Today, Optima Tax Relief Lead Tax Attorney, Phil, discusses each of the three IRS 6-year rules.
Underreporting Income by Over 25%
If you underreport your income by over 25%, the IRS has six years from the date the return was filed to assess additional taxes, instead of the usual three years. The 25% threshold is calculated based on the amount of gross income that should have been reported. Gross income includes all income before deductions and exemptions. This can include wages, business income, rental income, interest, dividends, and other forms of income.
Non-Filing
The IRS generally requires taxpayers to file tax returns for the past six years if they have not filed them previously. This means if you have not filed a tax return in the last 10 years, the IRS will only require you to file the most recent six past-due returns.
Installment Agreements
Generally, if a taxpayer can pay off their tax debt within six years, they may qualify for streamlined installment agreements where detailed expense documentation, like receipts, may not be required for reasonable expenses. These expenses typically include food, clothing, housing, utilities, transportation, and healthcare.
Today, Optima Tax Relief Lead Tax Attorney, Phil, discusses OIC mills, including what they are and how to avoid being victimized by them.
What is an OIC?
An Offer in Compromise (OIC) is a program offered by the IRS that allows taxpayers to settle their tax debt for less than the full amount owed. This program is intended for individuals who cannot pay their full tax liability or doing so would create a financial hardship.
What is an OIC Mill?
An “OIC mill” refers to a business or organization that aggressively markets and promotes OIC services to taxpayers, often making exaggerated claims about their ability to settle tax debts for pennies on the dollar. These companies typically charge high fees and may not deliver on their promises, sometimes providing subpar or even fraudulent services.
How to Avoid OIC Mills
Thoroughly research any company or service offering OIC assistance. Look for reviews, complaints, and ratings from reputable sources such as the Better Business Bureau (BBB). Ensure the tax professional you’re working with is qualified, such as a licensed attorney, CPA, or Enrolled Agent who specializes in tax resolution. Consider contacting the IRS directly or using the IRS’s online resources to understand the OIC program and determine eligibility before seeking outside help. If an offer sounds too good to be true, seek a second opinion from a trusted tax professional. Familiarize yourself with the IRS OIC process and the realistic chances of success. The IRS provides detailed information and forms on their Offer in Compromise page.
If you’ve been victimized by an OIC mill, consider asking for help from the experts at Optima Tax Relief. With over a decade of experience and over $3 billion in resolved tax liabilities, we can help with your tax situation.
Today, Optima Tax Relief Lead Tax Attorney, Phil, talks about tax identity theft, breaking down his top tips on how to avoid being a scam victim.
Get an IP PIN
An Identity Protection PIN (IP PIN) from the IRS is a six-digit number assigned to eligible taxpayers to help prevent the misuse of their Social Security number on fraudulent federal income tax returns. This PIN provides an additional layer of security for individuals who have experienced tax identity theft or are at higher risk of tax-related identity theft. You can request an IP PIN through your IRS online account.
Check Your Tax Transcripts for Suspicious Activity
Your IRS online account houses several types of tax transcripts. One of them is the wage and income transcript. Look for unauthorized or unfamiliar entries, such as: inaccurate income reported as earned under your SSN; employers you never worked for; and any other similar discrepancies. If you find any discrepancies, it could mean your Social Security Number has been compromised. You can also check your account transcript to see if someone filed a tax return under your name and social.
Report Stolen Identities
If you feel your identity has been stolen or compromised, contact the IRS immediately. You can call them at 800-908-4490. Be prepared to attach IRS Form 14039, the ID theft affidavit, to your tax return if you have not already filed. The IRS will review your affidavit and investigate the identity theft claim. They may contact you for further information if needed.
If you think your identity has been compromised, consider asking for help from a tax professional.
Today, Optima Tax Relief Lead Tax Attorney, Phil, talks about the Child Tax Credit, breaking down what it is and who qualifies.
What is the Child Tax Credit?
The child tax credit is a tax benefit provided by the IRS to parents or guardians who have dependent children. It’s designed to help offset the costs of raising children. Individuals with children under the age of 17 could potentially receive up to $2,000 per eligible dependent. $1,600 of that sum could be eligible for refund in the 2024 filing season.
Who Qualifies for the Child Tax Credit?
First, you’ll need to determine the child’s eligibility. The child must meet certain criteria such as:
Relationship: The child must be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of any of them (such as your grandchild, niece, or nephew).
Age: The child must be under 17 years old at the end of the tax year for which you are claiming the credit.
Support: The child must not have provided more than half of their own support for the tax year.
Dependent: You must claim the child as a dependent on your federal tax return.
Citizenship: The child must be a U.S. citizen, U.S. national, or U.S. resident alien.
Not File Joint Return: The child must not file a joint return with their spouse for the tax year. If they did, they must only file to claim a refund of withheld income tax or estimated tax paid.
There are also income limitations for the child tax credit. In 2023, eligibility for the child tax credit hinged on your modified adjusted gross income (MAGI). Thresholds were set at $400,000 or less for married couples filing jointly, and $200,000 or less for other filers. However, if your MAGI surpassed these limits, the $2,000 credit was gradually reduced by $50 for every additional $1,000 over the threshold.
If you’re unsure about your eligibility for the child tax credit, consider asking for help from a tax professional.
Today, Optima Tax Relief Lead Tax Attorney, Phil, talks about the common IRS penalties: failure to pay and failure to file, including what each are, and which one is worse for taxpayers.
Failure to Pay Penalty
The failure to pay penalty is a financial penalty imposed by the IRS on taxpayers who fail to pay their taxes by the due date. This penalty typically accrues at 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid. It will continue to accrue until the date the tax is paid in full. However, it will not exceed 25% of your unpaid taxes.
Failure to File Penalty
The failure to file penalty is a financial penalty imposed by the IRS on taxpayers who fail to submit their tax return by the deadline. This penalty typically accrues at 4.5% of the unpaid taxes for each month or part of a month the tax return is late. It will continue to accrue until the date the tax return is submitted, up to 22.5% of your unpaid taxes.
So, Which is Worse?
Well, our expert says the failure to file penalty is. This is because of the hefty penalty of 4.5% each month the balance goes unpaid your taxes are filed. So, as Phil says, “Do something.” In this case, do file your taxes, even if you can’t afford to pay your tax bill. At least then you won’t need to worry about the aggressive failure to file penalty.
Tune in next Friday when Phil answers your questions about the Child Tax Credit.
Today, Optima Tax Relief Lead Tax Attorney, Phil, talks about his three takeaways from the current tax landscape.
IRS Interest Rates Could Increase
For much of the pandemic, we saw IRS interest rates hold steady. For example, the interest rate accumulating on unpaid taxes was 3% for half of 2020 and all of 2021. In April 2022, we saw it increase by 1% each quarter until it hit 6%. Now, the second quarter of 2024 will mark the third consecutive quarter with a rate of 8% for interest. The question remains: Will the rate continue to increase? Phil thinks so. It’s been said numerous times that now is a terrible time to owe the IRS. Spiking interest rates mean more expensive penalties and interest. Taxpayers should act immediately to get their tax issues resolved.
Back Taxes Affect Your Passports
If you owe a significant amount of back taxes and the IRS has issued a certification to the U.S. State Department, they can deny your passport application or revoke your current passport. But don’t worry. Before the IRS certifies your tax debt to the State Department, they will notify you in writing about the impending certification. You have the opportunity to resolve your tax debt, enter into a payment plan, or request other relief options before the certification occurs.
The 1099-K is a Wild Card
The reporting thresholds for Form 1099-K have changed quite a bit in the past few years. Remember, Form 1099-K is an informational tax form used to report certain types of payment card and third-party network transactions to the IRS. If you collect payments for your business through PayPal, Venmo, or others, you probably know about Form 1099-K. As of now, you would receive a 1099-K in 2025 if you had transactions of $5,000 or more in 2024. However, a much smaller $600 threshold will go into effect for tax year 2025. Remember, you should report this taxable income even if you do not receive IRS Form 1099-K.
