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Tax Debt Help Tips
State Tax Debt
When an individual lives, or a business operates, in a state where an income tax is collected, there are state tax debt issues that are bound to arise. Income taxes are the largest revenue generating sources of income for states.
What is unique about a state income tax debt issue is the fact that the IRS partners with many states in collecting unpaid taxes. The program is titled ‘State Income Tax Levy Program. This Program allows the IRS to take (levy/seize) your state income tax refund to pay your unpaid IRS bill. You will receive a Notice of Levy on your State Tax Refund from your State.
Other state taxes that may be accumulating in your state tax debt include:
Real estate taxes
Personal property taxes
Death taxes (put upon an estate at death)
Employer related:
Excise taxes (tobacco, fuel, alcohol)
Sales and use taxes
Payroll related
Other business taxes
Penalties and interest usually accrue on unpaid state tax debt. Each state has its own collection process, also. Just be aware that in addition to federal (IRS) tax debt, you may be responsible for state tax debt. Check with your state’s taxing authority to be certain all that is involved.
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Amended Return & Tax Debt Help
DebtHelp.com Tip: You realize after filing your tax return, that you forgot to record a huge chunk of income on your tax return. Or, you find out that you could have claimed more deductions. So, you have received an IRS Notice stating the findings in which you are charged new taxes, penalties, and interest. You need tax debt help. What can you do to correct this?
Use IRS Form 1040-X to file an amended return. There are stipulations that apply to filing an amended return. They are not to be used simply to lower your tax debt. They are to be used only for an honest oversight causing your tax return to have errors.
Form 1040X– Amended U.S. Individual Income Tax Return. You must file your amended return within three years from the date you originally filed your tax return. For instance, to file an amended return for your 2005 tax return, you have until April 15, 2008 to file an amended return.
You will need to mail in to the IRS service center where you normally mail your tax return to. When you do mail your amended return in, be sure to keep a copy for your own records
When you complete Form 1040X, you need to have your original tax information available. This is due to the fact that you need to write in your original income, deductions, and any credits taken on your original tax return. You also will report the changes you are making, and any correct amounts. This can simply be done by crossing out the original figure and writing in the new/correct figure. Be sure to cross reference the new figure to a supporting schedule and/or form explaining the change. (This will be a separate attachment to your amended return). Finally, figure your new tax based upon these new figures. Include your tax payment, if any, along with your amended return.
You can use this form to correct a mistake or to claim a refund on the original income tax return. For instance, if you did not report some income (like when you receive a Form 1099 after your filed your 1040), you claimed deductions or credits you should not have claimed or vice versa.
If you find that you need to make changes on more than one past return, use a separate amended return for each year. Do not combine figures from different years into one amended return, in other words.
Be sure that when you complete your amended return Form 1040X, that you provide the IRS with details about all the changes you are making. It is recommended to explain these changes by developing schedules and forms that suit your purpose. Be sure to attach any of this additional information to your Form 1040X. By explaining your changed items thoroughly and in easy-to-understand terms, you may receive some tax debt help from the IRS in the form of a lower tax bill.
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Taxpayer Advocate Services
There are times when taxpayers have problems resolving issues with the IRS through no fault of their own. For instance, a rude and intolerant IRS agent making negotiations difficult on you would be a reason for contacting the Taxpayer Advocate Service. Or, maybe you have an IRS employee who you just cannot understand due to his or her thick accent. In an effort to help taxpayers when dealing with the IRS, the IRS has a service it provides titled ‘Taxpayer Advocate Service’. This service is independently operated, yet provided by, the IRS. This service may help you resolve a problem that could not be settled through normal IRS channels. More information about what this service is and how you can benefit are as follows:
Generally, the Taxpayer Advocate Service can help if, as a result of the administration of the tax laws, you:
Are suffering, or are about to suffer, a significant hardship;
Are facing an immediate threat of adverse action (i.e. losing your home)
Will incur significant cost (including fees for professional representation)
Will suffer irreparable injury or long-term adverse impact;
Have experienced a delay of more than 30 days to resolve the issue; or
Have not received a response or resolution by the date promised.
The Taxpayer Advocate Service does not have the legal authority to reverse technical or legal tax determinations. They also cannot replace the Appeals process. They are simply there to be a third party ear for when you feel wronged by the IRS tax law process.
You will be assigned an individual Case Advocate who will work with you throughout the process. Your Case Advocate will listen to your concerns without judgment. You can expect the advocate to provide you with:
An impartial and independent look at your problem;
Quick resolution
Courteous service
Progress updates
Action time frames
Timely acknowledgment
Name and phone number of Advocate assigned to your case
Whenever you contact the Taxpayer Advocate Service be sure to have the following:
Your name, address, and social security number (or employer identification number),
Your contact information such as telephone number and hours you can be reached,
Your previous attempts to solve the problem, and the office you contacted,
The type of tax return and year(s) involved, and
Description of the problem or hardship
Power of Attorney . If you want to give someone else the legal right to represent you in front of the Taxpayer Advocate Service, you will need to fill out the Power of Attorney form 2848.
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Debt Calculator
DebtHelp.com Tip: A helpful tool you can use to figure out the right figure for your tax debt repayment, if found in the Debt Calculator. As an example, there is one located at debthelp.com.
This handy tool is easy to use and can be used as a budget planning tool. It can provide you with a way to ease your tax burden without suffering financial hardship.
Here are some documents you will need to calculate a tax help relief figure:
Any income documents (W-2 or paycheck if you are an employee)
Fixed monthly expenses (utilities, rent, mortgage, car payment, etc.)
Variable monthly expenses (groceries, health supplies, i.e.)
Calculation:
Add up all your income for the year
Add up all of your fixed expenses for the year
Add up all your variable expenses (estimated) for the year
Input all of those figures into the debt calculator. The debt calculator does all the work for you. To make it easier on you, you can just input the individual figures without adding up the separate categories.
The debt calculator should arrive at a figure that tells you have much you have left to pay on your IRS tax debt.
The debt calculator is known as a debt calculator due to the fact that it lets you know how much debt you carry in relation to your income. For IRS tax debt settlement help, it will let you know how much income tax debt you can reasonably afford to pay. In traditional ratio analysis, debt calculations can spell the difference between success and failure. It will let you know if you are overextended (have too much debt). It is a budgetary planning tool. The debt calculator can be fun to use, also. Whenever you notice a change in your income or expenses, simply input the new amounts and find a debt friendly repayment figure.
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Tax Debt Help Mistakes
Becoming involved in a tax debt situation can be a nervous time for many. Receiving the first IRS Notice can come as a total surprise and bring a panic attack. It turns out you must contact the IRS at their request. Before you do, there are some things you need to know.
Be armed. Have all your applicable documents with you. This includes your IRS Notice Letter, your social security number (or taxpayer identification number), applicable tax year, and tax amount.
Be friendly. State why you are calling in friendly terms. Whether you believe it or not, the IRS does have humans working there. Treat them with respect and you will do better than if you do not.
Do not be berated. You do not have to put up with an IRS revenue officer who belittles you or tries to mistreat you. If you are uncomfortable with anything about the IRS revenue officer you are dealing with (or feel they are incompetent), simply ask to be transferred to another officer. If this does not work...
Contact Taxpayer Advocacy Service. This independent organization of the IRS will deal impartially with you regarding your IRS employee interactions. Report the revenue officer you were dealing with.
Meet deadlines. It goes without saying that if you meet your tax deadlines for both filing your tax return and paying your taxes, you will not begin having tax debt issues. Set up a tax calendar to help with this.
Pay your taxes. This is another commonsense statement. When you file your tax return, pay your tax bill in full, or as much as possible. The more you pay, the less can be penalized. Pay your delinquent taxes as early as possible. Penalties and interest have led to many an ugly tax debt situation.
Sell your assets. It may be a good idea to sell some of your assets to pay your IRS tax debt off. The IRS, with its incessant penalty and interest accruing, is not a pleasant creditor to have hovering around.
Do not ignore. Do not ignore the IRS once you receive your first IRS Notice. They will not go away like a bad virus over time.
Do not volunteer information. Stick with the facts that pertain to your tax debt situation. The more information you give the IRS, the more they can question.
Do not admit to violating tax laws. Do not admit to anything. It more than likely was an oversight on your part that caused your tax debt problem, not an out and out violation. The IRS may try to coerce you into admitting wrongdoing. Do not let them.
Know where you stand. Know where along the IRS collection process your tax debt situation really is. What needs to be done to correct it? What do you need to do? What will the IRS do?
Get it in writing . Whatever the IRS says, ask for them to put it in writing. Many times they will offer to do that anyways. It is just better to be safe than sorry.
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Tax Debt Help Professionals
DebtHelp.com Tip: Many times it is worth your while to have a tax debt professional help you with your tax debt situation. They are trained to know and understand the IRS tax law. Plus, they can provide insight into how best resolve your tax debt situation to your benefit. If you decide to meet a professional to assist you with your tax debt situation, there are a variety of options for you to choose from.
Tax Debt counseling firms. In addition to a variety of other debt counseling services, debt-counseling firms can be involved in tax debt areas. Many clients need help with their tax debt and do not know where to turn. Tax debt counseling firms can help set up installment agreements, tax resolution programs, and provide assistance in many areas involving tax debt. In addition to tax debt assistance, some of these firms offer consultations, online and offline libraries, and tax insight to help their clients. Debthelp.com is one such popular online firm helping customers alleviate their tax debt problems.
Tax Resolution Firms. These firms claim to get you out of your IRS debt by having you pay “Pennies on the Dollar.” Technically speaking, this is the term used by the Offer in Compromise IRS tax resolution program. Just be certain when you are interested in one of these firms, you check their credentials thoroughly. Many times the owners are Certified Public Accountants and Tax debt attorneys. These individuals must be licensed to practice in front of the IRS. These firms deal only with tax resolution issues.
Certified Public Accountants (CPA). These individuals are well-known for understanding the federal and state tax laws while conveying this knowledge to clients. They also can help you with tax resolution matters. Part of their professional responsibilities include dealing with the IRS and state government regarding tax issues.
Tax Debt Attorneys. Probably the most knowledgeable about tax resolution matters is a professional found in the attorney field. Many attorneys specialize in tax resolution situations. Otherwise known as a Tax Attorney, they specialize in various areas of tax that deal with their client’s troubled tax situation. To be proficient, make certain the tax debt attorney you choose is licensed to practice in front of the IRS. This is a necessity for when you are facing advanced IRS collection processes. Tax attorneys usually have the JD designation and years of study. When you are checking around your area for a competent tax debt attorney, be certain to ask if they specialize in the area of tax resolution. Some Tax Attorneys do not. Check around to see what is offered in your local area. Also call your State Bar Association. This is a great place for both attorney referrals and licensing verification.
Enrolled Agents. Enrolled Agents are trained and certified in the IRS Tax Code. They are the CPA’s of the IRS, in simple terms. They can also help you with your tax debt needs. Sometimes upon retiring from the IRS, individuals open up private practices. Look for referrals through networking, the IRS office, and your local phone directory.
During your process of choosing a tax debt professional there are some things you need to do:
Get referrals or feedback regarding them.
Schedule an in-person free consultation. During this consultation, use the time to also find out about him or her. Look around for their diploma. It should be displayed proudly on the wall.
Ask questions about their licensure, background, specialties, company history, etc. Also ask if they are involved in the community. Sometimes that can be important.
Ask if they have any referrals that you can call.
Call the referrals.
Specifically ask what their extent of dealing with tax resolution matters is. Have them give an example of a case.
Watch and listen to their manner of responding to
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Bankruptcy: A Method Of Tax Debt Help
After you have exhausted all your other available options with your tax debt, you may be able to gain some tax debt help by filing for bankruptcy.
Once you file for bankruptcy an automatic stay occurs. This protection stops collection efforts by any of your creditors, of which the IRS is the major one. An automatic stay will stop the IRS from issuing a tax lien or from seizing any of your property.
You need to be aware, however, that an automatic stay will only stop the IRS collection process. It will not stop any of the following IRS actions from happening:
Issuance of a tax assessment
Demand for a tax return
An IRS audit examination
Issuing a tax deficiency notice
Demand for an assessment payment
Each state does have an exemption amount that is applicable to assets. This is the amount that you can keep to meet your current living expenses. It is important for you to know these exemption amounts. It is for your own protection. For instance, one state may have a $2,500 exemption for your vehicle. This means you can have a car worth $2,500 and not worry about it being seized (levied) by the IRS.
Bankruptcy is a complicated legal issue that is out of the scope of this publication. It is best handled by a tax debt attorney who is knowledgeable in that area.
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Uncollectible Category
DebtHelp.com Tip: Whenever a taxpayer cannot pay their delinquent tax bill, and there is no sign of them being able to, the IRS may put them into the category known as “uncollectible”.
Also known as an ‘undue hardship’ case, the IRS has no promise of collecting their tax debt from someone classified as “Uncollectible”. The taxpayer in this category has little, if any, assets. So, the IRS cannot levy anything. And, the taxpayer has no income beyond that necessary to meet living expenses.
If you feel that you fall into this tax resolution category, notify the IRS. The IRS personnel will prepare a Form 53 which will temporarily inactivate the IRS collection activities. This Form does not stop the interest from accruing, though. It also will not stop you from owing taxes. Only the IRS collection process is put on hold, temporarily.
About once a year, the IRS will re-exam your financial status. You will be required to complete a new Financial Statement (Form 433A). Fill out this form to the best of your abilities. The IRS will research your answers.
The IRS problem resolution method known as “Uncollectible” is the category consisting of taxpayers showing the least hope of ever improving. Taxpayers classified as ‘uncollectible’ do not have any prospects of a more positive livelihood, better training, better education, etc. Taxpayers with large tax debts, falling into old age, poor health, and poor education have a higher likelihood of being classified as ‘uncollectible’ than does a college educated, healthy 20 year old.
