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Compliance Part 2: What to ask for from the IRS

IRS Tax Problems Solved

Compliance Part 2: What to ask for from the IRS #EnrolledAgent

Compliance Part 2: What to ask for from the IRS

Hang on to this IRS website link: IRS GET TRANSCRIPT

Frequently I get calls from taxpayers who are suddenly motivated to get their back taxes filed. Naturally, I like to find out what is creating the motivation as this is usually the starting point for any solution to an IRS issue.

Most people who haven’t filed taxes in years are prompted by an outside force that urges them to become compliant. Sometimes it is need; such as needing refinancing and the institution wants to see that last three current filed tax returns.

Most of the time, it is a letter from the IRS that creates motivation. I get many IRS letters in the mail every week; mostly because I have IRS Power of Attorney and am allowed to receive the letters the service sends to my clients; so I have the IRS mail the letters to my home office. Even after years of dealing with the IRS, I still get a little butterfly in my stomach when I see IRS envelopes. And it isn’t as though I have anything to worry about, it’s just a guttural feeling attached to receiving an IRS letter or notice.

That ‘little butterfly’ is little because I am an Enrolled Agent (EA). The butterfly is usually pretty big, with a large wingspan, for the taxpayer receiving the letter in their home mailbox. So many people are a bit unnerved when they contact me to get their back taxes filed; as soon as possible.

Finding the motivator of the desire to get back taxes filed as quickly as possible helps me to see if the first step is to review a letter(s) received from the IRS. Receiving IRS notices is so unnerving that the fact the IRS is actually sending letters explaining their position gets omitted when a caller starts explaining why they haven’t filed.

Find out what the IRS already knows.

So here’s the first stop in resolving any type of IRS issue: Find out what the IRS already knows.

Finding out what the IRS already knows is a bit tedious, but relatively straightforward process. It’s really a question of time. You can call the IRS (advice gem #2: Call the IRS at 7:00 a.m.) and ask the employee who assists you to send your transcripts. If you are dealing with the last couple of years you can use the IRS Get Transcript portal; but everything has to line up just right (specifically your cell phone ownership) in order to use this system. Or you can pay someone like me to obtain your transcripts for you.

Since most tax problems arise from non-compliance, when getting in to compliance the taxpayer at least wants to match what has been reported to the IRS, meaning not excluding something they already know about. This is usually obtained by requesting a Wage and Income Transcript for the Tax ID number in question.  Wage and Income Transcript – shows data from information returns the IRS received such as Forms W-2, 1099, 1098 and Form 5498, IRA Contribution Information. This transcript is available for up to 10 prior years using Get Transcript Online or Form 4506-T.

The Tax Account Transcript – shows basic data such as return type, marital status, adjusted gross income, taxable income and all payment types. It also shows changes made after you filed your original return. This transcript is available for the current tax year and up to 10 prior years using Get Transcript Online or Form 4506-T. When using Get Transcript by Mail or phone, you’re limited to the current tax year and returns processed during the prior three years.

If there is a liability, you will want to ask for the CSED  (Collection Statute Expiration Date) for each year and the liability associated with that tax year; the amounts assessed will be broken down by tax, penalty and interest. All three pieces of information, for every year related to any year in question is vital to crafting a solution to settle an IRS debt. The most important aspect of obtaining the CSED for every year is in knowing how much more time remains for the IRS to actually collect a past due liability.

A common concern I hear is the taxpayer’s fear of contacting the IRS because it will arouse their curiosity and get revenue agents looking into things they were previously unaware of. I suppose there is some wisdom in that belief. Most likely, the curiosity is raised by the uninitiated fumbling through data collection, or self-education; nervously talking and providing unnecessary information.

There is an electronic method of obtaining the information regarding what the IRS already knows and their current position regarding any dispute with the taxpayer; that’s through the IRS e-Services portal.

Any tax professional with a CAF# (Central Authorization File Number) can file either IRS Form 8821 or IRS Form 2848 and use the IRS electronic services portal to retrieve IRS transcripts. This does not involve any IRS employees so there is no chance of sharing information that should be better kept unknown.

Put Your Position on the Table

Once you know what the IRS already knows, any plan for resolving the tax issue can be put in to play.

The first step is always to file any unfiled tax returns. This is in essence making your position known. The tax payer may have expenses and deductions the IRS is unaware of. Filing unfiled tax returns can cause the IRS to reassess your tax liability provided by new information submitted. If your tax liability is actually lowered by filing a tax return, the time for collection by the IRS still continues to tick away from the original date of assessment.

Once all the unfiled tax returns are filed, there is a clear picture of the actual overall tax debt, penalties, and interest; combined with the timeframe for expiration. These factors allow for selecting the best methodology for dealing with the overall situation and how to go about negotiating with the IRS.

The same process is employed for individual tax payers as well as business-related tax matters. Complicating business-related issues somewhat could be the addition of unpaid payroll taxes. Regardless of what is needed to gain a full picture of the problem at hand; calling the IRS or obtaining the information by mail or electronically provides the missing details of what the IRS already knows.

After Compliance Comes Collections

If you want to handle the tax issue yourself, the IRS will make it pretty simple to set up a payment plan to settle your debt. The size of the debt determines how easy or complicated establishing a payment plan can be, as larger debts go through a greater amount of scrutiny. Read about Guaranteed and Streamlined Agreements here.

The IRS most likely will not assist you with any of your rights as a taxpayer, or other options available to you; such as First Time Penalty Abatement. A trained professional likely has a greater depth of knowledge in what can and cannot be done with an IRS debt. The IRS can be helpful, no doubt, but understand their goal is to collect the tax; the taxpayer’s goal should be paying as little tax as possible.

If you need the assistance of a trained tax expert in resolving matters with the IRS, check out my website: www.taxstratag.com or click here for a list of EA’s in Sarasota/Bradenton Florida. #EnrolledAgent

Article and Video Interview: Three Degrees of an EA

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Three Degrees of Enrolled Agents

What is an Enrolled Agent? There, I got it out first so you will enjoy reading the remainder of this article.

My best elevator version (and an attorney I worked for advised me against using this); “We are non-lawyer Tax Attorney’s.” That at least gets the receivers interested enough to clarify things they do understand; ‘lawyer, tax attorney’? What do you mean by that?

There really isn’t a short version of what exactly an enrolled agent (an EA) is.

Technically speaking, Enrolled Agents have a credential issued by the U.S. Treasury Department (yes issued by the Secretary of the Treasury himself; personally I’d like to think [erroneously so]) which falls under the jurisdiction of the Internal Revenue Service (“hereinafter referred to as the “IRS”).

Here’s what the IRS website says about Enrolled Agents (EA’s): An enrolled agent is a person who has earned the privilege of representing taxpayers before the Internal Revenue Service by either passing a three-part comprehensive IRS test covering individual or business tax returns, or through experience as a former IRS employee. Enrolled agent status is the highest credential the IRS awards. Individuals who obtain this elite status must adhere to ethical standards and complete 72 hours of continuing education courses every three years.

Enrolled agents, like attorneys and certified public accountants (CPAs), have unlimited practice rights. This means they are unrestricted as to which taxpayers they can represent, what types of tax matters they can handle, and which IRS offices they can represent clients before. Learn more about enrolled agents in Treasury Department Circular 230 (PDF).

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Enrolled Agent, NTPI Fellow, USTCP

Where’d Everybody Go?

Wow. Love that explanation on the IRS website; especially that part of ‘elite status’. By the time I got to that point everybody has gotten off the elevator many floors ago. I’m wishing that explaining what an enrolled agent is was as simple as saying, “I’m a CPA.” Nobody questions that; everybody knows what a CPA is, right? Probably not; but my hat goes off the AICPA (American Institute of Certified Public Accountants) for a magnificent feat of branding that profession has enjoyed (and fiercely protected, I’ll add). Plus, what’s the follow up question to hearing, “I’m a CPA.”? “Cool, what’s your field of specialization?” I’m thinking most elevator riders wouldn’t know, or even care, to ask that question.

So, often the response to questions about what I do for a living is, “I’m a tax guy.” Or, “I do taxes.” That usually shuts off a conversation as quickly as saying you’re a CPA (just kidding). But for those you are curious, what comes next? “So…. are you an accountant?” And of course I tell them that I’m an EA; which leads to the inevitable, “That’s great …. Now. What’s an EA?” It feels like I’ve already covered this question.

Degrees of EA

People generally not knowing what an Enrolled Agent is, and the education required to maintain the credential is bad enough. What’s worse is that people (prospective clients; let’s call it what it is) are completely unaware there are various degrees, or areas of specialization, that Enrolled Agents can place their focus of expertise.

As an Adjunct Instructor for the State College of Florida SEE Prep Course; a course which assists prospective EA’s with knowledge for the Special Enrollment Examination (SEE); the three wickedly difficult exams of the SEE that must be passed in order to earn the EA credential; I communicate what an enrolled agent is this way.

  • Enrolled Agents = Bachelor’s Level

Becoming an EA really only indicates you passed the three exams of the SEE and your federal background check. You hold the credential and can maintain it as long as you complete the required amount of continuing professional education. You should know quite a bit about personal and business tax return preparation and the general rules regarding income, expenses, deductions, credits; code of professional conduct, and the rules-of-the road. You can act on the behalf of others in front of the IRS; but nothing about EA screams of expertise.

Continuing Professional Education (CPE) is where you will maintain, broaden, and refine your knowledge. As your professional life dictates, you’ll focus on the knowledge that will give you the most return on your investment. That could be a focus on business owners, simple individual tax preparation, even IRS conflict resolution. And you can become an expert in any or all of them. Once you become an Enrolled Agent you can focus on any area of tax law you wish. Regardless of the heights you hit, you will still only have EA following your name.

Becoming an Enrolled Agent can allow you to secure gainful employment, at least seasonally, because the tax preparation community of CPA’s, bookkeepers and accountants know what EA’s are and value their credential; it is that community where a large majority of Enrolled Agents find themselves employed.

  • NTPI Fellow = Master’s Level

The National Tax Practice Institute Fellow designation, NTPI or NTPI Fellow, is evidence of significant expertise in the representation of taxpayers before the IRS. According to the National Association of Enrolled Agents (NAEA), becoming an NTPI Fellow isn’t easy.

NTPI Fellows have completed another stringent, three-level program of study that covers all facets of representing clients before the IRS and the associated codes, internal regulations and agency structure. These professionals are focused primarily on the ‘IRS collections’ aspect of helping others in conflict with the IRS; and regularly elevate cases to the IRS Office of Appeals.

Like a master’s level education from a university can serve you quite well; having NTPI following the EA after your name shows you made a determined effort, beyond elective continuing professional education, to fully understand how to successful navigate the IRS collections process. The NTPI level of acumen for an EA is extremely useful due to the nature of the U.S. Tax Court pushing back cases to IRS Appeals.

Again, the NTPI Fellow designation is widely recognized by attorneys, accountants, CPA’s, EA’s; basically the entire tax and accounting industry; plus tax resolution / representation companies and lawyers. (The NTPI Fellow designation should not be confused with an Actual Master of Taxation degree from an accredited institution.) As an NTPI Fellow you will be in the company of some of the nation’s top tax practitioners.

  • USTCP = Doctorate Level

The United States Tax Court Practitioner (USTCP) says a great deal about your expertise as an Enrolled Agent. To obtain the USTCP designation another extensive four part examination must be passed successfully. This examination focuses on knowledge of these subject areas:

(1) The Tax Court Rules of Practice and Procedure,

(2) Federal Taxation,

(3) The Federal Rules of Evidence, and

(4) Legal ethics, including the Model Rules of Professional Conduct of the American Bar Association.

The four part USTCP exam is handwritten; particularly intimidating for most test takers; however if you are successful as an Enrolled Agent, you will become a non-attorney admitted to practice before the United States Tax Court. You will become a member of the United States Tax Court Bar.

This is where the road of IRS representation splits. EA’s and CPA’s, by-and-large, cannot represent others in front of the tax court. This is a realm primarily for lawyers. Most any lawyer can be admitted to the U.S. Tax Court Bar and call themselves a tax attorney. It is the non-attorneys who have the high hurdle of the four part examination.

Tax court really is about tax law. It is the national forum for resolving disputes between taxpayers and the IRS. When cases are heard in Tax Court, the judges are deciding whether the IRS errored by not following or interpreting the IRS Tax Code correctly. The taxpayer involved has had a petition filed outlining where the taxpayer believes the IRS was mistaken. There are some massively huge tax court cases, but the smaller cases are more numerous and the court has a division for ‘small cases’ where the tax liability is $50,000 or less.

As far as EA’s go, USTCP is the elite of the elite; these individuals really are ‘non-lawyer tax attorneys’; a member of a Bar Association; although NTPI Fellow is nothing to turn your nose up at; nor EA, for that matter.

At times you will see an Enrolled Agent with all three designations: EA, NTPIF, USTCP; this is the trifecta of knowledge for an EA. All three designations, representing years of study, numerous examinations, untold hours of continuing professional education, and a commitment to ethical behavior and ongoing personal growth.

Enrolled Agents are tax experts; 100% of an EA’s education is related to federal tax law and that competence must be displayed to the Internal Revenue Service on a continual basis.

If you seek the help of an Enrolled Agent (EA) click here.

Watch this video here: https://youtu.be/C1iO-SQXnqU

Useful Tax Loopholes You May Not Know About

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Useful Tax Loopholes You May Not Know About

Useful Tax Loopholes You May Not Know About

Educated taxpayers view IRS tax debt relief as more of a proactive strategy when armed with the right information. With knowledge of lesser known tax provisions, a taxpayer can actually lessen the amount of their taxes while deriving substantial personal benefits. People tend to ‘jargonize’ many of these tax provisions as tax loopholes.

By definition, a tax loophole is ‘A provision in the laws governing taxation that allows people to reduce their taxes.’ According to the dictionary, the term has the connotation of an unintentional omission or obscurity in the law that allows the reduction of tax liability to a point below that intended by the framers of the law. Unfortunately you won’t find any secrets of the ultra-wealthy, or insider government information in this article. However, here are a few ideas you may not have considered when employing an overall tax strategy for yourself.

Many tax provisions that lower personal IRS tax debt apply to taxpayers who itemize their allowable expenses on their returns. For the taxpayer who cannot amass ‘deductible’ expenses in excess of the government’s predetermined standard deduction, there is no benefit derived from money spent on those items. For many taxpayers, a common, disappointing, example of a useless tax deduction could be the home mortgage interest deduction. If you bought a house on the idea you would benefit from deducting the interest paid, the amount of interest would still need to be substantial enough (in combination with other things) to exceed the standard deduction for that to be true.

This article presents ideas that can benefit most any taxpayer, not just those who itemize or use the ‘long form.’ The idea is to divert the use of your personal income to not only lower your tax bill, but derive other positive benefits as well.

Lifetime Learning 

You will love this example. By reading this article you possess the requisite curiosity to learn more. You probably realize that from this reading will come only a little information about tax relief solutions. There is so much more to learn about, well, everything. If you have ever heard; “Pay yourself first.” The Lifetime Learning Credit is the tax-example of that phrase. Here is the perfect example of not only making an investment in yourself, but also lower your taxes.

The Lifetime Learning credit can provide up to a $2,000 per year in direct tax reduction, not income reduction. This tax credit represents 20 percent of the first $10,000 a taxpayer spends for education after high school to an eligible educational institution. This tax credit becomes unavailable to taxpayers with higher incomes that exceed certain thresholds (subject to a phase-out), but doesn’t discriminate based on age.

With today’s fast moving society, the skills employees need to stay relevant are continuously evolving. Continual education is becoming a near certainty and taxpayers may have several career skill-sets throughout their lives. Knowledge, money, finances and taxes are all intertwined; the more a taxpayer can learn, they more they can save and advance their lives. If it has been a while since you graduated high school, or even college, you likely haven’t tapped in to the Lifetime Learning Credit.

Savers Credit

If you are not a full-time student and earn below certain income levels, you can use the Saver’s Credit to get a tax credit; another reduction in actual tax, not income, for a portion of your IRA or 401k contributions. For younger taxpayers, consider funding a Roth IRA.

Many young taxpayers files returns and obtain a refund of all of the taxes withheld from their pay. The Savers Credit is a non-refundable tax credit, which means it is available only for lowering your taxes to zero. If a taxpayer’s tax debt is eliminated by allowable deductions and personal exemptions, there is little motivation to look at tax saving ideas such as the Savers Credit. As incomes rise and the taxpayer can no longer eliminate a tax burden, tax reductions from the Savers Credit gain more attention.

The problem with the Savers Credit is many taxpayers only look at one benefit, the tax savings, and overlook the future benefits of the retirement the funding. The beauty of a Roth IRA, especially for a young taxpayer, is they are cheap and easy to set up (as little as $50). The long range benefits are nearly impossible to calculate. By law, if you have had a Roth IRA opened for over 5-years, in the future, tax free withdrawals can be taken from ANY Roth IRA account, regardless of time open. The Roth IRA is a long-ranging financial strategy piece, but for the younger taxpayer during their low income years, they can fund a valuable retirement vehicle and lower the amount they pay in taxes.

After-Tax Roth Conversions

Since you read this article years ago and funded a Roth IRA with just a few bucks, now that you are earning hiring incomes or have retirement on the horizon. As a taxpayer, you want to fill up your Roth IRA but either make too much to qualify or find the $5,500 per year limit too low. You can convert contributions made to a pre-tax 401(k) or Traditional IRA to your Roth.

The tax ramifications and benefits of a Roth conversion are really the topic of financial planning. However, all money in 401K’s and IRA’s will eventually be subject to tax and mandatory distribution; the government is in charge of insuring that occurs. A Roth conversion can give the taxpayer control of when they will recognize the retirement income and subject it to taxation. A Roth IRA is an excellent timing tool for overall tax strategy, especially if you can minimize or eliminate any ‘holding period’ requirements (account being open at least 5 years).

The Gig Economy

This may be for the enterprising taxpayer and will require competent tax expertise; getting it wrong could lead to some need for IRS tax debt solutions or conflict resolution, so getting this right is for the organized record keeper. The gig economy, such as Uber or Lyft ridesharing, allows practically anyone to be a self-employed taxpayer; essentially functioning as a business.

Taxes on business income are calculated differently than taxes on personal income. Generally speaking, a business takes in 100% of every dollar earned, reduces that income by allowable expenses, and the owners pay the tax on what remains. Most personal income has tax withheld by the payer before the taxpayer has use of the funds. If the taxpayer is fortunate, they have sufficient expenses, deductions and credits, to get back as much of what was withheld as possible; possibly only minimizing any additional amount of tax owed.

As a self-employed businessperson of the 21st century gig economy, you enjoy a mix of business and personal tax debt elimination strategies. The miles you drive your automobile that are directly related to the conduct of the self-employment significantly reduce the amount of that income subject to tax.

Self-employed business owners are able to deduct the cost of their own health insurance premiums reducing the amount of income subject to tax. Non-business owners have additional criteria to meet before enjoying any medical expense deductions.

As part of the gig economy, if something is used to benefit your unique business and you can document the reasons for it, you generally can deduct it in some fashion to reduce the amount of business income taxed. An example would be a business owner who gives free beer to prospective clients as an inducement to business. There has been a tax court case that upheld the business owner’s right to deduct the cost of the beer given away as a business expense.

Properly executed, being a self-employed individual, even in addition to other employment for others, can allow the taxpayer to get on with many aspects of their daily lives, increase earnings, and increase the amount of allowable deductible expenses against income to reduce taxes. Self-employment is an overlooked opportunity for many savvy or entrepreneurial taxpayers.

Retirement Savings Accounts

Self-employed business-people have more possibilities for retirement funding than non-business owners which is another advantage. But whether or not the taxpayer is self-employed, or employed by others, itemizes or uses the standard deduction; funding retirement accounts is the most widely recognized and accepted way for reducing your personal taxes and obtaining future tax benefits. While the amounts of contribution for retirement accounts have limitations, and higher incomes tend to negate the immediate tax credit advantages of retirement funding. Funding an IRA or contributing to a company 401K are the ‘standard’ for most taxpayers seeking a ‘loophole’ when filing their taxes.

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Contact an Enrolled Agent for Help

Help Is Available

Sometimes life does not work out as we anticipate and taxpayers can find themselves looking for solutions to their IRS tax debts. No loopholes will help fix an IRS tax debt problem. If you are unable to pay your taxes, get help from trained experts immediately. Click here to find experts who will perform a comprehensive overview of your situation.

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