IRS TAX PROBLEMS – Penalties for Filing Late & Paying Late

IRS TAX PROBLEMS – Facts about Filing Late and Paying Penalties

April 18, 2017 was this year’s deadline for most people to file their 2016 federal tax return and pay any tax they owe. If taxpayers are due a refund, there is no penalty if they file a late tax return.

Taxpayers who owe tax, and failed to file and pay on time, will most likely owe interest and penalties on the tax they pay late. To keep interest and penalties to a minimum, taxpayers should file their tax return and pay any tax owed as soon as possible.

Here are some facts that you should know:

  1. Two penalties may apply. One penalty is for filing late and one is for paying late. They can add up fast. Interest accrues on top of penalties.
  2. Penalty for late filing. If taxpayers file their 2016 tax return more than 60 days after the due date or extended due date, the minimum penalty is $205 or, if they owe less than $205, 100 percent (100%) of the unpaid tax. Otherwise, the penalty can be as much as 5 percent (5%) of their unpaid taxes each month up to a maximum of 25 percent (25%).
  3. Penalty for late payment. The penalty is generally 0.5 percent (0.5%) of taxpayers’ unpaid taxes per month. It can build up to as much as 25 percent (25%) of their unpaid taxes.
  4. Combined penalty per month. If both the late filing and late payment penalties apply, the maximum amount charged for the two penalties is 5 percent (5%) per month.
  5. Taxpayers should file even if they can’t pay. Filing and paying as soon as possible will keep interest and penalties to a minimum. IRS e-file and Free File programs are available for returns filed after the deadline. If a taxpayer can’t pay in full, getting a loan or paying by debit or credit card may be less expensive than owing the IRS.
  6. Payment options. Taxpayers should explore their payment options at “IRS.gov/payments”. For individuals, “IRS Direct Pay” is a fast and free way to pay directly from a checking or savings account. The IRS will work with taxpayers to help them resolve their tax debt. Most people can set up a payment plan using the “IRS Online Payment Agreement tool” on “IRS.gov”.
  7. Late payment penalty may not apply. If taxpayers requested an extension of time to file their income tax return by the tax due date and paid at least 90 percent (90%) of the taxes they owe, they may not face a failure-to-pay penalty. However, they must pay the remaining balance by the extended due date. Taxpayers will owe interest on any taxes they pay after the April 18th due date.
  8. No penalty if reasonable cause.  Taxpayers will not have to pay a failure-to-file or failure-to-pay penalty if they can show “reasonable cause” for not filing or paying on time.

 

IRS TAX PROBLEMS – Changes in IRS Appeals Conferences

IRS TAX PROBLEMS – Changes in IRS Appeals Policy

Changes within the IRS Office of Appeals (“Appeals”) have resulted in clarifications and modifications to IRS Appeals policy.  The IRS has made several changes to the Internal Revenue Manual (IRM) regarding Appeals conference procedures, IRM 8.6.1.  These changes became effective at the beginning of October, 2016.

Under one of these new procedures, most Appeals conferences will be conducted telephonically as opposed to in person, as was common previously.  A taxpayer may still request an in-person conference, but the request must be approved by the Appeals team manager.  The IRM provides that in-person conferences should be limited to certain situations, such as when there are substantial books and records to be reviewed that cannot be referenced easily.

The apparent purpose of the change was to address concerns that requests for in-person conferences sometimes were intended to get the case reassigned to a field employee who may be less-skilled or more taxpayer-favorable.  As a result, however, what was once an important and standard part of the Appeals process will be relegated to a phone call.

 

IRS TAX PROBLEMS – Determining if IRS Visit is Not a Scam

IRS TAX PROBLEMS – Determining If It’s Really The IRS Visiting At Your Door


The Internal Revenue Service (IRS) has created a special new page on “IRS.gov” to help taxpayers determine if a person visiting their home or place of business claiming to be from the IRS is legitimate or an imposter.

With continuing phone scams and in-person scams taking place across the country, the IRS reminds taxpayers that IRS employees do make official, sometimes unannounced, visits to taxpayers as part of their routine casework. Taxpayers should keep in mind the reasons these visits occur and understand how to verify if it is the IRS knocking at their door.

IRS Visits typically fall into THREE (3) Categories:

(1)       IRS revenue officers will sometimes make unannounced visits to a taxpayer’s home or place of business to discuss taxes owed or tax returns due. Revenue officers are IRS civil enforcement employees whose role involves education, investigation, and when necessary, appropriate enforcement.

(2)       IRS revenue agents will sometimes visit a taxpayer who is being audited. That taxpayer would have first been notified by mail about the audit and set an agreed-upon appointment time with the revenue agent. Also, after mailing an initial appointment letter to a taxpayer, an auditor may call to confirm and discuss items pertaining to the scheduled audit appointment.

(3)       IRS criminal investigators may visit a taxpayer’s home or place of business unannounced while conducting an investigation. However, these are federal law enforcement agents, and they will not demand any sort of payment. Criminal investigators also carry law enforcement credentials, including a badge.

For more information, visit “How to know it’s really the IRS calling or knocking on your door” on IRS.gov.

The IRS reminds people who owe taxes – or think they do – to stay alert to scams that use the IRS as a lure. Tax scams can happen any time of year, not just at tax time. For more information, visit “Tax Scams and Consumer Alerts” on IRS.gov.

Taxpayers have a set of fundamental rights they should be aware of when dealing with the IRS. These are your “Taxpayer Bill of Rights”. Explore these rights and the agency’s obligations to protect them on IRS.gov.

 

IRS TAX PROBLEMS – IRS REMINDER – Foreign Assets & Income – Filing Deadlines

IRS TAX PROBLEMS – IRS Reminder – Those with Foreign Assets of U.S. Tax Obligations; New Filing Deadline Now Applies to Foreign Account Reports

The Internal Revenue Service (IRS) recently reminded U.S. citizens and resident aliens, including those with dual citizenship, to check if they have a U.S. tax liability and a filing requirement. At the same time, the IRS advised anyone with a foreign bank or financial account that a new deadline now applies to reports for these accounts, often referred to as “FBARs”.

New Deadline for Reporting Foreign Accounts

Starting this year, the deadline for filing the annual Report of “Foreign Bank and Financial Accounts” (“FBAR”) is now the same as for a federal income tax return. This means that the 2016 FBAR, Form 114, must be filed electronically with the “Financial Crimes Enforcement Network” (“FinCEN”) by April 18, 2017. FinCEN will now grant filers missing the April 18 deadline an automatic extension until Oct. 16, 2017 to file the FBAR. Specific extension requests are not required. In the past, the FBAR deadline was June 30 and no extensions were available.

In general, the filing requirement applies to anyone who had an interest in, or signature or other authority, over foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2016. Because of this threshold, the IRS encourages taxpayers with foreign assets, even relatively small ones, to check if this filing requirement applies to them. The form is only available through the “BSA E-Filing System” website.

Most People Abroad Need to File

An income tax filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the Foreign Earned Income exclusion or the Foreign Tax credit, which substantially reduce or eliminate U.S. tax liability. These tax benefits are only available if an eligible taxpayer files a U.S. income tax return.

A special extended filing deadline applies to U.S. citizens and resident aliens who live and work abroad. For U.S. citizens and resident aliens whose tax home and abode are outside the United States and Puerto Rico, the income tax filing deadline is June15, 2017. The same applies for those serving in the military outside the U.S. and Puerto Rico. Tax payments are still due on April 18, and interest will apply to any payment received after that date.

Nonresident aliens who received income from U.S. sources in 2016 also must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens is April 18.

Special Income Tax Return Reporting for Foreign Accounts and Assets

Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to complete and attach Schedule B to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

In addition, certain taxpayers may also have to complete and attach to their return IRS Form 8938, Statement of Foreign Financial Assets. Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. See the instructions for this form for details.

IRS Reporting for Canadian Retirement Accounts

The IRS eliminated a special annual reporting requirement that applied to taxpayers who hold interests in either of two popular Canadian retirement plans. This was part of an IRS change announced in October 2014 making it easier for taxpayers with these plans to get favorable U.S. tax treatment. As a result, many Americans and Canadians with registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs) don’t need to file Form 8891 to report details on these plans. This does not affect any other reporting requirements that may apply, such as FinCEN Form 114 and Form 8938.

Specified Domestic Entity Reporting

For tax year 2016, certain domestic corporations, partnerships and trusts that are considered formed for the purpose of holding (directly or indirectly) specified foreign financial assets must file Form 8938 if the total value of those assets exceeds $50,000 on the last day of the tax year or $75,000 at any time during the tax year.

For more information on domestic corporations, partnerships and trusts that are specified domestic entities and must file Form 8938, as well as the types of specified foreign financial assets that must be reported, see “Who Must File, Specified Domestic Entity, Specified Foreign Financial Assets, Interests in Specified Foreign Financial Assets, and Assets Not Required To Be Reported.”

Report in U.S. Dollars

Any income received or deductible expenses paid in foreign currency must be reported on a U.S. tax return in U.S. dollars. Likewise, any tax payments must be made in U.S. dollars.

Both Forms 114 and 8938 require the use of a Dec. 31 exchange rate for all transactions, regardless of the actual exchange rate on the date of the transaction. Generally, the IRS accepts any posted exchange rate that is used consistently.

Expatriate Reporting

Taxpayers who relinquished their U.S. citizenship or ceased to be lawful permanent residents of the United States during 2016 must file a dual-status alien return, attaching IRS Form 8854, Initial and Annual Expatriation Statement. A copy of the Form 8854 must also be filed with Internal Revenue Service Philadelphia, PA 19255-0049, by the due date of the tax return (including extensions). See the instructions for this form and IRS Notice 2009-85, Guidance for Expatriates Under Section 877A, for further details.

Choose Free File or E-File

U.S. citizens and resident aliens living abroad can use IRS Free-File to prepare and electronically file their returns for free. This means both U.S. citizens and resident aliens living abroad with adjusted gross incomes (AGI) of $64,000 or less can use brand-name software to prepare their returns and then e-file them for free. A limited number of companies provide software that can accommodate foreign addresses.

A second option, Free File Fillable Forms, the electronic version of IRS paper forms, has no income limit and is best suited to people who are comfortable preparing their own tax return.

Both the e-file and Free File electronic filing options are available until Oct. 16, 2017, for anyone filing a 2016 return. Check out the e-file link on IRS.gov for details on the various electronic filing options. Free File is not available to nonresident aliens required to file a Form 1040NR.

 

IRS TAX PROBLEMS – Is Your Gift Taxable?

IRS Tax Problems – What Makes a Gift Taxable

Taxpayers who give money or property to others may wonder about the federal gift tax and if it applies. Most gifts are not subject to the gift tax.

Here are SEVEN (7) tax tips about the gift tax and giving:

  1. Nontaxable Gifts. The general rule is that any gift is potentially taxable. However, there are exceptions to this rule. The following are nontaxable gifts:
    • Gifts that do not exceed the annual exclusion amount for the calendar year,
    • Tuition or medical expenses a taxpayer pays directly to a medical or educational institution for another person,
    • A taxpayer’s gifts to their spouse,
    • Gifts to a political organization for its use, and
    • Gifts to charities.
  1. Annual Exclusion. For 2016, the annual exclusion amount is $14,000. Most gifts are not subject to the gift tax. For example, there is usually no tax if the taxpayer makes a gift to their spouse or to a charity. If a taxpayer makes a gift to another person, the gift tax usually does not apply until the value of the gift exceeds the annual exclusion amount for the year.
  1. No Tax on Recipient. Generally, the person who receives the gift will not have to pay tax on it.
  2. Gifts Not Deductible. Making a gift does not ordinarily affect the taxpayer’s situation. A taxpayer cannot deduct the value of gifts they make (other than deductible charitable contributions as subject to the tax code).
  3. Forgiven Debt and Certain Loans. Taxpayers who forgive debt or make a loan interest-free or below the applicable market interest rate may be subject to the gift tax.
  4. Gift-Splitting. A taxpayer and their spouse can give up to $28,000 to a third party without making that gift taxable. Taxpayers need to consider one-half of the gift as from them and one-half given by their spouse.
  5. Filing Requirement. Taxpayers need to file IRS FORM 709, United States Gift (and Generation-Skipping Transfer) Tax Return, if any of the following apply:
    • The taxpayer gave gifts to at least one person (other than their spouse) that amounts to more than the annual exclusion for the year.
    • The taxpayer and their spouse are splitting a gift. This is true even if half of the split gift is less than the annual exclusion.
    • If the taxpayer gave a person (other than their spouse) a gift of a future interest that the recipient can’t actually possess, enjoy, or from which that person will receive income later.
    • A taxpayer gifting their spouse an interest in property that will terminate due to a future event.

 

IRS TAX PROBLEMS – April 18, 2017 – Deadline for Paying Taxes

IRS TAX PROBLEMS – Paying Federal Taxes – Deadline, April 18, 2017

The IRS offers several payment options for taxpayers who owe federal taxes. Keep in mind that the deadline for payment is Tuesday, April 18, 2017.

Here are some key points when paying taxes this year:

  1. Never send cash. “Electronic Payment Options” are the quickest and easiest way to make a tax payment. Taxpayers can pay online, by phone or with their mobile device.
  2. A secure and easy way to pay is with “IRS Direct Pay”. Taxpayers can pay online for free at IRS.gov. Use Direct Pay to pay directly from a checking or savings account. Taxpayers will get instant confirmation when they submit their payment.
  3. Whether e-filing their tax return or filing on paper, taxpayers can choose to pay with a credit or debit card. The company that processes the payment will charge a processing fee. The taxpayer may be able to deduct the credit or debit card-processing fee on the Schedule A, Itemized Deductions, on next year’s return.
  4. Use the “IRS2Go app” to pay with Direct Pay or by debit or credit card. IRS2Go provides easy access to mobile-friendly payment options. Download IRS2Go for free from Google Play, the Apple App Store or the Amazon App Store.
  5. Pay taxes electronically on IRS.gov. Just click on the “Payments”’ tab for access to IRS Direct Pay and other payment options. Taxpayers can pay in a single step by using their tax software when they e-File. If using a tax preparer, ask the preparer to make the tax payment electronically.
  6. Taxpayers may also enroll in the “Electronic Federal Tax Payment System”. They can use the EFTPS to pay their federal taxes electronically. They have a choice to pay using the internet, or by phone using the EFTPS Voice Response System.
  7. Taxpayers can make a cash payment without the need of a bank account or credit card at more than 7,000 7-Eleven stores nationwide. To pay with cash, first visit “IRS.gov/paywithcash” and follow the instructions.
  8. If taxpayers can’t pay electronically, they can still pay by a personal or cashier’s check or money order. Do not send cash. Taxpayers should make their check or money order payable to the “U.S. Treasury.” They need to write their name, address and daytime phone number on the front of the payment. They also need to write the tax year, form number they are filing and their Social Security number. They should use the SSN shown first if it’s a joint return.
  9. If paying by check, taxpayers should complete IRS Form 1040-V, “Payment Voucher”. Mail it with the tax return and payment to the IRS. Taxpayers should make sure they send their payment to the address listed on the back of Form 1040-V. This will help the IRS process their payment and post it to their account. Taxpayers can get the form on “IRS.gov/forms” at any time. Do not staple or clip checks to any tax form.
  10. If taxpayers can’t pay their tax bill in full, they should still file their tax return on time. They should pay as much as they can with their tax return. That will help keep their penalty and interest costs down. Taxpayers have options such as an Installment Payment Agreement, which allows them to pay the balance over time. The “Online Payment Agreement” application is available on IRS.gov. Taxpayers can check their account balance using a new online tool. It’s safe, secure and available on the “Finding Out How Much You Owe” page on IRS.gov.

Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at “Validating Your Electronically Filed Tax Return”.
 

IRS TAX PROBLEMS – IRS Reminder – Tax Refunds for 2013

IRS REMINDER – Taxpayers Who Haven’t Filed 2013 Returns: Time is Running Out; Agency has $1 Billion in Refunds

The Internal Revenue Service reminded taxpayers recently that unclaimed federal income tax refunds totaling more than $1 billion may be waiting for an estimated 1 million taxpayers who did not file a 2013 federal income tax return. But time is running out. To claim this money, taxpayers must file a 2013 federal tax return by April 18, 2017.

The law provides most taxpayers with a three-year window of opportunity for claiming a refund. If they do not file a return within three years, the money becomes the property of the U.S. Treasury. The law requires them to properly address mail and postmark the tax return by April 18.

Some people, such as students and part-time workers, may not have filed because they had too little income to require them to file a tax return. They may have a refund waiting if they had taxes withheld from their wages or made quarterly estimated tax payments. Some taxpayers could also qualify for certain tax credits, such as the Earned Income Tax Credit (EITC), but they need to file a tax return to claim the credit.

Low- and moderate-income workers whose incomes fall below certain limits often qualify for the EITC, which for 2013 was worth as much as $6,044. The income limits for 2013 were:

  • $46,227 ($51,567 if married filing jointly) for those with three or more qualifying children;
  • $43,038 ($48,378 if married filing jointly) for people with two qualifying children;
  • $37,870 ($43,210 if married filing jointly) for those with one qualifying child, and;
  • $14,340 ($19,680 if married filing jointly) for people without qualifying children.

There is no penalty for filing a late return for those receiving refunds. The IRS estimates that half the potential unclaimed refunds are worth more than $763.

The IRS may hold 2013 refunds if taxpayers have not filed tax returns for 2014 and 2015. The U.S. Treasury will apply the refund to any federal or state tax owed. Refunds may also be held to offset unpaid child support or past due federal debts such as student loans.

Current and prior year tax forms and instructions are available on IRS.gov.

Taxpayers who are missing Forms W-2, 1098, 1099 or 5498 for tax years 2013, 2014 or 2015 should request copies from their employer, bank or other payer. Taxpayers who are unable to get missing forms from their employer or other payer should go to IRS.gov and use the “Get Transcript Online”” tool to obtain a Wage and Income transcript.

IRS TAX PROBLEMS – IRS Starts Private Tax Collection in April, 2017

IRS TAX PROBLEMS – Private Collection of Some Overdue Federal Taxes Starts in April

Starting this month, the Internal Revenue Service will begin sending letters to a relatively small group of taxpayers whose overdue federal tax accounts are being assigned to one of four private-sector collection agencies.

The new program, authorized under a federal law enacted by Congress in December 2015, enables these designated contractors to collect, on the government’s behalf, unpaid tax debts. Usually, these are unpaid individual tax obligations that are not currently being worked by IRS collection employees and often were assessed by the tax agency several years ago.

Taxpayers being assigned to a private firm would have had multiple contacts from the IRS in previous years and still have an unpaid tax bill.

“The IRS is taking steps throughout this effort to ensure that the private collection firms work responsibly and respect taxpayer rights,” said IRS Commissioner John Koskinen. “The IRS also urges taxpayers to be on the lookout for scammers who might use this program as a cover to trick people. In reality, those taxpayers whose accounts are assigned as part of the private collection effort know they have a tax debt.”

The program will begin this week with a few hundred taxpayers receiving mailings and subsequent phone calls, with the program growing to thousands a week later in the spring and summer. Taxpayers with overdue taxes will always receive multiple contacts, letters and phone calls, first from the IRS, not private debt collectors.

How the New Program Works

The IRS will always notify a taxpayer before transferring their account to a private collection agency (PCA). First, the IRS will send a letter to the taxpayer and their tax representative informing them that their account is being assigned to a PCA and giving the name and contact information for the PCA. This mailing will include a copy of IRS Publication 4518, What You Can Expect When the IRS Assigns Your Account to a Private Collection Agency.

Only four private groups are participating in this program: CBE Group of Cedar Falls, Iowa; Conserve of Fairport, N.Y.; Performant of Livermore, Calif.; and Pioneer of Horseheads, N.Y. The taxpayer’s account will only be assigned to one of these agencies, never to all four. No other private group is authorized to represent the IRS.

Once the IRS letter is sent, the designated private firm will send its own letter to the taxpayer and their representative confirming the account transfer. To protect the taxpayer’s privacy and security, both the IRS letter and the collection firm’s letter will contain information that will help taxpayers identify the tax amount owed and assure taxpayers that future collection agency calls they may receive are legitimate.

The private collectors will be able to identify themselves as contractors of the IRS collecting taxes. Employees of these collection agencies must follow the provisions of the Fair Debt Collection Practices Act, and like IRS employees, must be courteous and must respect taxpayer rights.

The private firms are authorized to discuss payment options, including setting up payment agreements with taxpayers. But as with cases assigned to IRS employees, any tax payment must be made, either electronically or by check, to the IRS. A payment should never be sent to the private firm or anyone besides the IRS or the U.S. Treasury. Checks should only be made payable to the United States Treasury. To find out more about available payment options, visit IRS.gov/Payments.

Private firms are not authorized to take enforcement actions against taxpayers. Only IRS employees can take these actions, such as filing a notice of Federal Tax Lien or issuing a levy. To learn more about the new private debt collection program, visit the “Private Debt Collection” page on IRS.gov.

Watch out for Phone Scams

The IRS reminds taxpayers to be on the lookout for scammers posing as private collection firms. The IRS will be watching for these schemes as the collection program begins, and this effort will include working with partners in the tax community and law enforcement about emerging scams.

People should remember that these private collection firms will only be calling about a tax debt the person has had – and has been aware of – for years and had been contacted about previously in the past by the IRS.

“Here’s a simple rule to keep in mind. You won’t get a call from a private collection firm unless you have unpaid tax debts going back several years and you’ve already heard from the IRS multiple times,” Koskinen said. “The people included in the private collection program typically already know they have a tax issue. If you get a call from someone saying they’re from one of these groups and you’ve paid your taxes, that’s a sure sign of a scam.”

If taxpayers are unsure if they have an unpaid tax debt from a previous year – which is what the private collection firms will handle – they can go to IRS.gov and check their account balance: www.irs.gov/balancedue. If the account balance says zero, that means nothing is due, and you typically wouldn’t be getting a contact from the IRS or the private firm.

Whether or not a taxpayer’s account is assigned to a private collection agency, the IRS warns taxpayers to beware of scammers pretending to be from the IRS or an IRS contractor. Here are some things the scammers often do but the IRS and its contractors will never do.

  • Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. Generally, the IRS will first mail a bill to any taxpayer who owes taxes, and if a case is assigned to a PCA, both the IRS and the authorized collection agency will send the taxpayer a letter. Payment will always be to the United States Treasury.
  • Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.
  • Demand that taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.
  • Ask for credit or debit card numbers over the phone.

“Unexpected and threatening calls out of the blue from someone saying they’re representing the IRS to collect a tax debt is a warning sign people should watch out for,” Koskinen said.

For more information, visit the “Tax Scams and Consumer Alerts”” page on IRS.gov.

Don’t Wait to Hear from the IRS or a Contractor

As always, the IRS encourages taxpayers behind on their tax obligations to come forward and either pay what they owe or set up a suitable payment plan. This means there’s no need to wait for a phone call or letter from the IRS or any of its contractors.

Frequently, taxpayers qualify for one of several payment options, and taking advantage of them is often easier than many people think. These include the following:

  • Most people can set up a payment agreement with the IRS online in a matter of minutes. Those who owe $50,000 or less in combined tax, penalties and interest can use the “Online Payment Agreement” to set up a monthly payment agreement for up to 72 months. Taxpayers can choose this option even if they have not yet received a bill or notice from the IRS. With the Online Payment Agreement, no paperwork is required, there is no need to call, write or visit the IRS and qualified taxpayers can avoid the filing of a Notice of Federal Tax Lien if one was not previously filed. Alternatively, taxpayers can request a payment agreement by filing IRS Form 9465. This form can be downloaded from IRS.gov and mailed along with a tax return, bill or notice.
  • Some struggling taxpayers may qualify for an “Offer-in-Compromise”. This is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay. To help determine eligibility, use the “Offer-in-Compromise Pre-Qualifier”, a free online tool available on IRS.gov.

“If people have a problem paying their tax bill, we encourage them to reach out to us,” Koskinen said. “We have many programs designed to help people who are having trouble meeting their tax obligations. It’s better to reach out to us sooner rather than later for help, because interest and penalties on unpaid taxes can add up quickly.”

 

IRS TAX PROBLEMS – IRS GUIDANCE – RESEARCH CREDITS FOR START-UP BUSINESSES

IRS TAX PROBLEMS – For Small Business Startups, IRS Explains New Option for Claiming Research Credit

The Internal Revenue Service (IRS) recently issued interim guidance explaining how eligible small businesses can take advantage of a new option enabling them to apply part or all of their research credit against their payroll tax liability, instead of their income tax liability. Before 2016, taxpayers could only take the research credit against their income tax liability.

IRS Notice 2017-23, posted recently on IRS.gov, provides guidance on a new provision included in the Protecting Americans From Tax Hikes (PATH) Act enacted in December 2015. This new option will be available for the first time to any eligible small business filing its 2016 federal income tax return this tax season. Those who already filed still have time to choose this option.

The option to elect the new payroll tax credit may especially benefit any eligible startup that has little or no income tax liability. To qualify for the new option for the current tax-year, a business must have gross receipts of less than $5 million and could not have had gross receipts prior to 2012.

An eligible small business with qualifying research expenses can choose to apply up to $250,000 of its research credit against its payroll tax liability. An eligible small business chooses this option by filling out IRS Form 6765, “Credit for Increasing Research Activities”, and attaching it to a timely-filed business income tax return. But under a special rule for tax-year 2016, a small business that failed to choose this option and still wishes to do so, can still make the election by filing an amended return by Dec. 31, 2017. See the notice for further details.

After choosing this option, a small business claims the payroll tax credit by filling out IRS Form 8974, “Qualified Small Business Payroll Tax Credit for Increasing Research Activities”. This form must be attached to its payroll tax return, for example IRS Form 941, “Employer’s Quarterly Federal Tax Return”. Further details on how and when to claim the credit are in the notice.

The notice provides interim guidance on controlled groups, the definition of gross receipts, and other issues. The notice also requests public comment on various payroll tax credit issues to be addressed in future guidance. See the notice for details on how and when to submit comments. For more information on the research credit itself, see the instructions to IRS Form 6765.