Johnson and Johnson, P.A. 8810 Goodbys Executive Dr. Suite A Jacksonville, FL. 32217 Phone: 904.737.5930 Fax: 904.737.5966
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ATTORNEYS AND COUNSELORS AT LAW
POTENTIAL WAYS TO DEAL WITH THE INTERNAL REVENUE SERVICE REGARDING COLLECTION PROBLEMS Johnson and Johnson, Attorneys At Law, P.A. 8810 Goodby’s Executive Drive, Suite A Jacksonville, Florida 32217 904-737-5930 As   an   actual   or   potential   client,   you   have   sought   our   assistance   with   respect   to   tax   liabilities   owed   to   the   Internal   Revenue   Service.     We   deal   extensively   with   the   Collection   Division   of   Internal   Revenue   Service,   we   have   the   knowledge   and   experience   in   assisting you   and   reaching   a   resolution   with   the   Collection   Division,   and   we   are   result   oriented   in   that   we   will   provide   you   with   an   in-depth analysis of your situation and specific recommendations as to how to mitigate or minimize your problems, to the extent possible. Generally, in our view, there are eight (8) potential ways to deal with Internal Revenue Service.  These are: 1. Pay the Tax / Minimize the Tax. In   most   situations,   this   is   not   an   option.      Most   taxpayers   we   see   simply   do   not   have   the   money   nor   the   assets,   and   even   if   they   did, they   could   not   liquidate   their   assets   or   pay   the   liability   without   hurting   their   business   or   financial   circumstances.      If   it   is   an   option, then   consideration   can   be   given   to   minimizing   the   tax   through   a   penalty   abatement,   Offer-In-Compromise   Doubt   as   to   Liability, additional deductions claimed through an amended return, request for audit reconsideration, etc. 2. Non-Cooperation / “Hard Ball.” Not    cooperating    with    the    Internal    Revenue    Service    is    an    approach    that    is    rarely    used    and    is    only    appropriate    in    limited circumstances.      A   failure   or   refusal   to   cooperate   with   Internal   Revenue   Service   will   result   in   immediate   enforcement   collection action    such    as    filing    Notices    of    Levy    on    bank    accounts    or    on    wages,    seizure    of    assets    with    equity,    closure    of    business,    etc. Accordingly,   this   option   is   generally   only   available   to   those   individuals   who   have   little   assets   at   risk   and   have   the   ability   to   easily change employers or go from job to job by the nature of their employment. 3. Currently Uncollectible. In   IRS   terminology,   having   an   account   “53'd”   means   that   the   account   is   temporarily   written   off   as   currently   uncollectible.   This   is also   referred   to   as   Currently   Non-Collectible   (“CNC”)   status.         In   the   event   a   taxpayer   does   not   have   any   ability   to   make   payments   to Internal   Revenue   Service   under   an   Installment   Payment   Agreement,   then   she   may   be   eligible   to   have   her   account   temporarily written off for re-evaluation in the future.  Typically, IRS will re-evaluate her  situation one (1) or two (2) years later. 4. Installment Payment Agreements. Historically,   an   Installment   Payment   Agreement   is   the   most   common   type   of   arrangement   with   Internal   Revenue   Service   for   those individuals   who   cannot   full   pay   a   federal   tax   liability.      For   smaller   dollar   amounts,   an   Installment   Payment   Agreement   may   be reached   without   providing   detailed   income   or   financial   information   to   Internal   Revenue   Service.      For   larger   dollar   cases,   the Internal   Revenue   Service   will   generally   insist   on   receiving   a   Collection   Information   Statement   detailing   your   assets,   liabilities, income sources, and expenditures.  In   October   of   1995   the   IRS   changed   its   procedures   with   respect   to   Installment   Payments   Agreements.      These   changes   included standardizing   or   capping   the   amount   of   expenses   one   may   claim   for   certain   types   of   living   expenses,   for   transportation   costs,   and for   housing   and   utilities   costs.      In   many,   if   not   most   situations,   these   standardized   amounts   are   unfavorable   to   the   taxpayer.      In   our opinion,   the   standardized   amounts   are   unworkable   for   higher   income   individuals,   and   should   either   be   substantially   modified   or abandoned    by    Internal    Revenue    Service.    In    the    interim,    it    is    our    impression    that    these    rigid    requirements    are    forcing    more individuals   into   filing   bankruptcy.      For   those   taxpayers   who   cannot   full   pay   their   back   taxes,   the   IRS   now   accepts   Partial   Pay Installment Agreements (“PPIA”).  These are automatically reviewed, supposedly on a priority basis, within two (2) years. 5. Wait Out Statute of Limitations. In   general,   there   is   a   ten   (10)   year   statute   of   limitations   on   Internal   Revenue   Service   collecting   the   amount   of   an   assessed   tax.      This is   referred   to   as   the   Collection   Statute   Expiration   Date   (“CSED”).      The   ten   (10)   years   starts   running   from   the   time   of   the   tax assessment,   not   the   time   the   taxpayer   files   the   return,   sets   up   an   installment   payment,   or   any   other   date.      There   are   certain   events such   as   filing   bankruptcy,   filing   an   Offer-In-Compromise,   filing   a   Collection   Due   Process   Appeal,   or   being   outside   of   the   country   for   a period   exceeding   six   (6)   months   which   toll   or   suspend   the   statute   of   limitations.      A   precise   determination   of   when   the   statute   of limitations   expires   cannot   be   made   until   a   review   of   the   transcripts   of   account   and   interview   of   the   client.      Also,   the   Internal Revenue   Service   may   request   that   the   taxpayer   extend   the   statute   of   limitations   for   up   to   an   additional   five   (5)   years   from   when the   statute   would   normally   expire.      For   some   taxpayers,   there   are   certain   techniques   or   procedures   which   can   be   used   to   protect themselves   if   they   choose   to   refuse   to   extend   the   statute   of   limitations.      Even   for   those   taxpayers   who   cannot   necessarily   protect themselves,   there   are   still   certain   strategies   or   techniques   to   be   considered   or   employed   to   minimize   the   consequences   (or   at   least which should be discussed in making a decision on whether to extend or not). 6. Innocent Spouse Relief. The   Internal   Revenue   Service   Restructuring   &   Reform   Act   of   1998   greatly   expanded   spousal   relief   for   taxpayers   who   filed   joint Federal   Income   Tax   returns.      Although   a   complex   area,   in   general,   three   (3)   separate   types   of   relief   may   be   granted   depending   upon whether   the   tax   liability   arose   because   of   an   audit   assessment,   as   part   of   a   jointly   filed   return   with   a   balance   shown   as   due   and owing, and based upon the current marital status of the parties.  The three (3) categories are: Innocent   Spouse   Relief   -   Tax   liability   is   a   result   of   a   tax   understatement   by   non-innocent   spouse   due   to   an   erroneous   item   on   the return.      A   spouse   may   be   entitled   to   relief   if   she   either   did   not   know   of   a   substantial   understatement   of   income   or   overstatement   of expense or did not understand the nature or extent of such understatement of income or overstatement of expense. Separation   of   Liability   Relief   -   Tax   liability   is   a   result,   in   part,   of   a   tax   understatement   by   non-innocent   spouse   due   to   an   erroneous item   on   the   return.      A   spouse   may   make   an   election   to   have   the   liability   allocated   between   spouses   (the   individuals   must   be   no longer married or legally separated or living apart for at least twelve (12) months). “Fairness”   or   Equitable   Relief   -   Tax   liability   is   a   result   of   either   a   tax   understatement   or   an   underpayment   and   innocent   spouse   does not   qualify   for   two   (2)   other   forms   of   relief.      The   Internal   Revenue   Service   determines   that   it   is   unfair   to   hold   the   innocent   spouse liable for the payment of tax (partially or in whole) taking into account all the facts and circumstances. 7. Offer-In-Compromise. An   Offer-In-Compromise   is   a   formal   vehicle   available   to   taxpayers   to   compromise   or   settle   their   liability.      It   generally   works   where the   taxpayer   owes   a   large   liability,   it   is   unlikely   the   liability   could   ever   be   paid,   and   the   taxpayer   has   an   “independent”   source   of funding   for   the   Offer-In-Compromise.      For   IRS   to   even   process   an   Offer-In-Compromise,   the   taxpayer   must   offer   an   amount   equal   to or   exceeding   (1)   the   net   equity   in   assets   (realizable   value)   plus   (2)   a   mathematical   amount   calculated   on   a   monthly   installment payment   or   “ability   to   pay.”      The   mathematical   computation   may   be   estimated   by   taking   your   monthly   payment   amount   as disclosed   by   the   collection   information   statement   times   twelve   (12)   plus   adding   the   net   value   of   the   assets.      By   way   of   illustration,   if taxpayer   has   $3,000.00   in   realizable   value   in   various   assets   and   his   proper   monthly   installment   payment   were   $300.00,   then   the minimum   amount   which   must   be   offered   for   the   Offer-In-Compromise   to   be   processed   is   $6,600.00.      This   is   calculated   by   taking   the $300.00    monthly    payment    amount    times    twelve    (12)    and    adding    to    it    the    $3,000.00    net    equity    in    assets.        Unfortunately,    the Jacksonville   District   has   historically   had   the   lowest   acceptance   rates   of   Offer-In-Compromises   in   the   country,   which   we   heard   for one   (1)   year   in   the   1990s   was   only   eleven   (11%)   percent.      We   have   heard   the   current   acceptance   rate   is   approximately   twenty   (20%) percent of legitimate offers.  The   IRS   also   implemented   a   deferred   payment   Offer-In-Compromise   which   is   essentially   a   combination   of   an   old   lump   sum   offer with    an    Installment    Payment    Agreement.        Under    this    situation,    the    taxpayer    must    amortize    (or    pay    during    the    life    of    the installment)   the   realizable   value   (equity)   in   his   or   her   assets.      If   amortized,   this   figure   must   be   added   to   the   monthly   ability   to   pay.     Unfortunately,   those   taxpayers   who   have   substantial   equity   in   assets   may   find   the   monthly   payment   unacceptable   or   unrealistic.     The Service also has Effective Tax Administration (“ETA”) offers, which apply in special situations.   8. Bankruptcy. Many   people,   even   some   bankruptcy   attorneys,   believe   that   all   federal   taxes   are   nondischargeable   in   bankruptcy.      This   is   not   true.     Whether   a   particular   liability   is   dischargeable   or   not   depends   upon   numerous   factors   including   whether   the   IRS   is   secured,   the   type of   liability,   and   the   age   of   the   liability.      After   an   evaluation   of   their   various   options,   some   people   find   that   their   ultimate   goals   are best accomplished through filing bankruptcy.
ATTORNEYS AND COUNSELORS AT LAW
Johnson and Johnson, P.A. 8810 Goodbys Executive Dr. Suite A Jacksonville, FL. 32217 Phone: 904.737.5930 Fax: 904.737.5966
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Florida Bar Disclaimer   |   Contact Us   Copyright © 2010-2018 Johnson and Johnson, Attorneys At Law, P.A.  All Rights Reserved.
POTENTIAL WAYS TO DEAL WITH THE INTERNAL REVENUE SERVICE REGARDING COLLECTION PROBLEMS Johnson and Johnson, Attorneys At Law, P.A. 8810 Goodby’s Executive Drive, Suite A Jacksonville, Florida 32217 904-737-5930 As   an   actual   or   potential   client,   you   have   sought   our assistance   with   respect   to   tax   liabilities   owed   to   the Internal   Revenue   Service.      We   deal   extensively   with the   Collection   Division   of   Internal   Revenue   Service, we   have   the   knowledge   and   experience   in   assisting you    and    reaching    a    resolution    with    the    Collection Division,   and   we   are   result   oriented   in   that   we   will provide     you     with     an     in-depth     analysis     of     your situation   and   specific   recommendations   as   to   how   to mitigate    or    minimize    your    problems,    to    the    extent possible. Generally,   in   our   view,   there   are   eight   (8)   potential ways   to   deal   with   Internal   Revenue   Service.      These are: 1. Pay the Tax / Minimize the Tax. In    most    situations,    this    is    not    an    option.        Most taxpayers   we   see   simply   do   not   have   the   money   nor the    assets,    and    even    if    they    did,    they    could    not liquidate    their    assets    or    pay    the    liability    without hurting   their   business   or   financial   circumstances.      If   it is    an    option,    then    consideration    can    be    given    to minimizing    the    tax    through    a    penalty    abatement, Offer-In-Compromise   Doubt   as   to   Liability,   additional deductions     claimed     through     an     amended     return, request for audit reconsideration, etc. 2. Non-Cooperation / “Hard Ball.” Not   cooperating   with   the   Internal   Revenue   Service   is an     approach     that     is     rarely     used     and     is     only appropriate    in    limited    circumstances.        A    failure    or refusal    to    cooperate    with    Internal    Revenue    Service will     result     in     immediate     enforcement     collection action   such   as   filing   Notices   of   Levy   on   bank   accounts or   on   wages,   seizure   of   assets   with   equity,   closure   of business,    etc.    Accordingly,    this    option    is    generally only    available    to    those    individuals    who    have    little assets   at   risk   and   have   the   ability   to   easily   change employers   or   go   from   job   to   job   by   the   nature   of   their employment. 3. Currently Uncollectible. In   IRS   terminology,   having   an   account   “53'd”   means that     the     account     is     temporarily     written     off     as currently    uncollectible.    This    is    also    referred    to    as Currently    Non-Collectible    (“CNC”)    status.            In    the event   a   taxpayer   does   not   have   any   ability   to   make payments     to     Internal     Revenue     Service     under     an Installment    Payment    Agreement,    then    she    may    be eligible   to   have   her   account   temporarily   written   off for   re-evaluation   in   the   future.      Typically,   IRS   will   re- evaluate her  situation one (1) or two (2) years later. 4. Installment Payment Agreements. Historically,    an    Installment    Payment    Agreement    is the   most   common   type   of   arrangement   with   Internal Revenue   Service   for   those   individuals   who   cannot   full pay   a   federal   tax   liability.      For   smaller   dollar   amounts, an   Installment   Payment   Agreement   may   be   reached without     providing     detailed     income     or     financial information   to   Internal   Revenue   Service.      For   larger dollar     cases,     the     Internal     Revenue     Service     will generally   insist   on   receiving   a   Collection   Information Statement    detailing    your    assets,    liabilities,    income sources, and expenditures.  In    October    of    1995    the    IRS    changed    its    procedures with    respect    to    Installment    Payments    Agreements.      These   changes   included   standardizing   or   capping   the amount   of   expenses   one   may   claim   for   certain   types of   living   expenses,   for   transportation   costs,   and   for housing    and    utilities    costs.        In    many,    if    not    most situations,        these        standardized        amounts        are unfavorable    to    the    taxpayer.        In    our    opinion,    the standardized    amounts    are    unworkable    for    higher income        individuals,        and        should        either        be substantially     modified     or     abandoned     by     Internal Revenue   Service.   In   the   interim,   it   is   our   impression that     these     rigid     requirements     are     forcing     more individuals      into      filing      bankruptcy.            For      those taxpayers   who   cannot   full   pay   their   back   taxes,   the IRS   now   accepts   Partial   Pay   Installment   Agreements (“PPIA”).              These       are       automatically       reviewed, supposedly on a priority basis, within two (2) years. 5. Wait Out Statute of Limitations. In     general,     there     is     a     ten     (10)     year     statute     of limitations   on   Internal   Revenue   Service   collecting   the amount   of   an   assessed   tax.      This   is   referred   to   as   the Collection   Statute   Expiration   Date   (“CSED”).      The   ten (10)    years    starts    running    from    the    time    of    the    tax assessment,    not    the    time    the    taxpayer    files    the return,   sets   up   an   installment   payment,   or   any   other date.          There     are     certain     events     such     as     filing bankruptcy,    filing    an    Offer-In-Compromise,    filing    a Collection   Due   Process   Appeal,   or   being   outside   of   the country   for   a   period   exceeding   six   (6)   months   which toll   or   suspend   the   statute   of   limitations.      A   precise determination    of    when    the    statute    of    limitations expires     cannot     be     made     until     a     review     of     the transcripts    of    account    and    interview    of    the    client.      Also,   the   Internal   Revenue   Service   may   request   that the   taxpayer   extend   the   statute   of   limitations   for   up to   an   additional   five   (5)   years   from   when   the   statute would   normally   expire.      For   some   taxpayers,   there   are certain   techniques   or   procedures   which   can   be   used to    protect    themselves    if    they    choose    to    refuse    to extend    the    statute    of    limitations.        Even    for    those taxpayers        who        cannot        necessarily        protect themselves,     there     are     still     certain     strategies     or techniques   to   be   considered   or   employed   to   minimize the     consequences     (or     at     least     which     should     be discussed   in   making   a   decision   on   whether   to   extend or not). 6. Innocent Spouse Relief. The   Internal   Revenue   Service   Restructuring   &   Reform Act     of     1998     greatly     expanded     spousal     relief     for taxpayers   who   filed   joint   Federal   Income   Tax   returns.     Although     a     complex     area,     in     general,     three     (3) separate    types    of    relief    may    be    granted    depending upon   whether   the   tax   liability   arose   because   of   an audit   assessment,   as   part   of   a   jointly   filed   return   with a   balance   shown   as   due   and   owing,   and   based   upon the   current   marital   status   of   the   parties.      The   three (3) categories are: Innocent   Spouse   Relief   -   Tax   liability   is   a   result   of   a tax   understatement   by   non-innocent   spouse   due   to an   erroneous   item   on   the   return.      A   spouse   may   be entitled    to    relief    if    she    either    did    not    know    of    a substantial         understatement         of         income         or overstatement   of   expense   or   did   not   understand   the nature   or   extent   of   such   understatement   of   income or overstatement of expense. Separation   of   Liability   Relief   -   Tax   liability   is   a   result, in    part,    of    a    tax    understatement    by    non-innocent spouse   due   to   an   erroneous   item   on   the   return.      A spouse    may    make    an    election    to    have    the    liability allocated   between   spouses   (the   individuals   must   be no   longer   married   or   legally   separated   or   living   apart for at least twelve (12) months). “Fairness”   or   Equitable   Relief   -   Tax   liability   is   a   result of   either   a   tax   understatement   or   an   underpayment and    innocent    spouse    does    not    qualify    for    two    (2) other   forms   of   relief.      The   Internal   Revenue   Service determines    that    it    is    unfair    to    hold    the    innocent spouse   liable   for   the   payment   of   tax   (partially   or   in whole)     taking     into     account     all     the     facts     and circumstances. 7. Offer-In-Compromise. An   Offer-In-Compromise   is   a   formal   vehicle   available to   taxpayers   to   compromise   or   settle   their   liability.      It generally    works    where    the    taxpayer    owes    a    large liability,   it   is   unlikely   the   liability   could   ever   be   paid, and    the    taxpayer    has    an    “independent”    source    of funding   for   the   Offer-In-Compromise.      For   IRS   to   even process   an   Offer-In-Compromise,   the   taxpayer   must offer    an    amount    equal    to    or    exceeding    (1)    the    net equity      in      assets      (realizable      value)      plus      (2)      a mathematical     amount     calculated     on     a     monthly installment     payment     or     “ability     to     pay.”          The mathematical    computation    may    be    estimated    by taking   your   monthly   payment   amount   as   disclosed   by the    collection    information    statement    times    twelve (12)   plus   adding   the   net   value   of   the   assets.      By   way   of illustration,    if    taxpayer    has    $3,000.00    in    realizable value     in     various     assets     and     his     proper     monthly installment      payment      were      $300.00,      then      the minimum    amount    which    must    be    offered    for    the Offer-In-Compromise    to    be    processed    is    $6,600.00.      This    is    calculated    by    taking    the    $300.00    monthly payment   amount   times   twelve   (12)   and   adding   to   it the   $3,000.00   net   equity   in   assets.      Unfortunately,   the Jacksonville    District    has    historically    had    the    lowest acceptance     rates     of     Offer-In-Compromises     in     the country,   which   we   heard   for   one   (1)   year   in   the   1990s was   only   eleven   (11%)   percent.      We   have   heard   the current     acceptance     rate     is     approximately     twenty (20%) percent of legitimate offers.  The   IRS   also   implemented   a   deferred   payment   Offer- In-Compromise   which   is   essentially   a   combination   of an   old   lump   sum   offer   with   an   Installment   Payment Agreement.      Under   this   situation,   the   taxpayer   must amortize   (or   pay   during   the   life   of   the   installment) the   realizable   value   (equity)   in   his   or   her   assets.      If amortized,   this   figure   must   be   added   to   the   monthly ability   to   pay.      Unfortunately,   those   taxpayers   who have     substantial     equity     in     assets     may     find     the monthly   payment   unacceptable   or   unrealistic.      The Service   also   has   Effective   Tax   Administration   (“ETA”) offers, which apply in special situations.   8. Bankruptcy. Many     people,     even     some     bankruptcy     attorneys, believe   that   all   federal   taxes   are   nondischargeable   in bankruptcy.      This   is   not   true.      Whether   a   particular liability     is     dischargeable     or     not     depends     upon numerous     factors     including     whether     the     IRS     is secured,    the    type    of    liability,    and    the    age    of    the liability.      After   an   evaluation   of   their   various   options, some   people   find   that   their   ultimate   goals   are   best accomplished through filing bankruptcy.