Monday, February 8, 2010

Dependant Exemptions: (credit of 3650/ year)

General Rule: You are allowed one exemption for each person you can claim as a dependent for $3,650/ taxable year. (You can claim an exemption for a dependant even if your dependant files a return). For more information, please see a Seattle Tax Attorney.

Note: the term dependant means a: 1) qualifying child, or qualifying relative

You can claim an exemption for a qualifying child or relative only if these three tests are met:

1) Dependant taxpayer test – you are claimed as a dependant by another, you cannot claim anyone else as a dependent
2) Joint Return test- you cannot claim a married person as a dependant if he/ she files a joint return
3) Citizen/ Resident test- person claimed must be a US Citizen or US resident alien.

Qualifying Child Tests that must be met:

1) Relationship – child must be son, daughter, stepchild, foster child or a descendant of any of them
2) Age- under the age of 19 at the end of the year
3) Residency- must have lived with you for more than half the year
4) Support- child must not have provided for more than half his/ her support
5) Jt. Return- child is not filing a jt. return
6) You must be entitled to claim the child

Qualifying Relative Test:
1) The person cannot be your qualifying child or qualifying child of another
2) Person must live with you all year as a member of your household or be ‘related to you’ (up to aunts / uncles and in-laws)
3) Person’s gross income must be less than 3,650
4) You must provide for more than half the persons total support

For more information, please consider seeing a Kirkland Tax Attorney.

Our Firm:

Weitz Law Firm, PLLC
5400 Carillon Point, Building 5000
Kirkland, WA 98033
(425) 889-9300
scottweitz@weitzlawfirm.com

Saturday, January 30, 2010

Audit Reconsideration

Seattle IRS Audit Reconsideration

An IRS Audit Reconsideration is one of the several ways to challenge a IRS assessment. The process is more informal than many of the other options.

The IRS will accept an Audit Reconsideration Request if:

1) You submit information that has not previously been considered (business expenses)
2) You have filed a return for the year in question
3) You believe the IRS made a compuration or processing error in assessing your tax,
4) The liability is upaind or credits are denied.

The IRS will NOT accept a reconsideration request if:

1) You previously agreed to by the amount you owe by signing a Closing Agreement (Form 906), a Compromise Agreement, or an agreem on Form 870 AD with the Appeals Office.
2) The US Tax Court or another court has issued a final determination on your tax liability.

If you seek an Audit Reconsideration, you will need to:
1) Formally write the IRS
2) Include all relevant documentation
3) Include a copy of your examination report (Form 4549)
4) Send all materials to

Internal Revenue Service;
P.O. Box 12067 Stop 84205
Fresno, CA 93776

For more information, consider contacting a Seattle Tax Attorney.

Our Firm:

Weitz Law Firm, PLLC
5400 Carillon Point, Building 5000
Kirkland, WA 98033
T: (425) 889-9300
scottweitz@weitzlawfirm.com

Wednesday, December 30, 2009

Abatement of IRS Penalties

Abatement of IRS Penalties

If you are faced with penalties in addition to what you owe the IRS, it is possible to abate the penalties on several grounds via a IRS Form 843.

The Law:

IRS 6662 provides that a penalty of 20% will be assessed on a substantial understatement of tax (10% of the amout owed or $5000).

IRS 6662(d) provides defenses to the ‘substantial understatement’ penalties including if the taxpayer had ‘substantial authority’ or if the item was ‘disclosed’ and the taxpayer had a ‘reasonable basis’.

IRC 6664(c) provides that no penalty shall be impsed under section 6662 if there is ‘reasonable cause’ that the taxpayer acted in good faith with respect to such payment. ‘Reasonable cause is determined on a case by case basis. Reliance on the advice of a professional generally constitutes reasonable cause and good faith if the reliance was reasonable and in good faith.

For more information, consider contacting a Seattle Tax Attorney.

Friday, October 2, 2009

Tax Dispute Settlement: Offer In Compromise

There are several ways to settle with and/or stop the IRS from issuing garnishments and levies. One of the more popular strategies is applying for 'Offer In Compromise'.

See Currently Not Collectible Article.

An offer in compromise (OIC) is an agreement with the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. As a general rule, the IRS will not accept the offer if they believe that the liability can be paid in full as a lump sum or through a payment agreement.

Generally, the IRS will not accept an OIC unless the amount offered by the taxpayer is equal to or greater than the 'reasonable collection potential' (RCP). The RCP is how the IRS measures the taxpayer’s ability to pay and includes the value that can be realized from the taxpayer’s assets. The RCP also includes anticipated future income, less certain amounts allowed for basic living expenses.

Three Types of OICs


1. Doubt as to Collectibility
- Doubt exists that the taxpayer could ever pay the full amount of tax liability owed within the remainder of the statutory period for collection.

2. Doubt as to Liability
- A legitimate doubt exists that the assessed tax liability is correct. Possible reasons to submit a doubt as to liability offer include: (1) the examiner made a mistake interpreting the law, (2) the examiner failed to consider the taxpayer’s evidence or (3) the taxpayer has new evidence.

3. Effective Tax Administration - There is no doubt that the tax is correct and there is potential to collect the full amount of the tax owed, but an exceptional circumstance exists. To be eligible for this type of compromise, a taxpayer must demonstrate that the collection of the tax would create an economic hardship or would be unfair and inequitable.


OIC Payment Options

In general, a taxpayer must submit a $150 application fee and initial payment along with the Form 656 Offer in Compromise. Taxpayers may chose to pay their offer in compromise in one of three payment options:

1. Lump Sum Cash Offer - Payable in non-refundable installments, the offer amount must be paid in five or fewer installments upon written notice of acceptance. A non-refundable payment of 20 percent of the offer amount along with the $150 application fee is due upon filing the Form 656.

If the offer will be paid in 5 or fewer installments in 5 months or less, the offer amount must include the realizable value of assets plus the amount that could be collected over 48 months of payments or the time remaining on the statute, whichever is less.

If the offer will be paid in 5 or fewer installments in more than 5 months and within 24 months, the offer amount must include the realizable value of assets plus the amount that could be collected over 60 months of payments, or the time remaining on the statute, whichever is less.

If the offer will be paid in 5 or fewer installments in more than 24 months, the offer amount must include the realizable value of assets plus the amount that could be collected over the time remaining on the statute.

2. Short Term Periodic Payment Offer - Payable in non-refundable installments; the offer amount must be paid within 24 months of the date the IRS received the offer. The first payment and the $150 application fee are due upon filing the Form 656. Regular payments must be made during the offer investigation.

The offer amount must include the realizable value of assets plus the total amount the IRS could collect over 60 months of payments or the remainder of the statutory period for collection, whichever is less.

3. Deferred Periodic Payment Offer - Payable in non-refundable installments; the offer amount must be paid over the remaining statutory period for collecting the tax. The first payment and the $150 application fee are due upon filing the Form 656. Regular payments must be made during the investigation.

The offer amount must include the realizable value of assets plus the total amount the IRS could collect through monthly payments during the remaining life of the statutory period for collection.

The IRS is not bound by either the offer amount or the terms proposed by the taxpayer. The OIC investigator may negotiate a different offer amount and terms, when appropriate. The investigator may determine that the proposed offer amount is too low or the payment terms are too protracted to recommend acceptance. In this situation, the OIC investigator may advise the taxpayer as to what larger amount or different terms would likely be recommended for acceptance.

For more information on how to submit an Offer in Compromise with the IRS, consider consulting an experienced Washington Tax Attorney.

IRS Settlements: Currently Not Collectible

There are several ways to settle with and/or stop the IRS from issuing garnishments and levies. One of the more popular strategies is applying for 'Currently Not Collectible Status' ('CNC')

Washington Residents can file for Currently Not Collectible status if the taxpayer has no ability to pay his or her tax debts. The IRS can declare a taxpayer "currently not collectible," after receipt of evidence that a taxpayer has no ability to pay their debts. Such evidence is usually obtained from the taxpayer on IRS Form 433-F, (Collection Information Statement).

Process:

A taxpayer can request "currently not collectible" status by submitting Form 433-F to an IRS Revenue Officer or the IRS Automated Collection System unit.
Once the IRS declares a taxpayer currently not collectible, the IRS must stop all collection activities, including levies and garnishments. The IRS must send an annual statement to the taxpayer stating the amount of tax still owed. This annual statement is not a bill.

10-Year Statutory Period to Collect still runs!

While in not collectible status, the 10-year statute of limitations on tax debt collection is still running. If the IRS cannot collect the tax within the 10-year statutory period, then the tax debts will expire.

Being declared "currently not collectible" is one of five ways to get out of tax debt. A taxpayer facing significant financial hardships or tax debt burdens should seek the advice of a Kirkland Tax Attorney specializing in tax debts.