payment plan – Tom Hodge CPA Blog

Has the IRS contacted you to update your financial information? This may be why.

The IRS is starting to require updated annual financial information for payment plans.

Recently I called the Internal Revenue Service (IRS) in response to a letter asking a client for updated financial information while they (IRS) review her payment plan. A very helpful agent took the time to explain why this is happening to a few of my clients.

As the IRS Agent explained, the IRS will no longer keep financial information on file for more than 1 year (instead of 2 or 3 years as had been done) and anyone (individual or business) who submitted financial information to process a payment plan will received a letter requiring updated financial information about 2 months prior to the anniversary date of a payment plan being established.

Once the IRS receives the updated financial information, an analysis will be made to determine if your payment amount should be adjusted (higher or lower). Please realize you may be asked for backup information, including but not limited to:

Pay Stubs
Bank Statements
Utility Bills
Mortgage or Car Note Statements
Insurance Policies (especially Whole Life Policies)
Statements from Investment and/or Retirement Funds
Backup for large expenses

Please realize if you are paying on an accepted Offer In Compromise (IRS Form 656), sending in new financial information does not apply. The Offer In Compromise is set up specifically for payments of a certain amount over a specified period of time and (aside from prepayments) is rarely modified.

Also not affected are payment plans created without sending in financial data – normally for amounts owed under $50,000. Normally the IRS does not ask for financial information if it was not needed for the original payment plan.

One reason this is done is to see if the amount owed can be paid off quicker. Administering payment plans takes time and manpower and the IRS has been cutting back staff in recent years due to budget cuts. So, if they can speed up collections, then less time/manpower needs to be allocated to payment plans and IRS personnel can work on other matters.

So, if you’ve applied for a payment plan that included your financial information with the IRS and it has been accepted, and the plan lasts for more than a year, you will more than likely get a letter requesting financial information by filling out an IRS form and return it to the IRS, or call them with the figures by a certain due date. Normally you’ve got less than 30 days to prepare the IRS form and even if you call the IRS phone number, you may not get an extension as to when the financial information must be sent in (I was told the date was ‘fixed and could not be changed’). Be prepared to send in the original signed form even if you call in the numbers.

You will receive one of the following 3 forms, depending on how much is currently owed on your payment plan:

IRS Form 433-D – used when the payment plan is for less than $50,000
IRS Form 433-A – Financial information for Individuals who owe more than $50,000
IRS Form 433-B – Financial information for Businesses that owe more than $50,000

Be aware this change impacts all types of payment plans – income tax, sales tax, payroll tax, civil penalties, etc.

If your payment plan is set up for several years (the limit is six years) and you had to send in your financial information to set up the plan, then you’ll get a demand for updated financial information annually until the dollar amount is paid off.

Please let me know if you’ve got any questions – lots of people get nervous (understandably!) when receiving a letter from the IRS. I’m happy to work with you on completing the IRS forms. Please write your comments or questions below.

Cheers!

Thomas C. Hodge
President

Hodge Group LLC
3943 N. Austin Avenue
Chicago, IL 60618

773.237.6369

www.thehodgegroup.com

www.taxbillappeals.com – Property Tax Bill Appeals for Cook County IL

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Trouble reaching the Wage Levy unit at IL. Dept. of Revenue?

Often, I need to reach out to the government (state, federal, and local) to determine what is happening on a particular tax case. In case you’re having trouble reaching the Wage Levy unit, here’s what I found out: it may be easier to go directly to their offices if you don’t have an agent assigned to the case.

It seems the wage levy unit is very understaffed and has a ton of cases per worker (seems like a lot of tax agencies are that way) but this group has particular problems, including only 1 fax machine for an entire floor! Also, cases may be given to a higher level manager first, and then given to someone else so you may not have a correct contact. In addition, voice mail wasn’t an option with the person I tried to call (I was told in person that ‘we’d get hundred of messages a day’).

In my case, my client hadn’t filed a few years of tax returns, and had a wage levy on two of the non-filed years. Normally (and in this case), this is due to the IDR getting a copy of a W2 from the IRS and then seeing if the tax return is in their (IDR) system. If not, the IDR will issue notices to the taxpayer asking for their return, and if no return is filed within a certain time, the IDR will file an estimated return for the taxpayer (IRS also does this). However, the filing always assumes the taxpayer is single, no dependents and no deductions so the estimated tax is almost always higher than the actual return. Also, the W2 copy the IDR gets from the IRS does not have state withholding so the estimated tax return gives no credit for withholding. Add in the interest and penalties, and you get a big tax bill.

Also, my client had moved and I’m guessing the IDR had the old address and mail didn’t get to the taxpayer and there were no copies of correspondence in the taxpayer’s file (and it was a well documented file).

The IDR wage levy paperwork (copy was given by taxpayer’s employer) had a contact name (or so I thought) on the form, so I did the usual – get Power of Attorney (POA) from taxpayer, attempt to fax a copy to IDR representative, and then call. This is where it got interesting – the 3 times I attempted to fax to the Chicago-area fax number, the fax didn’t go through and I got an error stating the recipient’s machine had an error. Ended up calling the problem resolution division in Springfield, IL and the rep there said I could fax a copy to her to enter into the main computer system but she couldn’t help me on the case since there was a rep already assigned.

By this time, I’d called the Chicago rep’s phone at least a half-dozen times over the course of about two weeks and it was busy every single time and never went to voice mail. I asked the Springfield rep if this was the correct number, and it was. So, I kept trying, including calling in off hours and on the weekend, and the phone never got picked up and never went to voice mail. So, long story short – I couldn’t reach the rep listed on the case either via phone or fax.

Decided to go directly to the offices in downtown Chicago and told the receptionist about my case. She was very pleasant and told me the case wasn’t assigned to anyone and the person who’s name was on the paperwork was a group manager.

Receptionist went in back & came out saying to have a seat and someone would be with me shortly and about 15 – 20 minutes later, two stern faced women came out, sat behind a counter of chairs and asked me to come over. Neither would introduce themselves (that was odd! and eventually I was told all I needed to do to resolve the case was to fax copies of taxpayer’s W2 forms.

Before leaving, I asked the women how I could get in touch with anyone within the unit – blank stares were exchanged before one suggested fax (please realize that IDR uses e-mail!). I mentioned the trouble faxing and I was told, ‘there’s only one fax machine for the whole floor’ [REALLY? – you’ve got to be kidding me, but according to someone else I talked to, that’s the truth!]

I again asked what they’d recommend and the only reply was, ‘well, you can come in again’. I asked about email and they said that was only when an agent was assigned.

So, if you’re having trouble reaching the Wage Levy unit, I recommend going into their offices – security can be a pain but there wasn’t a long line and I did get the info I needed to release the wage levy (and that was done within 24 hours of faxing the W2 forms). If you don’t have an agent assigned to the case, not sure what else to try but would love to hear anything you’ve done on your cases. Please send any ideas, thoughts or comments below:

Cheers!

Thomas C. Hodge, CPA
President

The Hodge Group
4118 N. Western Avenue
Chicago, IL 60618

773.237.6369

www.thehodgegroup.com

Best Tax Preparers Website

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Think Setting Up A New Company Will Eliminate A Tax Debt? Think Again!

I’m dealing with something I’ve not seen in a long time – a potential “Successor of Interest” case. This is where a company that owes taxes is ‘closed’ and a new one opened in the same field, using the same equipment (or assets) and by the same people or related parties. A potential client who was recently referred to me tried to do this.

What can happen in this instance is the IRS (or another taxing agency if it’s not Federal Tax) can file a Successor of Interest lawsuit stating the first company was closed simply to avoid paying taxes and go after the new company (“Successor Company”). The IRS’ success rate in these cases is about 90% as it is fairly easy to follow the trail of assets (especially when there is no bill of sale of said assets from the original company to the Successor Company). I’ve heard of a case like this where the IRS simply went to the Successor Company and seized the assets (essentially putting them out of business) to pay for the old tax debt.

You may ask, “What if the assets are sold for $1?”. Then the IRS (and/or the Tax Court) would determine if that is considered an arms-length transaction (fair-market value). If it is determined the sale price is below the market value then the sale could be invalidated or the ‘deemed amount’ increased to what the IRS/Tax Court decides. A sale not at fair-market value would not stop the lawsuit.

As you can imagine, the costs of this type of lawsuit can be staggering, both in terms of money and time. Plus the IRS can (and probably would) put liens or levies on assets, including bank accounts making the situation that much harder.

The best way to resolve a case like this (aside from not closing the first company & setting up the Successor Company!) is to set up a payment plan for the old debt, pay that down over time and keep current with the tax debt on the Successor Company. Since the original company is ‘closed’, then you can’t offer to pay a lessor amount under these circumstances so the full amount of taxes owed would need to be paid, plus interest & penalties as those accrue. If the original company is still in operation, then you can possibly negotiate your debt down through an Offer in Compromise – another reason not to close the original company!

You simply can’t close a company & assume the tax debt is forgiven – the IRS and other taxing agencies have ways to get to funds/assets that should have been used to pay the debt. Highly recommend anyone thinking of trying this potential tactic talk to their accountant and/or attorney before going this route.

Do you have questions on this (or another tax relief issue)? Please contact me through the form below.

Cheers!

Thomas C. Hodge, CPA
President

The Hodge Group
3040 N. Menard Avenue
Chicago, IL 60634

773.237.6369

www.thehodgegroup.com

Best Tax Preparers Website

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Need Tax Relief? What should you look for?

Reading the business news recently, I came across an article about how the Federal Trade Commission (FTC) was returning $16 BILLION to the customers of a tax relief company that they (FTC) had previously put out of business. American Tax Relief (ATR) was found guilty of falsely claiming it could reduce tax debts. Unfortunately for all the people who signed up, they are only getting back an estimated 16% of the monies given to ATR.

This makes at least 4 cases where tax relief (or tax problem resolution) companies have been put out of business – ‘Tax Lady’ Roni Deutch in 2011, as well as JK Harris and TaxMasters in 2012. On one site (www.accountingtoday.com), a person, claiming to be a retired IRS Appeals agent said (in part) that those companies would:

“…prepare a very simple Appeals protest, or Offer in Compromise application, or Innocent Spouse Relief Request form, etc. and then disappear. I would contact the named POA (power of attorney) to discuss the case and they would say they were no longer representing the taxpayer, their engagement only included the preparation of the application, etc.!!! The taxpayers would tell me they paid from $3,000 – $5,000 for this minimal service.”

Things like this upset me as I’ve been working with tax relief clients for many years, and I keep hearing all the radio ads that say you can ‘pay pennies on thousands of dollars owed, if you qualify’. The key words are ‘if you qualify’ as every situation is different.

Tax Agencies will review your financial situation (both current and projected) to see if there is a reasonable chance you’ll be able to pay the debt either immediately or over time. In addition, the Tax Agencies will look at your assets to see if anything can be used to pay down the tax debt immediately (401k or retirement accounts, home equity, major assets, etc.). Health issues, job loss, economic downturns and other factors will be taken into account. Even when you enter into an agreement (payment plan, offer in compromise, etc.) penalties and interest will continue to accrue. Also, all of your tax returns must be on file with the Tax Agency – they won’t do any negotiation with open tax returns.

If you’re not comfortable with working with the Tax Agencies on your own and decide to seek help, be careful, do your homework and make sure you ask any and all questions that come to mind – here are a few I’d recommend:

What happens if the Taxing Agency turns down your first proposal – what will you do next? How many times are you willing to send in a proposal?
How long has your firm been providing these services?
How much of your fee will be paid up front or as a retainer? (always a bad sign when the firm wants more than 50% upfront)
Who will be working on my case – someone local or in your home office? (some firms out-source their services to practitioners in each state especially if there are state & local taxes involved)
Is the person who will work on my case accredited to practice before the IRS (or other Taxing Agencies)?
Does your fee cover both state/local & federal taxes?
Will your firm file late tax returns and how much will that cost?
Are you accredited by the Better Business Bureau (BBB)?
Ca you give me at least 3 references with similar tax problems who you’ve helped?

Again, each case is unique – you may have additional questions for potential tax relief companies so be sure to add them to your list. Make sure you feel comfortable with whomever does handle your case as that person will have to know almost everything about your finances, assets, health, family, etc.

If you’d like more information, or have a tax relief question, please feel free to send me an inquiry below:

Cheers!

Thomas C. Hodge, CPA
President

The Hodge Group
3040 N. Menard Avenue
Chicago, IL 60634

773.237.6369

www.thehodgegroup.com

Best Tax Preparers Website

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