Tax Relief Solutions

As a taxpayer, one of the most frightening things you could receive in the mail is an IRS letter. Depending on the notice that you receive from the IRS, it can cause anxiety and fear, and you may even feel unsure about what your next move will be or what tax solutions may be available to you. The IRS does have tools available that taxpayers can utilize for IRS tax help, even if they received a notice that makes it unclear what their next steps would be. Below are some of the most common collection notices sent out to taxpayers every year. 

CP501/502

If you’ve received a CP501 notice, it means that the IRS is attempting to notify you of a past balance due. The IRS will request that you take action in order to resolve your outstanding balance. A CP502 notice also doubles as a reminder that the IRS sends about your tax balance. Typically, each notice indicates the interest and penalties that have accrued in addition to what you owe to the IRS. 

If you receive these types of notices, the IRS is letting you know of what the current balance, including interest and penalties, is owed. Once you confirm that the balance is accurate, you can either pay the balance for the tax year in question or contact the IRS to get set up on a payment plan. 

CP504

A CP504 notice is a secondary notice that the IRS will send to alert you of your tax debt if you owe a tax balance. This notice is to also notify you that they’re preparing to start collection action and to seize any tax refund you may have received. The IRS will continue their collection action against a taxpayer until their balance is paid in full. 

To avoid the IRS sending you into collections, it is important to stay compliant. You can do this by paying off your balance in full with the IRS or asking to be placed on a payment plan. It is also paramount that you continue to monitor your mail to ensure that you don’t receive any further notices from the IRS.

LT11/CP90

An LT11 is a notice to remind a taxpayer that they have an overdue payment for overdue taxes.

The IRS will send a CP90 notice if they have attempted to reach out to a taxpayer multiple times about their tax balance and have yet to receive a response. The letter states that the IRS has the intent to seize a taxpayer’s property or rights to their property if they fail to resolve their outstanding balance. 

Both these notices are a warning that the IRS will begin to take collection action against the taxpayer and it is up to the taxpayer to either continue to stay in collections with the IRS or settle their debt and get compliant. At this point in time, it is vital that you attempt to rectify the situation and get help with IRS debt by contacting them immediately to resolve your liability in addition to any interest and penalties that you have accrued.

Regardless of what notice you have received, it is important to review the notice and resolve the situation if needed. The IRS typically sends written communication to taxpayers to notify them of their tax balance and to reconcile their liability as soon as possible. If you need tax help and don’t know the first step to resolving your balance with the IRS, a tax relief company may be your best bet. A tax relief company will work with the IRS on your behalf to address your tax issues so you can be compliant moving forward.    

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

If you’ve been hit with an assessment from the IRS, for instance, as the result of an audit and you disagree with the results, you are entitled to present your case in Tax Court. However, an IRS administrative appeal may produce desirable results without the need to go to court. As a taxpayer, you are entitled to dispute the results of an IRS assessment through the administrative appeal process for any reason other than religious, moral or political, conscientious objections. The professionals at Optima Tax Relief can determine whether an administrative appeal is the right course for your situation.

IRS Administrative Appeal Categories

The IRS Appeals division operates as a separate entity from IRS offices that conduct investigations. The two types of administrative appeals available are Collections Appeal Process (CAP) or Collections Due Process (CDP) hearings. Administrative appeal hearings may be conducted by mail, telephone or in person. You may represent yourself or be represented by an accountant, attorney or individual enrolled to practice before the IRS. If your tax return was prepared by a third party who is not enrolled with the IRS, he or she may be a witness, but may not represent you.

Submitting Your Request for Administrative Review

For assessments resulting from an audit of less than $2,500, you may approach the auditor directly or submit your request through the appeals system. Protests involving assessments of less than $25,000 may be submitted as a Small Case Request. Use Form 12203 – Request for Appeals Review, available from the IRS website, or the form referenced by your assessment. You may substitute a written statement including the items to which you disagree and your reasons for disagreement. Assessments of $25,000 or more require a Formal Written Protest including all of the following items.

• Your name, address, and a daytime telephone number.
• A statement of intent to appeal the IRS findings to the Office of Appeals.
• A copy of the letter showing the proposed assessment.
• The tax period(s) or year(s) involved.
• A detailed description of each item with which you disagree.
• The reason(s) for your disagreement for each item.
• Facts supporting your position for each item.
• Any law or legal authority that supports your position on each item.
• The following penalties of perjury statement stated exactly: “Under the penalties of perjury, I declare that the facts stated in this protest and any accompanying documents are true, correct, and complete to the best of my knowledge and belief.”
• Your signature beneath the penalties of perjury statement.

If your request for appeal is prepared by your representative, he or she must substitute the declaration for penalties of perjury statement for individual taxpayers with a statement that includes each of the following elements:

• An affirmation that he or she submitted the protest and any accompanying documents, AND
• A statement of personal knowledge of stated facts in the protest and accompanying documents and a declaration that the facts are true and correct.

Collections Appeal Process

CAP generally produces faster decisions than a CDP. A CAP filed to protest a wrongful levy may be filed either before or after property has been seized, but must be filed before the property is sold. Filing a request for CAP within 30 days of the rejection or termination of an installment agreement prevents the IRS from issuing or executing a levy until the appeal has been settled. However, you cannot dispute owing additional taxes through a CAP. You are also barred from proceeding to Tax Court if you disagree with the conclusions of the CAP. You must file Form 9423 – Collection Appeal Request to initiate a CAP review. CAP can be used to address the following IRS actions:

• Prior to or after the filing of a Notice of Federal Tax Lien
• Prior to or after levy or seizure of property by the IRS
• Proposed or actual termination of an installment agreement
• Rejection or modification of an installment agreement
• Rejection of proposed trust fund recovery
• Denial of a trust fund recovery penalty claim
• Denial of abatement request for late payment, late filing or deposit penalties
• Rejection of an Offer in Compromise

Collection Due Process

Unlike the CAP, a CDP hearing allows you to proceed to Tax Court if you disagree with its findings. You must file Form 12153 – Request for a Collection Due Process or Equivalent Hearing, available for download from the IRS website, or a letter containing the same information as Form 12153 to request a CDP hearing. You generally have 30 days from the date you receive your assessment or audit examination report to submit your CDP appeal. After 30 days, you may request an Equivalent Hearing, but collection activities will not be suspended. You will also not be able to request a judicial review of the results of an Equivalent Hearing; you cannot appeal the results in Tax Court. You may request a CDP or Equivalent Hearing to request a review relating to any of the processes listed below:

• Collection proposals (e.g. installment agreements or Offers in Compromise)
• Lien subordination (relinquishing priority claim)
• Withdrawal of Notice of Federal Tax Lien
• Innocent Spouse defense claims
• Existence or amount of additional tax assessment ( ONLY if there was no notice of deficiency or other opportunity to dispute tax liability)
• Claim of economic or other hardship resulting from collection of tax liability

The Administrative Hearing Process

After submitting your request for administrative review, you generally have at least 60 days to prepare for the hearing. Draft a rough outline of the information you wish to include in your presentation. Categorize any other relevant information in spreadsheets or in visual displays, with separate folders for each item.

It’s wise to request a copy of the auditor’s file under the Freedom of Information Act (FOIA) immediately; FOIA requests can take at least a month to process. The letter should cover all relevant tax years and provide an offer to cover copying costs. Send the letter by certified mail or other traceable means.

The hearing itself will be fairly informal. You are entitled to take notes or record the hearing if you wish. Be prepared for requests for further information. If that happens, don’t hesitate to ask for more time.

If you reach a verbal settlement during the hearing, the settlement will be transcribed onto IRS Form 870 – Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment, which can require months to show up in the mail. Double check all the figures and do not sign the form unless you understand and agree with everything contained within it. The professionals at Optima Tax Relief can address any questions you may have regarding this process.

Likewise, do not sign the form if you’ve found other mistakes by the auditor or appeals officer. Once you sign the form, you are barred from making further appeal to the Tax Court.

It’s Worth the Effort

The administrative review process can be daunting, but the odds of winning your case are very good. Investopedia reports that according to at least one edition of the book Stand Up to the IRS, published by legal portal Nolo, claims that taxpayers who appeal their audits have their assessments reduced by an average of 40 percent. With Optima Tax Relief on your side, you have a good chance of achieving favorable results, too.

Earlier this year, the Internal Revenue Service (IRS) rolled out its Fresh Start Initiative, aimed at helping struggling taxpayers. The initiative allows qualified taxpayers to avoid the IRS Failure to File penalty. This penalty is usually placed on unpaid tax balances, with accrued interest. Qualified individuals can request a six-month payment extension in which no penalties will accrue. Late payment penalties will be charged if the balance is not paid by October 15. Secondly, Fresh Start provides a different installment structure, allowing taxpayers to avoid financial reviews and Federal liens.

Recognizing the need for tax relief, IRS Commissioner Doug Shulman said, “This new approach makes sense for taxpayers and for the nation’s tax system, and it’s part of a wider effort we have underway to help struggling taxpayers.” Do I Qualify for the IRS Fresh Start Initiative? is the logical question being asked by many taxpayers. Consider the qualifications below.

• You must have been unemployed for a minimum of 30 consecutive days during 2011 or before April 15 2012.
• Married couples filing jointly need to have only one spouse that meets the qualifications.
• Individuals who are self-employed need to be able to show at least a 25 percent drop in their net income.
• Taxpayers must not earn more than $200,000 per year for married couples or $100,000 per year for individuals.
• Fresh Start is also limited to taxpayers whose tax balance was not more than $50,000 at the end of 2011.
• Taxpayers must file Form 1127A, which is not available electronically.

Annually, the Internal Revenue Service (IRS) reaches out to taxpayers across America who earned $49,078 or less to offer a little tax relief by way of the Earned Income Tax Credit (EITC).

The EITC varies according to your income, family size and filing status. Basically, it is a federal refund for taxpayers with low to moderate incomes. And eligible taxpayers may still get a refund even if they don’t owe taxes.

Eligible workers often miss out on it because they either don’t claim it or don’t file a tax return. This is especially true if their financial situation has changed; something that has happened to a lot of Americans over the last few years.

You can easily find out if you qualify just by visiting IRS.gov and answering a few questions using the EITC Assistant.

To get your EITC refund, you have to:

• Have had earned income through employment, self-employment or farming
• Have a valid social security number
• Be a U.S. citizen or resident alien, or a non-resident alien married to a citizen or resident alien
• Be 25 years or older
• Have investment income of less than $3,150
• Not be claimed on someone else’s tax return
• File a tax return

There are additional stipulations with regard to how you file (single or married) and whether you have filed Form 2555 (foreign income). However, in this climate of continuing financial struggle, taking the time to determine if you are eligible for some tax relief from the IRS is well worth the time investment.

And if taxes aren’t the only financial obligation that has you struggling right now; if other unsecured debt like credit cards, student loans or a car note have you wondering how you will make ends meet, take the time to ask us about debt settlement. It’s our specialty.

The IRS brings good news this week to middle-class Americans who continue to struggle with tax debt by expanding their Fresh Start Initiative.

Loosened guidelines for the Offer in Compromise program, which forgives a portion of a taxpayer’s debt, will allow more Americans to qualify as well as eliminate their tax debt in as little as two years, compared with four or five years.

The adjustments to the program come after the IRS recognizes that many taxpayers are still struggling to pay their bills. They wanted to apply a common sense approach to reflect real-world scenarios.

Changes to the program include:

• Revising the method of calculating taxpayer’s future income.
• Flexibility in repaying student loans.
• Flexibility in paying local and state delinquent taxes
• Expanding the Allowable Living Expense allowance (expenses such as credit card payments and bank fees can now be taken into account).

The changes will allow many more consumers to qualify for tax relief under the Offer in Compromise program. Specifically, when the IRS calculates a taxpayer’s reasonable collection potential, it will now look at only one year of future income for offers paid in five or fewer months, down from four years, and two years of future income for offers paid in six to 24 months, down from five years.

“This phase of Fresh Start will assist some taxpayers who have faced the most financial hardships in recent years,” said IRS commissioner Doug Shulman. “It is part of our multi-year effort to help taxpayers who are struggling to make ends meet.”

The IRS, having a reputation of rigidity, surprised many Americans with this welcomed announcement of increased flexibility. Full details of the announcement are available at theIRS website.

A IRS tax levy is the toughest collection tool in the IRS arsenal.  An IRS tax levy means that the government has the right to seize your property and assets in payment for unpaid tax debt.  Unlike a lien, a tax levy actually gives the IRS the right to take and sell your property to settle your debt.  If you have been issued a tax levy, don’t give up:  you can still settle your tax debt.

There are several ways you can remove an IRS levy:

• Pay the tax debt in full.  Once the debt is paid, the IRS will immediate halt the collection process.  If you don’t have the funds available to pay the entire debt, options might include taking out a loan, borrowing money from friends or family, or refinancing your home.  The IRS agent might be willing to put a temporary hold on collection procedures if you have a reasonable plan for coming up with the money.
• Set up a payment plan.  This may be the simplest and easiest option.  If you owe less than $25,000 in back taxes, the IRS will typically stop the tax levy once you have agreed to an IRS payment plan.
• Set up a partial payment plan.  Similar to the installment plan, in a partial payment plan you will agree to pay the IRS what you owe over time.  The main difference is that your payments will be smaller than with the installment plan and you must be able to prove that you don’t have the financial resources to make the payments required under the installment plan.
• Submit a compromise offer.  If you submit an offer in compromise the IRS will automatically halt collection proceedings until the offer is reviewed.  If the offer is accepted, you must pay the amount of the offer.  If the offer is rejected, the IRS will resume collection proceedings unless you can set up a payment agreement.
• Prove that the levy is causing undue financial hardship.  The conditions on this are stringent and the IRS is the final judge.  If you can prove that the levy is making it difficult to provide for your families basic needs such as food and shelter, the IRS will lift the levy.
• Prove that the IRS is trying to collect on assets with no equity.  If you can show the IRS that it’s not worth their effort to collect, the IRS may lift the levy.  This would only apply in situations where you have little or no equity in your assets, such as a home with a mortgage large enough to offset the selling price.
• Let the statute of limitations expire.  There is a 10 year statute of limitations on IRS tax debt.  If the 10 year limit is drawing near, the IRS may try to extend the time limit by getting you to agree to a payment plan or other settlement.  If you are on year nine of the ten year period however, you may be able to let the statute of limitations expire without payment.

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