Tuesday, January 22, 2013

IRS "Fresh Start Program" Offers More Taxpayers Greater Opportunity To Resolve IRS Debts

Mary Beth Lee of Duane Morris writes:   If you currently owe back income and/or payroll taxes, the Internal Revenue Service's (IRS) recently initiated "Fresh Start Program" may now make either (1) the installment agreement or (2) an Offer in Compromise (OIC) a more attractive and viable option even if you previously failed to qualify. A few highlights of the "Fresh Start Program" include:
  • Eases installment agreement requirements for taxpayers owing $50,000 or less,
  • Eases installment agreement requirements for taxpayers owing payroll taxes of $25,000 or less,
  • Extends the period of time over which a taxpayer may pay any balance due under an installment agreement,
  • Creates a more flexible OIC program by expanding the types of allowable living expenses and
  • Revises the required calculation of a taxpayer's future income.

Installment Agreements

The "Fresh Start" provisions provide more taxpayers with the opportunity to utilize installment agreements. An installment agreement permits qualified taxpayers with outstanding and unpaid tax liabilities to repay the amount owed via monthly payments over a period of time. In order to qualify for an installment agreement, a taxpayer must have (1) filed all required tax returns and (2) be up-to-date on current year tax obligations.

One of the "Fresh Start" provisions is the expansion of the streamlined installment agreement. The limit of outstanding tax liability that would qualify a taxpayer for a streamlined installment agreement has been raised from $25,000 to $50,000. A streamlined installment agreement is termed "streamlined" due to the fact that a financial statement disclosure to the IRS is not required. Taxpayers who qualify for the streamlined agreements are individuals and defunct businesses with any type of outstanding tax liability, as well as operating businesses with income tax liabilities only. The financial statement disclosure requirement has posed an obstacle to installment agreement relief for these taxpayers because of the cost and/or time restraints involved. Additionally, a financial statement could potentially provide the IRS with a financial road map for seizure and enforced collection action in the event the installment agreement is not granted and/or the taxpayer defaults.

Further, the "Fresh Start" provisions have extended the time in which taxpayers must pay the balance due under an installment agreement from 60 months to 72 months. This one-year extension of time will allow for lower monthly payments and may render the installment agreement a more feasible option for more taxpayers with outstanding tax liabilities.
For operating businesses that owe payroll taxes, another area significantly impacted by the "Fresh Start Program" is the In-Business Trust Fund Express Installment Agreement. This is a streamlined installment agreement for businesses who have delinquent payroll tax liabilities. In order to qualify, a business owing payroll taxes must satisfy the following requirements:
  • Business must owe $25,000 or less at the time the agreement is established. If more than $25,000 is owed, the taxpayer may pay down the liability before entering into the agreement in order to qualify.
  • The debt must be paid in full within 24 months or prior to the collection statute expiration date, whichever is earlier.
  • The taxpayer must enroll in a direct debit installment agreement if the amount owed is between $10,000 and $25,000.
  • The taxpayer must be compliant with all filing and payment requirements.

A distinct advantage of applying for an In-Business Trust Fund Express Installment Agreement is that a business is generally not required to provide a financial statement as part of the application process. In addition, the Internal Revenue Manual, which is the official compendium of IRS guidelines and policies, notes that a trust fund recovery penalty determination (payroll taxes are considered trust funds, and penalties for non-remittance are typically significant) is not required against an individual in a business that is attempting to establish such an installment payment plan.

Offers in Compromise (OIC)

The OIC program permits qualified taxpayers with outstanding and unpaid tax liabilities to negotiate a full settlement for an amount that is less than the tax owed. An OIC agreement generally will not be accepted by the IRS if it believes that the outstanding liability can be paid through a lump sum or other type of payment arrangement. The IRS typically reviews the taxpayers' income, expenses, assets and liabilities in great detail to make a determination regarding the taxpayers' ability to pay.
In an effort to expand this program to a greater number of struggling taxpayers, the IRS has become more flexible in what it deems "ordinary and necessary" expenses in arriving at a taxpayer's net monthly income. Specifically, under the "Fresh Start Program," the IRS has expanded the Allowable Living Expense Category to include additional expenses, such as credit card payments and bank fees, while increasing the total amount allowable. The program also allows expenses for the repayment of student loans and delinquent state and local taxes.
The most significant change to the OIC program under the "Fresh Start" initiative is the change in the calculation of the taxpayer's "reasonable collection potential" under the future income component. The "reasonable collection potential" is determined by analyzing the taxpayer's net realizable equity in assets and future income. The IRS now considers only one year of future income for offers that will be paid in full within five months when previously they considered four years of income. The IRS will now consider two years of future income for offers paid in full within six to 24 months, down from five years of income. For taxpayers whose reasonable collection potential is driven by future income and less by net realizable equity in assets, this change is likely to have a meaningful impact in the determination of whether they qualify for an OIC.

The overall result of these changes and improvements is that increasingly more financially troubled taxpayers will qualify for OIC relief. Apart from these favorable changes, there may still be negative implications of filing an OIC. One potentially negative repercussion, and perhaps the most noteworthy, is that information provided through the OIC would provide the IRS with a financial road map for seizure and enforced collection action in the event the offer is rejected or withdrawn or the taxpayer defaults on the offer. Additionally, submission of an OIC will automatically extend the statute of limitations for collection during the pendency of the offer, plus 30 days, which will give the IRS more time to try to collect the full balance owed.

Taxpayers who are experiencing financial hardship and who are unable to pay their current tax obligations may wish to consult with a qualified tax professional to achieve a "fresh start" to potentially avoid or minimize interest and penalty assessments, as well as IRS collection, enforcement and seizure activity.
Posted on 9:51 AM | Categories:

mTimeCard Works with QuickBooks Online Plus For Streamlined Payroll


Sirma Mobile, Inc. today announced a new release of mTimeCard, providing small businesses using QuickBooks Online Plus a simple, cost effective, yet very efficient time tracking solution. MTimeCard is a mobile service, especially designed for companies that want to effectively monitor and manage their employees' timekeeping and attendance. In several simple steps, small business owners can easily check staff attendance and get hours worked directly imported into QuickBooks Online Plus to enable a much quicker and easier payroll process. Employees simply need to clock in/clock out from their mobile device at any business location.
The new release of mTimeCard is also enhanced with online clock in, enabling users to be device independent.   Based on customer demand, Sirma Mobile created this enhanced version of mTimeCard that seamlessly integrates with QuickBooks Online Plus and includes streamlined payroll and time reporting. The integration removes the need for manual timekeeping, from time records to work shifts management, saving time and effort while increasing productivity.  The application is specifically designed to match the needs and budget of small businesses. A 30 day risk - free trial is available on Intuit App Center at: http://appcenter.intuit.com/mtimecard.
Posted on 6:18 AM | Categories:

Alternative minimum tax still around, but now indexed for inflation

Texas journalist Kay Bell writes:  Forty-four years ago a new tax system was created to ensure that the wealthy paid at least some tax.  It wasn't necessarily a bad idea, but the newly created alternative minimum tax (AMT), had a major flaw. It was not indexed for inflation.

That meant that as years went by and incomes increased, more people who weren't rich got caught in the AMT's trap. To determine if you must pay the AMT, you have to figure your ordinary tax bill and then calculate the AMT damage, which could be substantial because some major breaks, such as state and local income tax and property tax deductions, aren't allowed.
For years (and years and years), Congress dealt with the issue of more and more middle income taxpayers being caught in the AMT trap by upping the amount of income that triggers the tax.
Too often, however, Congress was very late in acting <cough ... fiscal cliff ... cough> meaning that taxpayers couldn't make timely tax moves to counter AMT effects.
That shouldn't be a problem any more.
As part of the American Taxpayer Relief Act (ATRA) enacted on Jan. 2, AMT exemption amounts are now indexed for inflation.
The 2012 income exemption amounts -- yes, the bill signed this year made them retroactive to last year -- are:
  • $78,750 for a married couple filing a joint return and surviving spouses
  • $50,600 for singles and heads of household
  • $39,375 for a married person filing separately
Those amounts will come into play as you file your 2012 returns by this April 15 or Oct. 15 if you get an extension.
And now, thanks to ATRA, you can make 2013 tax plans and moves with regard to the AMT.
The 2013 tax year AMT exemption amounts are:
  • $80,800 for a married couple filing a joint return and surviving spouses
  • $51,900 for singles and heads of household
  • $40,400 for a married person filing separately
So while it's not the elimination of the AMT as some hope will eventually happen, at least the automatic inflation adjustments are a big step in making it easier for filers to deal with the parallel tax.
Posted on 6:12 AM | Categories: