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Boston Tax Law Blog

What is the cost of failing to apply IRS Levy?

A recent case details what can happen when a bank does not immediately apply an Internal Revenue Service levy to freeze a bank account. The bank was on the hook for the amount that its customer withdrew.

When a taxpayer is unable to pay a tax bill, the IRS has various collection tactics. The agency can take money directly from your bank account or paycheck through a bank levy or wage garnishment. Here, the IRS notified a taxpayer that it intended to levy his bank account.


Payroll taxes and the Trust Fund Recovery Penalty

The Internal Revenue Service does not have the resources to audit every single tax return and thus prioritizes its collection efforts. The agency keeps a close eye on the payment of employment taxes withheld from employee paychecks.

When a company does not immediately transfer these funds, also called trust fund payments, to the IRS there are serious consequences. All responsible persons with an ownership interest in or signatory authority for the company can be held liable.

In an effort to encourage prompt payment of these trust fund payments, congress passed the Trust Fund Recovery Penalty. The IRS can assess multiple owners with the 100-percent penalty. Technically any person responsible for collecting or paying withheld income and employment taxes who willfully fails to collect or pay them is liable.

Relief from tax debt possible, but beware of lofty promises

The Federal Trade Commission recently went after a company that made claims they could settle tax debt for pennies on the dollar. The problem was that once consumers sent an upfront fee they often did not receive any tax-debt relief.

Under the FTC settlement, the agency will refund $16 million to 18,000 customers. The agency secured millions in assets, including jewelry and a Ferrari from the company and its owners. However, customers should not expect a full refund because much of the money is gone.

This case provides a warning that if a claim sounds too good to be true, it probably is. The IRS does offer some relief in limited cases of severe financial hardship. For instance, our April 16 post noted an increase in the Offer in Compromise acceptance rate to 42 percent. An experienced tax attorney can discuss requirements and advise whether the program may help.

IRS correspondence tax audit: Open the letter

The Internal Revenue Service has increased the number of correspondence audits in lieu of in person tax audits. When an envelope with the IRS logo arrives in the mail, do not ignore it.

Often a letter or notice from the IRS will request additional information. The agency might be requesting additional tax and a penalty if it discovered an error or miscalculation. In either case, the request may only allow 30 days to respond to the tax audit.

Former NFL quarterback hit with tax lien

Musicians, actors and sports stars sometimes make news when they run into issues with the Internal Revenue Service. On this blog, we have discussed tax liens filed against celebrities, such as Lionel Richie, Sinbad and Lindsey Vonn.

Reportedly, former NFL player Kordell Stewart is the most recent celebrity to face a serious tax lien. Allegedly, he failed to pay his state tax bill and owed the State of Georgia $8,532 in unpaid taxes from 2012. With interest and penalties, the outstanding balance climbed to more than $13,000.

If he fails to pay the taxes owed, he could lose his home or money in bank accounts. The government placed a levy on his assets, which allows the government to seize possessions and sell them to recover the money owed.

This case illustrates how quickly interest and penalties can increase a tax balance owed. It also raises the question: How do you deal with a tax lien?

Remote office? Can you claim a home office deduction?

With expanded access to broadband and wireless internet connections, more employees work remotely from a home office. Running a start-up from a home office is also common and many business owners keep their main office in their home.

Last year, the U.S. Internal Revenue Service offered a simplified option for the home office deduction.

This post will explain how to calculate the deduction under the simplified approach. In addition, we will discuss basic requirements. Failure to meet the requirements could prompt an IRS tax audit.

Tax penalties: Massachusetts amnesty program might help

When you do not have the money to pay your tax bill before the filing deadline, you may not file a return. Requesting an extension usually does not avoid the failure to pay penalty.

Federal and state tax penalties add up quickly. On top of the back taxes and interest, the amount you owe may easily skyrocket. But a new two-month Massachusetts amnesty program might provide some relief when it comes to state penalties.

Rule could expand the reach of IRS tax levies

One tool that the Internal Revenue Service uses to collect back taxes is the tax levy. A levy allows the IRS to take property to satisfy an outstanding tax debt.

A proposed rule could expand the ability of the IRS to collect back taxes from federal employees. The IRS estimate is that approximately 300,000 federal employees owe a total of $3.3 billion in unpaid taxes. This goes to show that anyone can struggle to pay an unexpected tax bill.

The rule would allow the Federal Retirement Thrift Investment Board to freeze an investor's Thrift Savings Plan when it receives a tax levy notice. The FRTIB would also be able to take funds from the retirement account to pay the back taxes. What other property can the IRS levy?

Timelines on correspondence audits: IRS often misses the mark

This is a follow-up to a post we did last winter on correspondence audits.

The term “tax audit” is often associated with face-to-face audits. As we noted in our March 5 post, however, correspondence audits – also known on “corr-exams,” are a commonly used procedure in which taxpayers respond to IRS inquiries by mail.

In this post, we will take note of a recent government report that found concerns with how the IRS manages the flow of documents it receives through these audits.

FATCA finally goes into effect

On July 1, 2014, the Foreign Account Tax Compliance Act went into effect. The measure was passed in 2010 as part of the Hiring Incentives to Restore Employment Act. FATCA has been billed as a way to curb the use of unreported foreign accounts to avoid U.S. tax liabilities. 

Leading up to implementation of the Act, the Treasury reached information-sharing agreements with many countries. In addition, almost 77,000 banks have registered with the Internal Revenue Service and agreed to share information on their U.S. account holders.

What does implementation of the Act mean for those who have a foreign bank or investment account?

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