Form 433A by the IRS

When you owe money to the IRS, you have various means to repay your debt. But in order for the payments to be made smoothly and accurately, you have to tell the IRS what you really owe. This is done through Form 433A Collection Information Statement for Individuals. The information you provide in Form 433A will be the basis for the IRS to decide on their repayment agreement with you, whether it be accepting your offer in compromise, declaring your case uncollectible or formalizing an installment arrangement.

For example, Form 433A is a standard form to fill if you are applying to make an offer in compromise. With the information on this form the IRS will perform its research and due-diligence into your case and decide whether to accept your offer.
Here is the information that is required of you in Form 433A:

In Section 1 of the form, you need to disclose your personal information. In Section 2, provide proof of earnings and deductions for the past 3 months from each employer. This may be in the form of pay stubs or earnings statements.

For Section 3, furnish proof of pension/Social Security/other income for the past 3 months for each payer and include and statements showing deductions. Section 4 is all about how much you make in terms of your investment income. So you should show copies of all your bank accounts (savings and checking), investment accounts such as stocks and bonds and life insurance policies. If you have used your insurance policies as collateral you should furnish details of your borrowing.

Section 5 is for you to provide any other details not explained fully in Sections 1 to 4. Section 6 requires you to declare your assets and liabilities. Assuming you have a vehicle that is under financing, you should include your current statement from your lender with your monthly vehicle payment amount and current balance of the loan for each vehicle purchased or leased. Likewise, include your current statement from your lender with your monthly house or other real estate payment amount and current balance for each piece of real estate owned.

Section 7 is about accounts receivables whereas the last section, Section 8 is an analysis of your monthly income and expenses.

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The Adoption Tax credit has been extended for another year. But unfortunately, the woes of parents claiming the credit continue as well. For tax year 2012, the adoption tax credit is non- refundable to a maximum amount of $12,650 per child.

According to a report by the National Taxpayer Advocate, a vast majority of families filing returns were subject to additional review to determine if an audit was necessary, while nearly 70% of all cases claiming the adoption tax credit during last year’s filing season were selected for audit. However, more than 55% of those audited ended with no change in tax owed or refund due.

The North American Council on Adoptable Children said a few different problems were brought to their attention:

• The IRS requested documentation of the adoption in certain cases despite the fact that the parents had already sent the correct documentation with their return.

• The current IRS documentation notice says that everyone has to provide documentation of expenses.

The fact is you do not have to submit any supporting adoption tax credit documents to the IRS. However after filing your return, you may be asked to verify any adoption expenses you claimed. Therefore, you should make sure to keep all your adoption documents.

If the IRS contacted you regarding your 2010 or 2011 adoption tax credit, check the audit notice. Review the audit notice and compare it with the information on your return. The audit notice will explain what you should do, such as provide certain documentation to resolve the issue. If a refund is due to you, you will still receive that part of your refund while the audit is being conducted. Mail or fax the requested documents and information, along with the bottom tear-off portion of the notice, to the IRS address or fax number shown on the notice.

If all your documents are in order the IRS will inform you of the status of your adoption credit claim and release any refund due to you. But you need to give the IRS least six weeks for a response.

 

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When you fail to pay your taxes, the IRS has many ways to collect the money from you. One of the weapons of mass collection in the IRS arsenal is wage levy. So what is wage levy? A levy is a seizure of any asset (such as your wages) to satisfy a tax debt. But levies are not imposed without warning. The IRS must put in place certain measures first before levying your wages. Three things must tale place first:

• The IRS sends a Notice and Demand for Payment

• You fail to pay the tax

• The IRS sends you a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice). Only after 30 days after the final notice is sent will the IRS impose the levy. The final may be delivered in person, left at your home or usual place of work/business, or sent to your last known address by certified or registered mail, return receipt requested. If a levy is imposed on your state tax refund, you may receive a Notice of Levy on Your State Tax Refund, Notice of Your Right to Hearing after the levy.

Levying your wages means the IRS orders your employer to withhold a certain portion of your wages to pay for your outstanding tax debt. This also includes self-employment income, your pension or Social Security income. The amount of the levy depends on your Filing Status and family size and such an action by the Internal Revenue does not require a court order.

Once the IRS has levied your wages, what can you do to remove it?

The first thing to do is contact the IRS to request a repayment plan. Do not wait until you are able to pay your tax debt in full before contacting the IRS. Work out a payment plan and the IRS will discuss the various payment options with you.

When contacted, the IRS will want to find out your ability to repay (i.e. how much you can afford). Appeal the levy according to the instructions found in the levy notice. For instance, for an IRS wage levy appeal, request a collection due process hearing with the appeals office stated on your levy notice within 30 days of the levy notice date. You must provide proof to support your appeal if you object to the levy amount.

If you agree with the levy, you can either pay your tax debt in a lump-sum payment or let the wage deduction continue until you clear your debt. IRS interest for late or non-payment is very high so consider borrowing funds from a 401, an IRA distribution, equity in your home, or even a credit card.

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If you or your child is studying overseas, your tuition fees is not treated the same way as if you were studying in the US. For one thing, your fees are not usually tax-deductible. In order to qualify for tax deduction on tuition fees, the tuition and fees have to be paid to an eligible education institution, which is any college, university, vocational school or other postsecondary educational institution eligible to participate in the Department of Education’s Federal Student Aid program. This includes virtually all accredited public, nonprofit and proprietary (privately-owned, profit-making) postsecondary institutions. If you’re not sure whether your college/university abroad is eligible, simply ask them about it.

There are basically three types of tax benefits for higher education expenses:

• The American Opportunity Tax Credit (AOTC)
• The Lifetime Learning Credit (LTLC)
• The tuition and fees deduction

Since tax year 2009, the American Opportunity Tax Credit modifies the Hope Credit. Under the American Opportunity Tax Credit the maximum amount of the credit is increased to $2,500.00. The credit can now be claimed for the first 4 years (not 2) of postsecondary education and the modified adjusted gross income limitations are increased. Also, qualified expenses now include course materials.

Generally you can claim the Lifetime Learning Credit if you pay qualified tuition and related expenses of higher education. If your child is the one studying abroad, you pay the tuition and related expenses for your kid as your dependent for whom you claim an exemption on your tax return. The Lifetime Learning Credit also allows you to deduct a portion of the fees you've paid for college tuition and course-required fees and materials, such as a laptop computer. With this credit, you can deduct up to $2,000 in school expenses for as many years as needed. As with the AOTC, the Lifetime Learning Credit is generally allowed for qualified tuition and related expenses paid in the tax year for an academic period beginning in that year or in the first 3 months of the following year.

Bear in mind that if you have claimed educational expenses elsewhere, under business expenses for example, you cannot claim for the deduction again. Furthermore, if you are already claiming the AOC Scholarship or LTLC for lower-income students, you cannot receive a tuition deduction. There is no minimum expense level required before you can qualify for the deduction. Deductions can be made on tuition paid during the same calendar year of the tax season, including for classes that have not yet occurred. Any money you pay for tuition and fees is tax-deductible. The deduction can count for you, your spouse and your child as long as you and your spouse don't file separately.

Official receipts showing exactly what you spent your money on is the best proof that you can provide. You would also need it in the event of an audit on your tax return.

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The only time you would likely have to deal with the IRS is when they want you to pay up your tax money. Dealing with the IRS can be made easier and more pleasant when you follow certain guidelines.

Firstly, you should never ignore the IRS. If they send you a letter it’s for a reason, usually to inform you of an assessment of your taxes and demand payment. So always reply to their letters or notices within their deadline (usually 30 days). The longer you ignore your business's tax problems, the larger your tax debt will grow. Currently, most tax debts compound at a rate up to 14%. If you fail to reply to the IRS, whatever assessment they calculated would be deemed final. If the IRS writes to you requesting for some document like a previous year’s tax return or inform you of some action they are about to take such as garnering your wages or levying your property, you should cooperate and provide the information that is sought. However, full disclosure may not be a good idea. You should not lie to the IRS, yet you aren't legally required to disclose anything about your finances or assets to the IRS collector unless you are formally served with a summons.

Secondly, if the IRS is assessing a revised tax liability for you, you should investigate their assessment. Then the appropriate action can be taken accordingly. For example if the IRS filed a substitute return on your behalf because you missed a tax return in any year then you should file a tax return for that delinquent year. If you are an innocent spouse being charged for your spouse’s tax liability, then you can resolve the issue by filing an innocent spouse relief. Perhaps the IRS has assessed penalties against you for which you should seek abatement or the IRS is seeking payment of taxes that were due longer than the statute of limitation (usually 10 years). Whatever the case is, you can only deal with the IRS appropriately after you have investigated their assessment.

Thirdly, assuming you have agreed to the amount of your tax liability, you should consider asking the IRS for a payment plan. In most cases, the IRS allows payment by monthly installments. But, you should remember that interest and penalties are always accumulating. You can also try to negotiate a discount on the total amount you owe.

Besides an installment agreement, there are other methods to clear tax debt such as an offer in compromise, a “not collectible” classification or file a bankruptcy petition. However, bankruptcy can eliminate tax debt only if it can be proven that the debt will severely affect your means of survival. So the other options are more realistic.

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