The Lothamer Tax Report

Chapter 13 bankruptcy information

Have you ever wondered, “Should I file bankruptcy?”  When a person has a back tax issue, there are many different paths towards resolution.  For those who make too much money to qualify for an Offer in Compromise, or for those unable to come up with the funds to pay a lump sum settlement, filing a Chapter 13 bankruptcy can be a very  effective way to put your financial house in order, and to reduce the total tax liability owed.

In a bankruptcy, the IRS distinguishes between priority and non- priority debt.  Priority debt is generally your most recent three tax years owed, while anything older is considered non-priority.  Any unpaid balances of the non-priority debt will be fully discharged upon completion of the bankruptcy.  Clients have been able to go through a Chapter 13 and come out with a totally clean slate with the IRS, effectively paying “pennies on the dollar” for their tax bill.

There can be other advantages of a Chapter 13 as well.  For example, if someone could afford $500 a month to pay their IRS bill, but the IRS is demanding $1,000 per month, a bankruptcy can be a means of forcing the government to accept lower payment terms based on your actual ability to pay.  Also, all interest and penalties cease to accrue during the bankruptcy period, allowing you to keep the debt from spiraling out of control.

Most national tax relief firms attempt to steer all clients towards an Offer in Compromise or payment plan, and do not look at bankruptcy as a potential solution because they do not offer that service.  At Lothamer, we will analyze ALL your options to offer you a comprehensive plan that will make the most financial sense for you.  If you’d like to find out your best option, you can contact us here.

March 4th, 2010 Posted by Lothamer | Uncategorized | no comments

Tax refunds “too good to be true” for clients of local tax preparer

Have you ever heard friends brag about the size of their income tax refunds, claiming that they have some “great” accountant who always managed to get them an unusually large refund?  Or have you ever had an accountant or CPA try to win you as a client by claiming that he or she can get you more money back than anyone else?

When it comes to your tax returns, if a tax refund seems too good to be true, it very well may be.  Although the vast majority of the accounting profession is honest, a small number of tax preparers attempt to lure in prospective clients by promising huge refunds.  In a recent example, Lansing area tax preparer Darryl Stanley Horton was just indicted by a federal grand jury for filing false and fraudulent income tax returns, and all of his clients face potential audits.  (To be clear, Horton was neither a CPA or even a licensed accountant.)

When you sign your tax return, you are taking responsibility for the accuracy of the return, regardless of whether you prepared it.  You, not your accountant, would be held liable for any additional tax, penalty and interest owed.  In addition, it may take years for the IRS to realize any error; meanwhile, they will backdate the penalty and interest to the date when the tax should have originally been paid.  This can mean huge tax liabilities for individuals being audited.

When the IRS discovers a tax preparer committing fraud, they often audit ALL the returns prepared by that individual.  We have had clients come to us because their CPA had been targeted, and as a result, they were being audited for several thousand dollars in additional taxes.

How do you know what to look for in a CPA or accountant, and what to be wary of?  Here are some tips from the IRS:

Helpful Hints When Choosing a Return Preparer

• Reputable preparers will ask to see your receipts and will ask you multiple questions to determine your qualifications for expenses, deductions and other items. By doing so, they are trying to help you avoid penalties, interest or additional taxes that could result from an IRS examination.
• Be cautious of tax preparers who claim they can obtain larger refunds than other preparers.
• Avoid preparers who base their fee on a percentage of the amount of the refund.
• Use a reputable tax professional who signs your tax return and provides you with a copy for your records.
• Consider whether the individual or firm will be around to answer questions about the preparation of your tax return months, or even years, after the return has been filed.
• Review your return before you sign it and ask questions on entries you don’t understand.
• No matter who prepares your tax return, you, the taxpayer, are ultimately responsible for all of the information on your tax return. Therefore, never sign a blank tax form.
• Find out the person’s credentials. Only attorneys, certified public accountants (CPAs) and enrolled agents can represent taxpayers before the IRS in all matters including audits, collection and appeals. Other return preparers may only represent taxpayers for audits of returns they actually prepared.
• Find out if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.
• Ask questions. Do you know anyone who has used the tax professional? Were they satisfied with the service they received?

February 16th, 2010 Posted by Lothamer | Uncategorized | no comments

How to stop wage garnishment

Do you have a tax bill you can’t pay off?  Have you been receiving notices, but ignored them because you didn’t have the money to pay?  When a back tax bill is ignored, the IRS or State has the right to levy, or garnish, your wages as a means of getting payment.  When this happens, they sometimes leave a taxpayer with so little to live on that they are unable to even pay for their basic housing and bills.

Obviously it is in your best interest to avoid this situation by addressing the tax problem before it gets to that stage.  However, if you find yourself with a tax-related wage garnishment, there are some things you can do.

Most importantly, you need to have all your back tax returns filed.  The IRS will generally not work with a taxpayer to remove a levy until all returns are filed, so if you have back returns that need to be submitted, that is the first step.  Once all returns are filed, if your balances are not too large, the IRS or State may be willing to work with you to set up a voluntary payment plan rather than taking the money out of your check.  If the task of filing your back taxes seems too overwhelming, Lothamer can help.  We have the experience to file your back returns even if you are missing records.

If you are unable to work with the IRS or State on your own to get them to lift a levy, you may choose to seek professional assistance.  Lothamer realizes that people who have wage levies are in a tight financial situation, so we offer free financing that allows you to get immediate help and spread the payments out over time.

The best way to avoid a wage garnishment, of course, is to stop it before it starts by getting your back taxes filed and making arrangements to deal with your balances due, whether it be through a payment plan, Offer in Compromise, bankruptcy, etc.   Lothamer can assist you to determine which of these options is the right choice for you.

January 26th, 2010 Posted by Lothamer | Uncategorized | no comments

Success stories for 2009

Lothamer has seen an especially tough year for our clients, whose challenging circumstances are sometimes hard to imagine.  We admire their strength and courage as they come together with us to tackle difficult personal and financial issues, and we are proud to work as a team with our clients to help them put those issues behind them.

As the year comes to a close, we are happy to be able to report some extraordinary success stories.  One client was scammed out of a large sum of money by an overseas con operation.  She had taken money out of her 401k to pay the scammers, and was looking at owing a large tax debt in relation to the penalty on the withdrawal.  We were able to convince the IRS to completely write off her $40,000 tax bill.

Another client who is self-employed ran into tax troubles that left him with a staggering $85,000 tax bill.  We were able to settle out the debt for $1,000 so he can keep his business and move forward with his life.

Offers in Compromise like the example above are just one way we assist clients.  There are hundreds more “everyday” stories of people who were several years behind in filing, who can now sleep at night without worrying if the IRS is going to knock on their door at any time.  There are others who qualify for penalty abatements based on hardships they have experienced, such as a severe illness or death of a spouse.  Whatever the tax matter, we have the expertise and commitment to find relief for our clients.

Lothamer looks forward to continued growth in 2010 so that we may help an even greater number of people to put their tax problems to rest.

December 20th, 2009 Posted by Lothamer | Uncategorized | no comments

Liens on credit can impede job search

Chances are, you or someone you know has been looking for a job this year. With businesses “right-sizing” and looking to cut costs, employment opportunities are scarce. Those who are hiring usually have their pick of a wide range of qualified applicants. So how do these employers narrow the field?

Some potential employers have been using credit checks as a means of screening applicants. From their point of view, it is a way to find out if someone is responsible; it is also a red flag to an employer that a person with financial difficulties might be more likely to steal or embezzle.

Whether or not these are legitimate reasons to do a credit check, the fact remains that employers do use them to screen out “undesirable” candidates. If you have a tax problem, there may be a lien on your credit. This would let the employer know that you owe back taxes to the IRS or State. In fact, any lien against your credit or property is a matter of public record. Technically, an employer could discover your tax problems even without pulling your credit report. If you owe back taxes, you could have a lien on you and not even know it, if you have changed addresses since you last filed a tax return.

Of course it is difficult to find the means to address a tax problem if you are struggling or unemployed. But clearing up your back taxes can lift barriers that may stand in your way of getting a good job. We offer a free consultation to those with a tax problem so that you can see what your options are.  If you’re unsure whether you have a lien, you can check your credit report at AnnualCreditReport.com (this is an official government-sponsored website and the only truly free credit report service, not to be confused with the one in the TV ads).

November 13th, 2009 Posted by Lothamer | Uncategorized | no comments

Claiming exempt

We got a call the other day from a man whom I’ll call Al, who had an all-too-familiar tax problem.  He hadn’t filed in about 5 years, and had substantial balances due.  When I asked Al how he got into this predicament, he said that he had followed some “bad advice” from a friend at work.

Al works on the line at GM, and a co-worker had told him that by increasing your exemptions, you could take home a much larger paycheck.  It sounded like a good idea at the time- who wouldn’t be tempted by some extra money each week?  Al followed his friend’s advice and switched his exemptions to the maximum of 9, and his checks did indeed go up because practically nothing was being taken out for taxes.

Al only meant to do it temporarily to “catch up” on some things, but he began to get used to the larger checks, and before he knew it, years had gone by and he had never switched his witholdings back to the correct amount.  Meanwhile, the IRS finally caught up to him and began sending him letters stating that he had huge tax balances due.  Not only was he required to pay back the tax he owed, but the IRS imposed large amounts of interest and penalty, making the debt almost double the original amounts.

Al was stressed out beyond belief.  He never intended to let things go this far, but he was afraid to address the issue because he knew he didn’t have the money to pay off the IRS.  He ignored the certified letters because he just didn’t know what to do- he felt he was in over his head.  Finally, when he received a Notice of Levy from his employer, he gave us a call to see what his options might be.  We were able to figure out a solution to his problem that will allow him to get out from under the debt and start over with a clean slate. 

It is never a good idea to claim exempt as a way to “catch up” on things or put extra spending money in your pocket.  Eventually the IRS will discover the discrepancy and you will have a much larger problem on your hands.  However, if you or someone you know is already in this situation, there are options, and you can start over.  Don’t wait until the IRS places a levy on your wages- it is much better to address the issue yourself, before it gets to that point.

To set up a consultation to speak to a tax professional, please visit our website.

October 22nd, 2009 Posted by Lothamer | Uncategorized | no comments

IRS waives penalties for Rangel and others

Congressman Charles Rangel, chair of the House Ways and Means committee, has been in the news recently for ethics investigations related to, among other things, neglecting to report income from a rental property in the Caribbean on his taxes. 

According to an article in the Washington Post, Rangel’s explanation was that he didn’t “realize” the money was income, because the rental proceeds were credited directly to his mortgage and he rarely got any financial statements from the resort managers.  He has since paid back the taxes owed (about $10,000), but allegedly was not charged any interest or penalties. 

The average taxpayer who has fallen behind probably feels great frustration knowing that a politician can receive special treatment or get a “break” on late fees.  However, it’s worth pointing out that the IRS does have the power to make exceptions, and will sometimes do so for ordinary citizens.  We have seen the IRS grant one-time penalty abatements for clients whose tax problem was isolated to a single year and who never had any other tax issues.  For example, one client had to withdraw a large sum from a 401k  because of a job loss, and had a huge tax bill for that year because of the withdrawal.  They were having difficulty catching up, but the IRS waived the penalties on the basis that they had always been responsible taxpayers up to that point.

If you’re facing a back tax bill, the important thing to realize is that nothing is set in stone, and it is possible to get tax balances lowered under certain circumstances.   It’s always worthwhile to contact a local tax resolution specialist to see what your options are;  there may be solutions that you are unaware of that could help you reduce your tax bill.

October 15th, 2009 Posted by Lothamer | Uncategorized | no comments

File back taxes, take advantage of housing tax credit

Thinking of buying a house in order to take advantage of the tax credit for first-time home buyers currently being offered?  In order to get financing for a new home, the bank will require you to provide copies of your tax returns.  Don’t let unfiled back taxes stand between you and an $8,000 tax incentive!

The government is currently offering a tax credit of up to $8,000 for first-time home buyers (this also includes people who have not owned a home in the last 5 years).  This is not a deducton- it is a dollar-for-dollar rebate! For example, if you owed $1,000 on your 2009 taxes, and qualified for the full credit, you would receive a check back for the difference of $7,000. In order to qualify for the tax credit, you must close on your new home by no later than Dec. 1, 2009.  That’s just 2 months away.  The paperwork and closing procedures take time, so you want to be sure to allow yourself enough time to be able to complete all the necessary steps so as not to lose out on this money.

If you are struggling to find misplaced paperwork to prepare your taxes, you can get copies at E-resolution.  It has a quick turnaround time so that you can obtain your documents and get moving with getting your financing in order.  If you have a more complicated tax issue involving unfiled tax returns, or would like to speak to a CPA, you can fill out a contact request or just give us a call at 877-TAX-BILL (877-829-2455).

October 1st, 2009 Posted by Lothamer | Uncategorized | no comments

IRS working to speed up release of tax liens

Are you currently in the process of trying to sell or refinance your home, or thinking about doing so?  It’s difficult enough to sell a home in the current economy, but if you have a tax lien, it can be that much tougher.  Many people may need to sell their home because they have been forced to relocate for employment reasons.  Or perhaps you’re trying to sell or refinance to get out from under a payment you can’t afford.  Whatever the reason, most sellers will want to attempt to get their homes sold prior to Dec. 1, so that potential buyers can take advantage of the tax credit for first-time home buyers. 

Fortunately, the IRS has stated that they are attempting to speed the process of lien removal for people trying to sell or refinance their property.  Normally, the process takes about 30 days; however, the IRS has indicated that they will attempt to expedite these requests.  An article on the IRS website states:

“We don’t want the IRS to be a barrier to people saving or selling their homes. We want to raise awareness of these lien options and to speed our decision-making process so people can refinance their mortgages or sell their homes,” said Doug Shulman, IRS commissioner.

 “We realize these are difficult times for many Americans,” Shulman said. “We will ensure we have the resources in place to resolve these issues quickly and homeowners can complete their transactions.”

If you’re trying to sell your home or refinance to take advantage of the low interest rates, and an IRS tax lien is standing in your way, you can contact a tax professional for more information to see what programs you may qualify for.

September 11th, 2009 Posted by Lothamer | Uncategorized | no comments

IRS pursues tax evaders

It was announced yesterday that the Swiss bank UBS is going to release the names of some U.S. citizens who are account-holders, and who are suspected by the U.S. government of using the Swiss bank to hide assets and thus avoid paying taxes on those assets.  To date, there have been four criminal prosecutions arising from the release of names; however, the government is offering amnesty for those who voluntarily come forward prior to Sept. 23, 2009.  Those who come forward will still have to pay up, but will avoid the stigma of a criminal trial.

Normally, when people simply fail to pay their taxes, the IRS does not pursue criminal proceedings- it is more concerned with collecting the money owed, and does so through enforcement measures such as levies, liens and seizures.  However, when a person willfully evades paying tax by hiding assets or failing to report income, the IRS can process those cases as criminal rather than civil, and can put the offender behind bars.  

What constitutes tax evasion?  We are supposed to pay tax on most forms of income we receive.  Any time a person has income that they fail to report on their tax return, they are evading income tax.  This is not just an issue for the wealthy- it could be anything from a hairdresser failing to report cash tips, a business owner bartering for services, or a gambler failing to report winnings.   If you’re unsure on what types of income need to be reported, this IRS article on Taxable & Non-Taxable Income gives additional information.

What can be done if you have unreported income, and want to avoid a problem?  For past years, tax returns can be amended to include the additional income.  The IRS is more likely to be amenable to working with the taxpayer if they are forthcoming, and arrangements can be made to pay off any balances due over time, if necessary. 

If you are concerned about unreported income on your tax returns, you should consult a tax professional, who can advise you on the best course of action and assist you in amending any tax returns or making arrangements for any outstanding balances due.

August 17th, 2009 Posted by Lothamer | Uncategorized | no comments