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Solving Tax Problems
How to respond to IRS notices
- General Accounting Office studies have shown IRS notices are wrong
half the time. The common notices include bills for additional tax due,
penalties, demands for returns to be filed, notices of lien, property seizures
and wage levies. If you get a notice from the IRS that you do not understand,
there is a good chance it was issued in error.
- To prevent paying tax and penalties you do not owe, respond in writing
using certified mail, asking that the notice be canceled. Respond within
the time period stated on the notice to avoid any enforced collection action.
As long as you are communicating with the IRS to resolve the issue, the
chance of lien, levy or property seizure are greatly diminished.
- If you have proof that IRS claims in the notice are incorrect, send
the proof via certified mail to the address shown and to the person indicated
on the notice. If the IRS ignores your proof, you have the right to appeal
that notice just as you have the right to appeal an auditor decision. To
appeal a notice you must prepare and send a protest letter asking that
the decision be re-examined.
- For more information on how to respond to IRS notices, order a copy
of my book The IRS Problem Solver Book.
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How to cancel IRS penalties
- Each year, the IRS issues more than 30 million penalty notices to taxpayers.
Few citizens realize that 100% of all penalties are subject to cancellation.
Nearly every section of the code that allows the IRS to assess a penalty
includes what is referred to as a good faith, or "reasonable cause"
provision.
Very simply, that provision allows anyone who is issued a penalty to request
abatement of that penalty when he can show good faith and reasonable cause
for the error that caused the penalty. Remember first though, General Accounting
Office studies have shown IRS notices, including penalty notices, are wrong
half the time.
When you get a penalty notice, you must first verify that a mistake was
indeed made. If the IRS does not include an explanation of the error made,
ask for one. Always communicate via certified mail, return receipt requested.
Once it is established that the mistake is yours, you must communicate
to the IRS that you always acted in good faith, and then provide reasonable
cause or explanation for the misunderstanding that caused the error.
The tax law is very confusing and the IRS makes as many, or more, mistakes
than the average person. That's why they cancel about half the penalties
issued when a proper request for abatement is made. To learn more about
the cancellation of penalties, order my book The
Problem Solver Book.
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How to cancel interest
- Since many taxpayer mistakes are found years after the tax return is
filed, interest charges for past due taxes can often double the original
tax bill. While many experts believe you cannot cancel interest, it can
be canceled under specific circumstances.
To cancel interest on tax debt, the taxpayer must show either IRS error
or delay in making the decision that additional tax was due. It is not
uncommon for the IRS to lose your case in their bureaucratic shuffle. When
this happens, you can cancel interest on your tax debt. To learn more about
canceling interest, order my book The
Problem Solver Book.
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What is the statute of limitations
on collections
- The various statutes of limitations often bear heavily on the IRS'
ability to collect a tax. Here are some of the more common statutes of
limitation on tax collection:
- The IRS has ten years to collect a tax once an assessment is made.
The actual assessment date is found on a notice of tax lien or in one's
Individual Master File. It is not uncommon for the IRS to try to collect
a tax after the statute of limitations has expired. This is one more reason
to understand how to spy on the IRS using Individual Master File information.
To read more about an Individual Master File see the main heading, "How
To Spy On The IRS."
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- The statute of limitations for audits is three years from the time
the return was filed. If filed before April 15, the three-year period begins
on April 15. For example, if you file your tax return for 1996 in January
of 1997, the IRS has until April 15th of year 2000 to audit your 1996 return.
If you file for an automatic extension of time to file your return, the
three years begins on the date the IRS receives your return. For example;
if you file your 1996 tax return on October 15, 1997, the IRS has until
October 15 of 2000 to audit your 1996 return. This is why many experts
suggest you do not file your return before April 15th. It simply gives
the IRS more time to audit that return. On the other hand, filing late
with an extension, does not limit in any way the IRS time to audit a return.
In fact, it extends the amount of time. Think of this next time you want
to take your time.
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- If you omit more than 25% of your gross income from your return, the
statute of limitations for audit is extended to six years. This is why
I recommend everyone keep their tax records for six years. It is not uncommon
for the IRS to assert an omission of income in order to audit a return.
Keeping the tax records is the only way to prove the IRS wrong in this
situation.
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- For those who do not file a return at all, there is no statute of limitations.
The IRS can feasibly audit any return they claim you have not filed. Herein
lies yet another reason to request an Individual Master File on a regular
basis. Record of filing a return is made within this file. If you have
the record, the IRS can never claim you did not file a return, or bluff
you into enduring an unnecessary audit.
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- For those who failed to file returns, there is no statute of limitations
on time to conduct an audit, but there is a limitation on the amount of
time the IRS has to charge you with a crime. This statute expires six years
after the time a return is due.
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- These are the general rules. Under certain circumstances the statute
may be extended as a result of actions taken by the IRS or the taxpayer.
You may have unknowingly signed a waiver that extends the statute. Petitioning
the Tax Court also extends the statute of limitations in certain cases.
- For more details on the various Statutes of Limitations and their exceptions,
please order my book How To Get Tax Amnesty,
and IRS, TAXES and the BEAST
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How to eliminate liens
- A tax lien is nothing more than a claim of the IRS against assets you
hold. When left unattended, those liens can lead to levy of wages and bank
accounts or seizure of property. A tax lien can usually be eliminated by
eliminating the tax debt. For details on handling tax liens, order my book,
How to Get tax Amnesty.
- For some, tax debt is impossible to eliminate because of accumulated
interest and penalties. In most cases, liens or tax debt should be dealt
with first by requesting abatement of penalties. For information on how
to eliminate penalties, order my books How
To Get Tax Amnesty or The
Problem Solver Book.
- For others, tax debt is impossible to pay regardless of penalties or
accumulated interest. In these cases, citizens must explore their right
to be forgiven of tax debt they cannot pay. The right to be forgiven of
tax debt you cannot pay is perhaps one of the biggest secrets the IRS has.
There are four programs of tax debt forgiveness that the IRS tries to hide
in a pile of red tape and bureaucratic terms. For more information on how
to be forgiven of tax debt, order my book How
To Get Tax Amnesty.
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Spousal tax relief
- One of the greatest problems faced by divorced couples is the inability
to pay back tax debts. This inability arises when returns are audited that
were filed jointly before a divorce. Since, in many cases, one spouse (usually
the wife) has no idea how returns were filed and what claims were made
on those joint returns, the innocent spouse has no defense against IRS
attempts to collect tax from both parties.
- The IRS will attempt to collect tax from both parties because the return
was filed jointly. When this happens, the innocent spouse has to assert
the innocent spouse defense in order to avoid paying tax, interest and
penalties they had no control over.
- For more information on the innocent spouse defense and how to assert
it, order my book Taxpayers' Ultimate Defense
Manual.
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How to stop a wage or bank
levy
- A wage or bank levy is generally the next step taken by the IRS after
a lien is filed and the tax remains uncollected for a period of time. That
period of time ranges from days, in some cases, to years. That's why it
is important to deal with tax liens immediately to avoid losing wages or
bank deposits needed to survive day to day.
- A citizen can get immediate relief from a wage or bank levy by contacting
the Taxpayers Advocate (TA) within their local IRS district. TA can be
called on the phone or, if that is unsuccessful, a citizen can file Form
911.
- When a citizen shows that a wage or bank levy will cause economic hardship,
the TA can lift that levy and assign a revenue officer to your case. From
there you can explore one of the tax debt forgiveness programs discussed
in this web site. For information on how to use TA, order my books How To Get Tax Amnesty or Taxpayers Ultimate Defense Manual.
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How and when to use the Taxpayers'
Advocates Office
- The Taxpayers' Advocate's Office can be used to intervene any time
an IRS action is causing or is about to cause economic hardship. Lifting
wage and bank levies are examples of actions TA can take. In some cases,
TA can even establish installment agreements which stop enforced collection
action.
- At times, just expressing the desire to contact TA causes an unruly
agent to bend a little during negotiations. If you are currently involved
in an IRS dispute, it would be to your benefit to find the TA in your district
and keep the number handy. Also, get a copy of Form 911 and keep it handy.
- Form 911 can be completed by following the instructions on the form.
For more information on how and when to use Form 911 and the Problems Resolution
Office order my books How To Get Tax Amnesty
or Taxpayers Ultimate Defense Manual.
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How to be forgiven of tax debt
you cannot pay
- Perhaps the IRS' best-kept secret is that you can be forgiven of tax
debt you owe but cannot pay. There are four programs of tax debt forgiveness
and to date more than three million people have used the programs I discuss
in my book How To Get Tax Amnesty
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- PROGRAM ONE - "The Life Jacket"
- If you have taxes you cannot pay and have no money, you can request
what is referred to as "uncollectible status." Very simply, when
granted this status, the IRS ceases attempts to enforce collection of the
tax in order to give you time to get back on your feet financially.
- While it is not a permanent fix to your tax collection problem, it
does help you stave off wage levies, bank levies and property seizure.
To obtain this right, you need to file a financial statement on form 433A
for individuals, and form 433B for businesses. This statement of your financial
condition shows the IRS that all the money you earn is needed to provide
you and your family needed necessary living expenses. It will help you
stay afloat until you are able to pay the tax or apply for forgiveness
under another program.
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- PROGRAM TWO - "Cents on the Dollar"
- Using this program, we have settled countless cases for less than 10
cents on the dollar. The program is called the Offer in Compromise. The
IRS' Offer in Compromise was revised in 1992 because of my book How Anyone
Can Negotiate With The IRS and WIN! This was the first book written for
the public that exposed one's right to discharge taxes in bankruptcy.
- In fact, the OIC closely parallels a Chapter 13 Bankruptcy proceeding.
By handling it internally, the IRS is able to collect fees that would otherwise
be spent on professional services to secure the bankruptcy, as partial
payment of the tax.
- This revised process has saved taxpayers literally billions of dollars
in penalties, professional fees and taxes. In turn, it has allowed the
IRS to collect taxes they would not otherwise collect.
- PROGRAM THREE - "Wage-Earner's Repayment Plan"
- Contrary to what many tax professionals believe, taxes are dischargeable
in bankruptcy! This right has existed since 1966. However, it was not
until 1989, on the heels of the release of my book How Anyone Can Negotiate
With The IRS and WIN!, that the IRS issued a system-wide memorandum recalling
its Publication 904. Publication 904, dealing with the issue of discharging
taxes in bankruptcy was recalled and rewritten to reflect one's ability
to discharge taxes.
- The explanation of your right to discharge taxes is brief to say the
least, but Publication 904 outlines some conditions under which taxes can
be discharged. A Chapter 13 Bankruptcy allows a taxpayer to enter into
an agreement to pay back taxes in accordance with his ability to make monthly
payments. When certain rules are met, whatever cannot be paid back within
60 months is usually discharged.
- Because the IRS has revised its Offer in Compromise procedures, thousands
of these bankruptcies have been avoided. However, knowing your right to
a Chapter 13 discharge is mandatory. In many cases you must let the IRS
know of your ability to discharge taxes in order for them to give serious
consideration to your offer. You must be prepared to show the IRS they
will get more by accepting your offer than they will if they enforce collection
of the tax you owe with their powers of lien, levy and seizure.
- PROGRAM FOUR - "Fresh Start"
- This program requires the filing of a Chapter 7 Bankruptcy. Under a
Chapter 7, certain taxes can be discharged entirely and a fresh start granted.
For some, this is their only hope of ever living a life free from IRS'
enforced collection actions. When properly filed, the IRS must cancel your
debt and allow you to start over.
- Just as in a Chapter 13 bankruptcy, understanding your right to a fresh
start through a Chapter 7 may prevent you from having to file one. For
example, you may be able to first obtain uncollectible status and survive
on that status long enough to be able to make an Offer in Compromise. The
fact that you could file a Chapter 7 can provide the IRS with just the
right motivation to allow you a little more time to get on your feet. While
bankruptcy is often the last choice to resolve a tax debt, just knowing
this right can prevent you from ever having to use it.
- SUMMARY
- The ability to be forgiven of tax debt you owe and cannot pay is very
controversial. Those who pay their taxes feel that offering forgiveness
to those who cannot pay is unfair. The truth is that we cannot continue
to make it less profitable to work than it is to hide in the underground
economy or live on government assistance. Spending money to collect what
is not there is counterproductive to us all.
- An ex-IRS agent who has taken exception to my book How
To Get Tax Amnesty , told me flat out the solution to the problem
was to throw everyone in jail who was behind on their taxes. Since it costs
about $40,000 per year to keep someone in prison, I think forgiveness is
a better choice. Only by giving someone the chance to be an income-earning,
self-sufficient, citizen, do we have a chance to get something back in
the form of tax collections.
- Even the IRS, at the outset of installing their internal programs of
tax debt forgiveness, admitted you cannot get blood from a turnip. Shirley
Peterson, IRS Commissioner at the time, believed you could not continue
spending taxpayer dollars to collect what can not be collected. By forgiving
tax debt, we put people back on the tax rolls -- which is good for all
of us. Since the programs have been installed, over three million people
have used the programs discussed in my book, How
To Get Tax Amnesty. If you owe taxes you cannot pay, order
Tax Amnesty today to begin the fresh start you deserve tomorrow.
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