Cancellation of Debt Income–The Problem

This post is the second in a series of posts I am putting together to discuss some of the major topics from the National Taxpayer Advocate 2008 Annual Report. You can read more from my previous post about the ineffectiveness of increased enforcement action from the IRS and Nina Olson’s observation that taxpayers have a better chance of winning cases when they seek tax representation.

The Cancellation of Debt Income (CODI) topic is an interesting one because it exemplifies what we see so often with the IRS. Tax Masters has been in business for almost a decade and, while the specific tactics and issues change, we have seen the IRS maintain the same basic strategy for collecting revenue for the U.S. government. We have seen time and again that the IRS, from top to bottom, will use aggressive collections tactics and the complexity of the IRS Code to their advantage.

CODI is not a new concept, but it is one that Olson estimates will effect tens if not hundreds of thousands of taxpayers because of the economic downturn. Many of these taxpayers have no idea how to claim debt cancellation or forgiveness as anything other than taxable income, and others may not claim it at all. Lenders are required to report CODI to the IRS using Form 1099-C, and the IRS assumes the reported amounts to be taxable unless the taxpayer files a particular form to exclude the income from taxes.

CODI Leads to Back Taxes, Substantial Tax Debt, IRS Audits 

A particularly bothersome aspect of this entire situation is that the IRS, the media, and no one else seems to be very interested in telling taxpayers about their ability to exclude at least portions of debt forgiveness income from their taxable income. So the person who can’t pay her mortgage files her taxes only to see that she owes $10,000 or more after going through foreclosure in 2008. And if she doesn’t claim the income, she gets a friendly reminder from the IRS in 2009 or 2010, just as she’s getting back on her feet financially, that her return was adjusted and she now owes $18,000 in back taxes, interest, and tax penalties.

Tax Representation–The Way Out of IRS Tax Debt

If the IRS doesn’t take Olson’s advice to fix this issue, they are setting up a huge swell of taxpayers who will need tax representation over the next several years. And using a quality tax representative will be the most effective way to ensure that you don’t wind up owing more than you have to. If you have any debt forgiveness from 2008, we strongly encourage you to have a qualified tax CPA or tax professional prepare and help you file your taxes and the debt exclusion form. If you don’t handle this correctly now, you will be calling Tax Masters later and you will already owe the IRS thousands. 

Past Tax Years–Call Tax Masters 

If you are already in this situation and have CODI from past tax years, call Tax Masters today and talk to one of our tax consultants about how to refile to claim the exclusions you qualify for. Odds are we can get some of that money back for you if you claimed the CODI as income. And if you didn’t claim the income at all, it’s a matter of time before the IRS contacts you with an adjusted return or notice of audit. It’s always better to beat the IRS to the punch, particularly now when IRS agents and revenue officers have the authority to waive penalties.

In the meantime, we beg the IRS to listen to Olson’s advice on this. The people that will be hurt by CODI are those who can least afford the unnecessary additional tax burden. We don’t want to gain business based on an exclusion that’s not being used simply because the IRS won’t tell taxpayers it’s out there. Unfortunately, this just looks like par for the course. 

Until you need us,

Patrick Cox, Tax Masters

2008 Report from the National Taxpayer Advocate

The more we see from Nina E. Olson, the National Taxpayer Advocate, the more we like her. And unlike the rest of the IRS, she seems to get things done in a timely manner. In support of this, Olson released her annual report for 2008 on January 7 this year. Perhaps the most surprising thing is that the report contains timely updates, including issues related to the economic hardships that increased dramatically in late 2008. So before we say anything else, we want to give Nina Olson some credit for completing a substantial and relevant report in a timely manner.

Taxpayers and Tax Representation

As a leading tax representation and IRS tax relief firm, it is in our best interest to review the National Taxpayer Advocate’s Report for information relevant to taxpayers with IRS problems. One of the most striking statements we read in the report comes from page 457 in the Most Litigated Issues section and states that, “…overall, taxpayers have a higher chance of prevailing in litigation if they are represented.”

While this statement may seem to be a statement of the obvious, we are constantly surprised at the number of people who represent themselves in front of the IRS, even in tax court. This statement from the report pertains directly to litigated tax cases, but it provides a good vantage point for us to look at all tax issues. If more taxpayers are winning their case with representation in court, it certainly stands to reason that more taxpayers are achieving more favorable results along the way if they have a representative. This confirms what we’ve known all along at Tax Masters. If you’re going up against the IRS or trying to work out an affordable payment plan or other agreement with the IRS, you need a qualified tax representative in your corner.

Increased Enforcement Actions Don’t Work

Over the next weeks, I plan to blog about various topics related to the 2008 annual Taxpayer Advocate Report. I’ll start with a topic near and dear to our hearts at Tax Masters. The report states that increased enforcement actions are not producing a proportional increase in revenue collected.  The example cited in the IRS press release announcing the report includes the following statement. “The number of levies issued by the IRS increased by 1,608 percent from FY 2000 to FY 2007 — from 220,000 levies to about 3.76 million levies — yet the increase in total collection yield during the period was slightly less than 45 percent.” This is just one example showing that aggressive IRS collections activity is not an effective method for collecting tax debt.

The same press release goes on to state that collection alternatives like the offer in compromise and partial-payment installment agreements may be more effective at collecting at least a portion of outstanding tax debts that taxpayers are having difficulties repaying.

Tax Masters is Here to Help

It just so happens that settling tax debt (offer in compromise) and making IRS payment arrangements (setting up monthly payment plans and the lesser used but more effective partial-payment installment agreements) are services that we offer at Tax Masters. And the fact that we employ former IRS agents and attorneys gives us great odds at achieving significant tax relief for our clients. If you have tax debt, now is a great time to try and negotiate it down or work out a payment agreement. And as the Taxpayer Advocate has stated, you have a better shot at success if you hire tax representation. Particularly now, when IRS agents have been given the authority to waive penalties and fees without any clear guidelines about how to apply that authority, you stand to benefit immensely by engaging Tax Masters as your tax representative when dealing with the IRS or seeking IRS tax relief.

If you can’t pay your taxes, call us today and let’s talk about your options. You can always reach one of our tax consultants at (866) 694-4018.

Until you need us,

Patrick Cox, Tax Masters

If You Can’t Afford to Pay Your Income Tax, Representation Can Help

IRS Commissioner Doug Shulman announced Tuesday that IRS agents and revenue officers now have the authority to work with taxpayers who are having difficulty paying their bills. He was careful to clarify that not all taxpayers will qualify. He explained that this new latitude given to agents and officers of the IRS is not intended for taxpayers with a history of back taxes, but rather for those who have paid their taxes in the past and have fallen on tough times due to the current economic situation. The fact that IRS agents now have the authority to waive tax penalties and reduce fees means that Tax Masters now has more leverage when negotiating on your behalf. We are excited because this gives us yet another arrow in our already full quiver that we can use to achieve real tax relief for our clients.

In conjunction with Shulman’s announcement, the IRS launched a whole new section of their website discussing The What Ifs of an Economic Downturn. The pages include advice on what to do if you can’t meet your tax obligations or if you are negatively affected by other issues like job loss and foreclosure related to the economic downturn. I’ve discussed many of these tax problems over the past months and I want to reiterate that active IRS collections activities like levies, IRS liens, and wage garnishment don’t have to be part of your future. While we don’t believe you should follow the advice of the IRS to call them yourself, it is indeed within your power to stop aggressive IRS collections activity before it starts. We strongly encourage you to call us to talk about your options. Remember that the earlier you engage a representative, the better shot you have at achieving a favorable outcome. If you do choose to contact the IRS yourself, realize that the job of every IRS agent and revenue officer is to represent the interests of and collect revenue for the US Government. It is not their job to offer you advice or provide you with tax help, but to collect the money you owe using whatever means available to them. You have the right to tax representation and it is seldom if ever in your best interest to refuse that right.

If You Can’t Afford Your Taxes, Seek Help

If you are having trouble paying your federal taxes, you must act quickly to keep from accruing unnecessary tax penalties, fees, and interest. Ignoring IRS notices can get you into a great deal of trouble in short order and exempt you from certain tax relief options. And as Shulman cautioned, not being able to pay your taxes in full is no excuse for failing to file. No matter what your financial position or ability to pay, intentionally failing to file a tax return or filing a false return is a federal crime. It is in your best interest to seek tax representation from a credible tax relief firm before your inability to pay leads to increased back taxes and compromises your chance at reducing penalties and fees.

Tax Masters Offers Tax Problem Help

Shulman stated that taxpayers must be able to demonstrate their inability to pay before an IRS agent or revenue officer will consider reducing fees or penalties. The Tax Masters team is incredibly skilled at gathering your financial information, organizing it, and presenting it to the IRS in a manner that supports the desired conclusion. As with just about everything in the IRS, proper organization and the relevance of supporting data can make all the difference. If you are unable to make payments you negotiated with the IRS or if you can’t afford to pay your tax balance, Tax Masters can help you. Particularly in light of IRS agents having the authority to waive tax penalties, we will be able to negotiate more favorable payment plans and additional reductions in fees if you qualify.

Call us today if you can’t pay your taxes and let’s talk about your options.

Until you need us,

Patrick Cox, Tax Masters

New Year’s Resolutions–Do You Need Tax Representation?

The new year’s resolution can be traced all the way back to Roman times and new year’s celebrations were held as far back as 4000 BC in ancient Babylon. The new year provides us in the west an easy calendar marker for making changes in our lives that we know we need to make. This time of simultaneous reflection and of looking forward allows us the opportunity to push away the things that weigh us down and to look forward to the things that might pick us up.

At Tax Masters, we wish for you  the happiest and most successful 2009. However, we also know that some of you are in bad shape financially due to recent layoffs and economic loss. We also see an increasing number of IRS notices going out in an attempt to collect back taxes. If you are in a situation where you can’t pay your taxes, we can help if you give us a call.

Tax Masters Offers Tax Representation and IRS Tax Relief

If you are receiving notices from the IRS about your back taxes, it’s time to deal with your tax problem head on. I urge you not to waste another day before seeking tax representation. Tax Masters is the real McCoy. We have former IRS employees on our staff who know how to negotiate real tax relief and shepherd you through the complex rules that govern the IRS and tax law.

Make Your Resolution Today

It’s not too late to make a meaningful New Year’s resolution. If tax debt was part of the bad luck you carried in 2008, put the pieces in place to get the IRS out of your life in 2009. Call Tax Masters today and let one of our knowledgeable tax consultants tell you about how we can help you achieve tax relief or set up a payment plan you can afford. As experienced tax representation specialists, we can help. Call us today at (866) 694-4018 or go to www.txmstr.com and fill out the consultation box on the right side of the page.

We’re here if you need us,

Patrick Cox, Tax Masters