Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions. 

In many cases, State Tax Collection authorities can be more aggressive and act before the IRS takes action. Typically, those who owe the IRS, also end up owing state tax. State tax collection authorities have tremendous reach and can cause financial hardship if not dealt with in a timely manner.  You should speak to a professional to review tax letters received from your State to determine the best course of action to resolve the issue.  

If you currently own or have owned a business with employees, and owe 941 or Employee Withholding Tax then you NEED TO RESOLVE YOUR TAX ISSUE IMMEDIATELY! The IRS is most aggressive when it comes to these types of taxes. If Payroll Taxes are not paid, you are putting your income, assets, and business reputation at risk.

If these taxes (Payroll Tax 940/941) are neglected long enough, the business may be forced to close and all assets can be seized to satisfy the debt. Regardless if the business is closed, you must make arrangements to pay the taxes. The IRS will not be deterred and by not paying or making arrangements your personal finances are at risk.  Contact us to discuss what options are available and what will be the best course of action.

The IRS has a number of ways of discovering if a tax payer has not filed their tax return.  The first is a delinquency check of returns that, according to IRS records, should have been filed.  The second is the information Return Program (IRP), which begins with the IRS receiving information returns from payers of income.  The information returns are matched with information reported on filed tax returns.  The program identifies taxpayers who have failed to file and those who have under reported their income on filed tax returns.

There may be a number of reasons for not filing a tax return which includes missing all or a portion of tax records, personal hardship and/or neglect.  Fortunately, there are ways to approach the problem of unfiled returns.  We can help you obtain tax transcripts to determine the income that you need to report and thereby help you piece your tax return together.

Unfiled tax returns should be filed as soon as possible in order to avoid accumulated compounding interest.  Also, it should be noted that if tax returns have not been filed in the most recent three tax years, those returns should be prepared immediately in order to claim any refunds that may be due.

When a tax assessment has been made against a taxpayer, the IRS is required to give notice and demand for payment within 60 days.  If the taxpayer thereafter fails to pay, a federal tax lien arises and attaches to all property and property rights either owned on or acquired after the date of attachment.  A lien does not result in the actual transfer of the taxpayer’s property to the IRS.  Rather, the IRS must levy upon the taxpayer’s property or property rights (or, alternatively, file suit in court to enforce the lien) before the transfer to the IRS is deemed to occur.

Levies can be directed to the taxpayer and cover tangible real and personal property owned by the taxpayer, or served on third parties who hold intangible property belonging to the taxpayer (including bank deposits, wages and debt owed to the taxpayer).  The first category is often referred to as a seizure, while the second category is a levy.

If you receive a levy notice is is important you respond quickly before a seizure is issued.  To have have the levy released you have to pay the amount due , enter into an installment agreement or another arrangement with the IRS.  Contact us to learn how we can assist you get relief from a tax levy.

An installment agreement is used when you cannot pay your tax liability in a lump sum and have no equity in assets against which you can borrow, but have sufficient income to pay the amount over a period of time.

How to request an installment agreement

In most cases an installment agreement can be requested by either:

1. Attaching Form 9565 (Installment Agreement Request) to the front of the tax return when filing, or
2. Completing the Installment Agreement Request online (http://www.irs.gov/Individuals/Online-Payment-Agreement-Application)

Please contact us to learn more about how we can assist you to apply for an installment agreement.

The offer in compromise (OIC) program is a viable tool to be considered, especially in a time of economic turmoil.  The OIC is a way for the IRS to resolve legitimate disputes, collect funds that are unlikely to be collected otherwise, and handle special circumstances that are normally difficult to resolve.  The ultimate goal of the program is a compromise that is in the best interest of the government as well as the taxpayer.  For the government it settles a delinquent tax liability, while for the taxpayer it provides a fresh start toward future voluntary compliance with all filing and payment requirements.

On what grounds will the IRS accept an Offer in Compromise? 

• Doubt as to liability - There must be a genuine doubt to the validity of the liability.   

• Doubt as to collectibility - The taxpayer must demonstrate that (a) it is unlikely that the tax can be collected in full with the collection statute of limitations and (b) the OIC reasonably reflects the amount the IRS could collect through other means, including administrative collection remedies.

• Promotion of Effective Tax Administration - The IRS may compromise a tax liability on the ground if (a) full collection is possible but will cause the client an economic hardship; or (b) there are no other grounds of compromise, but public policy or equity considerations provide a sufficient basis for compromising the liability.

When submitting an Offer in Compromise it is important that you fully prepare and organize the information prepared.  This includes complete, accurate and current financial information as well as any documents that might be relevant in having the OIC processed.  A detailed factual statement as to your situation and the circumstances why you owe taxes should also be included.

To improve your chances of having an Offer in Compromise accepted, you should consider having a professional complete your application.  Contact us to learn more about our services and how we can assist you.

If you are contacted by the IRS for a correspondence audit it is essential that you respond promptly.  Here are some tips to responding to a correspondence audit:

• Always respond within the indicated response time.  Generally, the IRS notice will allow 30 days for a response.  If additional time is needed, request an extension of time in writing prior to the expiration of the deadline
• Address each issue in the correspondence audit separately and provide detailed explanations, calculations, or supporting documents for the taxpayer’s position.
• Provide reconciling schedules to resolve an income reporting issue
• Document the progress of the audit in writing.  If telephone contact is made, mail or fax a confirming letter outlining what was discussed and what was agreed upon.  Make sure to record the badge number of the IRS contact.
• Never mail original documents to the Service Center.  If supporting documentation is requested, send copies only; Service Centers occasionally lose or misplace documents.
• When corresponding with the Service Center, include a copy of the immediately preceding correspondence sent by the Service Center.  This allows prompt matching of the file with the correspondence, which reduces the likelihood of error.
• Consider sending all correspondence by certified mail, return receipt requested.  This provides positive proof the information was forwarded in a timely fashion.

When dealing with the IRS it is important to remember that the IRS agent you deal with is a tax expert and you should consider having a tax expert represent you.  Please contact us if you have any questions.

Tax audit representation, is a service in which a CPA represents you during an IRS or state income tax audit.  The purpose of a Tax Audit is to verify the income and expenses that you have on your tax return.  The IRS allows for you to have a qualified Certified Public Accountant represent you during the audit. 

What do I need to do if I receive an Audit Letter?

If you receive an Audit letter from the IRS, it is best to contact a CPA to review the letter and determine the best course of action.  Most of the time the IRS conducts a correspondence audit, where they may request supporting documents to be mailed to them to support an expense or income.  

If the IRS is wanting to set up an appointment to meet with them, a CPA will be able to represent you.  The CPA will work with you to gather your supporting documents and explain your case on behalf of you.  As the CPA understands the tax code, they can help explain your tax position.  

Once the tax audit is over

Once the audit is done, the IRS agent will assess any taxes and penalties you owe.  However, the assessment can always be appealed. The IRS may be willing to cut you a deal that will make you happy because they don’t want the case to drag on. This is another time where it pays to have good audit representation form a CPA.  A good CPA will be skilled at escalating the case to make a settlement easier.

Get Audit Help

By contacting South Loop CPA LLC, we may be able to go into the audit office for you and we will have your case prepared and positioned to give you the protection you deserve. We know your rights and you have nothing to fear. If paperwork is missing we will help you put together all the documentary evidence you will need to come out of your tax audit successfully. Also most audits can be made via correspondence audits, so that there isn’t necessarily a need to appear. This allows us to handle a case across the nation regardless of your location.

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions. 

The American Taxpayer Relief Act of 2012 (better known as the fiscal cliff legislation) became law on 1/2/13. Due to the expiration of the so-called payroll tax holiday, all workers will pay higher federal taxes this year, but the Act cancels most other income tax increases that would have resulted in added misery for just about every individual taxpayer. In addition, many popular tax breaks for individuals were extended. The bad news is that, starting in 2013, higher-income folks will face higher taxes. The Act also extended lots of business tax breaks (some with modifications).

Here is a quick summary of some of the important tax changes:

- For 2013, the Social Security tax can hit up to $113,700 of salary or self-employment income. Thus, loss of the 2% payroll tax holiday could cost one person up to $2,274 or a working couple up to $4,548.

- Higher-income folks will see an increase in their tax rates and also get hit by the new 0.9% Medicare tax on wages and self-employment income and the new 3.8% Medicare contribution tax on net investment income. If so, they can face combined tax rates in excess of the advertised rates.

If your company has an FSA, before year-end you must specify how much of your 2013 salary to convert into tax-free contributions to the plan. You can then take tax-free withdrawals next year to reimburse yourself for out-of-pocket medical and dental expenses and qualifying child care costs. You may want to increase the amount you set aside for next year in your health FSA if you set aside too little for this year. Watch out, though, FSAs are “use-it-or-lose-it” accounts—you don’t want to set aside more than what you’ll likely have in qualifying expenses for the year. Keep in mind that beginning next year, the maximum contribution to a health FSA will be $2,500. And don’t forget that you can no longer set aside amounts to get tax-free reimbursements for over-the-counter drugs, such as aspirin and antacids.

If you currently have an FSA, make sure you drain it by incurring eligible expenses before the deadline for this year. Otherwise, you’ll lose the remaining balance. It’s not that hard to drum some things up: new glasses or contacts, dental work you’ve been putting off, or prescriptions that can be filled early.

It may pay to defer some taxable income from this year into next year, especially if you expect to be in a lower tax bracket in 2013. For example, if you’re in business for yourself and a cash-method taxpayer, you can postpone taxable income by waiting until late in the year to send out some client invoices. That way, you won’t receive payment for them until early 2013. You can also postpone taxable income by accelerating some deductible business expenditures into this year. Both moves will defer taxable income from this year until next year. Deferring income may also be helpful if you’re affected by unfavorable phase-out rules that reduce or eliminate various tax breaks (child tax credit, education tax credits, and so forth). By deferring income every other year, you may be able to take more advantage of these breaks every other year.

Year-end planning will be more challenging than normal this year. Unless Congress acts, starting in 2013, individuals will see higher tax rates across the board and a number of popular deductions and credits will be gone. Estate and gift tax rates will be higher as well. Additionally, a number of popular deductions expired at the end of 2011 and won’t be available for 2012.

Deductions not available this year include, for example, the election to deduct state and local sales taxes instead of state and local income taxes and the above-the-line deductions for tuition and educator expenses. Deductions and credits that will disappear at the end of this year include generous bonus depreciation and expensing allowances for business property and the expanded tax credits for higher education and dependent care costs. Also, the phase-out rule that reduces write-offs for the most popular itemized deduction items (including home mortgage interest, state and local taxes, and charitable donations) for high income taxpayers is scheduled to come back in 2013.

Finally, as a result of the Healthcare Act, two new Medicare taxes will kick in starting in 2013. First, there will be a new 0.9% Medicare surtax tax on wages and self-employment earnings exceeding $200,000 ($250,000 if married filing jointly; $125,000 if married filing separately). There will also be a new 3.8% Medicare contribution tax that will apply to the lesser of (1) net investment income, including interest income (but not if it is tax-exempt), capital gains, and dividends; or (2) modified Adjusted Gross Income (AGI) in excess of $200,000 ($250,000 for married filing jointly; $125,000 for married filing separately).

These tax increases are by no means a certainty. Congress could extend the Bush-era tax cuts for some or all taxpayers, revive some favorable tax rules that have expired, and extend those that are slated to expire at the end of this year. Which actions Congress will take remains to seen and may well depend on the outcome of the elections.

Despite uncertainties, what we can say for sure is that the 2012 federal income tax environment is still quite favorable, but we may not be able to say that for long. Therefore, tax planning actions taken between now and year-end may be more important than ever.

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