The IRS Fresh Start Program

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In April of 2013, the IRS introduced a new program to make it easier for taxpayers to pay back taxes and avoid tax liens. Individuals and small business taxpayers may benefit from the IRS Fresh Start program. There are three important features that you need to know.

First of all, you need to consider the tax liens. The Fresh Start program increased the amount that taxpayers can owe before the IRS generally will file a Notice of Federal Tax Lien. That amount is now $10,000. However, in some cases the IRS may still file a lien notice on amounts less than $10,000.

When a taxpayer meets certain requirements and pays off their tax debt, the IRS may now withdraw a filed Notice of Federal Tax Lien. You must request this in writing using Form 12277, Application for Withdrawal. Some taxpayers may qualify to have their lien notice withdrawn if they are paying their tax debt through a direct debit installment agreement. You also need to request this in writing by using Form 12277.

If you default on a direct debit installment agreement, the IRS may file a new Notice of Federal Tax Lien and resume collection actions. Don’t ever miss a payment.

Next up are installment agreements. The Fresh Start program expanded access to streamlined installment agreements. Now if you owe up to $50,000, you can pay through monthly direct debit payments for up to six years. While the IRS generally will not need a financial statement, they may need some financial information from the taxpayer. The easiest way to apply for a payment plan is to use the online payment agreement tool at IRS.gov. If you don’t have web access, you may file  Form 9465 to apply.

If you are in need of an installment agreement for more than $50,000 in tax debts or for longer than six years, you still need to provide the IRS with a financial statement. In these cases, the IRS may ask for one of two forms: Form 4330A, the collection information statement, or Form 433-F.

Finally, you should be aware of offers in compromise. An offer in compromise is an agreement that allows taxpayers to settle their tax debt for less than the full amount. Fresh Start expanded and streamlined the OIC program. The IRS now has more flexibility when analyzing a taxpayer’s ability to pay and ultimately reduces the amount the IRS will accept. This makes the offer program available to a larger group of taxpayers.

Generally, the IRS will accept an offer if it represents the most the agency can expect to collect within a reasonable period of time. The IRS will not accept an offer if it believes that the taxpayer can pay the amount owed in full as a lump sum or through a payment agreement. The IRS looks at several factors, including your income and assets, to make a decision regarding your ability to pay. You can use the offer in compromise pre-qualifier tool on IRS.gov to see if you may be eligible for an OIC.

We can help you negotiate with the IRS to get you the lowest amount you have to pay. If you have any tax problems, please give me a call or send me an email. I would be happy to help you!

Can You Eliminate Tax Debts in Bankruptcy?

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Can you eliminate tax debts in bankruptcy? In many cases, a taxpayer is still liable for tax debts after bankruptcy. However, bankruptcy law allows the discharge of tax debt only in some circumstances.

A tax debt is more likely to be discharged in Chapter 7 than in a Chapter 13 bankruptcy. In Chapter 13, tax debt, just like any other debt, is paid back on a repayment plan. Chapter 7 bankruptcies allow a debtor to discharge or wipe out debts, including federal tax debt.

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A tax debt is more likely to be discharged in Chapter 7 than in a Chapter 13 bankruptcy.

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Federal tax debt that can be wiped out, depending on the type of tax debt and certain conditions under Chapter 7 bankruptcy, such as:

• The tax must be for income taxes. Payroll taxes and penalties for fraud are not eligible for discharge.
• The tax returns for the debts must have been filed two years before filing bankruptcy.
• The tax liability is at least three years old. In other words, the tax debt is from a tax return that was originally due at least three years before filing bankruptcy.
• The IRS assessed the tax debt at least 240 days before the debtor filed for bankruptcy.
• The taxpayer did not commit willful tax evasion. Possible evasive actions include changing your Social Security number, your name, the spelling of your name, repeated failure to pay taxes, filing a blank or incomplete tax return, and withdrawing cash from a bank account and hiding it.
• The taxpayer did not commit tax fraud.

Penalties on taxes can also be wiped out in bankruptcy. After the discharge of the tax liability, the taxpayer is no longer responsible for paying the taxes and the IRS may not garnish wages or bank accounts.

Even if the discharge of tax debt occurs under Chapter 7, if the IRS placed a federal tax lien on the taxpayer’s property prior to the bankruptcy case, it will remain after discharge. As a result, it is necessary to clear the title by paying off the lien before selling the property.

There are tax debts that are not eligible for discharge, such as tax debts from unfiled tax returns and trust fund taxes or payroll taxes withheld from employee’s paychecks by the employer. If a taxpayer is not able to discharge the tax debts under Chapter 7, he or she should consider an installment plan or offer in compromise to settle the tax debt with the IRS.

If you think you can wipe out your federal taxes under bankruptcy, you should hire a qualified tax problem specialist. We have experience and strategies negotiating with the IRS. If you have any questions, give me a call or send me an email. I would be happy to help you!

The Cardinal Sin of Tax Delinquency

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Payroll taxes are taken very seriously by the IRS. What happens if you fail to pay payroll taxes or file them on time? You will get hit with a Trust Fund penalty.

A Trust Fund penalty is a 100% penalty on the person who is responsible for payment of withheld federal payroll taxes and FICA taxes from the employees of a company. The IRS views failing to pay payroll taxes as the cardinal sin of tax delinquency because a large portion of the payroll taxes are your employees’ withholdings, not your own money.

In other words, not paying your company’s payroll taxes is tantamount to stealing your employees’ money. As a result, penalties for not paying your company's payroll taxes and filing your payroll tax returns are much more severe than other types of penalties. They can drastically multiply and grow the amount you owe in a very short time.

If you’re behind on paying payroll taxes on time for your company, watch out. If you are a control person, and not an officer or owner, you are also liable for these taxes personally. The IRS will seize your personal assets, bank accounts, and put your employer out of business rather than let you continue to avoid paying payroll taxes.

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Failing to pay payroll taxes is the same as stealing money from your employees.

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The IRS will go after the company responsible for the payroll taxes and the control person at the same time. A control person may simply be the bookkeeper, the person who signs the checks, or another responsible person, even if that person is not the owner or officer of the company.

The Trust Fund penalty is 100% of the withholdings of Federal and FICA from the employee, plus interest. Other payroll tax penalties to the employer include:

• Failure to file the payroll tax returns on time is 5% per month, up to 25% of the taxes.
• Failure to electronically pay your taxes on time can be 10% of the taxes not paid. The schedules of payment due dates depend on the amount of taxes due. This can be within three days of your payroll dates, up to once per quarter if the taxes are very low. Many small employers pay monthly.

Actual due dates and more details are available at www.IRS.gov. This is a lot of information, but the point is you should never get behind on payroll tax payments or filings. The IRS takes payroll taxes very seriously!

If you have any payroll tax problems or receive a collection notice for payroll taxes personally, you should hire a qualified tax problem specialist. We have experience and strategies for getting tax releases and negotiating with the IRS. Please give me a call or send me an email. I would be happy to help you with any questions!