Eliminate Tax Debt with an IRS Offer in Compromise

Are your unpaid back taxes overwhelming you? Are you looking for tax debt relief?  If you don’t think you will ever be able to pay off your tax debt, you may be able to eliminate a large portion of your tax debt with an IRS Offer in Compromise.

With an Offer in Compromise, the IRS may agree to settle your tax debt for less than you owe.

There are three types of Offers the IRS will accept to settle a tax debt.

Doubt as to Collectibility
If you can show that you do not have the assets or the income to pay off the tax debt, the IRS will take what they can get, and write off the rest of your tax debt. Be warned, it is the IRS that determines how much you need to live each month, and what your assets are worth. But if you have no assets, and your income is not enough to meet the IRS’s definition of required living expenses, you have a good chance of having your offer in compromise accepted.

Doubt as to Liability
If can show that there is uncertainty as to whether or not you actually owe the taxes assesed, the IRS may be willing to settle for considerably less than the original assessment. If you believe the tax examiner interpreted the law incorrectly, or failed to consider all the evidence submitted, it may be worth requesting an offer in compromise to settle your tax debt.

Effective Tax Administration

Believe it or not, the IRS will reduce your tax debt if you can show that paying it would create an extreme hardship, or would be unfair under the circumstances. Once again, if you can sway the IRS to your point of view, it is possible to eliminate thousands of dollars in tax debt.

If you think that you might benefit from an Offer in Compromise, see the IRS website for more information, and for the forms required.

Help From the IRS for Struggling Home Owners

Many years ago I was doing a tax return for a couple who had had quite a few major financial setbacks the previous year.  They had just barely managed to stay in their home.  They had avoided foreclosure because their lender was willing to work with them.  Their loan had been totally redone and the lender had “forgiven” $25,000 of the debt.  This meant the couple was able to make the payments on their new, smaller loan.  After a difficult year financially, they were looking forward to getting a refund when they did their taxes.  They were going to use the money to pay off a few credit cards they still owed on.

It was my difficult job to tell them, that in the eyes of the IRS, debt forgiveness is taxable income.  When you have a loan for $200,000 and the lender lowers that to $175,000, the IRS treats that as income. From their perspective, it is just the same as earning $25,000 and using it to pay down your debt.  My clients were very unhappy when I told them, that only were they not going to get a refund, they now owed the IRS several thousand dollars because of their debt forgiveness.  Talk about kicking someone when they are down!

With the current mortgage crisis, many lenders are working with mortgage holders to restructure loans, and they are forgiving  part of the principal due.  It this housing market it can make a lot of sense. It is better to lose some debt repayment, then to foreclose and get stuck with a house the bank can’t sell.

The IRS has decided to help out homeowners, and for tax years 2007, 2008, and 2009, homeowners will not be required to pay taxes on certain debt forgiveness on mortgages.  If you think this will apply to you, make sure to talk with your tax preparer.  Certain forms must be filled out, and not all home debt will qualify.

Here are some more details from the IRS.

There is now tax relief for struggling homeowners. If your mortgage debt is partly or entirely forgiven during 2007, 2008 or 2009 you may be able to claim special tax relief by filling out Form 982 and attaching it to your federal income tax return for that year.

Normally, debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude from tax up to $2 million of debt forgiven on your principal residence. The limit is $1 million for a married person filing a separate return.

Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for this relief. The debt must have been used to buy, build or substantially improve your principal residence and must have been secured by that residence. Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing.

Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the new tax-relief provision. In some cases, however, other kinds of tax relief, based on insolvency, for example, may be available. See Form 982 for details.

If your debt is reduced or eliminated you will receive a year-end statement (Form 1099-C) from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property given up through foreclosure.

The IRS urges borrowers to check the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven (Box 2) and the value listed for your home (Box 7).

For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit the IRS Web site at IRS.gov. A good resource is IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments. This publication and Form 982 can be downloaded from IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Remember that for the genuine IRS Web site be sure to use .gov. Don’t be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Links:

Are You Still Asking- Where is My Stimulus Payment?

Click here to go to the IRS Stimulus Page

Have you filed your 2007 tax return, (even if you don’t normally file),  waited at least 6 weeks, yet you still haven’t received your stimulus payment? It sure could come in handy this time of year!  What should you do?

First, check this Stimulus Payment Calculator to make sure you qualify. Some of the reasons you might not qualify are covered in this post,  Where’s My IRS Stimulus Payment?.  If all these things check out, it could be that you are one of the 279,000 taxpayers who had their stimulus payment check returned by the US Postal Service.  Apparently, IRS stimulus checks worth over $163 million have been returned by the postal service as being undeliverable.  That is in addition to the $103 million in refund checks that were returned.

If you think you might be one of those 279,000 taxpayers who’s check was returned by the postal service you need to update your address right away.  The stimulus checks must be sent before December 31, 2008. The IRS is recommending that you update your address by November 28, 2008 to insure that they receive their stimulus payment.  You can update your address by filing form 8822.  You only need to file the form one time and the IRS will send both your stimulus payment and any tax refunds that you are due.

But what happens if you are too late, and you don’t get your stimulus payment this year, are you out of luck?  The good news is that if you qualify for the IRS economic stimulus payment, and you don’t get it this year, you can take it as a credit on your 2008 income tax return that you will file in early 2009.

IRS Standard Mileage Rate Raised

Recognizing that the sky rocketing gas prices may be making driving more expensive, the IRS has dramatically increased the standard mileage rate for business miles.

When calculating deductions for business auto use, taxpayers can use either actual expenses, or the standard mileage rate. The mileage rate takes into consideration not only fuel prices, but maintenance and depreciation. Many taxpayers prefer using the standard mileage rate because it simplifies record keeping.

The standard mileage rate is usually adjusted for inflation at the beginning of the year. However, because of high gas prices the IRS has done a mid-year adjustment. Beginning July 1, 2008 taxpayers can deduct 58.5 cents per business mile, up from 50.5 cents per mile.

Taxpayers are also allowed to deduct mileage expenses related to moving, medical expenses, and charitable work. Apparently cars cost less to drive if you are driving for charity, medical care or moving. Medical and moving miles can be deducted at 27 cents per mile, charitable miles are only worth a 14 cents per mile deduction.

You can find out more at the IRS Website.

You Don’t Have to Pay Taxes… Or Do You?

I was on a forum, and there it was. A poster declaring that you don’t have to pay taxes, that taxes are illegal, just watch this video and it will explain everything. I didn’t watch the video, I’ve seen too many of them I know how it goes. There will be a discussion of how the 16th amendment was never properly ratified, or a new definition of Income, maybe an explanation of how to file a Zero income tax return. Probably followed by an appeal to send just $49.95 for your un-tax kit.

So I replied to the forum poster that the IRS has probably heard his argument before, and dismissed it. Also, like it or not, they are the ones making the rules. I told him the best way to lower your tax burden was to either find a good tax professional who knew the tax law, or buy yourself a good tax book (like the JK Lasser book) and learn how to work within the laws to create the lowest legal tax liability. The other alternative is to not make much money. A married couple with 2 children who’s income is from earnings can make over $30,000 without owing federal income taxes.

He didn’t like my response. And gave the typical response of tax protesters everywhere. He said that if everyone knew they didn’t need to pay taxes I’d be out of a job. He claimed I probably knew that people didn’t have to pay taxes, but I wouldn’t tell them because I was working with the IRS to keep everyone “slaves to the system”.

That argument always makes me laugh. If I knew a legal way for people to avoid taxes I’d be the most popular tax adviser in the country. I’ve seen how much money people will pay for a tax scam, I can only imagine what they would pay for the real deal.

So before you hand over your money to “crack the code” or “un-tax” yourself, do me a favor. First read the IRS’s free PDF on the most popular tax scams. Then check out the Quatloos site for more information on scams, and the scammers that run them. Finally, take a look at eTaxe.com for some interesting commentary on the major tax protester arguments.

Now, I’d love to hear your tax story. Have you tried one of these “systems”? What did it cost? Have you heard from the IRS?

You Don't Have to Pay Taxes… Or Do You?

I was on a forum, and there it was. A poster declaring that you don’t have to pay taxes, that taxes are illegal, just watch this video and it will explain everything. I didn’t watch the video, I’ve seen too many of them I know how it goes. There will be a discussion of how the 16th amendment was never properly ratified, or a new definition of Income, maybe an explanation of how to file a Zero income tax return. Probably followed by an appeal to send just $49.95 for your un-tax kit.

So I replied to the forum poster that the IRS has probably heard his argument before, and dismissed it. Also, like it or not, they are the ones making the rules. I told him the best way to lower your tax burden was to either find a good tax professional who knew the tax law, or buy yourself a good tax book (like the JK Lasser book) and learn how to work within the laws to create the lowest legal tax liability. The other alternative is to not make much money. A married couple with 2 children who’s income is from earnings can make over $30,000 without owing federal income taxes.

He didn’t like my response. And gave the typical response of tax protesters everywhere. He said that if everyone knew they didn’t need to pay taxes I’d be out of a job. He claimed I probably knew that people didn’t have to pay taxes, but I wouldn’t tell them because I was working with the IRS to keep everyone “slaves to the system”.

That argument always makes me laugh. If I knew a legal way for people to avoid taxes I’d be the most popular tax adviser in the country. I’ve seen how much money people will pay for a tax scam, I can only imagine what they would pay for the real deal.

So before you hand over your money to “crack the code” or “un-tax” yourself, do me a favor. First read the IRS’s free PDF on the most popular tax scams. Then check out the Quatloos site for more information on scams, and the scammers that run them. Finally, take a look at eTaxe.com for some interesting commentary on the major tax protester arguments.

Now, I’d love to hear your tax story. Have you tried one of these “systems”? What did it cost? Have you heard from the IRS?

Where is My IRS Stimulus Payment?

The IRS Stimulus payments are going out. Most single people are getting $600, married couples are getting $1,200 and there is an extra $300 per child under the age of 17. So a married couple with 2 children can expect a stimulus payment of $1,800. If you were expecting your stimulus payment by direct deposit you should have it by now. Paper check payments are being mailed weekly according to the last two digits of the primary filers social security number. You can look at this schedule of stimulus payments to see when you should expect your check. But not everyone is getting what they expected, and some people are surprised to find that they are getting nothing! Here are some of the reasons why your tax stimulus payment may be delayed or missing.

You may not have gotten the full amount of your payment because:

Continue reading “Where is My IRS Stimulus Payment?”