Federal Tax Lien – What is it? How to get rid of it?

Federal Tax Lien – What is it? How to get rid of it?

A Federal Tax Lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. The lien protects the government’s interest in all your property, including real estate, personal property and financial assets. A Federal Tax Lien exists after the IRS:

  • Puts your balance due on the books (assesses your liability);
  • Sends you a bill that explains how much you owe (Notice and Demand for Payment); and

You:

  • Neglect or refuse to fully pay the debt in time.

The IRS files a public document, the “Notice of Federal Tax Lien”, to alert creditors that the government has a legal right to your property.

How to Get Rid of a Lien

Paying your tax debt in full is one way to get rid of a federal tax lien. The IRS releases your lien within 30 days after you have paid your tax debt.

When conditions are in the best interest of both the government and the taxpayer, other options for reducing the impact of a lien exist.

Discharge of property

A “discharge” removes the lien from specific property. There are several Internal Revenue Code (IRC) provisions that determine eligibility.

Subordination

Subordination” does not remove the lien, but allows other creditors to move ahead of the IRS, which may make it easier to get a loan or mortgage.

Withdrawal

A “withdrawal” removes the public Notice of Federal Tax Lien and assures that the IRS is not competing with other creditors for your property; however, you are still liable for the amount due.

Two (2) additional Withdrawal options resulted from the Commissioner’s 2011 Fresh Start initiative.

One option may allow withdrawal of your Notice of Federal Tax Lien after the lien’s release. General eligibility includes:

Your tax liability has been satisfied and your lien has been released; and also:

  • You are in compliance for the past three years in filing – all individual returns, business returns, and information returns;
  • You are current on your estimated tax payments and federal tax deposits, as applicable.

The other option may allow withdrawal of your Notice of Federal Tax Lien if you have entered in or converted your regular installment agreement to a Direct Debit installment agreement. General eligibility includes:

  • You are a qualifying taxpayer (i.e. individuals, businesses with income tax liability only, and out of business entities with any type of tax debt)
  • You owe $25,000 or less (If you owe more than $25,000, you may pay down the balance to $25,000 prior to requesting withdrawal of the Notice of Federal Tax Lien)
  • Your Direct Debit Installment Agreement must full pay the amount you owe within 60 months or before the Collection Statute expires, whichever is earlier
  • You are in full compliance with other filing and payment requirements
  • You have made three consecutive direct debit payments
  • You can’t have defaulted on your current, or any previous, Direct Debit Installment agreement.

How a Lien Affects You

  • Assets — A lien attaches to all of your assets (such as property, securities, vehicles) and to future assets acquired during the duration of the lien.
  • Credit — Once the IRS files a Notice of Federal Tax Lien, it may limit your ability to get credit.
  • Business — The lien attaches to all business property and to all rights to business property, including accounts receivable.
  • Bankruptcy — If you file for bankruptcy, your tax debt, lien, and Notice of Federal Tax Lien may continue after the bankruptcy.

Avoid a Lien

You can avoid a federal tax lien by simply filing and paying all your taxes in full and on time. If you can’t file or pay on time, don’t ignore the letters or correspondence you get from the IRS. If you can’t pay the full amount you owe, payment options are available to help you settle your tax debt over time.

Lien vs. Levy

A lien is not a levy. A lien secures the government’s interest in your property when you don’t pay your tax debt. A levy actually takes the property to pay the tax debt. If you don’t pay or make arrangements to settle your tax debt, the IRS can levy, seize and sell any type of real or personal property that you own or have an interest in.

IRS Urges Public to Stay Alert for Scam Phone Calls

IRS Urges Public to Stay Alert for Scam Phone Calls

The IRS continues to warn consumers to guard against scam phone calls from thieves intent on stealing their money or their identity. Criminals pose as the IRS to trick victims out of their money or personal information. Here are several tips to help you avoid being a victim of these scams:

  • Scammers make unsolicited calls. Thieves call taxpayers claiming to be IRS officials. They demand that the victim pay a bogus tax bill. They con the victim into sending cash, usually through a prepaid debit card or wire transfer. They may also leave “urgent” callback requests through phone “robo-calls” or via “phishing email”.

  • Callers try to scare their victims. Many phone scams use threats to intimidate and bully a victim into paying. They may even threaten to arrest, deport or revoke the license of their victim if they don’t get the money.

  • Scams use caller ID spoofing. Scammers often alter caller ID to make it look like the IRS or another agency is calling. The callers use IRS titles and fake badge numbers to appear legitimate. They may use the victim’s name, address and other personal information to make the call sound official.

  • Cons try new tricks all the time. Some schemes provide an actual IRS address where they tell the victim to mail a receipt for the payment they make. Others use emails that contain a fake IRS document with a phone number or an email address for a reply. These scams often use official IRS letterhead in emails or regular mail that they send to their victims. They try these ploys to make the ruse look official.

  • Scams cost victims over $23 million.  The Treasury Inspector General for Tax Administration, or “TIGTA”, has received reports of about 736,000 scam contacts since October 2013. Nearly 4,550 victims have collectively paid over $23 million as a result of the scam.

 

The IRS will not:

  • Call you to demand immediate payment. The IRS will not call you if you owe taxes without first sending you a bill in the mail.

  • Demand that you pay taxes and not allow you to question or appeal the amount you owe.

  • Require that you pay your taxes a certain way. For instance, require that you pay with a prepaid debit card.

  • Ask for your credit or debit card numbers over the phone.
  • Threaten to bring in police or other agencies to arrest you for not paying.

 

If you don’t owe taxes, or have no reason to think that you do:

  • Do not give out any information. Hang up immediately.

  • Contact TIGTA to report the call. Use their “IRS Impersonation Scam Reporting” web page. You can also call 800-366-4484.

  • Report it to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add “IRS Telephone Scam” in the notes.

IRS ANNOUNCEMENT – 2016 Pension Plan Limitations

IRS Announces 2016 Pension Plan Limitations

The Internal Revenue Service (IRS) recently announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2016.  In general, the pension plan limitations will not change for 2016 because the increase in the cost-of-living index did not meet the statutory thresholds that trigger their adjustment.  However, other limitations will change because the increase in the index did meet the statutory thresholds.

The highlights of limitations that changed from 2015 to 2016 include the following:

  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $184,000 and $194,000, up from $183,000 and $193,000.

  • The AGI phase-out range for taxpayers making contributions to a Roth IRA is $184,000 to $194,000 for married couples filing jointly, up from $183,000 to $193,000.  For singles and heads of household, the income phase-out range is $117,000 to $132,000, up from $116,000 to $131,000.

  • The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $61,500 for married couples filing jointly, up from $61,000; $46,125 for heads of household, up from $45,750; and $30,750 for married individuals filing separately and for singles, up from $30,500.

The highlights of limitations that remain unchanged from 2015 include the following:

  • The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $18,000.

  • The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $6,000.

  • The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500.  The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

  • The deduction for taxpayers making contributions to a traditional IRA is phased out for those who have modified adjusted gross incomes (AGI) within a certain range.  For singles and heads of household who are covered by a workplace retirement plan, the income phase-out range remains unchanged at $61,000 to $71,000.  For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range remains unchanged at $98,000 to $118,000.  For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

  • The AGI phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Below are details on both the adjusted and unchanged limitations.

Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans.  Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost of living increases.  Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415.  Under Section 415(d), the adjustments are to be made pursuant to adjustment procedures which are similar to those used to adjust benefit amounts under Section 215(i)(2)(A) of the Social Security Act.

Effective January 1, 2016, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) remains unchanged at $210,000.  For a participant who separated from service before January 1, 2016, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant’s compensation limitation, as adjusted through 2015, by 1.0011.

The limitation for defined contribution plans under Section 415(c)(1)(A) remains unchanged in 2016 at $53,000.

The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A).  After taking into account the applicable rounding rules, the amounts for 2016 are as follows:

The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) remains unchanged at $18,000.

The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) remains unchanged at $265,000.

The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan remains unchanged at $170,000.

The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5 year distribution period remains unchanged at $1,070,000, while the dollar amount used to determine the lengthening of the 5 year distribution period remains unchanged at $210,000.

The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) remains unchanged at $120,000.

The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $6,000.  The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $3,000.

The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, remains unchanged at $395,000.

The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $600.

The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $12,500.

The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations remains unchanged at $18,000.

The compensation amount under Section 1.61 21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation remains unchanged at $105,000.  The compensation amount under Section 1.61 21(f)(5)(iii) remains unchanged at $215,000.

The Code provides that the $1,000,000,000 threshold used to determine whether a multiemployer plan is a systematically important plan under section 432(e)(9)(H)(v)(III)(aa) is adjusted using the cost-of-living adjustment provided under Section 432(e)(9)(H)(v)(III)(bb).  After taking the applicable rounding rule into account, the threshold used to determine whether a multiemployer plan is a systematically important plan under section 432(e)(9)(H)(v)(III)(aa) is increased in 2016 from $1,000,000,000 to $1,012,000,000.

The Code also provides that several pension-related amounts are to be adjusted using the cost-of-living adjustment under Section 1(f)(3).  After taking the applicable rounding rules into account, the amounts for 2016 are as follows:

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for married taxpayers filing a joint return is increased from $36,500 to $37,000; the limitation under Section 25B(b)(1)(B) is increased from $39,500 to $40,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $61,000 to $61,500.

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for taxpayers filing as head of household is increased from $27,375 to $27,750; the limitation under Section 25B(b)(1)(B) is increased from $29,625 to $30,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $45,750 to $46,125.

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for all other taxpayers is increased from $18,250 to $18,500; the limitation under Section 25B(b)(1)(B) is increased from $19,750 to $20,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $30,500 to $30,750.

The deductible amount under Section 219(b)(5)(A) for an individual making qualified retirement contributions remains unchanged at $5,500.

The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) remains unchanged at $98,000.  The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers (other than married taxpayers filing separate returns) remains unchanged at $61,000.  The applicable dollar amount under Section 219(g)(3)(B)(iii) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0.  The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $183,000 to $184,000.

The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from $183,000 to $184,000.  The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $116,000 to $117,000.  The applicable dollar amount under Section 408A(c)(3)(B)(ii)(III) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0.

The dollar amount under Section 430(c)(7)(D)(i)(II) used to determine excess employee compensation with respect to a single-employer defined benefit pension plan for which the special election under Section 430(c)(2)(D) has been made is increased from $1,101,000 to $1,106,000.

IRS ANNOUNCEMENT – 2016 Annual Inflation Adjustments for Tax Benefits

IRS ANNOUNCEMENT – 2016 ANNUAL INFLATION ADJUSTMENTS

For tax year 2016, the Internal Revenue Service (IRS) just announced annual inflation adjustments for more than 50 tax provisions, including the tax rate schedules, and other tax changes. Revenue Procedure 2015-53 provides details about these annual adjustments.   The tax items for tax year 2016 of greatest interest to most taxpayers include the following dollar amounts:

  • For tax year 2016, the 39.6 percent tax rate affects single taxpayers whose income exceeds $415,050 ($466,950 for married taxpayers filing jointly), up from $413,200 and $464,850, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds for tax year 2016 are described in the revenue procedure.

  • The standard deduction for heads of household rises to $9,300 for tax year 2016, up from $9,250, for tax year 2015.The other standard deduction amounts for 2016 remain as they were for 2015:   $6,300 for singles and married persons filing separate returns and $12,600 for married couples filing jointly.

  • The limitation for itemized deductions to be claimed on tax year 2016 returns of individuals begins with incomes of $259,400 or more ($311,300 for married couples filing jointly).

  • The personal exemption for tax year 2016 rises $50 to $4,050, up from the 2015 exemption of $4,000. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $259,400 ($311,300 for married couples filing jointly). It phases out completely at $381,900 ($433,800 for married couples filing jointly.)

  • The Alternative Minimum Tax exemption amount for tax year 2016 is $53,900 and begins to phase out at $119,700 ($83,800, for married couples filing jointly for whom the exemption begins to phase out at $159,700). The 2015 exemption amount was $53,600 ($83,400 for married couples filing jointly).  For tax year 2016, the 28 percent tax rate applies to taxpayers with taxable incomes above $186,300 ($93,150 for married individuals filing separately).

  • The tax year 2016 maximum Earned Income Credit amount is $6,269 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,242 for tax year 2015. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.

  • For tax year 2016, the monthly limitation for the qualified transportation fringe benefit remains at $130 for transportation, but rises to $255 for qualified parking, up from $250 for tax year 2015.
  • For tax year 2016 participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,250, up from $2,200 for tax year 2015; but not more than $3,350, up from $3,300 for tax year 2015. For self-only coverage the maximum out of pocket expense amount remains at $4,450. For tax year 2016 participants with family coverage, the floor for the annual deductible remains as it was in 2015 — $4,450, however the deductible cannot be more than $6,700, up $50 from the limit for tax year 2015. For family coverage, the out of pocket expense limit remains at $8,150 for tax year 2016 as it was for tax year 2015.

  • For tax year 2016, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $111,000, up from $110,000 for tax year 2015.

  • For tax year 2016, the foreign earned income exclusion is $101,300, up from $100,800 for tax year 2015.

  • Estates of decedents who die during 2016 have a basic exclusion amount of $5,450,000, up from a total of $5,430,000 for estates of decedents who died in 2015.

IRS ALERT – 2016 Reporting Deadlines

IRS ALERT – 2016 Reporting Deadlines for Employers and Health Coverage Providers

If you are a health insurance issuer, self-insured employer, government agency, or other entity that provides minimum essential coverage to an individual during a calendar year, you must report certain information about the coverage that you provide to the IRS. If your organization is an “applicable large employer”, you must report to the IRS information about the health care coverage, if any, that you offered to full-time employees.

2016 Deadlines

Here are the due dates you should put on your calendar. You will meet the requirement to file if the form is properly addressed and mailed on or before the due date.

  • Forms 1095-B and 1095-C are due to individuals by Feb. 1, 2016.
  • Forms 1094-B, 1095-B, 1094-C and 1095-C are required to be filed with the IRS by Feb. 29, 2016 if filing on paper, or March 31, 2016, if filing electronically.

Reporting by health coverage providers

Every person who provides minimum essential coverage to an individual during a calendar year must file an information return and a transmittal. Most filers will use transmittal Form 1094-B and information return Form 1095-B. However, employers – including government employers – sponsoring self-insured group health plans will report information about the coverage in Part III of Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, instead of on Form 1095-B.

Employers with fewer than 50 employees that are not subject to the employer shared responsibility provisions, but who sponsor self-insured group health plans, will use Forms 1094-B and 1095-B to report information about covered individuals.

Reporting by applicable large employers

Employers with 50 or more full-time employees, including full-time equivalent employees, use transmittal Form 1094-C and information return Form 1095-C to report the information required under the Affordable Care Act about offers of health coverage and enrollment in health coverage for their employees. In addition to reporting the coverage that they offer, applicable large employers who sponsor self-insured group health plans will use Forms 1094-C and 1095-C to report information about the coverage they provide to the covered individuals.

 

IRS WEBSITE – Help with Health Care Law & Taxes

“IRS.gov/aca” Website has Information to Help You Understand the Health Care Law’s Effect on Your Taxes

There is a lot of information in the news and online about the health care law and its effect on your taxes. For the most up-to-date answers to questions you may have, visit “IRS.gov/aca”.

From A to Z and ISRP to MEC, the IRS website covers a wide range of health care topics and how they relate to your taxes.

The IRS knows that you want to understand how the health care law may affect you when filing your taxes next year. When questions come up, IRS.gov/aca is a great place for you to begin finding the answers you need – when you need them.

This information is especially important for individuals.  Health coverage providers and employers will provide health coverage statements to covered individuals for the first time in 2016. The IRS will continue to post information as you get ready to prepare and file your 2015 tax return.

At IRS.gov/aca, you’ll find frequently asked questions, legal guidance, and links to other useful sites. You can also access valuable information about specific topics, including the premium tax credit for individuals, rules and responsibilities for employers, as well as tax provisions for insurers, tax-exempt organizations and other businesses.

 

REMINDER – Filing Deadline – October 15, 2015

REMINDER – Extension Filers: Don’t Miss the Oct. 15, 2015 Deadline

If you are one of the 13 Million taxpayers who asked for more time to file your federal tax return and still haven’t filed, your extra time is about to expire. Oct. 15, 2015 is the last day to file for most people who requested an automatic six-month extension.