, taxpayer qualifies not to pay on the debt (i.e. qualifies for "currently not collectible")
- Appeals Office will not allow CNC because taxpayer did not file 2 years of required tax returns
- The IRS follows its procedure of requiring the taxpayer to be in "full compliance" - i.e. filed all required tax returns and up to date with withholding/estimated tax payments before hardship relief can be granted - and denies relief to the taxpayer
- Taxpayer disagrees and petitions the US Tax Court for relief
- Taxpayer wins and CNC and levy relief is granted despite all required returns not being filed.

Why is this ruling important?
This is a clear departure from the IRS "full compliance" requirement. There have been many individuals who have been denied levy relief and CNC due to unfiled tax returns. It will be interesting if the IRS follows this case or it requires all of these situations to go the the Taxpayer Advocate.

In any event, it is important to get all returns filed. In fact, it may "bounce" your CNC status if the unfiled returns trigger additional liability and the IRS has not coded the unfiled tax "modules" for advanced CNC approval. In fact, the IRS can start a "Taxpayer Delinquency Investigation" for not filing the required returns- and that is not a good option compared to voluntarily filing.

Let me know if I can help.


A Free Offer....if you Qualify for an Offer in Compromise

Last year, only 10,665 people recieved an Offer in Compromise on their tax debt. That's right- only 10,665 - and there were over 16 million people being pursued at one-time by the IRS for debt owed.

So your chances are very small - or are they?

Many people are suffering right now. Unemployment is right at about 10% nationwide with some areas much worse. A record number of new tax debt accounts are expected by the IRS. In fact, probably over 30 million people will file this year and owe: most will pay- some cannot.
Maybe some cannot pay the fees needed to consider an Offer. Maybe some people do not want to open up a can of worms with the IRS. Whatever the reason- I think there are many more who qualify but have no where to turn to see if it is right for them.

So here is the Offer-

I will file an Offer in Compromise - Doubt as to Collectibility - for free if you qualify. You would just have to pay the IRS the amount of the Offer in Compromise if you decide to file for a settlement. That's right- for free- no gimmicks- just straight talk: Do you qualify? If so, what would be your offer to the IRS- and I will work with you to file it. For nothing. And your conversation with me is confidential. In fact, if you want, you can never provide me your name in this process (it may limit my ability to take you through to the end- but you can see this for yourself).

What are my qualifications to help you?
I am a CPA- licensed in North Carolina. I worked for the IRS for 19 years. And most of all, after my IRS years, I have represented many people successfully before the IRS. If you want, you can voir dire my qualifications on the phone or by e-mail with some questions about your situation if you like.
The point is this: if you qualify, I want to help you. You will have to pay the IRS OIC amount- but you will have no fees from me. I have no desire to make money off of your plight.

Just one piece of consumer advice- do not hire a firm to do this for you without telling you everything. the OIC is not complicated, and if you qualify- I will tell you and walk you through it, step-by-step.

If you would like to take me up on my offer- e-mail me at Free.OIC@gmail.com - I will get back to you that night.

This is not a gimmick, a sales ploy, or any other hidden offer.

If I cannot help- I will point you in the right direction- promise.


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