One of the most dreaded things is to be in extreme debt.  And one of the worst creditors you can have is the IRS.  The IRS has at its disposal the full power of the law and might of the government behind it.  The IRS can levy your property, place a lien on your assets, garnish your wages, freeze your bank accounts etc. if you owe them money.  So if you are in extreme debt to the IRS, what can you do about it?

First, you must file your tax return.  This will minimize your debts because it prevents the government from filing a substitute return on your behalf.  A substitute return is one that does not have any deductions and is designed to maximize your tax liability based on your latest known income.

If after the IRS files a substitute return and you still do not pay up, then the IRS will take extreme actions to collect on your overdue taxes.  They start of by levying your bank accounts.  Once this happens, your accounts will be frozen, you will not be able to withdraw funds or pay for anything and you will be responsible for all bounced checks out of those accounts.  After 21 days, the bank has to transfer the funds in your accounts to the IRS to pay your back taxes.

The next thing they do would be to garnish your wages.  However, before the IRS takes this step, they will send you a letter called a Final Notice informing you of their impending action.  After that comes a 45 days waiting period before taking any further action.   Any time after this 45-day period has elapsed the IRS will begin wage garnishment.  Don’t be surprised months or even years pass after the Final Notice is sent before the IRS starts to garnish your wages.  It is also not surprising that some taxpayers never receive the Final Notice because the IRS sent it to an old address.

The amount garnished does not depend on any percentage or the amount of your wages.  It depends on how much you owe.  Generally, the IRS will garnish your wages and leave you a minimum survival amount each month.  Thus, two persons who earn different salaries can be left with the same amount after garnishment because of differing tax liabilities.

So before your situation gets to this stage you should contact the IRS directly.  The IRS may reduce or waive penalties due to extenuating circumstances like a death in the family, serious illness or any other “reasonable cause.”

The best thing to do to deal with extreme IRS debt would be to consult a tax attorney.  Call us at (813) 229 7100 for a free consultation on how to overcome your tax debt.

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The ongoing fight against identity theft and related tax refund fraud has prompted the IRS to beef up its procedures of detecting such activities.  The IRS installed new anti-fraud software but no software is without its bugs.  As a result of problems in calibrating it for it to more accurately spot potential schemes on tax returns, some returns that contained accurate information were flagged as potentially fraudulent when they were not, causing delays in processing those returns.
According to IRS spokesman David D. Stewart, "The delay was in calibrating the system for fraud detection".  During the initial delays, taxpayers who tried to use the popular Where's My Refund program got little or no information because the system was down for several days, Stewart added.  But since then, the IRS has overcome much of the glitches initially experienced.

The software program used for fraud detection is developed by SAS which is used for analyzing legislation and tax-code changes, predicting the tax-revenue impact of events like Hurricane Katrina, and formulating long-range collections forecasts for the US Treasury.  IRS Economist Dan Howar and his colleagues have directed their energies on campaigns to reduce fraud and abuse and improve the efforts of the agency's collections team.  For instance, the IRS estimates that between 21-26% of all claims for the Earned Income Tax Credit (EITC) are paid in error, although many such errors are unintentional due to the complexity of the law governing EITC.  On the other hand, some claims are clearly fraudulent, potentially costing the government billions of dollars in bogus claims.

Howar said, "SAS® Enterprise Miner™ is helping us identify likely candidates for further investigation. That's enabling us to identify and educate filers and tax preparers to correct the improper returns.  And, we're using the same techniques and models to perform similar analyses of telephone tax refunds, and fraudulent tax filings among prisoners.  Given the volume of claims involved, it's safe to say that SAS Enterprise Miner is playing a key role in IRS efforts that are saving taxpayers many millions of dollars in inappropriate claims that might otherwise go undetected."

One of the key factors under IRS scrutiny is its accounts receivable i.e. the amount of uncollected money that is assessed and must remain on the books by statute for ten years.  Some of these unpaid assessments are potentially collectible as a result of taxpayer agreements, court decisions, liens and other measures.

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Volunteerism is most evident in the VITA (Volunteer Income Tax Assistance) Grant program by the IRS. the IRS VITA Tax Grant program was set up to provide free tax preparation services for the poor, more specifically the low-to-moderate income individuals, persons with disabilities, the elderly, and those who cannot speak English well. The grants are awarded every year to organizations that offer free tax preparation services during the tax filing season at locations in all 50 states and the District of Columbia. The funds for the grants under the Volunteer Income Tax Assistance Program come from Congress itself.

In order to receive funds from the IRS VITA Tax grant, the organizations have to:

Enable VITA Programs to provide services to underserved populations in hardest-to-reach areas, both urban and non-urban
• facilitate electronic filing

• improve quality control

• enhance volunteer training

• significantly improve the accuracy rate of returns prepared at volunteer sites

The organizations would use the money from the IRS Tax Grant to reimburse volunteers for out-of-pocket expenses incurred while providing tax-counseling assistance and also to purchase equipment used for electronic filing purposes like computers, printers and other accessories, as long as the cost per unit up to a ceiling of $1,000.

For 2013, twenty six organizations were awarded the IRS Tax grant. If you are an organization interested in applying for the 2014 IRS VITA tax grant, you have to make your application by May 31 this year. Previous grant recipients will have the option to apply for up to three years of annual funding, which would reduce the paperwork needed to be completed over the three-year period.

Successful organizations receive training from the IRS to provide quality tax-preparation services for seniors every year. This enables them to provide better quality service to their clients.

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Does the law allow you to claim tax deductions on lobbying activities? By lobbying activities, I mean expenses used to influence legislation at the local, state, or federal level. The answer, according to the Omnibus Budget Reconciliation Act of 1993, is no. Also, you are not allowed to claim deductions for a portion of membership dues paid to trade, professional and similar associations if the associations are involved in more than minimal amounts of lobbying.

An association that incurs lobbying expenditures must advise members at the time of membership fees payment what portion of their dues is nondeductible, and it must annually report to the IRS regarding lobbying expenditures and dues non-deductibility. An alternative to notifying members of dues non-deductibility, is paying a flat 35% proxy tax on its annual lobbying expenditures at the end of the year.

There is an exception to this rule for $2,000 in-house lobbying. This exception applies only if in-house lobbying expenditures are $2,000 or less annually (for example, labor and material costs but with no need to include a general overhead amount).

So what constitutes lobbying expenditure? The cost of "paid" volunteers to associations such as reimbursing them for their travel and other expenses is considered lobbying expenditure. Once lobbying expenditures and the additional costs are determined, they are allocated to dues income from association members to determine the percentage of members' dues that are non-deductible, or, alternatively, they provide the basis for the 35% proxy tax.

Expenses not considered lobbying expenditure include payments made to hire outside lobbyists or lawyers, amounts paid to other organizations that lobby, grassroots lobbying expenditures, political expenditures and foreign lobbying expenditures. These do not qualify for the $2,000 exception.

Once a year an association must report to the IRS the total amount of lobbying expenditures and the total amount of dues and similar income to which the lobbying expenditures are allocable to determine dues non-deductibility. In addition, the association must inform members (and other contributors) of dues non-deductibility. If the dues non-deductibility amount for which notice is provided proves to be too low, the association must pay the 35% proxy tax on the deficiency balance.

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Dual Citizen’s Taxes

The United States practices worldwide taxation which means if you are a taxpaying citizen or resident alien living outside the US, you must declare your income both to your host country as well as to the IRS for the year in which your gross income is equal to or greater than the applicable exemption amount and standard deduction. In addition to filing your federal income tax returns you are also obligated to file the Reports of Foreign Bank and Financial Accounts (FBARs). Failure to file either or both these forms will result in heavy penalties. However, the IRS says you will only be required to file your taxes up to 6 years back.

Under the Inland Revenue Code section 6651, the penalty is 5% of the amount of tax required to be shown on the return unless you can convince the IRS that the failure is due to reasonable cause and not willful neglect. If the failure continues for more than one month, an additional penalty of 5% may be imposed for each month or part thereof during which the failure continues. The total failure to file penalty cannot exceed 25%. However, if there is no penalty then no tax will be due.

On the other hand, if you did file your returns but failed to pay the amount of taxes due the penalty starts on the due date of the return (determined without regard to any extension of time for filing the return) and is 0.5% of the amount of tax shown on the return. If the non-payment continues for more than one month, an additional 0.5% penalty may be imposed for each additional month or part thereof as long as any part of the taxes remains outstanding. The total failure to pay penalty cannot exceed 25%. Again, no penalty is imposed if you do not owe any taxes.

If you are guilty of both non-filing and non-payment, the failure to file penalty is reduced by the amount of the failure to pay penalty for any month in which both transgressions are committed.

If you have to prove that there was reasonable cause for non-compliance, you have to show the IRS that you exercised “ordinary business care and prudence” in meeting your tax obligations but nevertheless failed to meet them. Generally, ordinary business care and prudence will depend on your reasons given for not meeting your tax obligations, your track record of tax compliance, how long it was between your failure to meet your tax obligations and your subsequent compliance and whatever circumstances were out of your control.

One more thing…failure to file FBARs carry a separate penalty.

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