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Dealing with the IRS Archives - Anchor Tax Relief

How Far Back Can the IRS Go for Unfiled Taxes?

How far back can the IRS go

How far back can the IRS go for unfiled taxes?

And what can you do to resolve the problem, should you find yourself behind on your tax filings (or tax payments)?

First, the good news. Federal law protects taxpayers who are in trouble with the Internal Revenue Service by setting a statute of limitations for the collection of unpaid taxes.  Title 26 of the United States Code, Section 6502, sets a 10 year time limit for collection of back taxes.

Now the bad news.  Many taxpayers misinterpret this law. They assume that any balance due on a return that should have been filed 10 years ago is now outside the statute, and that the IRS can no longer continue collection efforts. This interpretation is incorrect.

There is a 10 year statute of limitations on collections. But that 10 year period does not begin until taxes are actually assessed. And taxes are not actually assessed until a return is filed—either filed by you, or prepared and filed for you by the IRS.

The IRS May Have Filed a Substitute Return

If you do not file your return for a particular year, the IRS could prepare a substitute for return (or “SFR”), and then assess your tax due. Congress authorizes the IRS to do this. (IRC 6020),

How do you know whether a substitute return has been prepared? Usually you’ll find out when you receive an Assessment Letter in the mail from the IRS. Here’s an example of what the standard Assessment Letter (IRS Notice CP2566) looks like.

The letter tells you that

(a.) the IRS has not received your tax return, and

(b.) you have 30 days to file, or

(c.) the IRS will prepare a return for you and assess tax due.,

Typically the IRS will mail out this letter when it notices that a person hasn’t filed for a few years, but at the same time the agency has received income documents such as W-2 and 1099 forms for that person. In other words, your employer or someone who has paid you for services was required to report that income to the IRS via Form(s) W-2 and/or 1099-Misc.

A Substitute Return is Prepared in the Best Interests of Uncle Sam

The Internal Revenue Service knows that you earned income, and knows you haven’t filed a return. So they prepared a return for you, but when they did, they didn’t do you any favors. They didn’t give you any of the normal deductions or credits that you would have included, had you prepared the return. The SFR assumes you are a single person (or married filing separately) with no dependents, no business expenses, no itemized deductions, and so on.

So if you receive an Assessment Letter (CP2566), your best course of action is to file an amended return, including any legal exemptions, deductions and tax credits you are entitled to, within 30 days. You’ll likely find your tax bill is significantly reduced by filing a return.

You may even discover that the IRS owes you a refund! Note however, there’s a statute of limitations on refunds. The IRS doesn’t have to refund you any overpayment of tax if the return is not filed within 3 years of the filing deadline.

What if you do nothing?

If you don’t file an amended return, or you simply don’t respond to the assessment letter within 30 days, then IRS mails out a second letter, called the Statutory Notice of Deficiency. This one comes by certified mail, which requires that you sign to receive the letter. Here’s an example of what the Notice of Deficiency (IRS Notice CP 3219N) looks like.

 At this point the IRS is prepared to move forward as if their proposed tax assessment (detailed in the first Assessment Letter) is correct, and is ready to initiate collection action for any unpaid tax, penalties, and interest.

 The Deficiency Notice gives you 90 days to respond; be sure to read it carefully. You’ve got two choices at this point:

  • If you agree with the notice, respond by filing a Consent to Assessment and Collection
  • If you disagree, you either (a.) go ahead and get that missing return prepared and filed, or (b.) dispute the assessment and/or filing requirement through Tax Court.

What if you have not received either of these two notices?

Let’s assume that you haven’t filed your personal 1040 tax returns for say 2, 5, or even 10  years. But after all this time, you now find yourself in the position where you really need to address the issue. It could be a new marriage, a new job, or the threat of having your passport revoked, for example.

Whatever the case, waiting or doing nothing can only make the matter worse, for several reasons:

  1. Not filing your tax returns is a crime that can put you in jail. While the IRS doesn’t take this action often, they do so—as they did with Wesley Snipes. Not paying taxes can bring civil charges, but not filing can bring criminal charges, which makes not filing worse than not paying!
  2. If you don’t file, the IRS can prepare a Substitute for Return, without exemptions or deductions, resulting in an inflated tax obligation.
  3. Not filing means you lose possible refunds due to the 3 year statute of limitations. This means you lose money, or you lose the ability to use any refund amounts to offset the tax due on other un-filed years.
  4. The IRS may have sent notices, but you’ve not received them  because your address has changed over the years. But they still can locate your bank account, or your employment, and should they levy your account or garnish your wages, it will be very difficult to stop the collection action until you get your returns filed.

Bottom line, waiting for the IRS can backfire on you.

It really is possible to put your tax problem behind you, but first you have to decide that you’re going to start.

What if you file, but can’t afford to pay the tax?

Even if you find that you owe the IRS, you should still file the returns for the reasons stated above.

You may not have the money to pay the tax right now—but you do have options. This could actually be the best time to work out a settlement with the IRS, and not in the future, whenever you “get back on your feet” and actually have money.

The only way to settle your debt is by first filing a tax return, so that the IRS can make an assessment of tax due.   

What if you don’t have past year’s records; how can you file a return?

Many taxpayers misplace prior year tax records, even lose them in a flood or a fire. Maybe record-keeping isn’t your strong suit to begin with, and now that you’ve behind with the IRS, the thought of organizing your paperwork and preparing a return is simply overwhelming.

But there is hope. W-2s, 1099s, 1098s, K-1s, etc. are all going to be on your IRS records; you can access all of this info by requesting a report from the IRS called a Wage and Income Transcript. Obtain a transcript for each year you’ve not filed — up to 6 years.

In most cases, because of limited manpower, the IRS requires you to only go back and file your last 6 years of returns, and then work out a payment arrangement or settlement for any tax due. This is the general rule, and there are exceptions, but working to prepare and file 6 years of returns can certainly be more manageable than you’ve feared.

Bottom line, you do not have to be in a state of fear and inaction due to un-filed returns and back taxes. If you just start moving forward, you’ll find it really is possible to put your IRS problem behind you, permanently. 

But the single most important step you can take to resolving your back tax problem is to act immediately.

Are you ready to get started?  Click here to set up your personalized Tax Debt Relief Consult. Bu please don’t wait; the IRS acts fast when they think you have their money!

Delinquent Tax Returns? Here’s 3 Reasons You Shouldn’t Rush to File

Do you have delinquent tax returns? Have you received an IRS Notice instructing you to file an overdue or un-filed return immediately?

Don’t do it. Not just yet, anyway.

Don’t get me wrong–I believe Americans should render unto Uncle Sam what is Uncle Sam’s (but not a penny more).

It’s very important to file and pay your taxes a timely manner. If you don’t, you will have to deal with the various attempts the IRS makes to get you to file. If you still don’t file, they’ll go ahead and file for you. And then turn you over to the world’s best collection agency to obtain the tax money you owe. (Now with that disclaimer out of the way, let’s proceed…)

Here’s three simple reasons (you probably haven’t thought about) why you shouldn’t rush to file delinquent tax returns:

  1. If you have a refund coming to you, and you file more than 3 years past the due date (including validprocrastinationextensions), most of the time the IRS will keep the refund. The IRS will not even offset the refund against an old tax liability from another year.
  2. If you are in an Installment Agreement to pay a prior tax liability, or in an Non-Collectible Status, the filing of any return or the paying of any tax late will void the agreement.  This will cause all money to become due immediately.  Often when an agreement is in default, taxpayers find out via a levy on their bank account, their spouse’s paycheck, a lien on their house or seizure of other property.
  3. You’ll likely regret not giving yourself sufficient time to reflect on the accuracy of the return. Don’t let the IRS, bully you into filing a return so quickly that it is full of errors. This may increase your tax debt or cause an examination.

ANCHOR ON THIS: IRS Notices can be intimidating, in both format and tone. But don’t let their deadlines and strong language mislead you. Don’t operate out of fear by letting the IRS dictate how and when to proceed. A knee-jerk reaction can adversely affect your IRS tax matter in the long-term. For more information on how to deal with the IRS to resolve your tax matter, permanently, contact a tax pro who specializes in IRS Representation.

4 Reasons Not to Hit the Panic Button After You Get An IRS Notice

You filed your return. You paid your tax. But now, just when you thought this year’s taxes were wrapped up and put away, you find an IRS Notice in your mailbox.

Don’t hit panic panic button!

Here’s 4 reasons why:

1. You’re not alone.

The IRS sends millions of notices and letters out each year. Many are computer-generated, because these days the IRS relies less on employees to get directly involved in issues including collections.

2. Many notices are simply routine.mums-219436_1280

These can be resolved with a few simple steps. For example, you may need to file an additional tax form. The IRS may have been unable to make a direct deposit for your refund and, instead, is sending a refund check. Or you might have missed a small amount of interest from a bank account. With more than 100 types of federal tax notices (see “Common IRS Notices,” below), the possibilities for IRS inquiry are endless.

3. Focus only on the issue at hand.

The envelope may be thick, and the letter itself several pages long, but look for the key sentence (usually right there on the first page) that states the problem at hand. The IRS has redesigned their standard notices to look less like legal documents. The language is generally easier to understand than in the past. Identify the problem, then follow the instructions to resolve the issue.

Say the IRS proposes a correction to your return. If you do not agree with the correction the IRS made, it is important that you respond as requested. You should send a written explanation of why you disagree. Include any information and documents you want the IRS to consider with your response. Mail your reply with the bottom tear-off portion of the IRS letter to the address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.

4. There are times when the IRS is wrong.

black-40636_150Remember, many notices are computer generated, meaning no one at the IRS has reviewed it before you received it. Which can lead to simple mistakes. Say you claimed interest income from Bayview Savings on your return. But the 1099 filed with the IRS reads “Bayview Federal Savings Bank”. The computer doesn’t match up the names, so you receive a standard CP 2000 notice stating you didn’t claim the income, proposing additional tax, and charging you interest and a penalty to boot. It’s a simple mistake. Follow the instructions. It’s a simple fix.

ANCHOR ON THIS: No one likes to find an IRS Notice in their mailbox. But no one needs to hit the panic button. It’s a first notice. Should you take it seriously? Yes! Never ignore an IRS letter! Never set it aside with a stack of bills you’ll get to sometime later. But there’s no need to freak out. Breathe. Open the letter. Identify the problem. Resolve it (which you should be able to without calling or visiting an IRS office). For more information, visit IRS.gov, or contact a tax relief professional who specializes in IRS representation.

The Top 4 Reasons We Miss Deadlines… (like April 15th)

Why do we allow ourselves to miss important deadlines (like April 15th)?  The first syllable (“dead”) on it’s own is hard enough to swallow. And then when you put another word like “tax” in front of it (“tax deadline”!!!), it can be overwhelming.
When it comes to April 15th, these are the four reasons I hear most often from my clients:
  1. I don’t have the time
  2. I don’t have the money
  3. I don’t know how to file (my tax situation has changed)
  4. I just can’t handle it right now
I don’t have the time
smart-watch-821567_640Let’s face it. You don’t have any more or less time than anyone else.
Sure you’re busy. But you’re not the only one with a job, children, church and/or other responsibilities. We all get 24 hours in a day; nobody else gets “bonus time”. In this light, you don’t really “manage” time; your challenge is simply to manage priorities.
Make the IRS a priority on April 15 so they don’t make you a priority later
I don’t have the money
Many people file an extension with the IRS, thinking it gets them more time to pay their taxes. It doesn’t. Even if you are granted a six-month extension to file, it doesn’t extend the deadline to pay which will still be April 15
In my experience, many people fear that they’re going to owe when they actually are going to get a refund. But they delay filing, only to learn later that their refund is reduced because of IRS penalties. Some delay more than three years and forfeit their refund altogether.
File now even if you don’t have the money. It doesn’t save you anything to delay.
I don’t have the know-how 
This reason is usually associated with a major life change. For example,
  • People get married and then don’t know whether to file jointly or separately.
  • People start a new business and then don’t know how to file their business taxes
  • People get an inheritance, or sell stock, or liquidate some 401(k) money, or buy rental property, and so on.
Any of these events can dramatically change how you file your taxes but it shouldn’t be so overwhelming, or your need for perfection so great, that you can’t get help or find the information you need to get the return filed
If you need to hire a tax professional, do it. Their fees will usually be more than paid for by the amount of taxes you save.
I just can’t handle it right now!
When it comes to the IRS, income taxes, finances, deadlines…  people can implode emotionally, shut down, melt down… lie down. We tend to do nothing, because the job seems too big to handle in light of everything else we’re dealing with in life.
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The good news is you don’t have to get it all done today. Give yourself a few days, that is, choose to set your own deadline rather than someone else do that for you.
Maybe it will take a few hours to get your records together, gain knowledge on some tax laws, navigate tax software, or meet with an accountant. Break the tasks down into bite-size pieces and then take 20 minutes each day until you cross the finish line.
ANCHOR ON THIS: Meeting the April 15th tax deadline can feel like an overwhelming task. It’s easy to make excuses, or rebel against the outside pressure that an IRS deadline imposes on our lives. But if you choose to set your own deadline, and break down the task into small daily steps, you’ll gain confidence as you move forward, complete the project, meet the deadline, and ultimately save yourself time, money and stress.
Can you share other reasons you miss deadlines, tax or otherwise? Please feel free to add your thoughts via your comments below.

How to Develop a Winning Strategy in Dealing with the IRS

When I talk about the need to develop a winning strategy in dealing with the IRS — a ‘kick-ass’ strategy, if you will — what I’m referring to is your absolute need to go into it with a strong game plan.

No NFL team is going to take the field on Sunday without first studying the other team’s strengths and weaknesses, and develop a solid game plan based on that knowledge.

Yet every business day, taxpayers engage Internal Revenue Service personnel with little to no knowledge of how the IRS operates, what their true objectives are, what programs are available to settle IRS debt, what your collector can and can’t do (per published standards in the Internal Revenue Manual), and so on.

A ‘kick-ass’ strategy is all about working with IRS employees and standards to yield a positive outcome (a ‘win’). It isn’t a mindset where you set out to conquer the IRS or take the attitude that you’re going to kick the collector’s you-know-what.

Let’s face it, if anyone needs a kick in the keyster… it’s you.

  • You’re the one with unpaid taxes and/or un-filed returns.
  • You’re the one who’s tried to ignore your tax problem.
  • You’re the one who’s let the whole situation steamroll into such a big mess.

If you want things to change, you must change.

It’s time to take charge of your situation, have the courage to face your fears, gain some wisdom on your tax matter, develop a game plan, and move forward. This is what I mean by taking a ‘kick-ass’ approach to dealing with things.

A winning strategy seeks to collaborate rather than conquer.

Think about this for a moment. Have you ever thought about what it’s like to be an IRS collector? Being an IRS agent can be very frustrating, very negative, very difficult. Taxpayers lie to you, yell at you, disrespect you. You probably didn’t grow up thinking that working for the IRS would be your dream job or career. But right now it is your job, it’s what you go to the office and do everyday to feed your children.

Troubled taxpayers will get a lot further by being patient with IRS personnel on the phone, no matter how they might initially respond to you. Take the approach that you’re not dealing with the IRS; your dealing with a person who works at the IRS. Try to collaborate with them to gain a favorable outcome for both of you.

A winning mindset is focused

Forget about politics. It’s not about you being a conservative Republican, or a liberal Democrat, or where in the world Lois Lerner’s emails went. It’s not about whether you think the tax laws are fair or unfair to poor folks, to business owners, to gays, to members of the Tea Party, or to non-profits. It’s about how much you owe, how much you earn, how much you can reasonably pay the IRS without negatively affecting the health and well-being of your family.

A winning mindset accepts the fact that your tax problem is ‘business’, not ‘personal’. Don’t be offended because you ignored IRS notices and finally your bank account was levied. Don’t take it personally if your monthly housing costs or food budget don’t line up with established local or national standards.

Denial is not a successful resolution strategy

It’s amazing to me how unaware delinquent taxpayers are about the specifics of their tax matter. How well do you really know your situation? You can’t fix a problem if you don’t understand what it is. If you don’t know the answer, ask the IRS employee to help you understand the problem, and what the best possible solution is! Here’s some important things to know:

  • What’s the total dollar amount that you owe? How much of that total is tax debt, and how much is interest and penalties? Is penalty abatement possible? Is a payment plan an option for you?
  • How old is the tax debt? When does the assessment statute expire? When does the statute of limitations on collecting the debt expire?
  • Is the case in Automated Collection, or has it been assigned to a local IRS agent? Is a bank levy possible? How soon? How can it be avoided (or removed).
  • Do you have un-filed returns? Has the IRS filed “substitute for” returns? How much could you reduce your tax by actually filing in those years?
  • Could your case qualify for an Offer in Compromise? Is a Partial Pay Installment Agreement a possible solution?

Search for a ‘win-win’ outcome.

A ‘win’ for you is to sleep better at night knowing you’ve shown the courage to face your IRS problem and resolve it, either by being able to reduce your overall tax bill, have a levy released, a penalty removed, or an affordable payment agreement approved.

A ‘win’ for the IRS employee, is to resolve your tax issue in a manner that meets the demands of their boss and IRS collection standards, get your case file off their desk, and move on to the next one.

ANCHOR ON THIS: The IRS has been kicking your tail long enough. The stress and fear can take over your life. But don’t let your emotions keep you from developing a winning strategy in dealing with the IRS. A collaborative strategy will be more successful than a combative approach in putting your IRS problems behind you.

5 ‘kick-ass’ strategies to get IRS tax relief now

The “7 Ps” is acenturian-tank-354717_150n old British army adage for “Proper Planning and Preparation Prevents Piss Poor Performance”.

When it comes to owing the IRS, “poor performance” can mean $10,000 + in unpaid taxes, frozen bank accounts, sleepless nights, damaged relationships.

The good news? Just because you’ve planned poorly in dealing with the IRS in the past doesn’t mean you can’t get a fresh start today. Your IRS situation is what it is. They’ve put you in a tough spot.  Now it’s your turn to make a quality decision to deal with it. How?

Here are 5 possible ‘kick-ass’ strategies you can use to get IRS tax relief now:

  1. Offer in Compromise: Settle your tax debt for less than the total amount you owe.
  2. Installment Agreement: Set up a monthly payment plan for paying off the total amount due
  3. Not Currently Collectible: a program where the IRS agrees not to collect on the tax debt for a period of time
  4. Partial Pay Install Agreement: an arrangement with the IRS where you have a long term payment plan to pay off the IRS at a reduced dollar amount
  5. Bankruptcy: you agree to discharge your tax debts using the strict rules of a Chapter 7 or Chapter 13 bankruptcy petition.

There is no “one size fits all” solution to your tax problem. The best course of action for you is to study the alternatives, get the information you need to make a wise decision, and then select the IRS program that is most appropriate to your financial situation.

You may wish to consult with an Enrolled Agent who specializes in resolving tax debt, and has the experience and expertise to help you make an informed decision and provide professional IRS representation. Or, depending your particular situation, you may be comfortable with a ‘do-it-yourself’ approach in dealing with the IRS. Either way, don’t let poor planning prevent you from gaining tax relief that’s appropriate to your financial situation.

 

 

 

If the IRS sends me a valid tax bill, and I can’t pay… What happens next?

mums-219436_150Whenever you owe Uncle Sam and don’t pay, a claim against you by the US Treasury arises by law. This claim is called a tax lien. The lien automatically attaches to pretty much everything you own or have a right to—your home, your bank account, your paychecks.
The initial IRS notice is not public infomration; for this reason it’s called a ‘secret’ or ‘statutory’ lien. If you don’t pay within 30 days, however, thet IRS has a right to file a notice in the public records showing your tax debt. The federal government issues over ½ million notices each year. It’s officially called a Notice of Federal Tax Lien, and will be recorded in the city or county courthouse where you work, live, or own real estate.
Just as a recorded mortgage tells anyone who searches the public records or pulls a credit report that you owe the mortgage company, a Notice of Federal Tax Lien tells the world you owe the IRS. It damages your credit rating, scares off potential creditors, and makes it difficult to finance future purchases.

 

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