A Long Awaited Update

It's been almost a year since the last update to this blog. Questions have been asked along the way as to when new content would be expected, if ever. Now I am finally able to illuminate the situation.

My employment at Effectur, Inc. ended very shortly after the last post in December 2008. As I was their lead copywriter, web content came essentially to a halt as my position was not replaced. Everything I'd written for them was of course their copyright, so I could not edit or add to this blog in any way. My access to the blog was not revoked. Recently, Effectur went out of business (for various reasons I am sure).

For this reason I am re-assuming control of the blog by default. Whether I will continue to update the blog regularly is not something I can answer yet.

Regardless, hence forth this blog is not affiliated with Effectur, Inc. in any way. I will still welcome any comments and questions.

New IRS Post-Appeals Programs

According to a recent IRS newswire (Dec. 1 08), the IRS is introducing two new appeals programs.

For a two-year test period, there will be additional mediation and arbitration for "Offer in Compromise" and "Trust Fund Recovery Penalty" (TFRP) cases after the initial appeals process. The appeals must have been considered in the following offices:

• Atlanta, GA
• Chicago, IL
• Cincinnati, OH
• Houston, TX
• Indianapolis, IN
• Louisville, KY
• Phoenix, AZ
• San Francisco, CA

The arbitration opportunities will be reviewed by criteria gathered during the case, and binding arbitration must be made jointly by the tax payer and Appeals. The arbitration allows for both sides to be argued, and the decision is binding on both parties. The article points out, however, that the arbitrator does not have the authority to say an Offer in Compromise should be accepted in itself or that a person is/is not liable for TFRP under §6672.

If the arbitrator does not have authority to grant the Offer itself, presumably the circumstances supporting the Offer would be accepted and handed back to the Offer exam unit. Ruling in this way should prompt the acceptance of the Offer, otherwise this author does not see the value in this process.

Form 4506-T

As we have discussed in previous entries, the IRS has had the limitation of 6 years for wage/income transcripts. Files older than that were archived, and not readily accessible. If you've got a year older than six years that you'd like the info for, you can still access it with form 4506-T.

The form will ask for your basic information, then the periods you are requesting. You can also use this form to request other transcripts or copies of tax returns. If you know what forms/transcripts you're looking for and don't want to deal with an operator on the IRS practitioner line, this form (faxed or mailed) can get you the info without the hassle. Note, however, that obviously this method is slower.

When requesting wage/income transcripts beyond the six year limitation, typically the delivery time is up to 60 days. The form will have the addresses and fax numbers you need, based on where you live.

More recently the IRS has made system changes to allow retreival of these transcripts up to ten years back. As of yet this has not changed the compliance period as far as filing returns goes. However, it is likely to change as we go forward. In the past the IRS required you to have filed returns for the last six years to be "compliant", and it's no coincidence that that was also as far back as their records went for income info. Now that they can go further back, it will be easy to raise the bar for the tax payer.

Reducing a Tax Lien to Judgment

Typically the IRS has 10 years to collect on a debt after it's assessed. We've discussed in other posts what sorts of things can extend or change these statutes. Here we will discuss another important thing to know about tax liens — the IRS reducing them to judgment.

Ordinarily a lien remains only as long as the debt it's attached to does. Therefore, if the statute period expires the lien is lifted. However, in some cases the IRS can start legal proceedings shortly before this expiration. This makes the debt a judgment with the U.S. Department of Justice, and allows the debt to be collected on after the statutes expire.

This is rare, but can happen when a tax payer has sizeable assets or appreciable assets.

Foreign Allowable Living Expenses

Per an IRS memorandum January 2008, there is no standardized set of allowable living expenses for tax payers outside the U.S. Determining ability to pay can get complicated here. The memo suggests taking the tax payer's word, to a degree, unless the claimed expenses are deemed unreasonable. To a greater extent, if the expenses can be proven they can be accepted.

It's important to remember, though, that a lack of hardfast living expense standards does not mean lax enforcement. The IRS does have posts in many countries to track those who flee to avoid paying U.S. taxes. Worse yet, time you spend outside the U.S. extends your statutes, so when you return to the U.S. or they find you the debt will still remain.

The 8821 - Information Authorization

Federal form 8821 is used to grant someone the right to access your personal information in the IRS records. This is useful for choosing a knowledgeable person to check into things for you.

This form is similar to a power of attorney form, except that an 8821 does not grant a person access to representing and making decisions for the signee. With a signed 8821, you can:

• ~Receive a verbal overview of the tax payer's account, such as filing compliance and the balances due (if any) on each year
• ~Request account transcripts for years with balances or that you'd like to examine
• ~Request wage/income transcripts for any/all of the last six years

If your 8821 has not been processed at the CAF (centralized authorization file) unit, you can fax the form to the phone rep you speak to. You can also check box 5a to continuously receive copies of notices sent to the tax payer, if needed. This form can be revoked in writing or by writing "REVOKE" on the top of the signed form and faxing to the CAF unit.

Note that the 8821 will ask for a CAF number of the appointee, which can either be a personal or company CAF.

Also note that an 8821 cannot be used to request return transcripts or copies of submitted returns. For this purpose you must use form 4506-T.

Sometimes both an 8821 and a 2848 (power of attorney) are filed. This at first would seem unnecessary since the power of attorney allows all functions. However, using a company CAF on the 8821 allows people within the company knowledgeable enough to access a tax payer's information to do so. This is useful at a firm such as mine where there are a great many account executives, but fewer enrolled agents. These enrolled agents must use their valuable time negotiating, so smaller investigatory tasks can then fall to others using the 8821 when advocating on behalf of the client is not needed at that time.

10 Important Facts for Tax Returns

Here is a helpful article on withholding, found at:
http://money.cnn.com/magazines/moneymag/money101/lesson18/

Top Things to Know

1. If you get a big refund each year, you're having too much withheld from your paycheck.
In effect, you're giving the government an interest-free loan.

2. If you have too little withheld, you may be charged an underpayment penalty.
You must pay 90 percent of what you owe for the tax year by the end of that year or an amount equal to 100 percent of your tax liability for the previous tax year, whichever is smaller.

3. Not every dollar of your taxable income is taxed at the same rate.
That's because portions of your earned income fall into different brackets, which are assigned different tax rates. Generally speaking, the first dollar you make will be taxed at a lower rate than your last dollar. Your marginal tax rate is the tax bracket at which the highest (or last) portion of your income is taxed.

4. Your combined tax bracket determines how much tax you'll owe on income from investments such as CDs and money market funds. Your combined bracket is the sum of your top (or marginal) federal tax rate and your top state income tax rate. It may be less if you itemize deductions since you will be able to deduct your state income tax on your federal return.

5. If you file your return by April 15, but don't pay the tax you owe, you may receive a late payment penalty. The same goes if you file for an extension. An extension only allows you to file your return after the due date. But full payment is still required by April 15. If you make a partial payment by then, you may be charged interest on the amount outstanding.

6. You can reduce your chances of being audited. One of the best ways is to fill out your return completely, correctly, and on time every year.

7. You should pay estimated taxes if you're self-employed; expect hefty investment income or profits from a property sale; or if you don't have enough taxes withheld to cover the taxes you'll owe on non-wage-related income.

Retirees should also consider paying them if they haven't opted for voluntary withholding on their pension or IRA payments. Estimated taxes are due four times a year (April 15, June 15, Sept. 15, and Jan. 15).

8. Your adjusted gross income (AGI) is your total income minus certain "above the line" deductions such as deductible IRA contributions, alimony payments, or health savings account contributions. Your AGI primarily determines whether or not you're eligible for tax breaks. Almost every break, be it a deduction, exemption, or a credit, has its own AGI limit.

9. Your taxable income is your AGI minus exemptions and deductions. The less your taxable income, the less in taxes you'll owe. That's why it's in your best interest to take advantage of tax breaks where you can.

10. A credit is better than a deduction. A credit is a dollar-for-dollar reduction of the taxes you owe. A $100 credit means you pay $100 less in taxes. A deduction reduces the taxes you owe by a percent of every dollar you're allowed to deduct.

You calculate the worth of your deduction by multiplying your marginal (or top) tax rate by the amount of the deduction. If you're in the 25 percent tax bracket, a $100 deduction means you'll pay $25 less in taxes (0.25 times $100).

Doing your tax return isn't always as daunting as it seems. In fact, it actually can be a great opportunity to get your financial house in order.


This is some useful info in planning your tax season.

Representation Stories & Toxic Articles

I've come by some articles online recently denouncing the value of licensed representatives such as enrolled agents and CPAs. This was done so very matter-of-factly, puffing the "strategic edge" that tax attorneys have. The author of this particular article boasts that tax attorneys frequently recite the IRS' rules back to them, as if they didn't know their head from their you-know-what. With this in mind, the logic goes, the "insider knowledge" an enrolled agent can possess is moot.

I'm not sure if this group deals coincidentally with a lot of IRS trainees or if they have a local IRS office full of less experienced individuals, but in my experience working around licensed tax representatives the IRS is quite keen on its own rules. Cases that involve Revenue Officers are particularly tough. If you think someone whose job it is to collect within quotas isn't going to know the rules that make that happen inside and out, wait and see.

The author, among many others, also erroneously discredits enrolled agents by stating that they can obtain their license by working any position within the IRS for five years. He compares this to license by fax-machine operation. I can assure you, for anyone reading and cringing a bit, that this is false. Short of taking a series of difficult IRS-regimented exams, this license comes through a collection enforcement position of 5+ years. Most practicing enrolled agents that have their license through former employment have in excess of 25 years of such experience behind them.

Back to the fax machine operator comment for a second. Anyone who's called the IRS practitioner priority service line knows it would be awfully nice if there actually was someone whose job it was to operate the fax machine. Alas, no such job exists. Sorry, article—wrong on all counts.

While anyone making claims that their former IRS experience gives them an "in" is illegal (to say and to do), touting one's "insider knowledge" is not only perfectly legal but absolutely true. You might wonder if the IRS gets upset hearing former agents mention their inside experience. On the contrary! Many calls enrolled agents have had with collections officers I've been privy to have involved the IRS agent thanking, mentioning that it's nice to work with someone aware of the process who isn't trying to scam their way through.

Don't think that an enrolled agent being fortunate enough to have a pleasant negotiation with an IRS agent makes them soft. Again on the contrary—when the stakes are high the last thing you want is a ticked-off Revenue Officer given a good reason to push the levy button.

Just be careful what you read, folks. With the economic situation what it has been for the last few years, shady firms have been popping up all over the place to prey upon people's fears. Knowing the process, anticipating the next move, and careful preparation are key to any favorable resolution. Anyone who says they can "make" the IRS do anything is selling you something.