Category Archives:IRS

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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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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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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