The Pros and Cons of an Installment Agreement

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Owing back taxes doesn’t mean that you have to live in fear of penalties, the garnishment of wages or even criminal prosecution. If you live in the Bay Area and owe back taxes, it makes sense to work with a tax attorney in San Francisco to find a way to settle your debts. The IRS has several options available for taxpayers who owe back taxes and one of the easiest to enter into an installment agreement with the IRS. Before you reach out to a tax settlement attorney, learn a bit more about this option.

With an installment agreement, you pay off your tax debt in monthly installments. It eases the burden on you and allows you to pay off the debt in a comfortable manner. If you fail to make a payment, you do run the risk of going into default; setting up an automatic payment method such as direct withdrawal can help you to avoid this. Most installment agreements are set up with level monthly payments but there are also different types and terms of installment agreements which if you qualify may be more suitable for you.  Before you set up an installment agreement, you’ll want to contact an IRS audit attorney to determine what type of installment agreement would be best.

An installment agreement isn’t always the perfect option. For example, if you owe a large amount of money and can only afford to make minimum payments each month, you might find yourself paying for years without making a major dent into the principal amount that you owe. In this case, an option like an Offer in Compromise might be the better choice for you. Contacting the Law Offices Of Jeffrey B. Kahn, P.C. can help you in evaluating your options.

Using an Offer in Compromise to Avoid a Tax Lien

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Working with a tax lawyer in Los Angeles to reach an Offer in Compromise with the IRS is an effective tool for reducing the amount you owe in federal taxes. It can save you from dire consequences such as a lien against your property or having your wages garnished. If you are seeking an Offer in Compromise to reduce your debt and avoid a tax lien, the Law Offices Of Jeffrey B. Kahn, P.C. wants to let you know some variables that the IRS will consider when evaluating your case:

Health: If you have recurring health issues that are keeping you from earning a steady paycheck. The IRS might consider this as a factor in reducing or even eliminating the amount you owe in taxes. This may also happen if you are caring for a seriously ill dependent.

Age: People who are nearing or past retirement age will have less prospects for earning money in the future; this will mean that a tax relief attorney can sometimes successfully argue for the IRS to collect a smaller amount upfront to settle the debt since there is no guarantee of long-term future payments.

Amount of Offer: Working with a tax attorney can help you to greatly reduce the amount of your tax debt whereby you can settle for “pennies on the dollar”.  Because every potential Offer In Compromise is different, an offer amount that would be suitable for one taxpayer may not be high enough for another taxpayer.  That is where professional guidance from the tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. comes in handy as we can set the balance between paying the lowest amount possible to the IRS with providing an Offer that the IRS would be interested in accepting — even though it’s for a small percentage of the total amount owed.

IRS Increases User Fee For Establishment Of Payment Plan

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Effective January 1, 2014, the user fee charged by IRS to establish a payment plan has been increased from $105.00 to $120.00.

If you cannot pay all that you owe now and do not qualify for an offer in compromise, an IRS installment agreement may be your next best option. Payment Agreements allow you to pay IRS debt in full in smaller, more manageable amounts, usually in equal monthly payments. The amount of your installment payment will be based on the amount you owe and your ability to pay that amount within the time available to the IRS to collect tax debt from you.  However, be aware that because you are financing your liability with IRS, interest and penalties will continue to accrue.

The IRS has different types of plan available and some even allow the IRS to refrain from filing a Federal Tax Lien which if filed would adversely effect your credit.  Additionally, the IRS cannot levy against your property (1) while your request for a Payment Agreement is under consideration, (2) while your agreement is in effect, (3) for 30 days after your request for an agreement has been rejected, or (4) for any period while an appeal of the rejection is being evaluated by the IRS.

Most people do not have the necessary skills or knowledge of the IRS collection process to propose a payment plan that can meet IRS standards and be within a person’s budget.

The tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. have extensive experience with getting reasonable payment plans processed by the IRS for the lowest possible monthly payment and secure a final acceptance with IRS.

IRS Increases Application Fee For Offer In Compromise

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Effective April 27, 2020, the application fee charged by IRS to apply for an Offer In Compromise has been increased from $186.00 to $205.00.

Established by the Internal Revenue Service, the Offer in Compromise Program is a formal application to the IRS requesting that it accept less than full payment for what you owe in taxes, interest, and penalties.

An offer in compromise may allow you to settle back taxes or IRS liability at a substantial discount on the basis of doubt as to collectability, liability, or effective tax administration. In addition, while your offer is under consideration, the Internal Revenue Service is prohibited from instituting any levies of your assets and wages.

Most people do not have the necessary skills or knowledge of the IRS collection process to make an offer in compromise that is in their best interest and can be processed by the IRS. Government figures show that 75% of offers are returned at the beginning due to forms being filled out incorrectly, and of the 25% that are processed, approximately 50% are rejected.

The tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. have extensive experience with getting Offers processed by the IRS for the lowest possible amount and secure a final acceptance with IRS.

Avoiding Increases in Taxes in Audits on Art Appraisals

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Whether you are dealing with art given to you as a gift, or art you inherited as part of an estate or art that you are giving as a charitable donation, there are plenty of potential tax implications. An experienced tax attorney can help you avoid potential tax problems that can arise where there is no art appraisal or there is an incorrectly performed appraisal.

When does the IRS order its own art appraisals? The IRS requires that its own Art Advisory Panel appraise any artwork reported by a taxpayer with a claimed value of more than $50,000.

Who is part of the Art Advisory Panel? You won’t find a tax lawyer on the Art Advisory Panel. Instead, it is made up of 25 different artists, art historians and museum curators who serve without compensation.

What about art with values below $50,000? For deductions claimed on art pieces with a value greater than $5,000, you need to receive a written deduction from a qualified art appraiser. For pieces with a value of between $5,000 and $20,000, the IRS also requires a photograph of the art along with the written appraisal.

How long should I keep a copy of the appraisal? The IRS can challenge any valuation of greater than $5,000 for up to four years after the initial filing, so the Law Offices Of Jeffrey B. Kahn, P.C. strongly recommends that you store copies of this information where you can retrieve it when needed.

Avoiding Increases in Taxes in IRS Audits over Your Charitable Giving

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Giving money or goods to a charity is admirable but it can also lead to headaches with the IRS if you don’t do it right. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. have dealt with many cases where charity donations being claimed incorrectly were picked up in tax audits and the IRS was looking to assess penalties. As a leading tax attorney in San Francisco, we can offer some tips that can help you to avoid potential problems down the road with a tax filing relating to your charitable giving.

Donating Clothes and Household Goods: One common issue that IRS tax attorneys see with charitable giving comes from donating clothes and household items. If you donate goods with a value of more than $250, you need to get an acknowledgement of the donation in writing from the charity.

Donating Money: If you make a donation of more than $250 to a charity, you need to receive a letter acknowledging this donation from the charity in order to claim a tax exemption. If your donation is under $250, you can either use this type of letter or a bank statement, canceled check or credit card statement as proof of the donation.

Eligible Donations: One of the major issues that an IRS agent will see as a red flag is claiming an ineligible donation. In order for your donation to be tax-deductible, the organization you give it to has to be a registered Exempt Organization.  Also, your charitable deduction cannot include the value of any benefits you received from the charity.  An example would be where you paid $200 to attend a charitable ball for which the charity states that the value of the ticket is $75.  In such an instance your charitable deduction would be $125.

Claiming Deductions for a Home Office

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The tax law allows qualified taxpayers to deduct a home office.  However, because the IRS perceives that taxpayers either misuse or abuse this deduction, the IRS puts these taxpayers at a higher risk for audit. The tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. can provide you with guidance in balancing the benefit of the home-office deduction and risk of such deduction being denied by the IRS in an audit.

An IRS audit usually involves many complex tax law issues besides entitlement to and amount of a home-office deduction which we see on a regular basis. With that in mind, here are a few tips to keep in mind if you are looking to claim a home office:

Dedicated Space: Any space in your home that you claim to be your home office needs to be exclusively dedicated to work use. This means that if you have a room in your home that solely functions as your work office, you can claim it. But you can’t claim your kitchen table.

Regular Use: You also need to regularly use your home office space for work in order to claim a deduction. This doesn’t mean that you have to be there working from 9 to 5 every day, but it does mean that you need to work from home frequently.

Indirect Deductions: You can claim 100 percent of your deductions for direct work expenses like your computer, printer or upkeep on your work space. You can also claim a partial deduction for home-related items such as mortgage payments and utility bills. This is prorated based on the size of your home office.

Tips for Surviving a Small Business Tax Audit

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What small business owner would want to get audited by the IRS? Most business owners who receive notice that their business is selected for audit avoid the stress by hiring a criminal tax attorney or an IRS audit specialist attorney to represent the business. An experienced tax attorney knows how to prepare for the audit and can give you the confidence needed to get the best outcome.

The Law Offices Of Jeffrey B. Kahn, P.C. has helped many people with the small business tax audits. Drawing from our experience of tax lawyers directly representing businesses in IRS audits, here are some valuable tips that can help any small business be ready for their date with the IRS:

Stick to the Relevant Facts: Don’t give lengthy explanations to questions from the auditor or start talking about things that aren’t relevant to what was asked. This will only give the auditor other potential avenues for discussions.

Listen to Your Representative: If you are working with a tax attorney lawyer or other professional, make sure you stick to their advice. After all, they have the experience you lack and won’t be intimidated by going through the auditing process.

Bring in the Right Documentation: Make sure that you have all of your receipts or tax records for the year you are being audited for in a system that makes them easy to refer to during the audit session. Don’t being in tax records or receipts from other years; this just opens you up to potential audits on these years as well.

Small Business Owners Can “Fast Track” Audit Process

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The Law Offices Of Jeffrey B. Kahn, P.C. has some news of particular interest to small business owners. The Internal Revenue Service has given small businesses a chance to expedite the audit process with its new Fast Track Settlement program. Under the terms of the program announced by the IRS in November 2013, small business owners can work with their IRS audit attorney to avoid the formal litigation or administrative appeal process. In most cases, the FTS program means that audit issues are taken care of within 60 days.

The Fast Track Settlement program is modeled on a program that has previously existed for medium-sized and large-sized businesses with more than $10 million in annual income. A pilot version of the program started in 2006 and was expanded in 2008 and the IRS is now extending it to all small business owners.

It’s important to keep in mind that the Fast Track Settlement program doesn’t guarantee a positive resolution to your dispute which is why you’ll still want to hire IRS tax attorneys who understand the regulations to fight on your behalf. But what this program offers is to speed up the entire process, saving small businesses from potentially lengthy and costly litigation.

Although the Fast Track Settlement is presided over by an IRS appeals officer who is supposed to be acting as a “neutral party”, that Appeals Officer will not be able to provide you with any guidance or advice.  Because of this, it’s a good idea to work with an experienced San Diego tax lawyer with the Law Offices Of Jeffrey B. Kahn, P.C. to represent you during this phase of the process.

Disclosing Foreign Accounts Through the Offshore Voluntary Disclosure Initiative

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IRS has established programs for taxpayers to voluntarily come forward and disclose unreported foreign income and foreign accounts under what the IRS calls the Offshore Voluntary Disclosure Initiative (OVDI).

On January 9, 2012 the IRS announced the terms of the 2012 OVDI which requires that taxpayers: (1) File 8 years of back tax returns reflecting unreported foreign source income; (2) Calculate interest each year on unpaid tax; (3) Apply a 20% accuracy-related penalty under Code Sec. 6662 or a 25% delinquency penalty under Code Sec. 6651; and (4) Apply up to a 27.5% penalty based upon the highest balance of the account in the past eight years.

In return for entering the offshore voluntary disclosure program, the IRS has agreed not to pursue charges of criminal tax evasion which would have resulted in jail time or a felony on your record; and other fraud and filing penalties including IRC Sec. 6663 fraud penalties (75% of the unpaid tax) and failure to file a TD F 90-22.1, Report of Foreign Bank and Financial Accounts Report, (FBAR) (the greater of $100,000 or 50% of the foreign account balance).

Recent closure and liquidation of foreign accounts will not remove your exposure for non-disclosure as the IRS will be securing bank information for the last eight years. Additionally, as a result of the account closure and distribution of funds being reported in normal banking channels, this will elevate your chances of being selected for investigation by the IRS.

For those taxpayers who have submitted delinquent FBAR’s and amended tax returns without applying for amnesty (referred to as a “quiet disclosure”), the IRS has blocked the processing of these returns and flagged these taxpayers for further investigation. You should also expect that the IRS will use such conduct to show willfulness by the taxpayer to justify the maximum punishment.

Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls of non-disclosure or incomplete disclosure.