IRS Overpayments and Underpayments: 2015 Interest Rates

2015-interest-ratesMistakenly, many believe that filing a tax extension is an extension of time to pay your taxes.  While a tax extension provides an extension to file your tax return, it does not provide an extension of time to pay taxes owed.

The federal income tax is a pay-as-you-go tax system.  If you’re an employee, then your employer will withhold income tax during each pay period in your name and social security number.  If you are self-employed, then you would make estimated tax payments throughout the year based on earnings and, generally speaking, have to pay self-employment tax.  If you are an employer, then you may have to make federal tax deposits for payroll taxes throughout the year as you are paying your employees.

While you should always aim at timely filing and timely paying your taxes, the good news is that interest rates, which are tied to federal short-term rates, are at historic lows.  The IRS recently announced that the interest rates for the calendar quarter beginning Jan. 1, 2015, and ending March 31, 2015 are as follows:

  • 3 percent for overpayments, in cases other than corporations
  • 2 percent for overpayments in the case of a corporation (except 0.5 percent for the portion of a corporate overpayment exceeding $10,000)
  • 3 percent for underpayments (including estimated tax underpayments)
  • 5 percent for large corporate underpayments

To put the current interest rates in perspective, at the start of the financial crisis in 2007, rates on tax underpayments were as high as 7%.

Despite rates remaining unchanged since October 1, 2011, they won’t stay low forever.   On December 17, 2014, the Federal Reserve indicated that it’s closer to an interest rate hike.  Therefore, if you’re in an IRS installment agreement, it could make sense to make voluntary payments above your monthly payment to curb interest rate and future interest rate, hike risk.

Tax interest and penalties is the biggest complaint that I hear from clients.  When you do not pay your taxes timely, the IRS, under IRC 6601(a), is required to charge interest on the unpaid taxes from the due date of the return until the date the tax debt is satisfied.  To make matters worse, failing to pay your taxes timely will result in the IRS charging a penalty of .5% on the unpaid amount due per month up to 25% of the amount due.  The .5% penalty will increase to 1% beginning 10 days after the IRS issues a Notice of Intent to Levy.  On top of the tax penalties, IRC 6601(e) directs the IRS to impose interest on penalties.  Therefore, owing a back tax can be a difficult debt to extinguish.  You have to juggle interest on, not only the tax, but the penalties too.

While tax penalties are discretionary and thus can be negotiated by proving reasonable cause or your prior tax compliance history, interest is not discretionary.  Accordingly, the IRS has limited authority to waive interest on a tax deficiency.

IRC 6404 discusses the limited circumstances in which the IRS is permitted to abate tax interest.  The IRS may abate interest in the following circumstances:

  • A determination is made that the unpaid cost of the tax assessment, including interest, does not warrant administrative and collection costs.
  • The IRS made a math error on a return prepared by an IRS employee.
  • The IRS provided erroneous written advice that caused interest accruals on a tax due,
  • An IRS employee caused an unreasonable delay or error and the taxpayer did not in any way contribute to the delay or error
     

Because it is rare to abate interest, it is always in the taxpayer’s financial interest to reduce the amount of taxes owed as early and aggressively as possible if you cannot qualify for an offer in compromise or other tax resolution, i.e. Chapter 7 bankruptcy or doubt as to liability offer, that would settle your back taxes owed.  In light of the 2015 IRS budget reduction, many of the IRS’s functions such as executing an installment agreement are taking months to complete.  Often times, I tell my clients to make voluntary payments or work on current year compliance while waiting for the IRS.  Both voluntary payments and current compliance have the effect of curbing IRS interest rate accruals.

Should you have any questions regarding IRS interest assessments, contact the Law Offices of Todd S. Unger, Esq. LLC.  Todd S. Unger, Esq. LLC is a boutique tax controversy practice that handles tax collection, audits, tax whistleblower claims, tax preparer representation, and criminal tax investigations.  To resolve your tax matter, call Todd S. Unger today (877) 544-4743.

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IRS Seizes Small Business Owner’s Accounts

irs seizes accountsThrough a practice known as civil forfeiture, the IRS can seize property that it believes is tied to a crime even if no criminal charges are filed.  The problem is that the IRS has been abusing its power by seizing bank accounts where there is no indication of a crime committed.

The New York Times reported that the IRS has been seizing bank accounts of small business owners and individuals who deposit cash transactions in less than $10,000 increments.  The Bank Secrecy Act requires a bank to report to the government when an individual or business deposits more than $10,000 in cash.  The Act was designed to catch drug traffickers, racketeers, and terrorists by tracking their cash.  The Act was not designed to catch people and businesses who are not trying to break the law.

Structuring, also known as Smurfing, is a crime whereby a person intentionally tries to avoid the banks reporting of income by depositing the cash in increments smaller than $10,000.  The problem is there could be legitimate reasons for businesses and individuals to deposit less than $10,000 increments.  Unfortunately, the IRS has seized peoples bank accounts who are innocent.  Owners are then left to either try to prove their innocence to win back funds, or lose the money that’s been taken.

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Real Housewives of New Jersey Star Joe Giudice Sentenced To Over 3 Years In Prison

joe giudice tax fraudReality television star Giuseppe “Joe” Giudice, 43, of The Real Housewives of New Jersey was sentenced to 3 years and 5 months in prison on Thursday, October 2, according to NorthJersey.com. The verdict comes after Giudice and his wife Teresa, 42, pleaded guilty in March to federal fraud charges involving bankruptcy fraud, wire fraud, conspiracy to commit mail fraud and failure to pay taxes. Teresa was sentenced to 15 months in prison and two years probation compared to Joe’s 41 months, but each were ordered to pay $414,588 in restitution in addition to their jail sentences.

“Both Giudices pleaded guilty to conspiracy to commit mail and wire fraud and three types of bankruptcy fraud,” the article said. “Joe also pleaded guilty to failing to file a tax return for 2004, though he acknowledged that he didn’t file taxes on income of approximately $1 million from 2004 to 2008.”

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Mike ‘The Situation’ Sorrentino and Brother Marc Sorrentino Face IRS Tax Fraud Case

mike the situation tax fraudReality television personality from the Jersey Shore, Mike “The Situation” Sorrentino and his brother, Marc Sorrentino, are under arrest and are facing tax fraud charges because they did not properly pay income taxes on $8.9 million.  The $8.9 million was received from Mike’s promotional activities after he gained fame on the MTV reality series.

Marc Sorrentino, who is also Mike’s manager, and “The Situation” are being charged with filing false tax returns for the tax years 2010, 2011 and 2012. Additionally, Mike faces an added charge of failing to file his tax return for the year of 2011. The brothers also both face charges of conspiracy to defraud the United States government.

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Owe New Jersey Back Taxes? The NJ Division of Taxation Offers a Way to Resolve Unpaid Tax Debt with No Penalties

NJ Back Taxes ResolutionThe New Jersey Division of Taxation has offered businesses and individuals a way to resolve back taxes from 2005 through 2013 at a reduced cost.

The details of the plan are as follows:

  • Most of the penalties that were assessed to your account will be reduced to zero.  The Amnesty Penalty (5%) imposed on taxes due on or after 1/1/2002 and before 2/1/2009 is still applicable.
  • Interest will be calculated only on the tax and the reduced penalties.
  • The 10% recovery fee which is imposed on each tax liability that is forwarded to NJ’s outsourced, collection unit, Pioneer, is waived.
  • The 10% cost of collection fee charged for filing a Certificate of Debt (Judgment) may be eliminated.

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Be Careful of IRS Impersonation Phone Scam - Do Not Become a Victim

IRS Phone ScamOver the past few months, I have been receiving calls from clients and prospects regarding an IRS phone scam.  The callers have informed me that they received a call from someone at the IRS threatening to throw them in jail, revoke their driver’s license, or seize all of their belongings if they do not pay over a sum of money.  The Treasury Inspector General for Taxpayer Administration (TIGTA) is aware of this scam and has issued a warning to taxpayers.

The callers claim to be from the Internal Revenue Service tell intended victims they owe back taxes and must pay by wire transfer or a pre-paid debit card.  Dealing with the IRS on a day to day basis, I can tell you this is not how the IRS contacts people who owe money.  Generally, the IRS will notify people with a series of letters, not by phone, regarding unpaid taxes.  The IRS will never ask for payment by wire transfer or a pre-paid debit card.

TIGTA advised that if you receive a threatening call from someone claiming to be from the IRS, then hang up the phone and call the IRS directly at (800) 829-1040.  A list of IRS contact numbers is on the following website: http://www.irs.gov/uac/Telephone-Assistance.  When you speak to the IRS, inform them of the phone call and ask if your account is in good standing.

If you have been a victim of this scam, then you should, at a minimum, complete the following steps:

  1. File a local police report
  2. Go to the IRS Treasury Inspector website  (http://www.treasury.gov/tigta/contact_report_scam.shtml)Complete the form and retain a copy of the pin number;
  3. Contact the Federal Trade Commission (use their “FTC Complaint Assistant” at FTC.gov. and add “IRS Telephone Scam” to the comments of your complaint in the “Other” Section. (https://www.ftccomplaintassistant.gov/#crnt&panel1-1) ;
  4. Contact the FBI
  5. Contact the Attorney General’s Office in the state you reside.

If you have been a victim of the IRS impersonation scam, IRS identity theft, or another tax scam, then contact the Law Offices of Todd S. Unger, Esq. for help.

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The IRS May Issue Notice of Levy While Installment Offer Pending

In a recent US Tax Court decision, Renald Eichler v. IRS (“Eichler”), Docket Number 725-12L,  the Tax Court affirmed that IRC 6331(k)(2) does not preclude the IRS from issuing the Final Notice of Intent to Levy after the taxpayer submitted an installment agreement request.  The Tax Court further held that the IRS did not abuse its discretion under the Internal Revenue Manual, an IRS employee handbook, when it decided to sustain the Final Notice of Intent to Levy.

The Taxpayer’s Partial Payment Proposal to Resolve a Payroll Tax Matter Did Not Stop the IRS Threat to Levy

In Eichler, the IRS utilized IRC 6672 to assess the Trust Fund Recovery Penalty (TFRP).  The TFRP is a weapon the IRS uses to collect delinquent payroll taxes from responsible and willful individuals who do not remit an employee’s wages (income tax, social security, and Medicare taxes).  The IRS found that the taxpayer was a responsible and willful party and assessed $189,374 in back payroll taxes.

The taxpayer proposed a partial payment installment agreement (“PPIA”) of $350 per month to resolve the delinquent payroll taxes.  A PPIA is a proposal to pay less than what is owed through a payment plan.  If the IRS approves the partial pay installment agreement, it will monitor the taxpayer’s ability to pay throughout the 10 year collection statute.  Generally speaking, the IRS has 10 years to collect back taxes unless it seeks a judgment which can extend the statute based on a time prescribed by state law.

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Offshore Voluntary Disclosure Tax Relief

offshore voluntary disclosureOn June 18, 2013, the IRS announced major changes to the voluntary offshore disclosure program (“OVDP”).  OVDP had been criticized by the Taxpayer Advocate and tax attorneys as being too draconian on its participants who failed to disclose their foreign accounts, but were not willful evading their foreign tax obligations.

The 2012 OVDP Terms

Simply stated, the 2012 OVDP deal offered no criminal exposure if you got to the government before it found out about you in exchange for the following:

  1. You paid a 27.5 percent penalty on the undisclosed offshore accounts with the highest aggregate account balance on the period covered by OVDP (8 years);
  2. You filed all delinquent FBAR(s) for the period covered by OVDP (8 years); and
  3. You filed all original and amended tax returns for the period covered by OVDP (8 years)
  4. You paid all back taxes, interest, and a 20% penalty on the taxes owed (the accuracy related penalty)

The 2012 OVDP offered reduced penalty calculations of 12.5% and 5% of the highest aggregate balance, but these reduced OVDP penalties were based on precise requirements.  If you did not satisfy the requirements, OVDP tax agents did not have the discretion to negotiate.  If you did not like the program, you could opt out of OVDP.

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Hiring Private Collection Agencies to Recover Back Taxes

Congress may authorize the hiring of private collection agencies to collect back taxes.  Congress added a proposal in the Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act of 2014 which would authorize the IRS to contract with private collection agencies to recover back taxes.  Congress believes that it can recover $2.4 billion in unpaid federal tax debt over the next 10 years through the use of private collection agencies.  Currently, the NJ Division of Taxation utilizes a private collection agency.

privatizing-tax-collectionThis is not the first time that Congress outsourced private tax collectors.  The IRS utilized private tax collectors in 1996 and 2004. Both times the IRS stopped using private tax collectors because they were deemed inefficient in the collection of back taxes.  The IRS Oversight Board (Oversight Board), a nine-member independent body charged to oversee the IRS operations, agrees.  The Oversight Board believes private collection firms are not as effective as IRS personnel in charge of collection (Revenue Officers and the Automated Collections Unit).

The IRS is missing out on billions of dollars by not collecting taxes within the time frame permitted by Congress.  Generally speaking, the IRS has 10 years to collect a back tax or reduce the tax debt to a judgment.  Currently, many cases are sitting in the queue waiting to be assigned.  If the cases are not assigned, within the 10 year statute, then the tax debt is forgiven.  I have witnessed the IRS missing out on hundreds of thousands of dollars in back taxes.  For example, last week, I noticed that the IRS missed assessing a trust fund recovery penalty. If the taxpayer’s business does not pay the FICA portion of payroll taxes, then the IRS can pierce through the business and assess the payroll tax owed against an individual.

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Todd S. Unger, Esq., Named to Inaugural Best Attorneys in Business List

In recognition for attorney Todd S. Unger’s superior practice, South Jersey Biz recently dubbed him a top attorney in the region.  

MOUNT LAUREL, N.J. (May 30, 2014) — South Jersey Biz, a regional monthly business-to-business (B2B) publication for Southern New Jersey, has named Todd S. Unger, Esq., LLC to its first-ever Best Attorneys in Business List.

This inaugural list is designed to highlight the names of top attorneys to serve readers looking for help navigating complex legal issues. By choosing an attorney from the list, New Jersey residents can know they’re choosing an attorney backed by the region’s premier B2B periodical.

For the Best Attorneys list, South Jersey Biz received hundreds of submissions, which it narrowed down to 30 categories and just over 100 attorneys, in practice areas ranging from commercial litigation to workers’ comp.

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