Todd S. Unger, Esq. Discusses Offer In Compromise In New York Times

offer in compromise

Contrary to popular belief, the IRS wants to work with taxpayers.  Owing the IRS money can be intimidating, but you have options.  One option when you owe back taxes, is to try to negotiate less than the total amount owed. This is called an offer in compromise, and can be an excellent way for you to catch up financially and move forward with your life.

In some cases, you won’t be able to pay all the taxes you owe.  If you can prove to the IRS that you do not have the ability to pay your owed taxes within 10 years, the offer in compromise could be worth trying. Tax Attorney, Todd Unger was recently quoted in a New York Times article that dealt with the IRS and its offer in compromise program. Unger stated that “when the IRS accepts an offer it can be the deal of a lifetime for the taxpayer needing assistance.”

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Real Estate Investors Watch Out When Preparing Your 2014 Tax Return. Audits and Tax Litigation Involving Real Estate Losses are on the Rise

irs-tax-audit-real-estate-lossesA highly audited issue that often leads to US Tax Court litigation is whether or not real estate losses can be deducted as ordinary losses rather than having to classify the loss as passive.  The disallowance of the passive activity loss has been such a hot tax controversy that it was listed among the Taxpayer Advocate’s “Most Litigated Issues” in its 2014 Annual Report to Congress.   Therefore, it is worth paying extra special attention to reporting real estate losses when preparing and filing your 2014 taxes.

Real Estate Tax Controversy Background

As part of its anti-tax shelter agenda in 1986, Congress codified IRC 469.  Generally speaking, IRC 469 precludes deducting passive activity losses from trade or business activities in which you do not materially participate.  The tax code considers rental activities to be a passive activity. 

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Can a Late Tax Return be Discharged in Bankruptcy?

Late Filed Returns and Discharging Back Taxes

A State of Uncertainty 

On December 29, 2014, the Court of Appeals for the Tenth Circuit, (In re Mallo, 2014 WL 7360130 (10th Cir. 2014)), followed the Fifth Circuit (In re McCoy, (CA 5 2012) 666 F.3d 924) and several other tax bankruptcy court cases which held that late-filed tax returns cannot be discharged in bankruptcy.  Unfortunately, this draconian result known as the One-Day-Late Rule could preclude the taxpayer’s goal of eliminating back taxes in bankruptcy and obtaining a fresh start.

How do I eliminate taxes in bankruptcy? 

In bankruptcy, back taxes are either secured or unsecured claims.  If the IRS or state taxing authority files a tax lien, then the tax claim is secured and paid first from the taxpayer’s assets.  If the tax claim is unsecured, then its treatment will be contingent upon whether the IRS’s claim is classified as a priority or a general claim.

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Why is everything taking so long at the IRS? The 2015 Budget

IRS 2015 BudgetThrough the 2015 Consolidated Further Continuing Appropriations Act, Congress cut the IRS’s budget for the fifth consecutive year.  Congress reduced the IRS budget by $346 million from the 2014 fiscal budget which was $526 million below the IRS’s 2013 funding level.  The IRS budget is cause for concern when the tax season starts on January 20, 2015.

Where is my tax refund?  I cannot get through to the IRS.

IRS Commissioner, John Koskinen estimated that approximately 50% of calls will be answered during the 2015 filing season.  Koskinen stated that “those who do get through could easily wait 30 minutes more.”

In June 2013, Nina Olsen, head of the Taxpayer Advocate, an independent unit of the IRS whose mission is to protect the taxpayer said “the IRS is an institution in crisis”. . . as a consequence of this crisis, the IRS gives limited consideration to taxpayer rights or fundamental tax administration principles as it struggles to get its job done.”  As a tax attorney whose focus is exclusively on taxpayer representation, I would agree.  The IRS is not functioning well.  Some of the problems that I am encountering in my tax practice are as follows:

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The IRS Abused Its Discretion in Requiring that a Federal Tax Lien Should be Filed

Notice of Tax LienIn a recent US Tax Court decision, Budish v. IRS, T.C. Memo. 2014-239, the Court held that a settlement officer erroneously concluded that the Internal Revenue Manual (“IRM”), an IRS employee handbook, required the filing of a notice of federal tax lien as a condition to execute an IRS installment agreement.  This is an important taxpayer victory because of the difficulty involved in avoiding an IRS tax lien.  It further emphasizes the importance of timely filing an appeals hearing when the IRS threatens to levy.

The IRS Collections Unit Threatens a Tax Levy

In Budish, the taxpayer owed $205,000 in back taxes.  In an effort to collect the back taxes owed, the IRS collection unit threatened to levy the taxpayer’s property or right to future property.  The taxpayer filed for a Collection Due Process Hearing (“CDP”) which afforded the taxpayer the right to appeal the tax levy and provide US Tax Court review if the taxpayer and appeals could not negotiate a tax resolution.

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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.

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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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