Answers to your IRS tax questions

The Internal Revenue Service has a newly revised payroll tax form that most eligible employers can use to claim the special 941 payroll tax exemption that now applies to many new workers who are hired during 2010.

The revised form and exemption are to encourage employers to hire and retain new workers.  The payroll tax exemption and related new hire retention credit were created by the Hiring Incentives to Restore Employment (HIRE) Act signed by the president on March 18, 2010.

An employer who hires an unemployed worker this year (after February 3rd) may qualify for a 6.2% payroll tax incentive, which could more or less exempt the employer’s matching of the social security tax on wages paid to these workers after march 18th.  However, the reduction will have no effect on the employee’s future social security benefits.

Additionally, a credit of $1,000 per worker can be claimed on their income tax return for each qualified employee retained for at least a year whose wages did not significantly decrease during the second half of the year.

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When an individual is submitting an offer in compromise all equity and ownership interests in all businesses must be accounted for.  However, what if you are in a multi-member LLC or one of a number of shareholders in a closely held corporation?  Technically you do not own all of the assets of the business, but most likely a portion based off of your ownership interest or percentage of the business.

For example, if you were a member in a 4 member LLC and each member held a 25% ownership interest, the IRS could consider 25% of any equity the business has as your personal equity and include such amount in the offer in compromise.  More or less the IRS can view and consider your ownership position with a business or businesses when calculating your overall collection potential.   Therefore, using the figures above, if the LLC had $100,000 worth of equity in assets such as equipment and cash, the IRS could consider $25,000 to be your personal share. 

Many people when submitting an individual offer in compromise fail to mention their ownership in a business, or provide a financial statement for the business, which is required when an individual does hold an ownership position within an entity.  The IRS rarely if ever will miss this issue.  First & foremost the IRS will be receiving K-1s from the entity in which you hold an ownership position, or see stock dividends.  Further, the IRS does run a search in regards to the individual and their relationship with business entities.  Failure to provide information is grounds for rejection or return of the offer in compromise and the taxpayer is submitting the offer under penalty of perjury in that all information as stated on all statements and documents is true, accurate and correct to the best of their knowledge.  Therefore, it is best to accurately and correctly state all information when initially submitting the offer to the IRS.

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You may have heard some taxes being called a trust tax, or heard “Trust Fund and Trust Fund Recovery Penalty.”  Generally a trust tax is a tax that is due from the taxpayer to the government but was never the taxpayer’s money.  Thus, the taxpayer has been holding the money in trust to be paid over to the government.

For example, when an employer withholds social security, medicare and federal income tax, such taxes are considered a trust tax.  The employer is withholding such money and reporting the withholdings to the IRS for the employee.  When the employee files their tax return, the amount withheld in which they report on their return and thus they receive credit on against the tax due should have already been paid over to the IRS by their employer.  The employee was never in actual receipt of such withholdings, as the employer withheld such monies, held them in “trust” and paid them over to the IRS via federal tax deposits.

If a business does not pay the entire trust amount to the IRS, the individual owners of the business can be personally assessed the trust fund portion of the tax, and such debt is joint and several liability amongst the individual assessed, and is not dischargeable in bankruptcy.

If you have submitted an offer in compromise to the Internal Revenue Service, eventually you should receive a determination regarding the offer.  Unless the offer is returned for failure to pay a fee, submit documents etc. the offer examiner should make a finding regarding the amount offered by the taxpayer and the IRS’ calculation of the taxpayer’s collection potential.

Such notice should breakdown the equity in assets of the taxpayer, the taxpayer’s disposable income based upon gross income and allowable expenses, and provide a total offer figure.

So, what happens if the taxpayer does not agree with the determination?  For example, maybe the IRS has valued a piece of real property or other asset significantly higher than what the taxpayer feels is the fair market value.  Maybe the IRS has dissallowed a claimed expense of the taxpayer, therefore causing the disposable income to be significantly higher.  In such a case, the taxpayer does have the ability to file an appeal.

In filing an appeal, the taxpayer states the issue or issues they disagree with and submits additional information in regards to such issue back to the offer examiner, along with a request that if the examiner is unwilling to change their position, than the request should be forwarded to appeals.

Upon review, if the offer examiner does not change their position, than the offer in compromise (all of the documents submitted) is forwarded to the appeals office.  An appeals officer will be assigned to the case and eventually contact the taxpayer or the taxpayer’s attorney, CPA or enrolled agent who is representing the taxpayer to discuss the offer, or request additional information.  The appeals officer will make a determination based upon all of the facts and circumstances provided.  Thus, it is important to know that you, as a taxpayer have this option!

Recently, I submitted an offer for a client in which the IRS counteroffered with a much higher amount given the fair market value the offer examiner placed on certain assests of my client.  We completely disagreed with the increased valuation and filed a request for reconsideration and an appeal if necessary.

The offer examiner would not change her position, and thus the request was forwarded to appeals.  I was contacted by the appeals officer a few months earlier who completely agreed with our valuation based upon the additional information submitted and the offer was accepted at the exact amount we had proposed.

Although, you are not guaranteed to have your offer accepted in appeals, or even have the appeals officer agree somewhat by lowering the initial determination, you do have appeal rights, and such rights should definitely be used in certain circumstances.

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If you have a tax debt, the IRS has the ability to, and will likely levy your bank account if the tax debt is not satisfied or a formal resolution established.

If your bank account has actually been levied, the bank will hold the funds for twenty-one days prior to releasing such funds to the IRS.  Within this time period, you can contact the IRS in an attempt to have the levy released.  The key question is, how do you get the levy released?

You may be able to have the levy released by establishing a formal agreement to satisfy the tax debt.  Usually, if the taxpayer establishes an installment agreement the IRS will release the levy the same day.  You will want to have the IRS fax the levy release to the bank, and probably should request a copy be forwarded to you.  The IRS will also consider a partial release of the levy.  For example, if $5,000 if being held by the bank for the levy, the IRS may consider releasing $2,000 if you can show such payment is needed for a specific and necessary living expense. 

We have seen the IRS partially release levies for businesses for the business to make payroll to employess and to pay payroll taxes.  Such partial release may be the best case scenario depending upon the over circumstances and on going issues.  Given the tremendous financial stress and hardship a levy can create, it is best to move forward with a plan so as to prevent future levies from occuring.  Such plan should include compliance (timely paying all taxes and filing all tax returns) and establishing a formal agreement to satisfy the tax debt based off of your current financial circumstances.

If you have contacted the IRS and requested a levy release or partial release and been unsuccessful, you still have other options.  First, you could contact your local taxpayer advocate and see if the advocate can be of any help in having the levy released.  Second, you could file for a CAP hearing, which is an appeal of the collection action taken by the IRS.  The hearing is usually held quickly given the time sensitive nature of the issue.  Through such hearing you may be able to have the levy released or partially released.  Third, you could look to hire a tax lawyer or representative in an attempt to have the levy released as a tax professional may have knowledge and experience, which gives them a better chance for such release.

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