audits

John Doe Subpoena to Identify Foreign Holdings

April 8, 2021 by Frank

As the Use of Cryptocurrency Gains Popularity, IRS Enhances Its Enforcement Procedures

FBAR Reporting Requirement

Every year, under the law known as the Bank Secrecy Act, U.S. persons (includes citizens, residents, corporations, partnerships, etc.) must report certain foreign financial accounts, such as bank accounts, brokerage accounts and mutual funds, to the Treasury Department and keep certain records of those accounts. You report the accounts by filing a Report of Foreign Bank and Financial Accounts (FBAR) on FinCEN Form 114.

Case of John Doe

A federal court in the District of Massachusetts entered an order authorizing the IRS to serve a John Doe summons on Circle Internet Financial Inc., or its predecessors, subsidiaries, divisions, affiliates, including Poloniex LLC (collectively “Circle”), seeking information about U.S. taxpayers who conducted at least the equivalent of $20,000 in transactions in cryptocurrency during the years 2016 to 2020. The IRS is seeking the records of Americans who engaged in business with or through Circle, a digital currency exchanger headquartered in Boston.

“Those who transact with cryptocurrency must meet their tax obligations like any other taxpayer,” said Acting Assistant Attorney General David A. Hubbert of the Justice Department’s Tax Division. “The Department of Justice will continue to work with the IRS to ensure that cryptocurrency owners are paying their fair share of taxes.”

“Tools like the John Doe summons authorized today send the clear message to U.S. taxpayers that the IRS is working to ensure that they are fully compliant in their use of virtual currency,” said IRS Commissioner Chuck Rettig. “The John Doe summons is a step to enable the IRS to uncover those who are failing to properly report their virtual currency transactions. We will enforce the law where we find systemic noncompliance or fraud.”

What is Cryptocurrency?

Cryptocurrency, as generally defined, is a digital representation of value. Because transactions in cryptocurrencies can be difficult to trace and have an inherently pseudo-anonymous aspect, taxpayers may be using them to hide taxable income from the IRS. The courts have agreed with the IRS that there is a reasonable basis for believing that cryptocurrency users may have failed to comply with federal tax laws.

The IRS issued guidance regarding the tax treatment of virtual currencies in IRS Notice 2014-21, which provides that virtual currencies that can be converted into traditional currency are property for tax purposes. The guidance explains that receipt of virtual currency as payment for goods or services is treated as income and that a taxpayer can have a gain or loss on the sale or exchange of a virtual currency, depending on the taxpayer’s cost to purchase the virtual currency (that is, the taxpayer’s tax basis).

Déjà vu 2007?

When one thinks of Switzerland, images of skiing on snow covered mountain tops, expensive watches or chocolate may come to mind. There was a time when Switzerland was known as a tax haven because of its bank secrecy laws. In 2007, the United States began an intensive tax investigation of Swiss banks when it probed the financial activities of one of the world’s largest banks, United Bank of Switzerland (UBS).

Eventually the IRS, with the enforcement powers of the U.S. Justice and Treasury Departments, began requesting account information from other Swiss banks. By 2009, the number of taxpayers running to their lawyers for advice to avoid criminal prosecution peaked. By 2011, tax haven banks from other countries were complying with providing the Justice Department with their customer’s account information.

How the IRS is Approaching Cryptocurrency Compliance

Cryptocurrency compliance will very likely follow that of the Justice Department’s approach to foreign bank accounts – seeking records of all cryptocurrency exchanges to identify its customer base and potential tax evaders.

What Is Tax Fraud?

To prove tax fraud, the burden is on the IRS to show an underpayment of tax due to an act of the taxpayer to evade the assessment of tax which the taxpayer believed to be owing, that the underpayment act was willful and not a result of inadvertence, reliance on incorrect technical advice, a sincerely held difference of opinion, negligence or carelessness.

Where Does the IRS Go From Here?

The IRS has begun making available on its website and IRS publications information about cryptocurrency and virtual currency. If you click here, you will learn what virtual currencies are and their tax consequences.

Although the IRS has budget restraints, it is hiring agents in its criminal investigation fraud unit to identify potential tax evaders, including cryptocurrency tax evaders.

In addition, the IRS is now using artificial intelligence (AI) technology to more efficiently detect tax fraud, hidden assets, money laundering, identity theft, and other noncompliance. In the past, instances of tax-related criminal activity had to be manually discovered by revenue agents, which could take an inordinate amount of time to process. Now, thanks to AI, the IRS can process data and conduct criminal investigations in a much more efficient manner. The IRS is now deploying machine learning, natural language processing, and graph analytics to successfully identify instances of fraud and illegality before financial loss occurs.

The IRS plans to mine data from tax returns, property returns, bank reports, and even social media accounts. The project will then employ algorithms and AI to identify patterns where taxpayer noncompliance might be present. In addition, the IRS will use natural language processing – technology that enables a computer to read and translate filings, as well as contemplate their meaning, which, will help predict IRS success in its appeals process. Through language processing, machine learning is able to provide indicators of why appeals were either won or lost, and thereby, provide the probability of future success for cases with similar facts. In a cost-conscious environment, the IRS is under pressure to be smarter about how it selects cases that are most likely to conclude well.

Tax Planning Tip #1

Carefully review the questions (and your answers) on your Form 1040 before checking “yes” or “no”. You are signing your tax return as being true and correct under penalties of perjury. If you fail to answer these questions truthfully, you could be accused of committing tax fraud.

Tax Planning Tip #2

Carefully complete your tax professional’s tax organizer each tax year. Due to the U.S. Treasury Department and IRS’s focus on foreign reporting requirements and virtual currencies, it is difficult to envision a tax professional not having a question in the tax organizer inquiring about foreign bank, investment holdings and cryptocurrencies. If you do not understand a question on the organizer, ask for guidance. All of your responses need to be truthful and to the best of your knowledge.

Tax Planning Tip #3

Review the draft of the tax return prepared by your tax professional for completeness and accuracy before signing the return (or the e-file authorization Form 8829). Remember, you are signing your tax return under penalties of perjury that you have examined your return and its attachments, and to the best of your knowledge and belief, that the return is true, correct and complete.

Tax Planning Tip #4

If you would like to learn more about how the IRS recognizes and develops its fraud cases, we suggest you read IRS Internal Revenue Manual Section 25.1.2.

If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.

BE SURE TO READ THE DISCLAIMER PAGE: Tax laws, IRS rules and regulations change frequently. Although we hope you’ll find this information helpful, this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher shall not assume liability for any losses, injuries, or damages from the display or use of this information.

About F. Bryan Haarlander, EA, CTRS:

Bryan Haarlander is an IRS licensed Enrolled Agent and who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.

Currently-Not-Collectible (CNC) Status – A Tax Resolution Alternative

March 30, 2021 by Frank

Resolving a taxpayer’s tax debts with the IRS usually falls into one of three major categories. These three settlement options are offers-in-compromise (OIC), installment agreements (IA) and currently-not-collectible (CNC).

What You Need to Know About CNC

IRS Currently Not Collectible is defined as the decision the IRS takes in concluding that a taxpayer has no ability to pay their annual federal income taxes. In fact, IRS Form 12153 lists three collection alternatives: Offer in Compromise, Installment Agreement, and “I Cannot Pay Balance”. It is the “I Cannot Pay Balance” that is the focus of this blog.

How Does a Taxpayer Get the IRS to Declare CNC?

In order for a taxpayer to receive CNC status, the taxpayer must demonstrate a severe financial economic hardship that he/she does not have the financial means to pay his/her IRS debt after accounting for his IRS-allowed expenses. He does this by providing written evidence of his inability to pay. The evidence will include the submission of IRS Form 433-A to an IRS Revenue Officer or 433-F to the IRS Automated Collection System. These forms are different, but very similar, IRS Collection Information Statements (CIS).

The IRS will also require several months of paid invoices to substantiate the expense amounts shown on the CIS as well as proof of monthly gross income. In addition to analyzing the taxpayer’s monthly income available to pay the IRS (gross monthly income less IRS allowable expenses), the IRS also considers the liquid fair market value of the taxpayer’s assets less the debts associated with those assets.

If the IRS determines that the taxpayer has no income remaining after the offset of IRS allowed living expenses and has no assets that can be liquidated to satisfy the IRS outstanding debt, the IRS realizes that its collection efforts would be fruitless at the time the CNC status is granted.

If the account is deemed collectible per the FIS, then the IRS will request payment terms based on its analysis of the taxpayer’s financial situation. Thus, great care needs to be taken when submitting the IRS Form 433-A or 433-F to properly reflect the taxpayer’s ability to pay based on IRS published and unpublished criteria. This is where a tax resolution specialist can be very valuable.

What Happens When the IRS Declares a Taxpayer as CNC?

Once a taxpayer is declared IRS CNC, the IRS stops all collection activities, which include issuing levy and garnishment orders. However, you will still be subject to federal tax liens on your home and other property.

The IRS will send the taxpayer an annual statement outlining the outstanding taxes due by tax year. During the period the taxpayer is in CNC, interest and penalties continue to accrue increasing the total tax debt.

On the other hand, the IRS’s 10-year statute of limitations to collect the tax (and associated interest and penalties) continues to run. Thus, if the taxpayer is unable to pay his tax debt and the IRS fails to collect the balance due it within the Collection Statute Expiration Date (CSED) of 10 years from the date of assessment of the tax, then the taxpayer will not need to repay his tax debt (unless the IRS filed a tax judgment with the courts).

It is important to note that CNC is NOT a permanent form of tax debt resolution.

Once the IRS grants a taxpayer CNC status, the IRS will continue to review and monitor the taxpayer’s financial situation to determine improvement and ability to pay taxes owed. The IRS views CNC status as a temporary fix to allow the taxpayer sufficient time to create a household budget that will allow the repayment of his tax debt.

The IRS will monitor the taxpayer’s income tax return filings and third-party income information statements such as W-2s and 1099s to determine if the taxpayer’s income has sufficiently increased to enable the repayment of any portion of the taxpayer’s IRS debt. If the taxpayer sells property, the proceeds will go towards paying off your taxes, interest and penalties. This is the reason why the IRS reserves the right to place liens on the taxpayer’s property during CNC status so that it will be alerted when a sale is contemplated by the taxpayer.

Generally, the IRS will require a periodic resubmission of its CIS and a redetermination will then be made as to the taxpayer’s ability to pay the IRS. Usually, the IRS reviews the taxpayer’s CNC status for a period not exceeding two years. If you are on a fixed income (e.g., social security, disability, pension, etc.), a taxpayer could conceivably remain in CNC status until his tax liabilities expire due to the 10-year statute of limitations.

As a condition of being placed in CNC, the taxpayer agrees that any overpayments reflected on future-filed tax returns will be applied by the IRS in satisfaction of the taxpayer’s IRS debt, and that the taxpayer will timely file all future tax returns.

Once a taxpayer is placed in CNC status, we recommend that the taxpayer continue to maintain a rotating six-month summary of his income and expenses with substantiating documents. If for some reason the IRS were to terminate ones CNC status with no warning, having this six-month summary of income and expenses would enable the taxpayer to quickly appeal the IRS decision.

If you owe the IRS and believe that you may qualify for the CNC status, you are welcome to contact us using the contact information on this site. We can help screen you to determine if IRS currently non-collectible status is right for you.

Tax Planning Tip #1

We strongly recommend that a taxpayer with IRS tax debt consult with an IRS tax resolution specialist. To resolve IRS tax debts can often be a very time-consuming and an arduous process. It often is not a black or white process, but there are several shades of grey that a specialist knows how to present to the IRS to best present the taxpayer’s financial situation.

If you would like to discuss your IRS or PA tax debts, or business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.

About F. Bryan Haarlander, EA, CTRS:

Bryan Haarlander, an Enrolled Agent and a Certified Tax Resolution Specialist, is an affiliate member of the Suburban West Realtors® Association, a member of the American Society of Tax Problem Solvers (ASTPS), PA Society of Tax & Accounting Professionals (PSTAP), the National Society of Accountants (NSA) and the National Association of Tax Professionals (NATP). He is the author of “How to Resolve Your IRS Tax Debt Problems” as well as a book on how to start your own business. He has been practicing in Exton for 20 years. His firm serves clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.

If not a subscriber to his blogs, http://www.taxexpertblog.com and http://www.stopmytaxproblems.comyou may wish to do so as he discusses various pertinent tax and business issues.

For individual tax payers, real estate professionals, contractors and other self-employed individuals with IRS tax debt issues or tax planning issues, feel free to contact me at (610) 594-2601 or by email at info@keysolutions.us.

Keystone Financial Solutions, Inc. specializes in providing innovative tax planning, tax preparation, and solving IRS tax debt problems. The company’s web site is https://www.keysolutions.us and its telephone number is (610) 594-2601.

By visiting our website you can learn about the 5 Secrets the IRS Doesn’t Share and order a FREE SPECIAL REPORT: Should You Represent Yourself or Hire a Tax Professional.

PA Announces PPP Proceeds Are Non-Taxable Income

February 6, 2021 by Frank

Gov. Wolf Signs Senate Bill 109 Into Law

PA has enacted into law (Act 1-2021) to help PA businesses better weather the Covid-19 pandemic. While the business community says it will help, they are asking for more relief including allowing their businesses to be open to the public.

Paycheck Protection Program (PPP) Payments Are Excluded from PA Definition of Taxable Income

PPP payments received which are excluded from federal gross income under the Covid related tax relief act of 2020 are likewise considered non-taxable for PA tax reporting purposes.

Disallowance of Deductions?

PA has also announced that no deduction may be disallowed for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan.

Tax Planning Tip

If you were a recipient of a PPP loan and already filed your 2020 PA tax return and reported the loan proceeds as taxable income, you should immediately contact your tax professional to discuss the filing of an amended PA tax return.

About F. Bryan Haarlander, EA, CTRS:

Bryan Haarlander, an Enrolled Agent and a Certified Tax Resolution Specialist, is an affiliate member of the Suburban West Realtors® Association, a member of the American Society of Tax Problem Solvers (ASTPS), PA Society of Tax & Accounting Professionals (PSTAP), the National Society of Accountants (NSA) and the National Association of Tax Professionals (NATP). He is the author of “How to Resolve Your IRS Tax Debt Problems” as well as a book on how to start your own business. He has been practicing in Exton for 19 years. His firm serves clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.

If not a subscriber to his blogs, http://www.taxexpertblog.com and http://www.stopmytaxproblems.comyou may wish to do so as he discusses various pertinent tax and business issues.

By visiting our website you can learn about the 5 Secrets the IRS Doesn’t Share and order a FREE SPECIAL REPORT: Should You Represent Yourself or Hire a Tax Professional.

Check Your Mailbox for your IRS Debit Card

January 19, 2021 by Frank

The Treasury Department and the IRS are issuing millions of second Economic Impact Payments (EIP) by prepaid debit card to speed delivery of the payments to as many people as possible.

How to Check on the Status of Your EIP

You can visit the Get My Payment tool on IRS.gov to show the status of your Economic Impact Payment (EIP). If your payment has been processed, this tool shows the date that a recipient’s payment was mailed.

On the other hand, if your payment status is not available, you will receive the “Payment Status – Not Available” message:

Payment Status – Not Available: We are unable to provide the status of your payment right now because: * We don’t have enough information yet (we’re working on this), or *You’re not eligible for a payment. For more information about why you’re receiving this message, see our Frequently Asked Questions. You can check the application again to see whether there has been an update to your information.

Note: the Get My Payment data is updated once per day, so there’s no need to check back more often.

If I Received a Paper Check Last Time, Will I Receive a Paper Check With the Second EIP?

The form of payment for the second mailed EIP may be different than the first mailed EIP. Some people who received a paper check last time might receive a prepaid debit card this time, and some people who received a prepaid debit card last time may receive a paper check.

Is the Debit Card Safe and Convenient?

IRS States that EIP Cards are safe, convenient and secure as they provide certain protections against fraud, loss and other errors. They can be used to make purchases online or in stores anywhere Visa® Debit Cards are accepted.

Cardholders can also use the cards to do any of the following without paying a fee:

Transfer funds to a personal bank account
Make signature or PIN-debit purchases anywhere Visa Debit
Cards are accepted — in stores, online or over the phone
Get cash back with a PIN debit purchase where available
Get cash from in-network ATMs
Get a replacement EIP Card, if needed
Check their card balance online, through a mobile app or by phone

Tax Planning Tip #1

If your payment has been processed, you need to check your mail for either a paper check or debit card. The debit cards arrive in a white envelope that prominently displays the U.S. Department of the Treasury seal. The envelope also states “Not a bill or an advertisement. Important information about your Economic Impact Payment.”

The EIP Card has the Visa name on the front of the card and the issuing bank name, MetaBank®, N.A. on the back. Each mailing will include instructions on how to securely activate and use the EIP Card. These cards are being issued to eligible recipients across all 50 states and the District of Columbia. Residents of the western United States are generally more likely to receive an EIP Card.

About F. Bryan Haarlander, EA, CTRS:

Bryan Haarlander, an Enrolled Agent and a Certified Tax Resolution Specialist, is an affiliate member of the Suburban West Realtors® Association, a member of the American Society of Tax Problem Solvers (ASTPS), PA Society of Tax & Accounting Professionals (PSTAP), the National Society of Accountants (NSA) and the National Association of Tax Professionals (NATP). He is the author of “How to Resolve Your IRS Tax Debt Problems” as well as a book on how to start your own business. He has been practicing in Exton for 19 years. His firm serves clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.

If not a subscriber to his blogs, http://www.taxexpertblog.com and http://www.stopmytaxproblems.comyou may wish to do so as he discusses various pertinent tax and business issues.

By visiting our website you can learn about the 5 Secrets the IRS Doesn’t Share and order a FREE SPECIAL REPORT: Should You Represent Yourself or Hire a Tax Professional.

You Are Now Eligible for an IRS Identity Protection Pin

January 19, 2021 by Frank

The IRS expands its Identity Protection PIN Opt-In Program to All Taxpayers Who Can Verify Their Identities

What Is an Identity Protection Pin?

The Identity Protection PIN (IP PIN) is a six-digit code known only to the taxpayer and to the IRS. It helps prevent identity thieves from filing fraudulent tax returns using a taxpayers’ personally identifiable information.

How Does the Program Work?

Per IRS Commissioner Chuck Rettig, this is a way to, in essence, lock your tax account, and the IP PIN serves as the key to opening that account. E-filed returns that do not contain the correct IP PIN will be rejected, and paper returns will go through additional scrutiny for fraud.

History of the Program

The IRS launched the IP PIN program nearly a decade ago to protect confirmed identity theft victims from ongoing tax-related fraud. In recent years, the IRS expanded the program to specific states where taxpayers could voluntarily opt into the IP PIN program. Now, the voluntary program is going nationwide.

What You Need to Know

Here are a few key things to know about the IP PIN Opt-In program:

This is a voluntary program.
You must pass a rigorous identity verification process.
Spouses and dependents are eligible for an IP PIN if they can verify their identities.
An IP PIN is valid for a calendar year.
You must obtain a new IP PIN each filing season.
The online IP PIN tool is offline between November and mid-January each year.
Correct IP PINs must be entered on electronic and paper tax returns to avoid rejections and delays.
Never share your IP PIN with anyone but your trusted tax provider. The IRS will never call, text or email requesting your IP PIN. Beware of scams to steal your IP PIN.
There currently is no opt-out option but the IRS is working on one for 2022.

How to Get an IP Pin

Taxpayers who want an IP PIN for 2021 should go to IRS.gov/IPPIN and use the Get an IP PIN tool. This online process will require taxpayers to verify their identities using the Secure Access authentication process if they do not already have an IRS account. See IRS.gov/SecureAccess for what information you need to be successful. There is no need to file a Form 14039, an Identity Theft Affidavit, to opt into the program

Once taxpayers have authenticated their identities, their 2021 IP PIN immediately will be revealed to them. Once in the program, this PIN must be used when prompted by electronic tax returns or entered by hand near the signature line on paper tax returns.

All taxpayers are encouraged to first use the online IP PIN tool to obtain their IP PIN. Taxpayers who cannot verify their identities online do have options.

Taxpayers whose adjusted gross income is $72,000 or less may complete Form 15227, Application for an Identity Protection Personal Identification Number, and mail or fax to the IRS. An IRS customer service representative will contact the taxpayer and verify their identities by phone. Taxpayers should have their prior year tax return at hand for the verification process.

Taxpayers who verify their identities through this process will have an IP PIN mailed to them the following tax year. This is for security reasons. Once in the program, the IP PIN will be mailed to these taxpayers each year.

Taxpayers who cannot verify their identities online or by phone and who are ineligible for file Form 15227 can contact the IRS and make an appointment at a Taxpayer Assistance Center to verify their identities in person. Taxpayers should bring two forms of identification, including one government-issued picture identification. [Note: Due to IRS agents working remotely and covid-19 concerns, how many of these centers will be open?}

Taxpayers who verify their identities through the in-person process will have an IP PIN mailed to them within three weeks. Once in the program, the IP PIN will be mailed to these taxpayers each year.

How Does This Apply to ID Theft Victims?

Taxpayers who are confirmed identity theft victims or who have filed an identity theft affidavit because of suspected stolen identity refund fraud will automatically receive an IP PIN via mail once their cases are resolved. Current tax-related identity theft victims who have been receiving IP PINs via mail will experience no change.

IRS You Tube Video – Obtaining ID PIN

The IRS has produced a video that explains how to obtain your ID Pin.

Tax Planning Tip #1

Per the IRS, one of the best ways to deter ID theft is to file your return as early as possible. Remember, you can always file your return before the April 15 filing deadline, and pay any balance due on or before April 15.

If you use the IRS’s EFTPS payment system, you can schedule your tax payment to be withdrawn from your checking account on April 15, regardless if you schedule that payment months in advance.

Tax Planning Tip #2

Safeguard and secure your IP Pin number once it is obtained. Immediately place it in your tax folder. You will need to share this pin with your tax professional when filing your return.

About F. Bryan Haarlander, EA, CTRS:

Bryan Haarlander, an Enrolled Agent and a Certified Tax Resolution Specialist, is an affiliate member of the Suburban West Realtors® Association, a member of the American Society of Tax Problem Solvers (ASTPS), PA Society of Tax & Accounting Professionals (PSTAP), the National Society of Accountants (NSA) and the National Association of Tax Professionals (NATP). He is the author of “How to Resolve Your IRS Tax Debt Problems” as well as a book on how to start your own business. He has been practicing in Exton for 19 years. His firm serves clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.

If not a subscriber to his blogs, http://www.taxexpertblog.com and http://www.stopmytaxproblems.comyou may wish to do so as he discusses various pertinent tax and business issues.

By visiting our website you can learn about the 5 Secrets the IRS Doesn’t Share and order a FREE SPECIAL REPORT: Should You Represent Yourself or Hire a Tax Professional.

What Does “Getting Into IRS Tax Compliance” Mean?

December 18, 2020 by Frank

When a taxpayer is attempting to settle his debt with the IRS, the taxpayer is required to be “in tax compliance”

The Burden Is Upon The Taxpayer To Prove Tax Compliance for the Current Tax Year

The Taxpayer Must Show That His Past Tax Non-Compliance Transgressions Have Ceased In Order to Be Eligible for an Installment Agreement or OIC

Background

The taxpayer owes money to the IRS and is ready to work out a deal to resolve that debt. In order to do so, the first thing the IRS will insist on is that the taxpayer get into tax compliance.

This means that all tax returns need to be filed and that the taxpayer is properly making their current year tax payments.

If a taxpayer is not in tax compliance, the IRS will not work with the taxpayer to settle the debt. We often refer to this as the taxpayer must show that the bleeding has stopped. If the taxpayer can demonstrate to the IRS that he has filed his current tax return and is making the necessary tax payments for the current tax year, then the IRS will discuss how best to resolve the tax debt associated with the earlier tax years.

What Does It Mean to be in Tax Compliance?

All tax returns are filed. If there are back year tax returns that have not been filed, they must be prepared and submitted to the IRS. Typically, this means that the last six years of tax returns must be on file with the IRS. The IRS can request that returns beyond the last six years be filed. If an IRS Revenue Officer is handling the case and believes that significant tax liabilities may exist in those earlier years, the RO may request that those earlier tax years be filed. If no return is filed for any year, the taxpayer needs to realize that the statute of limitations remains open indefinitely and the IRS has the right to assess and collect those taxes. IRS rules do not apply to the states.

Most states require that tax returns be filed for ALL unfiled tax years.

Whereas the IRS has 10 years to collect an assessed but unpaid tax, many states have enacted a 20-year collection period as they often learn of the tax liability from their sharing of tax information agreement with the IRS.

If the taxpayer is a W-2 employee, sufficient income taxes are being withheld on a regular basis and are sufficient to cover the tax bill at the end of the year.

If the taxpayer is self-employed, that quarterly estimated taxes are timely filed and in the proper amount.

A business with employees must make sure that all payroll taxes are deposited on time and that all quarterly filings are timely.

Future tax returns are timely filed during the resolution period. For OICs, that time period is five years. For installment agreements, it is during the term of the installment agreement. Failure to meet this requirement will result in any settlement plan to be voided. The IRS position is that if the taxpayer cannot remain compliant, there is no reason to keep in place any agreement for the future.

Tax Planning Tip #1

It is always a good practice to accumulate your tax records and information contemporaneously during the tax year and have your tax return prepared ASAP after December 31 in the following tax year, but no later than April 15 (unless an extension to file has been submitted to the IRS).

Tax Planning Tip #2

If you have insufficient funds to pay your tax liability in full by April 15, file your tax return by April 15 without the tax payment. The failure to file a timely tax return is subject to a 5% monthly penalty; whereas, failure to pay carries a 0.5% penalty.

About F. Bryan Haarlander, EA, CTRS:

Bryan Haarlander, an Enrolled Agent and a Certified Tax Resolution Specialist, is an affiliate member of the Suburban West Realtors® Association, a member of the American Society of Tax Problem Solvers (ASTPS), PA Society of Tax & Accounting Professionals (PSTAP), the National Society of Accountants (NSA) and the National Association of Tax Professionals (NATP). He is the author of “How to Resolve Your IRS Tax Debt Problems” as well as a book on how to start your own business. He has been practicing in Exton for 19 years. His firm serves clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.

If not a subscriber to his blogs, http://www.taxexpertblog.com and http://www.stopmytaxproblems.comyou may wish to do so as he discusses various pertinent tax and business issues.

By visiting our website you can learn about the 5 Secrets the IRS Doesn’t Share and order a FREE SPECIAL REPORT: Should You Represent Yourself or Hire a Tax Professional.