Penalty Abatement
The Challenge
The treasurer discovered that their payroll clerk had forgotten to make one of the required payroll tax deposits on time and was penalized by the IRS and by the State. The treasurer had written letters requesting that the penalty be waived because this was their first late deposit and the payroll clerk had been having personal problems affecting job performance. The IRS and the State had both rejected the treasurer's requests.
Tax Solutions, P.C.’s Action Plan
- Fully describe the surrounding circumstances
- We asked the treasurer to write a detailed description of anything out of the ordinary that was going on during the period when the taxes should have been deposited:
- At the office
- In the life of the payroll clerk
- In the life of treasurer
- Appeal the IRS' denial of the treasurer's request
- Tax Solutions used the treasurer's description of the surrounding circumstances to write letters requesting reconsideration of the penalty abatement request in by an appeals officer and sent these letters to:
- The IRS
- The State
- Discuss the abatement request with the appeals officers by telephone
The Results
Decreased IRS Penalty
State Penalty Abated
State Interest on late payment Abated
Wage Levy Removal or Reduction
The Challenge
The taxpayer received a series of notices from the IRS requesting payment, requiring payment, and then threatening Lien, Levy, or Seizure. He did not respond to these notices because he did not have the money with which to pay the amount demanded and did not know where to turn. Next, he received Notice of Levy telling him that his employer was being instructed to pay to the IRS most of his bi-weekly pay. The taxpayer would not have been able to meet his monthly living expenses (rent, car payment, utilities, etc.) on that amount.
Tax Solutions, P.C.’s Action Plan
- Gather the necessary information from the taxpayer
- Obtain recent pay stubs showing current and year to date income and deductions
- Have the taxpayer complete a worksheet listing all his monthly expenses (rent, utilities, insurance, medical expenses, vehicle expenses, child support, etc.)
- Summarize the monthly expenses on the required IRS form
- Obtain a contact name and numbers (telephone and fax) for the taxpayer's employer's payroll department
- Compare the taxpayer's expenses to the IRS Allowable Expense Listing
- Determine what expenses the IRS will not allow
- Calculate what the IRS will say the taxpayer has left over to pay their taxes (if any)
- Contact the IRS Collection Division
- Request a Release of Levy and placement of the account in temporarily uncollectible status, if the taxpayer's allowable expenses equal or exceed his monthly income
- Request a Reduction of Levy to the amount the taxpayer can afford to pay, if the taxpayer's monthly income exceeds his monthly expenses
- Request that the IRS notify the employer's payroll department by fax of the Levy Release or Reduction (with a copy to Tax Solutions, P.C.)
The Results
Substantially reduced original levy.
Action was taken quickly enough that the taxpayer did not have the original Levy amount taken from any of his checks.
Replacing a Substitute for Return
The Challenge
Since the taxpayer had not filed his 1993 return, the Internal Revenue Service prepared a Substitute for Return (SFR) and assessed tax based on the income information reported to the IRS by the individuals and companies who made payments to the taxpayer. (When the IRS prepares an SFR they give the taxpayer only one exemption, the standard deduction, and the least favorable filing status that might apply, treating them as either single or married filing separately.) The IRS said the taxpayer owed a large tax, penalties and interest. If an SFR is not challenged, it isn’t long before the State receives a report
from the IRS and issues a State delinquency notice for additional tax, penalties, and interest.
Tax Solutions, P.C.’s Action Plan
- Obtain IRS computer listings showing:
- All income reportedly received by the taxpayer (from W-2s, 1099s, K-1s, etc.)
- The details of the IRS' calculation of the tax, penalties, and interest
- Determine if the reported income is actually attributable to the taxpayer
- Obtain proof of any unreimbursed expenses the taxpayer incurred in earning the reported income
- Prepare an original return (to replace the SFR) claiming the correct filing status and all the taxpayer's allowable expenses, deductions, and exemptions
The Results
Tax, penalties, and interest were all greatly decreased.
Installment Payment Agreement
The Challenge
The taxpayers owed a large amount of tax for a number of years' unpaid return balances. They had significant equity in assets (their home, business, and automobiles) but not enough available cash to pay what they owed the IRS. The IRS was threatening to place a Lien on their property, Levy against their bank account, and Levy against (garnish) their wages. Any of these actions could have had a negative impact on their ability to maintain the financing needed to run their business.
Tax Solutions, P.C.’s Action Plan
- Determine what the taxpayers could actually afford to pay (how much available cash they had and how much they could afford in monthly payments)
- Calculate that their monthly payments could pay off $70,000 over 36 months
- Determine that the taxpayers could manage a $25,000 downpayment of the difference to the IRS
- Research what methods are available to a taxpayer to get the IRS to agree not to issue a Lien
- Contact the IRS Collection Division to explain the taxpayers' situation. Offer to put up a performance bond or letter of credit guaranteeing payment to the U.S. Treasury and, when told it can not be done, ask for a supervisor, and then an area manager
- Obtain an informal Installment Payment Agreement for $2,250 per month after offering to make a $25,000 downpayment (without being required to provide a performance bond or letter of credit)
The Results
The taxpayers were able to avoid the filing of a Lien
The IRS did not Levy against their bank accounts or wages
The taxpayers were able maintain the financing for their business
Offer in Compromise
The Challenge
The taxpayers owed more than they could ever hope to pay for a number of years' unpaid return balances. They did not have much equity in their residence or other significant assets and their monthly living expenses consumed most of their monthly
income. They had attempted to do an Offer in Compromise on their own, but it was rejected.
Tax Solutions, P.C.’s Action Plan
- Have the taxpayers complete an information and financial questionnaire listing their assets, liabilities, monthly income, and monthly expenses
- Determine what the taxpayers could actually afford to pay per month.
- Determine that the taxpayers' actual Quick Sale Net Equity (80% of the fair market value of their assets minus any related debt) was $0
- Obtain documents proving the taxpayers' assets' values, debts, income, and expenses already determined
- Submit those documents along with an Offer in Compromise based on the IRS formula.
- Negotiate with an IRS Offer in Compromise Specialist based on the taxpayers' somewhat different situation 12 months later (when the IRS finally began reviewing the Offer)
The Results
The taxpayers’ comparatively small Offer was accepted in full payment of their large liability.
The taxpayers no longer needed to worry that it might be the IRS every time the telephone rang or they went to get the mail
