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Solving Tax Problems
How to respond to IRS correction notices
- General Accounting Office studies have shown that IRS correction notices are wrong
half the time. The common correction notices include claims that made an error
in your return, that you failed to file a return or underreported the income
in your return. If you get a correct notice from the IRS that you do not understand,
there is a good chance it was issued in error.
- To prevent paying tax and penalties you do not owe, respond in writing to
the notice using certified mail. Ask that the notice be canceled. Respond within
the time stated on the notice to avoid any enforced collection action.
As long as you are communicating with the IRS to resolve the issue, the
chances of lien, levy or property seizure are greatly diminished.
- If you have proof that IRS's claims in the notice are incorrect, send
the proof via certified mail to the address shown and to the person indicated
on the notice. If the IRS ignores your proof, you have the right to appeal
that notice just as you have the right to appeal an auditor decision. To
appeal a notice you must prepare and send a protest letter asking that
the decision be re-examined.
- For more information on how to respond to IRS notices, order a copy
of my book The IRS Problem Solver.
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How to cancel IRS penalties
- Each year, the IRS issues more than 30 million penalty notices to taxpayers.
Few citizens realize that 100% of all penalties are subject to cancellation.
Nearly every penalty section of the code
includes what is referred to as a good faith, or "reasonable cause"
provision.Very simply, that provision allows anyone who is issued a penalty to request
abatement of that penalty when he can show that he acted in good faith and and
based upon a reasonable cause
for his actions.
When you get a penalty notice, you must first verify that a mistake was
indeed made. If the IRS does not include an explanation of the error made,
ask for one. Always communicate via certified mail, return receipt requested.
Once it is established that the mistake is yours, you must communicate
to the IRS that you always acted in good faith and then provide your reasonable
cause explanation for the circumstances that caused the error.
The tax law is very confusing and the IRS makes as many, or more, mistakes
than the average person. That's why they cancel about half the penalties
issued when a proper request for abatement is made. To learn more about
the cancellation of penalties, order my book The
Problem Solver.
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How to cancel interest
- Since many mistakes are found years after the tax return is
filed, interest charges for past-due taxes can often double or triple the original
tax bill. While many experts believe you cannot cancel interest, this is just
now true.
To cancel interest on tax debt, you must show either IRS error
or delay in making the decision that additional tax is due. It is not
uncommon for the IRS to lose your case in their bureaucratic shuffle. When
this happens, you can cancel interest on your tax debt. To learn more about
canceling interest, order my book The
Problem Solver.
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What is the statute of limitations
on collections
- The collection statute of limitations controls the amount of time the IRS
has to collect a tax. The IRS has ten years to collect a tax once an assessment is made.
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The actual assessment date is found on a notice of tax lien or in your
Individual Master File. It is not uncommon for the IRS to try to collect
a tax after the statute of limitations has expired. This is one good reason
to understand how to spy on the IRS using Individual Master File information.
To read more about an Individual Master File see the discussion on "How
To Spy On The IRS" under the heading, "Surviving
a Tax Audit."
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- The statute of limitations for audits is three years from the time
the return was filed. If filed before April 15, the three-year period begins
on April 15. For example, if you file your tax return for 1996 in January
of 1997, the IRS has until April 15th of year 2000 to audit your 1996 return.
If you file for an automatic extension of time to file your return, the
three years begins on the date the IRS receives your return. For example,
if you file your 1996 tax return on October 15, 1997, the IRS has until
October 15 of 2000 to audit your 1996 return. This is why many experts
suggest you do not file your return before April 15th. It simply gives
the IRS more time to audit that return. On the other hand, filing
with an extension does not limit the time to audit a return.
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- If you omit more than 25% of your gross income from your return, the
statute of limitations for audit is extended to six years. This is why
I recommend everyone keep their tax records for six years from the date of
filing your return. It is not uncommon
for the IRS to assert an omission of income in order to audit a return.
Keeping the tax records is the only way to prove the IRS wrong in this
situation.
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- For those who do not file a return at all, there is no statute of limitations.
The IRS can audit you for any year in which they claim you have not filed. Herein
lies yet another reason to request an Individual Master File on a regular
basis. Record of filing a return is made in this file. If you have
the record, the IRS can never claim you did not file a return or bluff
you into enduring an unnecessary audit.
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- These are the general rules. Under certain circumstances these statutes
may be extended as a result of actions taken by the IRS or you. For example,
you may have unknowingly signed a waiver that extends the statute.
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- For more details on the various statutes of limitations and their exceptions,
please order my book How To Get Tax Amnesty,
and IRS, TAXES and the BEAST
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How to eliminate liens
- A tax lien is the process the IRS uses to claim a security interest in any
assets you
hold. When left unattended, liens can lead to levy of wages and bank
accounts or seizure of property. A tax lien can usually be eliminated by
eliminating the tax debt. For details on handling tax liens, order my book,
How to Get tax Amnesty.
- For some people, the tax debt might impossible to pay because of
interest and penalties. That's why it's important to always consider seeking abatement
(cancellation) of penalties. For information on how
to eliminate penalties, order my books How
To Get Tax Amnesty or The
Problem Solver Book.
- In other cases, the tax debt is impossible to pay regardless of penalties
and interest, just because it is so great. In this case, you must consider
using one of the tax debt forgiveness programs operated by the IRS. The
ability to be forgiven of
tax debt you cannot pay is perhaps one of the biggest secrets the IRS has.
There are a number of programs that the IRS tries to hide behind red tape and bureaucratic terms.
But they are all explained clearly and simply in my book How
To Get Tax Amnesty.
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Spousal tax relief
- One of the biggest problems faced by divorced couples grows from the audit
of joint tax returns that were filed while their were married. In many cases, one spouse (usually
the wife) has no idea how returns were prepared. And if it turns out that
there is an error in those joint returns, the innocent spouse is forced to
pay taxes when she had no role in either earning the income or making the
error that caused the debt..
- But IRS attempts to collect tax from both parties because the return
was filed jointly. When this happens, the innocent spouse has to assert
the innocent spouse defense in order to avoid paying tax, interest and
penalties for taxes that she had no control over.
- For more information on the innocent spouse defense and how to assert
it, order my book Taxpayers' Ultimate Defense
Manual.
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How to stop a wage or bank
levy
- A wage or bank levy are commons steps the IRS takes to collect taxes that
have been owed for period of time. Wage and bank levies can cause serious
financial hardship because the IRS steps in and helps itself to your money
without regard to your personal and family needs. .
- You can get relief from a wage or bank levy by contacting
the Taxpayers Advocate (TA) located in you local IRS office. You can send a
letter or file Form 911 to get the TA involved in your case..
- When you show that a wage or bank levy will cause economic hardship,
the TA can lift that levy and assign a revenue officer to your case. From
there you can explore one of the tax debt forgiveness programs discussed
in this web site. For information on how to use TA, order my books How To Get Tax Amnesty or Taxpayers Ultimate Defense Manual.
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How and when to use the Office of
the Taxpayer Advocate
- The Office of the Taxpayer Advocate (TA) can be used to intervene any time
an IRS action is causing or is about to cause economic hardship. Removing
wage and bank levies are examples of actions the TA can take. In some cases,
the TA can even establish installment agreements that in turn, stop enforced collection
action.
- If you are currently involved
in an IRS dispute, it would be to your benefit to find the TA in your area
and keep the number handy. Also, get a copy of Form 911 and keep it handy.
That is known as an Application for Taxpayer Assistance Order.
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For more information on how and when to use Form 911 and the Office of the
Taxpayer Advocate, order my books How To Get Tax Amnesty
or Taxpayers Ultimate Defense Manual.
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How to be forgiven of tax debt
you cannot pay
- Perhaps the IRS's best-kept secret is that you can be forgiven of tax
debt you owe but cannot pay. There are four programs of tax debt forgiveness
and millions of people have used the programs I discuss
in my book How To Get Tax Amnesty
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- PROGRAM ONE - "The Life Jacket"
- If you owe taxes but are either unemployed or underemployed and cannot
make a payment, you can request
what is referred to as "uncollectible status." This is the process
the IRS uses to freeze the collection account. The agency ceases any attempts to enforce collection
in order to give you time to get back on your feet financially.
- While it is not a permanent fix to your tax problem, it
does help greatly by stopping wage levies, bank levies and property seizures.
To obtain uncollectible status, you need to file a financial statement on Form 433A
for individuals, and Form 433B for businesses. The financial statement shows the IRS that all the money you earn is needed to provide
necessary living expenses for your family. Uncollectible status helps you to
stay afloat until you are able to pay the tax or apply for forgiveness
under another program.
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- PROGRAM TWO - "Cents on the Dollar"
- Using this program, we have settled countless cases for less than 10
cents on the dollar. The program is called the Offer in Compromise. The
IRS's Offer in Compromise was revised in 1992 because of my book How Anyone
Can Negotiate With The IRS and WIN! That was the first book ever written for
the public that exposed the right to discharge taxes in bankruptcy.
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- Under the Offer in Compromise program, you settle your case for less than
you owe. The settlement amount is determined on the basis of what you can
afford to pay. For example, suppose you owe $50,000 but you can afford to
pay just $10,000. In that case, you'd settle for 20 cents on the
dollar.
- This process has saved taxpayers literally billions of dollars
in taxes, penalties and interest they could never otherwise have paid. This
allows them to get back on tract as productive, taxpaying citizens free of
IRS enforcement and the nagging presence of IRS liens.
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- There are three different Offer in Compromise programs. The most common is
based upon your ability to pay. It's called an offer based upon doubt as to
collectibility. Under that program, you settle for what you are able to pay,
rather than what you owe.
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- Under the second program, you're able to challenge the amount of the
actual debt and settle for what you actually owe, not what the IRS says you
owe. This is called an offer based upon doubt as to liability. This is
especially helpful for victims of a bogus tax audit.
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- The third program allows you to pay a lesser amount if full payment of the
tax would put you into a position of financial hardship in the future. This
is called an effective tax administration offer. This is very helpful in
cases where you have sufficient equity in your house to pay the tax, but
full payment would wipe out all your resources and make if difficult or
impossible to provide for future living expenses.
- PROGRAM THREE - "Wage-Earner's Repayment Plan"
- Contrary to what many tax professionals believe, income taxes are dischargeable
in bankruptcy! This right has existed since 1966. However, it was not
until 1989, on the heels of the release of my book How Anyone Can Negotiate
With The IRS and WIN!, that this fact was made known to the public on a
broad scale. Because of that, the IRS was forced to rewrite its Publication
904, dealing with the issue of discharging
taxes in bankruptcy. The publication was rewritten to reflect your ability
to discharge taxes in bankruptcy.
- A Chapter 13 bankruptcy allows a taxpayer to enter into
an agreement to pay back taxes in accordance with his ability to make monthly
payments. When certain rules are met, whatever cannot be paid back within
60 months is usually discharged.
- Because the IRS has revised its Offer in Compromise procedures, thousands
of these bankruptcies have been avoided. However, knowing your right to
a Chapter 13 discharge is mandatory. In many cases you must let the IRS
know of your ability to discharge taxes in order for them to give serious
consideration to your offer. You must be prepared to show the IRS that they
will get more by accepting your offer than they will by forcing you into
bankruptcy.
- PROGRAM FOUR - "Fresh Start"
- This program requires the filing of a Chapter 7 dankruptcy. Under a
Chapter 7, certain taxes can be discharged entirely and a fresh start granted.
For some, this is the best and fastest way to eliminate tax debt entirely and
creating a new life free from IRS liens and levies. When properly filed, the IRS must cancel your
debt and allow you to start over.
- Understanding your right to a fresh
start through a Chapter 7 may prevent you from having to file one. For
example, you may be able to first obtain uncollectible status and survive
on that status long enough to be able to make an Offer in Compromise. The
fact that you could file a Chapter 7 can provide the IRS with just the
right motivation to allow you a little more time to get on your feet. While
bankruptcy is often the last choice to resolve a tax debt, just knowing
this right can prevent you from ever having to use it.
- SUMMARY
- The vast majority of people who owe taxes are honest people in financial
trouble through no fault of their own. They need help. They need a way to
solve the problem. Continued levies and seizures don't solve the problem. It
just drives people underground. When you force people to make a choice
between paying taxes and feeding their family, they will feed the family
every time.
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- By offering a reasonable forgiveness program, these people are brought
back into the system as productive, taxpaying citizens. This is far more
desirable than hiding in the underground
economy or living on government assistance.
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- On the threshold of establishing these programs, then IRS Shirley Peterson
stated that "you can't get blood from a turnip, and when we're dealing
with turnips, we're better off cutting our losses and moving on."
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- Find out how you can get forgiveness of tax debt now. Order How
To Get Tax Amnesty.
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