May 29, 2012

Everybody Hurts: IRS Offer-in-Compromise

When the day is long and the night
The night is yours alone
When you're sure you've had enough
Of this life, well hang on

Don't let yourself go, 'cause everybody cries
And everybody hurts sometimes

IRS Announces More Flexible Offer-in-Compromise Terms to Help a Greater Number of Struggling Taxpayers Make a Fresh Start

The Internal Revenue Service announced another expansion of its "Fresh Start" initiative by offering more flexible terms to its Offer in Compromise (OIC) program that will enable some of the most financially distressed taxpayers to clear up their tax problems and in many cases more quickly than in the past.

"This phase of Fresh Start will assist some taxpayers who have faced the most financial hardship in recent years," said IRS Commissioner Doug Shulman. "It is part of our multiyear effort to help taxpayers who are struggling to make ends meet."

This announcement focuses on the financial analysis used to determine which taxpayers qualify for an OIC. This announcement also enables some taxpayers to resolve their tax problems in as little as two years compared to four or five years in the past.

In certain circumstances, the changes announced include:
  • Revising the calculation for the taxpayer’s future income.
  • Allowing taxpayers to repay their student loans.
  • Allowing taxpayers to pay state and local delinquent taxes.
  • Expanding the Allowable Living Expense allowance category and amount.
In general, an OIC is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. An OIC is generally not accepted if the IRS believes the liability can be paid in full as a lump sum or a through payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination of the taxpayer’s reasonable collection potential. OICs are subject to acceptance on legal requirements.

The IRS recognizes that many taxpayers are still struggling to pay their bills so the agency has been working to put in place common-sense changes to the OIC program to more closely reflect real-world situations.

When the IRS calculates a taxpayer’s reasonable collection potential, it will now look at only one year of future income for offers paid in five or fewer months, down from four years, and two years of future income for offers paid in six to 24 months, down from five years. All offers must be fully paid within 24 months of the date the offer is accepted. The Form 656, Offer in Compromise Booklet, and Form 656, Offer in Compromise, has been revised to reflect the changes.

Other changes to the program include narrowed parameters and clarification of when a dissipated asset will be included in the calculation of reasonable collection potential. In addition, equity in income producing assets generally will not be included in the calculation of reasonable collection potential for on-going businesses.

Allowable Living Expenses

The Allowable Living Expense standards are used in cases requiring financial analysis to determine a taxpayer’s ability to pay. The standard allowances provide consistency and fairness in collection determinations by incorporating average expenditures for basic necessities for citizens in similar geographic areas. These standards are used when evaluating installment agreement and offer in compromise requests.

The National Standard miscellaneous allowance has been expanded to include additional items. Taxpayers can use the miscellaneous allowance for expenses such as credit card payments and bank fees and charges.

Guidance has also been clarified to allow payments for loans guaranteed by the federal government for the taxpayer's post-high school education. In addition, payments for delinquent state and local taxes may be allowed based on percentage basis of tax owed to the state and IRS.

This is another in a series of steps to help struggling taxpayers under the Fresh Start initiative.

In 2008, IRS announced lien relief for taxpayers trying to refinance or sell a home. The IRS added new flexibility for taxpayers facing payment or collection problems in 2009. The IRS made changes to lien policies in 2011 and expanded the threshold for small businesses to resolve tax issues through installment agreements. And, earlier this year, the IRS increased the threshold for a streamlined installment agreement allowing individual taxpayers to set up an installment agreement without   providing a significant amount of financial information.

May 22, 2012

The Believer: My Financial Beliefs

I believe in the light that shines and will never die
Oh I believe the fire burns, we stay alive
They will talk about us
Like they talked about the kings before us
They will talk about us

These are the words of a believer, achiever, leader of the globe

My financial beliefs are as follows:

1.       I believe that financial literacy is important to teach the “have-nots” how to become “haves.” You can win the lottery but if you don’t know what to do with the money, you could lose it just as fast.

2.     I believe that everyone must have a basic understanding of taxes regardless of their income level. Don’t ever just rely on the advice of a tax accountant. You never know if that accountant is giving bad or illegal advice.

3.     I believe most people that get ahead financially are the people that are not scared of failures and sacrifice. Some wealthy people are born into money while others had to grind their way to wealth. Grinding means putting in the work that most people are too scared to do.

4.     I believe that intelligence and natural talent are important but having a strong work ethnic is how believers become achievers. There are a lot of extremely smart people that are struggling financially. It takes more than just smarts to become wealthy.

5.     I believe that running a business is like playing professional baseball. A professional baseball player that hits around 40% of the balls thrown at him is a considered legend. As an entrepreneur, everything will not go as planned. Always be prepared to take advantage of any opportunity. If one opportunity fails, get ready for the next one.

6.     I believe that no matter how accomplished you become, never forget the people who were with you when opportunities were hard to get.

A good book to read is 5 Easy Steps to Financial Freedom: Do What You Love & Get Rich Doing It by Duane Harden.  Duane Harden doesn't just teach you theory; you learn through his own hands-on life experiences. A strong life lesson he imparts is the story of how he built his own solid portfolio comprised of residential and commercial real estate and successful businesses including a restaurant and a music company. He began with no financial education, but he was determined and inspired. Today he leads a Cash Flow Club where he mentors entrepreneurs on how to start and grow their businesses so they, too, can become financially free.

“Beliefs have the power to create and the power to destroy. Human beings have the awesome ability to take any experience of their lives and create a meaning that disempowers them or one that can literally save their lives.” Tony Robbins

May 14, 2012

Yesterday: Start Planning Now for Next Year's Tax Return

How do I say goodbye to what we had?
The good time that made us laugh
Outweigh the bad

I thought we'd get to see forever
But forever's gone away
It's so hard to say goodbye to yesterday

Believe it or not, I actually miss my clients after tax season ends. The tax deadline may have just passed but planning for next year can start now. The IRS reminds taxpayers that being organized and planning ahead can save time, money and headaches in 2013. Here are eight things you can do now to make next April 15 easier.

Adjust your withholding Why wait another year for a big refund? Now is a good time to review your withholding and make adjustments for next year, especially if you'd prefer more money in each paycheck this year. If you owed at tax time, perhaps you'd like next year's tax payment to be smaller. Use IRS's Withholding Calculator at or Publication 919, How Do I Adjust My Tax Withholding?

Store your return in a safe place Put your 2011 tax return and supporting documents somewhere secure so you'll know exactly where to find them if you receive an IRS notice and need to refer to your return. If it is easy to find, you can also use it as a helpful guide for next year's return.

Organize your recordkeeping Establish a central location where everyone in your household can put tax-related records all year long. Anything from a shoebox to a file cabinet works. Just be consistent to avoid a scramble for misplaced mileage logs or charity receipts come tax time.

Review your paycheck Make sure your employer is properly withholding and reporting retirement account contributions, health insurance payments, charitable payroll deductions and other items. These payroll adjustments can make a big difference on your bottom line. Fixing an error in your paycheck now gets you back on track before it becomes a huge hassle.

Shop for a tax professional early If you use a tax professional to help you strategize, plan and make financial decisions throughout the year, then search now. You'll have more time when you're not up against a deadline or anxious for your refund. Choose a tax professional wisely. You are ultimately responsible for the accuracy of your own return regardless of who prepares it. Find tips for choosing a preparer at

Prepare to itemize deductions If your expenses typically fall just below the amount to make itemizing advantageous, a bit of planning to bundle deductions into 2012 may pay off. An early or extra mortgage payment, pre-deadline property tax payments, planned donations or strategically paid medical bills could equal some tax savings.

Strategize tuition payments The American Opportunity Tax Credit, which offsets higher education expenses, is set to expire after 2012. It may be beneficial to pay 2013 tuition in 2012 to take full advantage of this tax credit, up to $2,500, before it expires. For more information, see IRS Publication 970, Tax Benefits for Education.

The IRS emphasizes that each household's financial circumstances are different so it's important to fully consider your specific situation and goals before making large financial decisions.

“It pays to plan ahead. It wasn't raining when Noah built the ark."

May 7, 2012

We're Going Wrong: Tax Implications of Divorce

It may be time to find a divorce lawyer (and a GREAT tax accountant) if you open your eyes one morning and your spouse sings this to you:

Please open your eyes
Try to realize
I found out today we're going wrong

Please open your mind
See what you can find
I found out today we're going wrong

Divorce is the final termination of a marital union, canceling the legal duties and responsibilities of marriage and dissolving the bonds of matrimony between the parties (unlike annulment which declares the marriage null and void). Divorce laws vary considerably around the world but in most countries it requires the sanction of a court or other authority in a legal process. The legal process for divorce may also involve issues of alimony (spousal support), child custody, child support, distribution of property and division of debt.

Personally speaking, clients that are going through divorce are the toughest to deal with. There are alot of emotions involve. Alot of the times, they didn't take into account the tax implications of divorce. For example, who will claim the children on their tax returns. I would recommend to consult with your tax accountant throughout the divorce procedures. The worst thing you can do is talk about the divorce when the tax return is ready to be filed.

If you need great information regarding the tax implications of divorce, check out this Forbes article written by Peter J. Reilly

“My husband and I have never considered divorce... murder sometimes, but never divorce.”
― Joyce Brothers