Tag: Tax Debt

IRS Fresh Start Program Updates – Erasing Tax Debt

Posted by Ari Good, JD LLM on

The IRS Gets Fresher with Its Tax Debt Relief Program

 

IRS Fresh Start Program Update
IRS Fresh Start Program Update

I recently had the pleasure of attending a tax seminar (hold the laughter) on updates to the IRS’ Fresh Start program. This program helps to erase tax debt. You can find out generally how the entire program works here.

The Godfather of Tax Debt Resolution, aka Robert (Bob) McKenzie, laid out the details. The following are my Top Ten changes to the program:

1.  Tax liens are no longer automatic.

Tax Liens are no longer automatic:  The IRS used to automatically file a tax lien when you were late on taxes. This tax lien creates a black mark on your credit report. Borrowing becomes more expensive, or simply not available, when a tax lien shows up.

2. The IRS is currently accepting “Offers in Compromise” (OIC) at historically high levels.

One in three OIC’s were accepted by the IRS last year alone.

3.  OIC – Reduced valuation of assets.

The IRS looks at the “Reasonable Collection Potential” (RCP) when deciding whether to accept an OIC. In shorthand, this is how much money the IRS thinks it can get from you. The RCP goes down when changing the formula that calculates the value of your assets. This in turn lowers an OIC figure that the IRS may accept.

4.  OIC – More allowable expenses.

This is another factor in calculating the RCP. The RCP goes down by also changing the formula that calculates your expenses. Of particular importance, the IRS now factors in student loan payments when adding up your expenses.

5.  OIC – Calculated future income lower.

Another change in the formula to figure your RCP. The greater your calculated future income, the greater your RCP. The IRS, however, has significantly reduced the period it uses to calculate future income. It used to calculate future income by taking your monthly income and multiplying that by 48-60 months. It now uses a 12-24 month multiplier only.

6.  Fresh Start allows more time to pay off an “Installment Agreement” (IA).

IA’s allow you to pay off your tax debt over multiple years. The maximum period to pay off an IA has increased to 6 years from 5 years.

7.  Streamlined IA – Maximum amount raised from 25K to 50K.

If your tax debt is $50,000 or less, and you follow the rules, the IRS must accept your proposed IA. This is the “streamlined” IA. The former maximum amount for streamlined IA’s was $25,000.

8.  Streamlined IA – Reduced financial records burden.

The IRS has also changed its policy on submitting detailed financial records. If your tax debt is less than $50,000, you need submit information only about your employer and bank accounts. The threshold was formerly $25,000, and you had to submit a great deal of private information to the IRS (not that it ever would be used against you).

9.  Lien thresholds increased from 5K to 10K.

Along with no more automatic tax lien, the amount to file a tax lien has been increased to $10,000. This undoubtedly provides comfort to those who can ill afford damaging credit marks.

10.  Lien withdrawal made easier with Fresh Start.

There are two main ways to get rid of a tax lien. First, a tax lien release changes your credit report to show that you no longer owe back taxes. That you once had a tax lien is still there, though. A tax lien withdrawal removes the record completely. Check with you local, friendly tax professional for more details.

Ari Good, JD LLM, a tax, aviation and entertainment lawyer, is the Shareholder of Good Attorneys At Law, P.A. He graduated from the DePaul University College of Law in 1997 and received his LL.M. in Taxation from the University of Florida.

Contact us toll free at (877) 771-1131 or by email to info@goodattorneysatlaw.com.

So You Want to Remove a Federal Tax Lien

Posted by Ari Good, JD LLM on

The IRS routinely issues federal tax liens against people who have unpaid tax debts.

Federal Tax Lien
Federal Tax Lien

This tax lien, in real life, is actually paperwork that the IRS files with your local government. That paperwork lets the public know that you owe the IRS, and it has a right to your property. This claim attaches to real property (land, houses, and other buildings) and personal property (cars, TVs, and furniture). Under a federal tax lien, the profits of any sale of your property must go towards paying off your tax debt. A tax lien also makes it difficult to borrow and can seriously damage your credit.

Anyone who has a federal tax lien naturally wants to get rid of it. But how is that done? Fortunately, there are a number of options to remove a tax lien. It’s important to understand the problem, however, before getting to the solution.

• How a federal tax lien happens:

The IRS first assesses your tax liability. This is fancy language for the IRS figuring out how much you owe them, including interest and penalties. It can occur whether or not you’ve filed your tax returns. Once your tax liability is calculated, the IRS will then send a bill. This bill states the amount you owe and a demand for payment. The IRS does not take kindly to any refusal or neglect in answering its demand. A failure to pay inevitably ends up with the IRS filing a tax lien.

• A tax lien is NOT a tax levy:

A tax lien is a matter of public record. It makes everyone aware that you owe the IRS and that profits from the sale of your property must go towards paying off your tax debt. This lien gives the IRS the power to block the sale of your home if the profits are not enough to pay off the mortgage and the lien in full. A tax levy, on the other hand, means the IRS is coming to take your property to satisfy an unpaid tax debt. The IRS can seize your home or car and sell it when it has issued a tax levy.

There are three primary ways to deal with a federal tax lien:

1. Prevent a federal tax lien.

This is the best option and is easier than you may think. After the IRS sends you a bill for your tax debt, but before it files a tax lien, there is a window of opportunity. Anyone who gets a bill from the IRS with a huge number attached probably thinks their battleship is sunk. There are, however, a number of ways to get back into the IRS’ good graces regardless of your financial situation with the Fresh Start Program. If you’re short on cash, you can agree to pay your tax debt off over several years or even pay off an amount less than you owe. You can also request that the IRS wait to take action against you because your financial situation is so bad. If you’re on firmer financial footing, you can make an offer to the IRS. This is bargain between you and the IRS to pay less than what you owe in exchange for the IRS forgiving the balance. Refer to this article for details on how to settle a tax debt.

2. Release of federal tax lien.

A release of your federal tax lien means the IRS has updated the public record and no longer has a right to your property. The original tax lien is still public record, however, and can cause credit problems. You can pay off the tax debt in full to get a release, but there are other ways to obtain it without this nuclear financial option. Under the IRS’ Fresh Start Program, just getting the balance under $25,000 and entering into a payment agreement may be a way out. You can also try to get the IRS to agree that it is in their best interest to release the lien so you can pay the tax debt. The IRS may agree to discharge certain property from the tax lien so you can sell it then pay them (see IRS Publication 783). The IRS may also agree to subordinate its claim (a complex area of law requiring professional assistance) (see IRS Publication 784).

The IRS releases a tax lien 30 days after you make suitable arrangements.

3. Withdrawal of federal tax lien.

A withdrawal of your federal tax lien means the IRS releases the lien and removes the public record. This usually occurs when the IRS filed the tax lien in error and you prove it to them. The Fresh Start Program, under certain criteria, also makes a withdrawal possible after the IRS releases your tax lien.

The new IRS policies give you many options to remove a tax lien. Smart choices and knowing these options can make the process of removing a tax lien much less painful than it was just a few years ago.

Feel free to ask questions about your specific situation.

 

– Ari Good, Esq.

Ari Good, JD LLM, a tax, aviation and entertainment lawyer, is the Shareholder of Good Attorneys At Law, P.A. Ari Mr. Good received his BA, With Distinction, from the University of Michigan in 1993. He graduated from the DePaul University College of Law in 1997 and received his LL.M. in Taxation from the University of Florida. Ari represents DJs, live musicians, fashion models and other entertainers in copyright, licensing and contract matters.

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