IRS Penalties: Removing them for Reasonable Cause

Episode 49:  In this episode, Timalyn continues the discussion began in Episode 48.  Today, she’s explaining how to qualify for an offer in compromise.  She’ll also provide information regarding how to apply for it.

NOTE:  Click here to listen to Episode 48.

What Is the IRS Considering when You Apply for an Offer in Compromise?

Remember, the offer in compromise allows you to settle your tax debt for less than you actually owe.  The IRS doesn’t approve this option for every tax payer who applies.  The IRS provides a pre-qualifier tool to see help you see if you qualify. 

The IRS is considering 4 factors:

1. Your Ability to Pay
2. Your Income
3. Your Expenses
4. Your Assets

When it comes to your ability to pay the IRS also considers your age. Your medical condition and medical history also comes into play.  Do you have a disease or condition that might prevent you from working? This, along with your level of education all impact what the IRS considers to be your ability to pay.

The IRS will analyze your earned and passive income.  Earned income is produced as a result of an action or activity you perform or something you did to in the past. Passive income considers  investment income, dividend income, and interest income.

Your expenses can be subjective.  What you consider a necessary expense may not be allowed by the IRS. If this is the case  you may have to increase your initial offer.  Remember, the IRS provides national standards that are used to determine an individual’s ability to pay. 

In Episodes 38 and 39, Timalyn discussed using IRS Form 433-F.  This form helps to calculate your disposable income, for an installment agreement.  You’ll can use IRS Form 433-A (OIC) for the offer in compromise. 

Are You Eligible for an Offer in Compromise?

Before you pursue this route, you need to have all of your required tax year returns filed.  Timalyn comments that this commonly refers to the last 6 years of returns.  Employers must also have all of your IRS Form 941s filed.  These are the Employer’s Quarterly Federal Tax Return forms.  The same goes for your 940 FUTA (Employer’s Annual Federal Unemployment Tax Return).  You also need to be up-to-date on your required estimated payments (listen to Episode 21).

Additionally, you can’t be in an open bankruptcy proceeding.  If you’re applying for an offer in compromise for the current year, you need to have filed a tax extension, if it’s tax season. 

Timalyn stresses that you need to make sure you have all of the above completed and filed before you even begin the offer in compromise process.

Substantiation of Your Expenses

Along with the 433-A (OIC), you must provide all of the information necessary to substantiate your expenses.  This includes, mortgage information showing your required monthly payment amount and where you are on those payments.  If you are leasing (renting), you’ll need to supply a copy of the lease and proof of payments. 

Form 656-B

This is the booklet you’ll use in applying for your offer in compromise.  It includes important information about additional documents, including IRS Form 656 and the non-refundable $205 application fee.  Make sure you are using the most current version of these forms.

You’ll also need to include the initial payment for each Form 656 you are submitting.  It’s important that you have a separate check or money order for each one.  The application fee is also a separate check. 

Designate Your Payments

The application fee and the initial payment(s) will be applied to your tax debt.  Timalyn recommends designating payments to a specific tax year and tax debt.  It’s going to take several months (maybe 6-9), to find out if the IRS has accepted your offer in compromise. 

If they reject it, you won’t receive the money back, so at least you’ll know where it’s going.   

The IRS Can Still File a Lien Against You

It’s possible for the IRS to file a tax lien while they’re reviewing your offer.  In Episode 3, Timalyn explained what this is and how it might impact you. 

The IRS will suspend other tax debt collection efforts (including garnishing your wages, levying your bank account, etc.). 

What If the IRS Rejects Your Offer in Compromise?

If this happens, your assessment and collection period will be extended.  If you were hoping your CSED (Collection Statute Expiration Date) would lapse, that’s not going to happen.  They’ll add the time it took to process the offer. 

Make all required payments detailed in your offer during the time the IRS is processing (i.e. evaluating) your offer.  One option is the lump sum cash payment.  This is 20% of whatever amount you were offering.  The remaining balance due must be paid in 5 or fewer payments.  Again, be sure to make those payments while you’re waiting for a written response from the IRS.

The other payment option is to make periodic payments.  Basically, continue to pay the same amount as you sent for your initial payment, each following month.  If they accept your offer, simply continue paying your monthly installments until the tax debt is fully repaid.  You only have 24 months to pay the debt in full, using this option.  Those 24 months have to be before the CSED lapses.

A failure to make the required payments nullifies your offer, even if the IRS was going to accept it.   

Timalyn points out that during this process, you don’t have to make payments on an existing installment agreement. 

The 2-Year Automatic Acceptance

Your offer is automatically accepted if the IRS doesn’t make its decision in a period of 2 years, from the date they receive your offer and supporting documentation.  Timalyn strongly recommends you mail correspondence to the IRS using certified mail.  The post office will return a receipt with a specific date the IRS received the offer.  This is the date you use in determining your 2-year window.   

Remember, before you go down this road, it’s important that you determine if you even qualify for an offer in compromise.  Again, refer to the beginning of this episode during which specific forms were explained.

You should really consider working with an experienced tax professional who handles tax relief cases.  An offer in compromise is extremely complicated and isn’t something most people should do on their own.   

In addition to all of the filings, if the IRS actually accepts your offer, you MUST meet all of the offer terms listed in IRS Form 656, Section 7.  The IRS won’t release any existing tax liens, until your offer terms are satisfied. 

Need Tax Help Now?

If you need answers to your tax debt questions, book a consultation with Timalyn via her Bowens Tax Solutions website.  Click this link to book a call.

Please consider sharing this episode with your friends and family.  There are many people dealing with tax issues, and you may not know about it.  This information might be helpful to someone who really needs it.  After all, back taxes shouldn’t ruin their life either. 

As we conclude Episode 49, we encourage you to connect with Timalyn on social media. You’ll be able to subscribe to this podcast on Spotify, Apple Podcasts, Google Podcasts, and many other podcast platforms.  

Remember, Timalyn Bowens is America’s Favorite EA and she’s here to fill the tax literacy gap, one taxpayer at a time.  Thanks for listening to today’s episode. 

For more information about tax relief options, visit https://www.Bowenstaxsolutions.com/ .

If you have any feedback, or suggestions for an upcoming episode topic, please submit them here:  https://www.americasfavoriteea.com/contact.

Disclaimer:  This podcast is for informational and educational purposes only.  It provides a framework and possible solutions for solving your tax problems, but it is not legally binding.  Please consult your tax professional regarding your specific tax situation.

Episode 48:  In this episode, Timalyn explains an option some people have in resolving their tax debt.  This option is referred to as an offer in compromise.  Understand that not every tax payer qualifies for this, but you hear commercials about it all the time.

Note:  This is a complex topic and deserves more than a quick, 15-minute episode to fully explain it.  The plan is to cover this topic in 2 separate episodes.  The next episode will explain how you qualify for an offer in compromise, while this episode explains what an offer in compromise is.

While not every taxpayer will qualify for the offer in compromise, the vast majority (90%+) would actually qualify for an installment agreement (Episode 10).  This may be the better option for many people. 

An important reason Timalyn is covering this topic is so that you can understand “WHY” you may or may not meet the criteria for an offer in compromise option.  Regardless of what you may have seen on the Internet, filing on your own is not something you should do, if you’re in serious tax debt.  When you hire someone for tax representation, that person takes on the responsibility of speaking on your behalf before the IRS. 

Offer in Compromise – Doubt as to Collectability

This is an agreement that settles your debt for less than the amount owed.  Again, this is the hook used by many of the commercials you may have heard.  The partial pay installment agreement would do the same thing without exposing your assets to a potential liquidation requirement.   

The IRS will not accept your offer if there’s a chance the liability can be paid in full, in a lump sum or in an installment agreement.  The streamlined installment agreement typically has a 72-month pay-off term.  If you’ve already been working to get yourself in a better situation to be able to pay your taxes, and you owe $10,000 or less, you may have the option of a guaranteed payment plan. 

Even though you might think you can’t repay your debt via an installment program, remember, the IRS has some additional discretion, because they are limited by the CSED (the Collection Statute Expiration Date).  However, if they determine you would be able to pay off your tax debt before the CSED, they would reject an offer in compromise. 

Owe $100,000 or more in Tax Debt?

Getting an offer in compromise approved will require an additional level of authorization.  This would be granted by the IRS District Counsel. 

Some people refer to the Offer in Compromise as the fresh start initiative. The program began in 2011.  It changed the computation for a taxpayer’s future income.  It also extended the amount that can be repaid for student loans, as an allowable expense.  Episode 38 goes into more detail as Timalyn discusses IRS Form 433-F. 

Offer in Compromise – Doubt as to Liability

You would submit this when there’s a genuine dispute as to the existence of a tax debt, or the amount of the tax debt.  It’s used when there’s a likely error by the IRS in assessing the tax debt. 

The offer must be greater than $0 and based on the amount you believe is the correct amount of tax liability (not what the IRS is claiming you owe). 

The Doubt as to Liability option will require you to submit IRS Form 656-L. 

The Doubt as to Liability option is typically used after an audit was performed and tax was assessed.  However, you had incomplete documentation at the time.  Now, the supporting documentation you’ve found shows you really don’t owe the amount indicated by the IRS.   

Offer in Compromise – Effective Tax Administration

This is when the amount owed is not in dispute.  There are assets that could be liquidated to pay the debt, but exceptional circumstances exist that would result in an undue economic hardship, if full payment of the debt would be required.  The same would exist if paying the full tax debt would be unfair or unequitable.

Timalyn provides an example of an elderly individual living on a fixed income.  Even if this person owned his/her home, selling the home to pay the taxes would make it very difficult from a financial standpoint, assuming the person were to live another 10 years, or more.  Social security retirement benefits are really not enough to live off of, given today’s inflationary environment.  The cost of living is relatively expensive, so adding a rent payment would make it nearly impossible. 

In the above example, this individual might be an ideal candidate for the offer in compromise – effective tax administration option. 

Need Tax Help Now?

If you need answers to your tax debt questions, book a consultation with Timalyn via her Bowens Tax Solutions website.  Click this link to book a call.

Please consider sharing this episode with your friends and family.  There are many people dealing with tax issues, and you may not know about it.  This information might be helpful to someone who really needs it.  After all, back taxes shouldn’t ruin their life either.

As we conclude Episode 48, we encourage you to connect with Timalyn on social media. You’ll be able to subscribe to this podcast on Spotify, Apple Podcasts, Google Podcasts, and many other podcast platforms.  

Remember, Timalyn Bowens is America’s Favorite EA and she’s here to fill the tax literacy gap, one taxpayer at a time.  Thanks for listening to today’s episode.

For more information about tax relief options, visit https://www.Bowenstaxsolutions.com/ .

If you have any feedback, or suggestions for an upcoming episode topic, please submit them here:  https://www.americasfavoriteea.com/contact.

Disclaimer:  This podcast is for informational and educational purposes only.  It provides a framework and possible solutions for solving your tax problems, but it is not legally binding.  Please consult your tax professional regarding your specific tax situation.

Episode 47:  In this episode, Timalyn discusses three top issues arise involving your taxes after a divorce. Divorce happens and Timalyn has worked with many clients who are caught in this situation.  While she’ll focus on 3 important issues, that doesn’t mean those are the only issues related to divorce and taxes.  Today, she’ll address filing status, claiming dependents moving forward, and dealing with a joint tax liability after the divorce.  With that being said, let’s listen to Timalyn.

Note to Tax Professionals:  Timalyn is going to be teaching a class on Divorce and Taxes via the myCPE platform.  She’s previously provided a class to subscribers of Think Outside the Tax Box.  Those classes take a deeper dive into topics such as property settlements and transfers, Qualified Domestic Relation Orders (QUADROs), etc.

Determining Your Optimal Filing Status

Timalyn begins by discussing whether the divorce was amicable or not.  If the divorce was not finalized by the end of the tax year, then technically and legally, the couple can still file as married filing jointly.  If there’s a tax liability, you want to consider not filing jointly because that will be just one more thing tying you together. 

Another option is to use the status, married filing separately.  This could make sense if you and your soon to be ex-spouse aren’t getting along, but a refund is expected.  You wouldn’t have to worry about splitting the refund.  If there’s a liability, because you filed separately, you wouldn’t have to worry about the other person’s tax liability. 

If you were to choose married filing separately, you’ll be in the same tax brackets as if you were filing as a single.  Therefore, more of your income is going to be taxed at a higher rate.   

Here are some quick examples:

●      Married Filing Jointly – the standard deduction is ~ $27,000 for 2023 returns.

●      Married Filing Separately (e.g. Single) – the standard deduction is ~ $13,000.

Therefore, the person filing separately or as a single, will remain in the 10% and 12% tax brackets for a shorter period of time compared to someone who is filing using the status married filing jointly.  This couple wouldn’t jump to the 22% tax bracket until the reach almost $110,000 in gross income. 

However, a person using married filing separately, or as a single, they’ll jump to the 22% tax bracket when they get to ~ $55,000 in gross income. 

The thing to remember is that if you had your W-4 withholdings set as married filing jointly, assuming  you made $50k and your spouse made $60k, your withholdings are only going to cover 12%.  So, the spouse making $60k will still have withholdings closer to 12%.  But, after separating if that spouse files using married filing separately, they will now be getting taxed at the 22% bracket.

By working together as the divorce proceeds, you may be able to agree to file using married filing jointly to receive the best tax benefit for both parties. 

The IRS 1040 provides a spot so you can file an additional form enabling a couple to split the tax refund so that it goes into 2 separate accounts.  The court may need to decide how the allocation will be made. 

How to Handle Dependents for Tax Purposes After a Divorce

If dependents are involved, an important consideration is the determination of whether the couple was separated at all, during the tax year.  If they were separated (not cohabitating), did that occur in the last 6 months of the year?   

Assuming the couple wasn’t living together during the last 6 months, but one parent took care of more than 50% of the dependent’s expenses:

●      The parent who did not have the child could file married filing jointly (if the other spouse agreed) or married filing separately.

●      The parent who did have the child could file married filing jointly (if the other spouse agreed), married filing separately or file as head of household (because for the last 6 months they were legally separated and they did maintain the household, incurring more that 50% of the dependent’s expenses). 

Filing using the head of household status gives you a tax bracket that is lower than married filing separately, but not as low as married filing jointly.  The jump to the 22% bracket won’t happen as quickly and the standard deduction will be ~$19,000 (for the 2023 tax year).

Timalyn strongly advises that your either have a tax professional prepare your taxes during this period, or that you at least consult with one.  You have some options and you want to make sure you select the best one for your particular situation.

NOTE:  If you were divorced as of December 31^st of the tax year, then married filing jointly and married filing separately are not available to you.  You have the options of filing as a single or as head of household (if you qualify).

Which Parent Gets to Claim the Child?

If the divorce is amicable, you could have the custodial parent complete IRS Form 8332.  This is an important form.  It’s a Release or Revocation of Release of Claim to Exemption to Child by Custodial Parent.  Because there are no longer exemptions for a child or children, it’s an all or nothing situation.   

The custodial parent gets to claim the child tax credit.  However, the custodial parent can use Form 8332 to release the child tax credit to the other parent. 

Depending upon the divorce decree’s designation of the custodial parent, it’s that person who needs to sign the release, designating which year(s) it will apply.  It’s during that year or years the non-custodial parent can claim the child. 

Understand, there is nothing to block a child from being claimed when you e-file.  It can be a race to see who claims the child first.  If a return is submitted including the child’s social security number as a dependent, it blocks the other parent’s return from being accepted – if that child was already claimed. 

This is why the IRS Form 8332 is so important.  If you did have the right to claim the child, you have the 8332 to support your position when you take it to the IRS. 

Many people don’t realize the IRS trumps your divorce decree.  Even though the family court designated the custodial parent, the IRS is going to look at specific rules.  This includes the number of overnight stays during a particular tax year.  It also considers which parent maintained the household where the child lived, as well as who paid more than 50% of the expenses. 

If the parents were even on the overnights and expenses, there are tie-breaker rules.  Again, these are just a few reasons why the tax law is different than your state’s family law.  Form 8332 can eliminate the frustration and games.  It can protect both of the parents, down the road.

For more information on which parent should claim the child, listen to Episode 19.  There’s also a related article on Tax Tips with Timalyn.   

Dealing with Joint Tax Liability after a Divorce

If you had a tax liability while you were still married, it is a joint tax debt, regardless of what the divorce decree states.  The IRS considers both individuals responsible.  There may be a way for you to claim injured spouse relief or possibly innocent spouse relief.  Timalyn has published episodes on both topics.  Remember, there are specific timeframes for making these claims and your specific state jurisdiction may have guidelines.

If you think you are eligible for innocent spouse relief, book a consultation with Timalyn at Bowens Tax Solutions. 

Please consider sharing this episode with your friends and family.  There are many people dealing with tax issues, and you may not know about it.  This information might be helpful to someone who really needs it.  After all, back taxes shouldn’t ruin their life either.

As we conclude Episode 47, we encourage you to connect with Timalyn on social media. You’ll be able to subscribe to this podcast on Spotify, Apple Podcasts, Google Podcasts, and many other podcast platforms.   

Remember, Timalyn Bowens is America’s Favorite EA and she’s here to fill the tax literacy gap, one taxpayer at a time.  Thanks for listening to today’s episode.

For more information about tax relief options, visit https://www.Bowenstaxsolutions.com/ .

If you have any feedback, or suggestions for an upcoming episode topic, please submit them here:  https://www.americasfavoriteea.com/contact.

Disclaimer:  This podcast is for informational and educational purposes only.  It provides a framework and possible solutions for solving your tax problems, but it is not legally binding.  Please consult your tax professional regarding your specific tax situation.

Episode 46:  In this episode, Timalyn discusses 4 various options you have to handle your IRS debt, if you cannot pay it in full.  While you need to pay your tax debt, there are ways to do it so that you’re not overly burdened.  In addition to the lump sum payment, she’ll explain the offer in compromise, installment agreements, currently not collectible status, and bankruptcy. 

Have You Received an IRS CP504 Notice?

If this is a letter you’ve already received, then you know the IRS is notifying you of their intent to levy.  The reality is you’re now in a tough situation.  While you haven’t been able to pay your tax debt, you most likely haven’t communicated with the IRS about your particular situation.  Now, the IRS is going to have the right to access your bank account(s) and decide how much they are going to take. 

The Offer in Compromise

You’ve probably heard about commercials claiming you can settle your tax debt for pennies on the dollar.  In reality, many people won’t qualify for this option.  This is sometimes referred to as the Fresh Start Program, which was implemented by Congress.  However, the Fresh Start Program isn’t just about the Offer in Compromise.   

There are ways to qualify for the Offer in Compromise.  You may be able to claim the debt doesn’t actually belong to you.  This is “Doubt as to Liability.”  Unfortunately, this may be very difficult to prove.  “Debt as to Collectability” means the IRS probably won’t be able to collect the debt from you.  “Effective Tax Administration” is another claim you may be able to use to qualify.

The IRS has a pre-qualifier tool on its website, so you can see if you might be able to qualify for the Offer in Compromise resolution.  In Episodes 39 and 40, Timalyn discussed IRS Form 433-F.  By completing this form, you’ll have a good idea of whether you’d qualify for the Offer in Compromise option.  The form will help to prove your ability to pay or lack thereof. It also takes into consideration your health, age and education.  These are factors the IRS will use to determine if you qualify. 

Any offer you make will have to include a certain percentage of the equity you have in specific assets.  If you have a lot of equity in your home or other assets (including your retirement portfolio), the IRS could require you to sell one or more of the assets to create funds available to pay your tax debt.  So, if that’s your situation, the Offer in Compromise might not be the preferred option for you. 

It’s important for you to consider working with a qualified professional who will help you to best represent your situation to the IRS. 

Installment Agreements

Timalyn discussed this option in Episode 10.  These are generally various payment plans you can have with the IRS.  There are 3 popular options:  Streamlined, Regular and Partial Pay.  Timalyn prefers the Partial Pay Installment Agreement because it looks at your assets, but focuses on your income and your expenses.  Assuming you can’t pay off your tax debt before the Collection Status Expiration Date (CSED), the IRS will still want as much as they can get from you. 

Establishing an installment agreement may be a good option, based on your specific situation. 

Currently Not Collectable Status

Timalyn explains that this option temporarily puts your tax account on hold.  You’ll still complete the IRS Form 433 to prove that you really have nothing left after calculating your income and deducting the allowable expenses. 

The IRS cannot put you in a financial hardship to pay your taxes.  There may be a difference in what you consider a necessary expense and what the IRS considers.  These would include your rent/mortgage and monthly car payment. 

Now, this does not mean you never have to pay the tax debt.  Interest will continue to accrue during the period of not collectable status.  But as Timalyn discussed, the IRS only has the option of collecting the debt before the CSED.  The IRS will not levy you during the Currently Not Collectable (CNC) period. 

Once the period has passed, the IRS can require you to submit documentation to see if you should still qualify.  If this sounds like a good option for you, listen to Episode 18, where Timalyn explains how to temporarily put your tax account on hold.

Bankruptcy

Now, admittedly, this won’t be the right choice for everyone.  However, if you qualify, you can use this to eliminate certain types of debt.  Timalyn cannot provide legal advice about bankruptcy, because she is not an attorney.  She does have relationships with bankruptcy attorney to whom she can refer you, if you need this option.

There is a 3-year, 2-year and 240-day rule, you need to understand. You can’t have any fraud claims, no taxes related to a trust and no Substitute for Return (SFR) on your account.  The tax debt you’re trying to discharge must be at least 3 years old.  It must have been filed with the IRS for at least 2 years.  Additionally, no other tax assessments can have been made by the IRS during the past 240 days. 

Assuming you meet the above qualifications, that tax year is eligible for bankruptcy.  However, if there is a tax lien, even if you bankrupt the tax debt, you’ll still have to repay the amount covered by the lien. 

Again, this may not be the best option, but depending upon your situation, it may be the option you can use. 

Final Words of Advice

As Timalyn has advised in previous episodes, it’s important to remember to breathe.  She invites you to contact her to see if she would be able to represent you.  The majority of her clients come owing 6-figures or more to the IRS, they may be facing an audit or even worse, they are actively being levied by the IRS.  Don’t wait for that to happen to you. 

Please consider sharing this episode with your friends and family.  There are many people dealing with tax issues, and you may not know about it.  This information might be helpful to someone who really needs it.  After all, back taxes shouldn’t ruin their life either.

As we conclude Episode 46, we encourage you to connect with Timalyn on social media. You’ll be able to subscribe to this podcast on Spotify, Apple Podcasts, Google Podcasts, and many other podcast platforms.   

Remember, Timalyn Bowens is America’s Favorite EA and she’s here to fill the tax literacy gap, one taxpayer at a time.  Thanks for listening to today’s episode.

For more information about tax relief options, visit https://www.Bowenstaxsolutions.com/ .

If you have any feedback, or suggestions for an upcoming episode topic, please submit them here:  https://www.americasfavoriteea.com/contact.

Disclaimer:  This podcast is for informational and educational purposes only.  It provides a framework and possible solutions for solving your tax problems, but it is not legally binding.  Please consult your tax professional regarding your specific tax situation.

Episode 45:  In this episode, Timalyn discusses IRS Notices.  She’ll explain what they are, why you’re receiving your IRS notice and how to read it.  Then, she’ll provide some insights into the 3 types of IRS Notices that are currently being sent out fairly aggressively by the IRS. 

Love Letters from the IRS

Timalyn lightheartedly refers to notices and communications from the IRS as love letters.  In all reality, they can be extremely serious and require immediate attention.  Once a client hires Timalyn to help resolve tax debt issues, she also receives copies of the same letters.

What Is an IRS Notice?

This is written correspondence from the IRS to the taxpayer.  It can address a number of issues including a balance due, updates on activity on your account or if any changes to a tax return have been made. 

Not every IRS Notice involves bad news.  Nonetheless, receiving one can cause anxiety.  For example, during the pandemic some people received notices of stimulus payments or confirmation of payment of the advanced child tax credit, etc.  If you’ve filed an amended tax return or you find a refund you were due, the IRS will also send you a notice.

Some IRS notifications are issued to inform you of why you are receiving an IRS communication and what you need to do to resolve any potential issues. 

IRS CP503 Notice

The bulk of the notifications being sent to taxpayers are CP503 notices.  In Episode 29, Timalyn explained the IRS CP14 notice (demand for payment of unpaid taxes).  The CP503s are different. 

The CP503 notification is the second notice and a reminder of an unpaid tax balance due.  If you have a tax liability when you submit your tax return, you’ll receive a CP14.  Then, if the balance hasn’t been paid, the IRS will issue a CP501 (the first notice for balance due).   

IRS CP504 Notice

Timalyn explains that the IRS CP504 notification is the one you really need to be concerned with, if you receive it.  This is a final notice and balance due.  The CP504 is also notification of the IRS’ intent to levy.  In Episode 5, Timalyn answered the question, “What Is a Tax Levy?”   

Basically, the Intent to Levy is the IRS telling you they have the legal right to take money owed from your personal bank account or business bank account.  The IRS also has the legal right to contact your employer to request a garnishment (funds to be withheld) from your paycheck, which are then sent to the IRS.  The latter can happen regardless of whether you are a W-2 employee or 1099 independent contractor.  The IRS can also require the employer to make backup withholdings. 

Don’t Put Your Head in the Sand

If you have received notifications from the IRS, don’t ignore them.  In many situations, the IRS is willing to work with you.  However, if you don’t open the letters and fail to respond, you’re going to run out of options and the IRS will run out of patience.

How to Read the IRS Notice

The office address of the IRS will tell you which actual office is sending the notification.  It also signifies the level of importance of this particular IRS notice.  If the address has a local address and the name of an IRS representative, your case has been assigned to an IRS revenue officer. 

Your assigned IRS revenue officer is the only person you’ll be able to communicate with, going forward.  He/she is the only IRS contact with whom you can correspond or speak with on the phone about your tax debt situation.  These revenue officers are already overloaded with cases, you just added to his/her workload. 

At the top right of your IRS notice, there is a designation of the type of notice you’re receiving.  This could be the CP501, CP503 or the dreaded CP504 (the Intent to Levy).  Timalyn comments that there are other types of notices, but these are the more common ones being issued, at this time.  Remember, there are also notices of Accuracy-Related Penalties if you failed to report all of your income or miscalculated a deduction/credit. 

The IRS Notice also provides information regarding the deadline for you to respond.  There may still be a way to deal with this, even if the deadline has passed.  However, you need to take action, quickly. 

You can appeal an IRS decision if you’ve received an IRS CP504 (Intent to Levy) notification.  You have the option of trying to contact the IRS via telephone (good luck).  You may also want to pull your tax transcripts to identify where you might disagree with the IRS and what information they are using to support their claim. 

The IRS Notice should also include a copy of the Taxpayer Bill of Rights.  It grants you the right to tax representation.  In Episode 10, Timalyn explains how to set up a payment arrangement with the IRS.

Bowens Tax Solutions specializes in tax representation.  Consider booking a consultation to speak about your tax debt situation and potential options. 

In Episode 37, Timalyn explains the Tax Relief Journey.  It’ll explain the 3 phases of tax relief.

In closing, Timalyn urges you to make sure you read any IRS notification you may already have.  These can become extremely serious, but there are steps you can take to resolve the issues. 

Please consider sharing this episode with your friends and family.  There are many people dealing with tax issues, and you may not know about it.  This information might be helpful to someone who really needs it.  After all, back taxes shouldn’t ruin their life either.

As we conclude Episode 45, we encourage you to connect with Timalyn on social media. You’ll be able to subscribe to this podcast on Spotify, Apple Podcasts, Google Podcasts, and many other podcast platforms.  

Remember, Timalyn Bowens is America’s Favorite EA and she’s here to fill the tax literacy gap, one taxpayer at a time.  Thanks for listening to today’s episode.

For more information about tax relief options, visit https://www.Bowenstaxsolutions.com/ .

If you have any feedback, or suggestions for an upcoming episode topic, please submit them here:  https://www.americasfavoriteea.com/contact.

Disclaimer:  This podcast is for informational and educational purposes only.  It provides a framework and possible solutions for solving your tax problems, but it is not legally binding.  Please consult your tax professional regarding your specific tax situation.

As 2023 comes to an end and we look forward toward 2024, Timalyn Bowens, America's Favorite EA, shares a few brief comments for her audience.  It's been a long road, full of interesting twists and turns.  Next year promises to bring more of the same.  However, Timalyn is grateful for opportunity to continue her mission to close the tax literacy gap, one taxpayer at a time.  She wishes you Happy Holidays for you, your family and your business.  

Episode 44:  In this episode, Timalyn discusses issues related to tax audits.  The fear people have about being audited is often paralyzing.  It’s a serious issue and you need to be prepared to both avoid it and to know what you need to do if it happens.  There are steps you can take to ensure your business is audit-ready.

There’s No Such Thing as an Audit-Proof Return

Regardless of what some tax professionals might claim, there’s no way to guarantee you won’t be audited.  There are different types of audits and the selection “triggers” vary.  The IRS has the Discrimination Function System that produces a DIF score.  This system rates the potential for change based on past IRS’ experiences with similar returns.

The IRS can track returns for similar businesses, using categories such as NAICS codes.  This code describes your type of industry.  When they look at a collection of similar returns from the same industry, they can determine averages for specific data points, such as expenses, credits, etc. for your reported income level.  If your DIF score is out of that range, it could trigger an audit. 

Irregularities can also raise flags.  For instance, if all of your figures on your tax return are round numbers, that would seem odd and could result in an audit. 

The IRS has a whistleblower program.  They pay snitches who were correct about something they alerted the IRS to regarding someone else’s tax filings. 

It Doesn’t Mean You Did Anything Wrong

Timalyn emphasizes that just because you’re being audited, it doesn’t mean you did anything wrong.  She explains that for 2023, there was a 0.4% chance that taxpayers would face an audit.  Lower income individuals actually had a slightly higher chance. 

Don’t Fear the Boogey Man

An audit isn’t as scary as it sounds.  It’s a review or exam of your tax account and your financial information to ensure proper reporting.  If you keep good records and don’t inflate/deflate your income or expenses, is there really anything to fear?  You have the information and it’s accurate.  As long as you can prove that information was reported correctly to the IRS, you should be fine. 

If your records are extremely unorganized, you had to guess at certain dollar amounts or someone else guessed for you, the audit may become a problem for you. 

Correspondence Audits

This is where the IRS will contact a taxpayer to request specific information.  If you’ve received an audit notice, or a field audit where the IRS agent comes to you, Timalyn recommends you don’t handle this on your own.  It doesn’t matter how good your records are. 

Yes, you may be able figure out how to handle the process, but you’re going to be at a disadvantage and the opportunity to make a mistake is significant.  This is not something you should simply search for on YouTube.  You need an experienced tax professional who knows how to deal with the IRS and the rights you have, during the audit process. 

If you’ve received an audit notice, you can book a tax relief consultation with Timalyn.  She also has an episode on what you need to look for when hiring a tax professional.  Episode 23 is titled, “Which Type of Tax Professional Do I Need?”  In the show notes for that episode, there’s a link to Episode 16, “How to Choose a Tax Professional.”  Both are full of valuable information for your consideration. 

When you receive a Correspondence Audit, the IRS may not explain specifically why they are requesting the information.  It can be a significant source of anxiety.  Make sure you respond to the IRS in a timely manner.  Timalyn suggests responding before the deadline, in case something else needs to be addressed.  If you have good records, this will be much easier.

Do You Already Have a Tax Power of Attorney?

If you already have a tax power of attorney, you’ve already authorized this person to speak to the IRS on your behalf.  They’ve filed submitted IRS Form 2848, so they will also receive the correspondence from the IRS. 

Don’t assume the person who prepared your tax return is receiving the same correspondence you have received from the IRS.  Unless they’ve submitted Form 2848, the IRS does not have the authorization to speak with that tax preparer and vice versa.

Prepare Your Business for an Audit

This is the best thing you can do, especially because of the random nature of IRS audits.  Timalyn re-emphasizes the importance of good record keeping.  You have to be able to substantiate everything you entered on your tax return.  This applies to both income, expenses and credits. 

There are many ways people have committed fraud by overstating their income when applying for the PPP loans, SBA loans, or a mortgage.  These are reasons the IRS may require you to substantiate your income.  Good financial statements, based on accurate bookkeeping can help you to prove you received the income you claim, even if you don’t have a 1099 to back it up.  Your bookkeeper or accountant will reconcile your bank account.  The financial reports should reflect your income.  Make sure the person who prepares your financial statements has access to your bank statements.  If they are doing it without access, you may be setting yourself up for a significant issue or issues.

The same record keeping applies for your expenses.  It’s why business owners should not co-mingle their business and personal funds.  During an audit, explaining the different purchases will be more complicated if you can’t determine whether they were for business or personal reasons.  

You Need a Bookkeeper

This person is a valuable resource.  It’s something Timalyn often recommends you outsource.  A business owner can waste a lot of time trying to do their own bookkeeping.  You should definitely understand your financial records, but the time spent doing all of the record keeping and reporting could be better spent generating more revenue.

The 3-H’s of Record Keeping

Timalyn suggests there are questions to consider related to record keeping. 

●      How long should you keep your records? 

●      How should your store your records?

●      How do you deliver your records?

Episode 20 specifically deals with how long you need to retain your tax records. 

Don’t Create More Problems for Yourself

If you’re being audited, remember to only provide the IRS what they are asking for.  Make sure the support for those records is readily available.  Timalyn uses the example of someone who was asked to show income for a number of years.  However, because they didn’t have good records, they instead decided to turn over all bank statements to the auditor.  This resulted in the auditor finding even more questionable transactions that were flagged. 

If you’re going through an audit, you typically wouldn’t know how to handle the IRS.  Even good intentions can lead to many more problems.  That’s why you should work with a tax representation professional who is familiar with the process and can best represent you.  Check out Episode 33, “What Is Tax Representation?”  Just because someone prepared your taxes doesn’t mean they’re equipped to represent you.

As 2023 comes to a close and tax season looms, you need to ask yourself if your business is audit-ready?  Do you have good financial records?  How are we handling the 3-H’s of record keeping?  Is our tax preparation professional asking questions about our records?  It’s time to get ready.

One step you can take is to book a tax relief consultation with Timalyn.

If you are a tax professional who would like to help taxpayers with their audits, Timalyn strongly suggests joining her Tax Pro Representation Journey community.   

Please consider sharing this episode with your friends and family.  There are many people dealing with tax issues, and you may not know about it.  This information might be helpful to someone who really needs it.  After all, back taxes shouldn’t ruin their life either. 

As we conclude Episode 44, we encourage you to connect with Timalyn on social media. You’ll be able to subscribe to this podcast on Spotify, Apple Podcasts, Google Podcasts, and many other podcast platforms.  

Remember, Timalyn Bowens is America’s Favorite EA and she’s here to fill the tax literacy gap, one taxpayer at a time.  Thanks for listening to today’s episode.

For more information about tax relief options, visit https://www.Bowenstaxsolutions.com/ .

If you have any feedback, or suggestions for an upcoming episode topic, please submit them here:  https://www.americasfavoriteea.com/contact.

Disclaimer:  This podcast is for informational and educational purposes only.  It provides a framework and possible solutions for solving your tax problems, but it is not legally binding.  Please consult your tax professional regarding your specific tax situation.

Episode 43:  In this episode, Timalyn discusses the Corporate Transparency Act (CTA), which is not necessarily tax related, but US Treasury Department is in charge of the CTA.  It’s a topic many will approach their tax professionals for explanations and advice.  Timalyn will explain what it is, who’s in charge of it and who it affects.

The Corporate Transparency Act was passed in 2021.  It’s currently scheduled to go into effect on January 1, 2024.  There is pressure to delay the date, but as of now, it remains set for January. 

What is the Corporate Transparency Act?

The Corporate Transparency Act is a law to enhance the transparency of entities and entity structure.  Over the years, people have chosen to start businesses in certain states to shield specific information from the general public or other considerations.  This concept is used for good purposes, and unfortunately it can be used for bad purposes (some of which may even be illegal).

The Corporate Transparency Act requires that companies must provide the government information about the owners and beneficiaries of the business.  It’s an effort to reduce potential illicit activities. 

Who Is Responsible for Enforcing the CTA?

The Financial Crime Enforcement Network (FinCEN) is who will be enforcing the reporting requirements under the Corporate Transparency Act. FinCEN is housed within the Treasury Department, along with the IRS. This is one reason that individuals will think that this is a tax issue. 

If you have overseas bank accounts or are in a business that has them, you may already be familiar with FinCEN.  Timalyn explains that organizations or individuals having $10,000 or more in cash or other assets must submit an annual report to FinCen. This form is known as the FBAR.

The Corporate Transparency Act reporting requirement is actually a legal issue, not a tax issue.  For this reason, Timalyn advises you to reach out to an attorney for advice, especially if you don’t know if you have to comply with the CTA reporting requirements. 

Who Needs to Comply with the Corporate Transparency Act?

Almost all legal entities will  fall under the Corporate Transparency Act reporting requirements.  If you registered a business as a corporation, LLC or an LLP, you are required to file the Beneficial Ownership Information report (BOI).  The BOI information that is to be reported includes:

●      Full Legal Name of the Beneficial Owner

●      Date of Birth

●      Social Security Number

●      Government Picture ID

●      Current Address of the Individual

●      Address of the Business Entity 

Who is a Beneficial Owner?

Timalyn explains they are people who exercise substantial control over the entity, either directly or indirectly.  You would also be considered a beneficial owner if you own over 25% of the company. 

It’s usually people who are responsible for major decisions related to the company.  The same person may also work in the day to day operations. 

Are there Exemptions for Certain People or Types of Organizations?

Yes.  In fact, there are currently 23 exemptions.  For information on these, subscribe to Tax Tips with Timalyn.  As more information becomes available, Timalyn will post it on this blog, along with other useful information for business owners

Here Are 5 Entities Exempt from the BOI Filing Requirement

●      Governmental Authorities

●      Banks

●      Credit Unions

●      Tax-Exempt Entities

●      Accounting Firm

If you are an accountant, Timalyn recommends you subscribe to her blog, at www.AmericasFavoriteEA.com.  You’ll find plenty of useful information for accounting and tax professionals.

What is the Deadline for Filing the Beneficial Ownership Information Report?

As of the recording of this episode, if your entity is formed after 01/01/24, you have 90 days to after the official start of your business file with FinCEN.  If your business was open prior to 01/01/24, you have the full year to gather and submit the information for the beneficial owner(s).

Please don’t procrastinate on filing the BOI.  If you already have the required information, go ahead and file it.  Remember, this doesn’t get filed with your tax return.  You’ll file the BOI on the FinCEN website. 

What if I’m Late in Filing the BOI?

There is a $500/day civil penalty if you are late in filing your report.  If you are found to be engaged in fraudulent or illegal activity by FinCEN, you will be subject to up to 2 years in prison and/or up to $10,000 in a criminal penalty.   

If you have trouble filing the report, Timalyn advises you to reach out to an attorney. 

Please consider sharing this episode with your friends and family.  There are many people dealing with tax issues, and you may not know about it.  This information might be helpful to someone who really needs it.  After all, back taxes shouldn’t ruin their life either.

As we conclude Episode 43, we encourage you to connect with Timalyn on social media. You’ll be able to subscribe to this podcast on Spotify, Apple Podcasts, Google Podcasts, and many other podcast platforms.   

Remember, Timalyn Bowens is America’s Favorite EA and she’s here to fill the tax literacy gap, one taxpayer at a time.  Thanks for listening to today’s episode.

For more information about tax relief options, visit https://www.Bowenstaxsolutions.com/ .

If you have any feedback, or suggestions for an upcoming episode topic, please submit them here:  https://www.americasfavoriteea.com/contact.

Disclaimer:  This podcast is for informational and educational purposes only.  It provides a framework and possible solutions for solving your tax problems, but it is not legally binding.  Please consult your tax professional regarding your specific tax situation.

Episode 42:  In this episode, Timalyn speaks to individuals and business owners.  Tax debt can be a serious issue, both financially and emotionally.  When it comes to taxes, you need to have a plan.  Failing to plan is planning to fail.  But, what is tax planning? 

What Does Failing to Plan Look Like with Taxes?

Assume last year you didn’t like your tax bill.  It is now November and you are  just beginning to think about your taxes, you didn’t really have a plan for 2023.  You should have been developing tax reduction strategies and implementing them much earlier.  Timalyn recommends looking at tax reduction strategies before the year even starts.

Another way people fail to plan for taxes is by not seeking out the advice and guidance of an expert in their industry.  If you have a retail business you don’t need a tax professional who focuses primarily on the transportation industry.  If you have real estate properties, it would be better to work with a tax professional who understands real estate investing. 

Tax law has different ways of applying tax credits and deductions for different tax industries.  You need a specialist who understands the nuances of your specific industry segment. 

Don’t Rely only on the Internet for Tax Planning Advice

Assume you Googled “Tax Planning” or some other phrase and found Timalyn.  Not every piece of advice applies to your particular situation.  Rather, treat that information as a starting point.  Dig deeper for a tax expert who is closely aligned with your type of business.  Tax strategies are not universally or equally effective for everyone. 

Developing an Effective Tax Plan

An efficient tax plan will involve tax strategies customized to fit your lifestyle, your goals and focused on reducing your tax liability over time.  There’s no one-size-fits-all strategy.

Roth IRA vs. Traditional IRA

For instance, a Roth IRA is a popular savings tool. Contributions to a Roth IRA are paid with after-tax dollars.  They will not reduce your tax liability in the current year.  The good news is that the dollars you put in, and the interest that accumulates, won’t be taxed when you pull them out.  Now, a traditional IRA is paid with pre-tax dollars, which would reduce your current year’s tax liability. The down side is that you’ll eventually pay taxes on the money when you pull it out, years from now.

Are you making more money now, during your working years, than you will be in your retirement years?  It might not make sense for you to invest in a Roth IRA instead of a traditional IRA, depending upon your specific situation and your specific goals.  This is especially true if you are concerned with reducing your tax liability during those earning years.  This is why it makes sense to work with a tax planner as well as a financial advisor when planning your retirement.

Should I Hire My Minor Child to Work in My Business?

This will probably be a separate episode in 2024.  If you’re interested in learning more about this option, subscribe to Timalyn’s blog, Tax Tips with Timalyn. 

Does Your Tax Professional Give You This Type of Advice?

Before you get upset with your tax professional, ask yourself, “Have I asked for tax strategies or have I asked for a tax plan?”  You may not realize it, but tax planning is a different service.  It’s generally not included with tax preparation service.  It’s an investment in your future.   

Many tax professionals assume you already know there’s a difference between tax preparation and tax planning.  If you need the latter, ask your tax professional if they provide that service and if it’s something you can invest in to lower your tax liability.  If not, they may be able to refer you to someone or maybe it’s time for you to spend time looking for a tax planning professional.  As a starting point, check out Tax Relief with Timalyn Bowens episode 16 , How to Choose a Tax Professional.   

Invest in Your Future

Spending money to hire an experienced tax planning professional will usually save you money.  It’ll also give you some control over your tax bill and tax liability.

You tax bill is what you owe after everything you’ve already paid in during the year.  While everyone has a tax liability, if you’ve properly implemented an efficient tax plan, you may be able to avoid a tax bill.  Timalyn is going to go into more detail about this on her YouTube channel, in the upcoming weeks.  Be sure to subscribe to it, so you’ll know when that information is published.

Please consider sharing this episode with your friends and family. This information may be helpful to someone who really needs it.  After all, back taxes shouldn’t ruin their life either.

As we conclude Episode 42, we encourage you to connect with Timalyn on social media. You’ll be able to subscribe to this podcast on Spotify, Apple Podcasts, Google Podcasts, and many other podcast platforms.  

Remember, Timalyn Bowens is America’s Favorite EA and she’s here to fill the tax literacy gap, one taxpayer at a time.  Thanks for listening to today’s episode.

For more information about tax relief options, visit https://www.Bowenstaxsolutions.com/ .

f you have any feedback, or suggestions for an upcoming episode topic, please submit them here:  https://www.americasfavoriteea.com/contact.

Disclaimer:  This podcast is for informational and educational purposes only.  It provides a framework and possible solutions for solving your tax problems, but it is not legally binding.  Please consult your tax professional regarding your specific tax situation.

Episode 41:  In this episode, Timalyn talks specifically to business owners.  There’s a possibility that you either owe taxes now, or that you will owe them in the future.  As a person whose focus is on achieving your business goals, let’s assume you’ve hit your income goal for the year.  As you begin to pull together your information, you suddenly realize you owe taxes.  Maybe you actually owe more this year than you did last year.  Are you beginning to worry that the more you make, the more you’ll owe?  Timalyn will provide 3 ways to reduce your business tax liability.   

Timalyn begins by setting up a scenario many business owners are familiar with, because a tax liability can cause a lot of stress and even throw you off of your game.  But, it doesn’t have to be that way. 

Tip #1:  Be Proactive

Let’s not worry about issues in the past.  This is about moving forward by taking proactive steps to reduce your tax liability by investing in your business. You do this by hiring experts.  Timalyn comments that she receives the best return on her investment when she invests in herself.  The same is true for investing in your business. 

On September 18, 2023, Timalyn launched the Tax Pro Representation Journey.  This is to help other tax professionals.  When you invest in an industry expert to help you in your business, the return on that investment should be at least 2 to 3 times what it cost you.  As an example, 75% of the tax professionals in Timalyn’s program brought in new clients within 3 weeks of beginning her program.  It’s a perfect example of how investing in yourself, as a business owner, can have a significant impact on your progress. 

Tip #2:  Consider Hiring Financial Experts

Having another set of eyes on the situation can be a big benefit.  But what type of financial expert should you consider hiring?

The Value of a Bookkeeper / Accountant

In Episode 16, Timalyn discussed, “How to Choose a Tax Professional.”  The same steps apply to hiring a bookkeeper.  The bookkeeper is managing historical data.  In other words, when and where you spent money.  Remember, the fees you pay your bookkeeper are also tax deductible.

The value of tracking the historical data is that it enables you to make income projections.  Trend data is a good way to make projections about your specific business.  You can also consider how you are performing relative to your industry.

The data will also highlight areas of weakness you may need to address.  You may notice certain expenses are unusually high.  By knowing your numbers, you’ll have better insight into how your business is performing.  This is especially important when a problem exists.  Once you uncover it, you can develop a plan to effectively deal with it, much earlier than if you’d simply waited until the end of the year.

A bookkeeper can also highlight areas of opportunity.  For example, you may be able to outsource an activity.  Knowing your numbers enables you to make an informed decision as to whether you can afford to outsource and/or hire.

Tip #3:  Consider Investing in a Tax Plan

Tax preparation is not the same as tax planning.  You should expect to pay an additional fee for tax planning services.  Tax planning is specific to you and your business.  You’ll have customized strategies designed to help you.  However, not all tax professionals are tax planning experts.  While Timalyn can do tax planning, she specializes in tax relief and she’d refer you to a trusted colleague for tax planning services. 

Timalyn will be posting more information about reducing your tax liability on her blog, Tax Tips with Timalyn.  She’ll also be launching a video series on her YouTube channel.  Be sure to subscribe to both of these free resources. 

Please consider sharing this episode with your friends and family. This information may be helpful to someone who really needs it.  After all, back taxes shouldn’t ruin their life either.

As we conclude Episode 41, we encourage you to connect with Timalyn on social media. You’ll be able to subscribe to this podcast on Spotify, Apple Podcasts, Google Podcasts, and many other podcast platforms.  

Remember, Timalyn Bowens is America’s Favorite EA and she’s here to fill the tax literacy gap, one taxpayer at a time.  Thanks for listening to today’s episode.

For more information about tax relief options, visit https://www.Bowenstaxsolutions.com/ .

If you have any feedback, or suggestions for an upcoming episode topic, please submit them here:  https://www.americasfavoriteea.com/contact.

Disclaimer:  This podcast is for informational and educational purposes only.  It provides a framework and possible solutions for solving your tax problems, but it is not legally binding.  Please consult your tax professional regarding your specific tax situation.