The difference between a traditional corporation and an LLC.
By law, a corporation is a separate entity that has its own rights and responsibilities.
In forming a corporation, potential shareholders offer money and/or property in exchange for stock.
Advantages of a corporation include limited liability for stockholders
unlimited life for the business, relative ease in raising capital, simple transfer of ownership through the sale of stock and tax-free benefits to the owner/employees.
Disadvantages of a corporation include complexity, limitations on activities
by the corporate charter, extensive regulation and record-keeping rules, and double taxation, once on corporate profits and again on dividends.
Subchapter S Corporations avoid that last issue.
Shareholders include their shares of income, deduction loss, and credit as part of their personal income and are not subject to self-employment tax as in a partnership. Disadvantages include less flexibility in choosing a tax year, less flexibility in who can be a shareholder, contribution limits to a retirement plan and fringe benefits taxable to employee shareholders who own more than 2 percent of the corporation.
A Limited Liability Company (LLC) is created and regulated under state laws.
An LLC is allowed to possess the limited liability characteristics of a corporation, but is treated as a partnership for federal tax purposes. A major advantage to an LLC is the same tax pass-through feature of an S Corporation. Furthermore, they offer the flexibility of a partnership without the restrictions of an S Corporation. They can have more than one class of stock, the number and type of members are not limited and there is flexibility in profit/loss allocation.
They also offer limited liability protection for all members.
Any LLC member can participate in management without being exposed to personal liability. Contribution of property to an LLC is tax-free regardless of how much control the contributing partner has. Liquidation of an LLC is generally a tax-free event, and they are not required to file annual reports with Arizona Corporation Commission.
Disadvantages are that an LLC must have two members to file as a partnership for federal tax purposes (a single-member LLC files as a sole proprietor)
a single-member LLC files as a sole proprietor, earnings are generally subject to self-employment tax, state law may limit the life of an LLC, conversion of an existing business to LLC status could result in tax recognition on appreciated assets, and fringe benefits to partners are taxable.
Also, there is a lack of uniformity in LLC statutes between states. A firm operating in more than one state may not get consistent treatment.
Differences Between S Corp and LLC
Restrictions on who can be owners (called "shareholders") of an S corporation
which can have no more than 75 shareholders. There are no restrictions on the ownership of an LLC
S corp has no flexibility in how profits are split up amongst its owners
as profits must be distributed according to the ratio of stock ownership. Owners of an LLC can distribute profits in the manner they see fit.
Individual Tax Returns
Individual tax returns are filed using the tax form 1040.
It can be filed by married couples or single individuals both with or without dependents. At Wagner and Associates Tax Solutions, our goal is to make filing your individual tax return as simple as possible while making sure you receive as much back as possible. We aim to provide the highest level of service while helping you to pay the least amount of taxes legally.
Although you have the option to file your taxes on your own using tax preparation software, the process can often be complex and leave you with doubts about its accuracy.
Instead of wondering whether you were able to receive as many deductions as possible, let the experts at Wagner and Associates Tax Solutions provide the dependable and professional service you need. We are experienced in the preparation of individual tax returns and we will ensure that you can benefit from as many credits and deductions as possible.
We Offer The Following Benefits
Individual tax returns prepared accurately and professionally.
Complete professionalism throughout the preparation process.
Each return is carefully reviewed to prevent an IRS audit.
Electronic filing for faster refund processing.
Review of your payroll withholdings to maximize your take home income year round.
Deduction review to ensure your tax liability is at the lowest possible level.
We will provide a courteous and pleasant approach to all of our clients.
Corporate Tax Returns
In an effort to increase tax revenue, legislation continues to focus on corporations and partnerships.
Current corporate and partnership tax laws have never been more confusing to prepare. Wagner & Associates Tax Solutions Inc. is experienced in preparation of tax returns for businesses. Whether you are a large, medium or small company, we can assist you with the preparation of your returns.
No matter the size of your company or partnership, we provide a tax planning and preparation solution that is tailored to your specific situation.
Our goal is to provide our service with minimal interruption of your business and the accounting function by electronically integrating with your accounting system. Business owners understand the importance of having access to accurate and timely financial information. We can assist during the year with accounting closes so that corporate and partnership tax returns can be prepared accurately and expeditiously.
Even if you have let the books slip a bit, we can help get them cleaned up prior to preparing your return
get your Schedule C prepared and then help you plan for the best way to keep your books up-to-date going forward. Don't be embarrassed to bring your problems to us. We're professionals and we're here to assist you.
Are you suffering from or concerned about wage garnishment from an IRS levy? We can help put a stop to wage garnishments.
The national average for an IRS Wage Levy is 80% to 85% of the net pay.
So if your take-home pay on your paycheck is usually $1,000, it would suddenly become $150 to $200. Try living on that kind of paycheck for a few months. Even one or two drastically reduced paychecks can break you. That's why we're in this business, helping people get out of trouble with the IRS. We have found that we have a unique skill and ability to get those IRS Wage Garnishments released very quickly.
We've been in the IRS negotiating business for over 5 years family owned and operated.
Most people facing an IRS situation(probably like you) have several prior year income tax returns that have not been filed. And before IRS will release a levy, they require that all of your tax returns (at least for the last 6 years) be filed.
IRS has a very specific set of rules and guidelines their employees must follow before your IRS Levy can be released.
We know those rules and guidelines backwards and forwards and can call an IRS bluff when we know what is right and what is wrong (or a bluff). When your wages are levied, IRS wants to collect as much of your money as they can collect as fast as they can collect it. And in one way or another, this is the job of every IRS employee in the country. Even though most IRS employees are nice people, they still have that one great constitutional obligation to collect as much tax as possible and that can ruin your life. This is where our skills can save you a bundle of cash very quickly. Definitely a lot more than our fees.
Take some time and read the other pages of our website.
Educate yourself and gain some knowledge on what an Enrolled Agent is. We encourage you to visit other sites, too. You may even like one of our competitors more than you like us. That's okay with us. We want you to be free from the IRS wage garnishment and get some help, but above all, we want you to get your IRS Wage Levy Released.
And we know we can do that! Contact us today and let us help you stop wage garnishment.
Offer In Compromise (IRS Settlement Offer)
For many people who are struggling financially, their tax debt can prove to be overwhelming and burdensome. To address these concerns, in 2012 the IRS maintained its Offer in Compromise program which allowed those with tax debt to settle it for less than the full amount owed. By gaining a full comprehension of the OIC IRS Settlement Offer program, you will be better informed about the choices available to you.
What Exactly is An Offer In Compromise?
The Offer in Compromise Program is a program offered by the IRS which allows the taxpayer to make an IRS settlement offer for the past due debt they have accrued. They will be able to settle their outstanding tax debt for a reduced amount in the event that they are experiencing financial hardship. Offers which are accepted are those that are reflective of the amount the IRS would normally collect in a reasonable amount of time. When deciding whether to accept an IRS tax settlement offer, a few different factors are considered. These include the taxpayer's expenses, ability to repay the loan, income, and the amount of equity in assets.
What Changes Has The IRS Made to the OIC Program?
The changes to the OIC program include differences in the way future income is calculated when determining eligibility for the program. Instead of considering 4 years income, they now only consider one year of future income if the tax debt will be repaid within 5 months. With offers requiring repayment within 6 to 24 months, the IRS will review 2 years of future income instead of the previous 5. Another change is that income producing assets will no longer be included when calculating income amounts for small businesses. Additionally, the amount of Allowable Living Expenses which the IRS uses is now altered. The new change allows people to include more expenses under the National Standard Miscellaneous Allowance.
In What Way Will The Changes Benefit Taxpayers?
The new changes bring many benefits to taxpayers including an increased likelihood of their IRS settlement offer being accepted. In addition, they can usually settle their accounts for less than they previously would have under the past OIC regulations. Individuals filing bankruptcy who have outstanding tax debt will find the new rules more beneficial.
IRS Audit Services
If you have received an IRS tax audit, you may be under a great deal of stress.
Even if your taxes were filed accurately, you may still be wondering if you have anything to worry about. Wagner and Associates can assist you by providing accurate and effective IRS Audit Services. With our professional assistance, you will have complete peace of mind even in the event of a pending IRS tax audit.
There are different types of tax audits and although not all of them are done in person
it is extremely beneficial to have representation from a professional tax service such as Wagner and Associates Tax Solutions Inc. We will facilitate you in your goal for a successful audit and ensure the accuracy of your paperwork and correspondences throughout the entire process.
We can help you be fully prepared
As an experienced and professional company, we will assist you in being fully prepared as your IRS tax audit proceeds.
With our reliable and worry free IRS audit services, you can rest assured that every aspect will be fully attended to with the utmost professionalism and attention to detail.
Although only 1% of all taxpayers receive a tax audit, if you are chosen it is essential to select a professional tax service
that has the requisite expertise and an in depth knowledge of tax laws to guide you seamlessly through the process.
IRS Letter Resolution
What do you do when you get an IRS notice or letter?
First, stay calm.
You will see a deadline in your IRS audit letter. Second call Wagner & Associates Tax Solutions and get in to see us right away. Some notices are extremely time sensitive. You will be given ample time to review the items being contested, obtain tax advice or help (if desired), and prepare your response.
Selection for a return for examination doesn't necessarily suggest that you've made an error or been dishonest.
In fact, a good deal of examinations result in acceptance of the return without change or even a refund. Wagner & Associates Tax Solutions Inc represents our clients before the IRS in all IRS notice response issues. We can provide you with specific audit help on issues regarding back taxes, corporate taxes, federal taxes, or state taxes.
Tax law is complex and an Enrolled Agent will be better able to help you through an audit.
Congress has made more than 5000 changes to the tax code since 2001, this brings the tax code to around 4 million words. There are so many regulations, changes, circumstances, and choices regarding income taxes that problems develop for all different kinds of people on a daily basis.
The IRS has letters that are generated automatically.
These problems can be avoided with proper knowledge, action, advice, planning, and preparation. It is, of course, best to avoid them. If it is too late to avoid them, it is not too late to stop them from getting worse and it is not too late to develop better tax habits.
IRS Lien and Levy Release
The Enrolled Agents and tax professionals of Wagner & Associates Tax Solutions will help you understand your rights
and how to use the tools that are available to you to reach a solution to your lien, levy or other tax problem. Our Enrolled Agents and tax professionals can help mitigate the consequences of aggressive IRS enforced collection action.
In most cases, we are able to obtain voluntary IRS or state release of a lien or levy against your wages, bank account, or other property.
Our understanding of IRS collection action will help protect you from abuse of power by the IRS and assert the rights made available to all taxpayers by the Internal Revenue Code, the Taxpayer Bill of Rights, and other federal and state laws.
Whether IRS collection action is just beginning, or if the IRS has already issued a lien or levy against you, your wages or your other property, we can help.
Often, we can arrange for the voluntary termination of a wage or bank levy by the IRS. At other times, we are able to use our knowledge and experience to terminate IRS collection action through other legal avenues. Contact the Enrolled Agents and tax professionals of Wagner & Associates Tax Solutions Inc by calling us at (702) 564-1040 or by completing the interactive appointment setting tool under the appointments tab on this website. You will be contacted the next business day to confirm your appointment.
The current commissioner and other senior IRS management have made compliance the central theme of today's IRS.
The "kinder, gentler IRS" that grew out of the Internal Revenue Service Reform and Restructuring Act of 1998 (RRA 98) has given way to the firm, unflinching, and aggressive IRS of today.
IRS examination and collection budgets have risen dramatically, even though the IRS has been handed a lower budget by Congress, they are now automating so many collection efforts.
Automated collections have put the IRS in a position to make many more mistakes, at Wagner & Associates Tax Solutions Inc we represent you against those very mistakes. The IRS has made the collection of delinquent and unreported taxes a high priority. The agency has increased the number of Revenue Officers and other personnel dedicated to collecting delinquent taxes, and has developed new technology and software intended to identify delinquent taxpayers and non-filers.
The IRS enforced collection process begins when the voluntary collection process fails.
The IRS collection process is explained in IRS Publication 594, What You Should Know About the IRS Collection Process, however, in actual practice, experience dealing with IRS collection matters and personnel, and knowledge about the various collection defenses that may be available to you, is often the difference in resolving an IRS collection case.
Generally, a taxpayer is required to pay a tax along with filing a tax return.
However, if a taxpayer fails to timely pay a tax obligation when due, the delinquent tax obligation is assessed by the IRS by entering the liability on the appropriate IRS master file. A notice and demand for payment is then sent to the taxpayer. After an IRS demand for full payment is made, the taxpayer can either voluntarily comply by making payment, or seek alternative payment arrangements, including, but not limited to, a partial or full pay installment agreement, an Offer in Compromise or a classification of the account as "currently not collectible." Tax liabilities may also be reduced or eliminated, under the right circumstances, using bankruptcy or other legally available processes.
Once the IRS has determined that a taxpayer is not voluntarily paying his or her tax obligation, and all appeal rights have expired, the IRS is required to commence involuntary collection action.
The IRS has many involuntary collection tools at its disposal. For example, the IRS can file a Notice of Federal Tax Lien, serve a levy on your wages or bank account, assess a trust fund recovery penalty, or even attempt to seize your house, car or other property.
Federal Tax Lien
A federal tax lien is created by statute as soon as a tax is assessed and the taxpayer fails to pay the tax upon IRS demand.
Internal Revenue Code (IRC) §6321 states, "If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount, (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person."
Most taxpayers do not understand that a federal tax lien is placed against the property of the taxpayer immediately
and automatically and without the filing of any notice immediately upon demand and failure to pay a delinquent tax. Often called a "secret lien" (because it is known at that point only by the IRS and the taxpayer), the secret statutory lien created by the Internal Revenue Code - even without the filing of a Notice of Federal Tax Lien - constitutes a lien against all property of the taxpayer, real and personal.
Most often, the federal tax lien created by the Internal Revenue Code has a 10-year life span
and runs parallel to the 10-year statute of limitation for collection of a delinquent federal tax liability. However, the life of a federal tax lien and the statutory period for collecting a delinquent federal tax liability (often referred to as the Collection Statute Expiration Date or the "CSED") can be extended past their 10-year initial terms by a number of different "tolling events."
These tolling events are too numerous, and their effect on a tax lien and the Collection Statute Expiration Date too complicated, to discuss in detail in this overview.
However, some of the more common tolling events include the filing of a request for an IRS Collection Due Process hearing, a bankruptcy filing, or seeking a Taxpayer Assistance Order, or entering into a voluntary waiver with the IRS.
In any event, the IRS right to assert a federal tax lien and to seek involuntary collection of a delinquent federal tax remains in effect
until the delinquent tax is satisfied or the statute of limitations for the tax and/or lien has expired. Calculation of the statute of limitations periods for a delinquent tax and related federal tax lien are critical in order to properly represent a delinquent taxpayer in an IRS collection case.
Notice of Federal Tax Lien
Notice of Federal Tax Lien
A Notice of Federal Tax Lien (NFTL) is filed to make the public and other creditors aware of the existing tax lien and to establish the government's priority against other creditors or potential purchasers of your property. As described above, a federal tax lien arises upon assessment, demand for payment and failure to pay the delinquent tax liability. Although immediately applicable against the taxpayer, a tax lien will not affect the rights of a subsequent judgment creditor, mortgage lender or secured lender or "bona fide" purchaser until a Notice of Federal Tax Lien is filed. By filing the NFTL, the IRS obtains priority against all subsequent claimants. In many cases, the filing of a NFTL will also have a significant, adverse effect on a taxpayer's credit and credit score.
Requirements Before Filing a Federal Tax Lien
The IRS is required to make reasonable efforts to contact the taxpayer before issuing an NTFL.
Reasonable efforts are considered to be the issuance of an assessment, demand for payment and mailing of the following notices during the collection process. Pub 594, What You Should Know About The IRS Collection Process. Letter 501 (balance due reminder). Letter 504 (balance due urgent notice). Letter 1058 (final notice intent to file NFTL right to appeal). ACS Letters LT 39 Reminder Notice or LT11 Final notice.
Federal Tax Liens are powerful weapons in an IRS Revenue Officer's arsenal.
IRS Revenue Officers are encouraged to file a NFTL in all cases in which the IRS Revenue officer believes it will promote collection of the tax debt. The circumstances in which the IRS will refrain from filing a NFTL are rare. Internal Revenue Manual (IRM) Section 18.104.22.168.2 requires the Revenue Officer to check current compliance before making the decision not to file an NTFL and describes available lien alternatives such as collateral agreements and lien subordination.
Additionally, the Revenue Officer is authorized to delay or withhold filing the lien only if the NFTL will jeopardize collection of the tax.
However, the IRM specifically instructs collection personnel to disregard a taxpayer's argument that the filing of a Notice of Federal Tax Lien will damage the taxpayer's credit rating unless the taxpayer can supply specific proof that it's credit rating will be damaged by the filing and that the damage will adversely impact the taxpayer's ability to pay the delinquent tax.
In every case involving a filed tax lien, tax counsel should confirm the validity of the lien
the procedures used by the IRS to file the NTFL, and the limitation period remaining for the lien. The impact of a federal tax lien is broad and the remedies complex. Many times, the NFTL is filed improperly or in the wrong place. On other occasions, the IRS will inadvertently fail to release a lien after the statute of limitations has expired.
Even counsel is unable to attack the validity of a filed tax lien
experienced counsel can often help obtain IRS subordination of the lien or discharge of the lien to refinance or sell a taxpayer's property. If a lien has not yet been filed, counsel should consider proposing other less intrusive collection alternatives, appealing the lien decision to an IRS group manager, and/or filing a Collection Due Process (CDP) Request and exhausting all avenues of appeal.
IRS authority to levy on (take) a taxpayer's property is provided by Internal Revenue Code §6331(a) stating
"If any person liable to pay any tax neglects or refuses to pay the same within 10 days after the notice and demand, it shall be lawful for the Secretary to collect such tax.by levy upon all property and rights to property belonging to such person." A levy is the actual attempt by the IRS to seize the property of a taxpayer held by a third party.
The most common types of IRS levies include wage levies
bank account levies, and levies on a taxpayer's securities and accounts receivables. However, if the taxpayer does not have financial assets sufficient to satisfy a delinquent tax liability, the IRS can also attempt to seize physical property directly from the taxpayer. After the 1998 enactment of the Internal Revenue Service Reform and Restructuring Act of 1998 (RRA 98), the IRS dramatically decreased its seizure action against the tangible property (for example, inventory, automobiles, boats, real estate, and similar property). However, the climate has now changed, and seizure activity is now increasing. Seizures will no longer be a thing of the past, but rather, another powerful weapon in the IRS arsenal.
The term "levy" is virtually synonymous with the term "seizure."
Although most tax professionals use the term levy in connection with IRS taking of a taxpayer's property held by a third party (for example, taking a bank account or wages to be paid by an employer) and use the term seizure is used to refer to the IRS taking tangible real or personal property directly from the taxpayer (for example, seizure of a taxpayer's inventory, automobile, boat, and even real property), the statutory authority for and the result of a "levy" or "seizure" are the same: the IRS has taken property of a taxpayer in order to satisfy a delinquent tax liability.
As the IRS changes its focus from customer service to compliance and collection
all taxpayers and tax counsel must be vigilant to prevent unnecessary levies and seizures. The Internal Revenue Code does provide for the release of a levy or seizure under appropriate circumstances.
For example, a levy can be released by an IRS Revenue Officer if the taxpayer proposes and enters into a suitable installment agreement
if the levy creates an undue economic hardship, or if the taxpayer meets the qualification to be classified as "currently not collectible." However, it is much easier to prevent the execution of a levy than to have it released after issuance. Taxpayers facing enforced IRS collection action must learn their rights and pay attention to all deadlines.
Important Collection Due Process (CDP) Rights
Before sending a levy notice to your bank, employer, or other third party holding your property
the IRS must send the taxpayer another very important notice: a Final Notice of Intent to Levy and Notice of Right to a Collection Due Process Hearing (referred to as a "CDP Request").
The taxpayer's right to make a CDP Request and receive a CDP Hearing prior to the execution of an IRS levy against taxpayer property
(or to oppose the filing of a Notice of Federal Tax Lien) was created by the Internal Revenue Service Reform and Restructuring Act of 1998 (RRA '98) and is one of the most powerful tools available to a taxpayer to prevent IRS abuse of its power and to obtain the least intrusive payment method for a delinquent tax liability.
A CDP Request must be made within 30 days of the date contained on the IRS Final Notice
of Intent to Levy and Notice of Right to a (CDP) Hearing (or Notice of Federal Tax Lien) and failure to provide a timely and proper CDP Request can result in the loss of significant taxpayer rights and remedies. DO NOT IGNORE YOUR CDP RIGHTS.
After issuing a Notice of Intent to Levy and Notice of Right to a CDP Hearing (or a similar Notice Intent to File Federal Tax Lien)
and receiving a timely CDP Request, the IRS is required to schedule a CDP Hearing with an Appeals Officer. By allowing a taxpayer the right to administrative and judicial review of intrusive IRS collection actions, and requiring the IRS to explain and justify its actions, the CDP rights created by RRA '98 have fundamentally changed the IRS collection landscape.
The Appeals Officer selected to hear the matter, and who is required to be independent from IRS collection personnel
is charged with the responsibility to: (i) verify that the IRS followed all administrative and procedural requirements ("verification"); (ii) determine if the proposed IRS collection action "balances the need for efficient collection of taxes with the legitimate concern of the taxpayer that the collection action be no more intrusive than necessary" ("balancing"); and (iii) consider all less intrusive collection alternatives (for example, an Offer in Compromise of Installment Agreement) proposed by the taxpayer in his CDP Request.
Following a CDP Hearing, the Appeals Officer must issue a written determination summarizing his or her conclusions
concerning verification, balancing and the use of other proposed less intrusive collection alternatives. Moreover, in the event of an adverse determination by the Appeals Officer, the taxpayer may contest the determination by filing an appeal in the United States Tax Court or federal district court, depending on the kind of tax in question.
During the entire pendency of the CDP process and subsequent appeals, the proposed IRS collection action is stayed (stopped).
The CDP rights created by RRA '98 have provided delinquent taxpayers with: (i) statutorily significant administrative and judicial review of coercive IRS collection determinations; and (ii) an effective unilateral right to enjoin (stop) collection activity during the pendency of the CDP appeal process. Taxpayers should not waive or forfeit these important rights without seeking legal advice from experienced counsel.
If you have received a Notice of Intent to Levy or Notice of Filing of Federal Tax Lien, contact the Enrolled Agents and tax professionals of Wagner & Associates Tax Solutions
by calling us at (702) 326-1112 or by completing the interactive appointment feature on the appointments tab. You will be contacted on the next business day to confirm your appointment.
IRS Installment Negotiations
If you owe the IRS more money than you can pay right away, Wagner & Associates Tax Solutions Inc is here to help.
While payment (or installment) agreements aren't bad, they may be your only choice. Since bankruptcy law changes mean that many taxpayers cannot get rid of their delinquent taxes in bankruptcy and because the IRS has made it much more difficult to get Offers in Compromise accept, payment agreements may be your only option. Over 72% of the Offer In Compromises are rejected nationally. Taxpayers are bombarded with this option in advertisements by companies that are looking to profit on the lack of knowledge by taxpayers.
Taxpayers hear on commercials and advertising that call us if you owe $10,000 or more.
Wagner & Associates Tax Solutions Inc will tell you why. If you owe under $10,000 and can pay the IRS in full in less than 36 months (that includes ALL penalties and interest), you have a right to a Guaranteed Installment Agreement. There is no need to hire a tax relief firm in that circumstance. Additionally, no Federal Tax Lien will be filed as long as you keep your end of the agreement.
If you owe less than $25,000 and can fully pay the taxes, penalties and interest within 60 months, the IRS will normally approve an installment agreement as well.
Of course, you may be paying $500 a month AND you must meet all CURRENT income tax obligations through proper withholding from your paycheck or estimated tax payments if you are self-employed.
If you fail to do this, your payment agreement will be defaulted, a Notice of Federal Tax Lien WILL be filed and levies WILL be served on your wages and bank accounts.
There is a huge opportunity for the IRS to pursue taxpayers with harsh collection tactics when the installment agreement gets defaulted at his amount due.
However, as of 2012, if you owe MORE than $25,000 and less than $50,000, expect to find it MUCH more difficult to get a payment agreement approved.
The IRS will require that this payment be auto drafted from your bank account or wages. IRS ACS (telephone contact unit) personnel or Revenue Officers (local collection IRS Officers) are making us give them as much as six months' pay stubs, rent checks, utility bills, etc. and 12 months of medical expenses even when the medical expenses are very small.
A new program was introduced in 2005 called the Partial Payment Installment Agreement or PPIA.
For the first time, the IRS can officially setup an agreement that will not pay the entire liability. You WILL need professional assistance as the IRS will closely scrutinize these cases and a Notice of Federal Tax Lien will be filed. Because the Offer program is so much less attractive today, the PPIA may be a good alternative in some cases.
Remember, that penalties and interest continue to accrue even while you are on the payment agreement.
The interest rate fluctuates with the Treasury rate. The only penalty that you'll be hit with after a payment agreement is in place is the Failure to Pay penalty. It ranges from .5% to 1% per month to a maximum of 25% of the tax due.
In recent years the IRS has become so much more difficult in setting up Installment
Agreements that what used to take us 4-6 hours to set up is now taking 12-14 hours or more. Due to the IRS becoming so much more difficult to work with regarding this is why there is now a fee where it was a courtesy service in the past.
Short Sale Consultations
When you come to the tough decision to short sale or foreclose your home working with Wagner & Associates Tax Solutions Inc
will help prevent the wound the IRS would inflict by trying to collect massive amounts of tax from your family. Losing a home is hard enough and add the IRS implications it can be the one scariest thing your family will face in today's complex tax world. Wagner & Associates Tax Solutions have Enrolled Agents and tax professionals who understand and don't judge anyone who comes in for help. Call Wagner & Associates Tax Solutions at (702) 564-1040 or make an appointment 24 hours a day on the appointment tab at the top of this page if you find your family in this situation.
As this tax season approaches especially 2012, and more importantly
the expiration of the Mortgage Debt Relief Act of 2007 after 2013, it is important to review the tax consequences following a short sale. In general, the IRS will treat any canceled debt, such as forgiveness of a mortgage loan, as taxable income.
The most common exemptions are insolvency and bankruptcy.
To prove insolvency, your total debts have to be greater than the total fair market value of your assets. A lesser known exemption, and one that is due to expire at the end of 2013, is the Mortgage Debt Relief Act of 2007. According to the Debt Relief Act, a homeowner may exclude the forgiven debt as taxable income if you can prove to the IRS that the indebtedness was incurred on your "qualified principal residence." Most homeowners qualify for tax relief under the Debt Relief Act. Keep in mind, however, that not all states recognize the Debt Relief Act and you should always check with a qualified tax professional prior to agreeing to a short sale. The following paragraphs will explain why the IRS considers forgiven debt as taxable income and how to qualify for a tax exemption following a short sale.
The IRS Treats Forgiven Debt As Taxable Income
According to current tax laws
if you owe a debt to a third party and they cancel or forgive that debt, the IRS considers the canceled debt as "taxable income." In the case of a mortgage loan, if you don't repay your debt, you will be taxed on the amount of the money you failed to repay the lender, commonly referred to as the loan deficiency. In other words, if default on your loan, and the lender waives their right to seek repayment, the unpaid loan proceeds are converted into taxable income because you no longer have the obligation to repay the lender. Thus, following a short sale in which the lien holder relinquishes their right to collect the deficiency amount, they are obligated to report any forgiven debt to the IRS on a Cancellation of Debt form 1099-C. Individuals are similarly required to report the forgiven debt to the IRS on Tax Form 982 and attach the form to your tax return.
Exceptions To The Rule
As previously mentioned above, the only way to exclude forgiven debt from taxable income is to qualify for one of the tax exemptions from the Mortgage Debt Relief Act of 2007. Unless you can prove insolvency or file for bankruptcy, the tax implications of a short sale will primarily depend on whether the property being sold is your primary residence and, if so, whether you qualify for a tax exemption. The most common scenarios when cancellation of debt is not taxable income involve the following
Qualified principal residence indebtedness
This is the exception created by the Mortgage Debt Relief Act of 2007; The Act applies only to forgiven or canceled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes. The maximum amount you can treat as qualified principal residence indebtedness is $2 million or $1 million if married filing separately. The Debt Relief Act expires at the end of 2013, as it was just extended one year in the "fiscal cliff" bill Congress passed January 3, 2013.
Debts discharged through bankruptcy are not considered taxable income
If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets
Certain farm debts(granted there are not many farmers in Nevada)
If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income
A non-recourse loan is a loan for which the lender's only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences. It is important to determine whether your jurisdiction is considered recourse or non-recourse.
Qualified Principal Residence Indebtedness
The Mortgage Forgiveness Debt Relief Act of 2007 is the most common exception to the rule that canceled debt is taxable income.
According to the Debt Relief Act, taxpayers may exclude debt forgiven on their "qualified principal residence" if the balance of their loan is $2 million or less. Qualified principal residence indebtedness is limited to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes. Thus, even debt incurred as a result of a refinance loan will qualify for this exclusion, but only to the extent that the principal balance of the old mortgage would have qualified.
In other words, if the debt forgiven was a result of a short sale of your qualified principle residence, and you never refinanced, you will qualify for the tax relief.
If, however, you took out a refinance loan on your principal residence, you will qualify for tax relief only up to the principal amount of the original mortgage. This is a very important consideration and one that is overlooked by many so- called experts. Debt forgiveness on second homes, rental property, business property, credit cards or car loans does not qualify for the tax-relief provision of the Debt Relief Act. The Debt Relief Act of 2007 is set to expire at the end of 2012. Keep in mind, however, that not all states recognize the debt relief act and you should always check with a qualified tax professional prior to agreeing to a short sale.
Tax Consequences Following a Short Sale
At the end of the day, the general rule states that a homeowner will suffer tax consequences following a short sale because the IRS treats the forgiven debt as taxable income.
The only way to avoid tax liability following a short sale is to qualify for the principal residence exemption, prove insolvency or file for bankruptcy. Regardless, the important thing to remember is that all of the exemptions require the homeowner to take affirmative action on their subsequent tax returns. Your lender is required to issue a 1099-C Form following a short sale. It is your responsibility, however, to prove to the IRS that you qualify for a tax exemption by filing Tax Form 982 .
Tax liability is not negotiable, you either qualify or you don't.
You should never, under any circumstances, take a lender's word that a short sale will not result in tax consequences. In fact, if the lender is agreeing to waive their deficiency rights, they are required to issue 1099-C stating that they canceled your debt. The IRS, in turn, will treat that canceled debt as income unless you prove to them that you qualify for an exception.
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