Archive for the ‘Uncategorized’ Category

Tax Tips – November 2017

Posted on: November 10th, 2017 by sashworth No Comments

Using Children’s IRAs to Pay for College 

If your child has earned income (maybe from working in your business), you may want to consider establishing an IRA for your child. The IRA funds can, in turn, be used to help pay your child’s college expenses. When your child withdraws money from an IRA, tax law imposes taxes on the withdrawals, but no 10 percent penalty applies when the money is used to pay for qualified higher education expenses.

The big hurdle to avoid is the kiddie tax. IRA withdrawals are subject to the kiddie tax rules. Under these rules, an under-age-24-student pays taxes on unearned income at the parents’ high tax rate when the child’s unearned income is more than $2,100 and the child’s earned income is not more than half of his or her support. This makes the kiddie tax a true destruction force when it comes to saving for college. Your children need your help to avoid the dreaded kiddie tax.

Most minor children do not earn enough to need the tax deduction that the traditional IRA offers. This makes the Roth IRA a great vehicle for the working child’s college planning because the withdrawals of contributions are free of both penalties and taxes when used for qualified higher education. 

If you have children who fit this profile, make sure your children start making their Roth IRA contributions at a young age and earn a good rate of return on the investments. 

The Roth IRA habitually proves superior for the child’s college funding when compared with the traditional IRA. With the traditional IRA, the child gets a deduction while in a low tax bracket but, because of the kiddie tax, pays taxes in the parents’ high tax bracket upon withdrawal for college. This is a bad deal.  

Another point of consideration is that the IRA and other retirement assets of both the parents and the children are not

counted as assets available for education on the FAFSA or CSS profile applications for financial aid.  

Lock Down Vehicle Deductions with a Home Office

The IRS gives you two possible strategies for turning otherwise personal mileage into business mileage: 

  1. Going to a temporary work location.
  2. Establishing an office in the home as a principal office. 

The temporary work location strategy contains some real unknowns, such as what is technically considered a temporary work location and whether the work performed at that location is for one year or less. 

These unknowns make it difficult or impossible to use your facts and circumstances to produce your desired business-mileage results. The easy solution is the office in the home as a principal office. 

The first reason this type of home office is an easy solution is that the rules are crystal clear, making compliance easy. The second reason is that with this office you know that all trips from home for this trade or business are business trips, including the trip from your home to your regular office outside the home. 

Create Cash by Using Antiques in Your Business

Let’s say you narrowed the purchase of your business desk to either an antique or a regular desk. Each desk sells for $5,000. Which desk gives you the best possible business result? The answer is the antique. The reason is that antiques often appreciate in value. When it comes time to sell that desk, instead of getting $500, you may be able to pocket $15,000. But it gets even better thanks to depreciation. The three-step process to get the biggest bang for your buck is (1) buy low, (2) depreciate to zero, and (3) sell high. How many business assets have you bought and used in your business that have gone up in value? If you are like most businesspeople, the answer to this question is “none” or “very few.” In fact, you may not have considered antiques at all. But now that you know their business potential, give antiques a serious look. With antiques, you can get the best of all worlds: 

  • beautiful assets you use in your business,
  • assets you can depreciate and/or Section 179 expense against your business income, and
  • assets that can increase in value. If you were to buy antiques for your business today, you could expense up to $500,000 of qualifying costs using Section 179 expensing. This is a huge deduction that can offset your taxable income. 

Update: 2018 Health Insurance for S Corporation Owners

S corporations continue to enjoy good news in 2018 when it comes to health insurance, and this also applies to 2017 taxes. You first have to thank the 21st Century Cures Act for: 

  • Reinstating and extending IRS Notice 2015-17 to eliminate the $100-a-day penalty
  • Creating the qualified small employer health reimbursement account (QSEHRA) that works well if there are employees in the corporation. The good news is, the old rules still apply as we write this, and we don’t expect any changes in 2017 or 2018. Under these rules, the S corporation first establishes a health insurance plan for the owner in one of two ways:
  •  Choice 1. The S corporation makes the premium payments for the accident and health insurance policy covering the owner-employee who has more than 2 percent ownership (and his or her spouse or dependents, if applicable).
  • Choice 2. The owner-employee makes the premium payments to the insurance company and furnishes proof of the premium payments to the S corporation, which in turn reimburses the owner-employee for the premium payments.
  • This is Step 1—getting the cost of the insurance on the S corporation’s books.
  • In Step 2, the S corporation has to include the health insurance premiums on the owner-employee’s W-2 form. The income is not subject to payroll taxes (Social Security and Medicare). 
  • In Step 3, the owner-employee then claims the health insurance deduction on page 1 of Form 1040, providing he or she otherwise qualifies for the page 1 deduction. 

What is a Buy-Sell Agreement

Posted on: June 11th, 2014 by sashworth No Comments

 

What is a Buy-Sell Agreement?

Written by Peter McFarland, Esq. on 6/6/14

It’s exciting to start a new business.  But starting a new business takes so much time and energy, we’ve noticed that our clients often don’t focus on their exit strategies.  Important life events can have a large impact on a business and ultimately shape the business’ future.  Death, disability, divorce, and retirement all need to be taken into account and contingency plans for each must be established.

What is the Agreement?

Known colloquially as a business prenup, a Buy-Sell agreement is a legally binding contract between business owners to sell and purchase a business owner’s interest under very specific circumstances, including his or her death or disability.  It is most often executed separately from the Operating Agreement or Bylaws and will specifically override such other agreements as necessary.

How Does it Work?

There are many different ways to structure a Buy-Sell agreement, and it is best to consult with a professional who has experience drafting these agreements to determine what plan would work the best for your specific situation.

A common method, however, is to have the other owners purchase the exiting member’s interest.  Another strategy would be for the company itself purchase the interest.  There are two major components of structuring a transaction either way.

First, the owners must agree upon a valuation for the owner’s interest in the company.  Some clients prefer to hire appraisers while others rely on a valuation based upon the previous year’s profit.  Still other clients prefer a hybrid approach, where the valuation may change depending on whether life insurance proceeds are available (more on that later).

Second, the business owners must determine how the purchase price will be funded.  Some clients prefer to self-fund the purchase of the interest and set up installment payments for the seller to be bought-out over the course of several years.  Other clients prefer to utilize insurance to pay the amount that may become due under the agreement.

What is a Common Way to Deal with the Death of an Owner?

A very common method of funding the purchase of a deceased owner’s interest in the company is to have the company or other owners purchase life insurance on the owner’s life before he or she dies.  The Buy-Sell agreement would then value the owner’s interest at the face-value of the life insurance policy.  When the life insurance company pays the insurance proceeds, the proceeds are paid to the deceased owner’s family and the estate of the deceased member sells the ownership interest back to the company or to the remaining owners.

There is a huge advantage to this kind of set-up.  With life insurance in place, owners can rest assured that there will be adequate funding in place to purchase the owner’s interest in the company.  From an estate planning perspective, as well, an owner can have some piece of mind knowing that there will be a nice settlement paid to his or her beneficiaries upon his or her passing.

What Happens if an Owner becomes Disabled?

A very common means of dealing with disability is similar to the life insurance route mentioned above.  The company purchases disability income insurance on the life of the owners.  The agreement would be drafted to take advantage of such insurance, and provide for a buy-out period where the proceeds of the disability insurance is used as an installment payment to purchase the interest of the disabled owner in the company over a set period of time.

Like the life-insurance plan set forth above, the disability income insurance provides a definite source of funding for the purchase of the ownership interest.  Without insurance, it is left to the company or other owners to fund the purchase of the ownership interest themselves.

What About an Owner Who Just Simply Wants to Quit?

Buy-Sell agreements can plan for this situation as well.  Clients will, again, need to agree upon how the company will be valued under such circumstances.  Then, the agreement will simply state the terms under which payment must be made.

Unfortunately, insurance does not provide a payout under these circumstances.  Therefore, it will be up to the other owners to fund the purchase of the ownership interest.  A common means of planning for this situation would be to require a lump-sum payment due immediately with the balance to be paid in monthly payments over the next several years.  This would allow the remaining owners enough time to secure funding elsewhere for the purchase price.

Conclusion

A business owner’s exit strategy is often overlooked when a new business is formed.  A comprehensive business plan must address the exit of a business owner under different circumstances.  A Buy-Sell agreement allows business owners to plan in advance for the purchase of a withdrawing owner’s interest, which prevents confusion, discord, and perhaps even a dissolution of the company.

A competent professional can assist you in drafting a Buy-Sell agreement that fits your needs.  Estill & Long, LLC advises its clients to consider drafting a Buy-Sell agreement along with an Operating Agreement or Bylaws at the very start of the new company.  But even if your company is already established, it’s not too late.  Call us today for an initial consultation and we can draft a Buy-Sell agreement that is customized for your particular needs.

 

About Peter McFarland, Esq.

Peter earned his Juris Doctor (J.D.) degree at the University of Denver. After becoming licensed to practice law in the State of Colorado, he earned his Master of Laws (LL.M.) in Taxation at the University of Denver. In his current role, Peter represents taxpayers before the IRS and in the United States Tax Court. He gained valuable experience as an attorney with the University of Denver’s Low Income Tax Clinic during his graduate school studies and has been representing clients at Estill & Long, LLC since his arrival in early 2013.

What if I Can’t Pay my IRS Bill?

Posted on: April 22nd, 2014 by sashworth No Comments

 

Written by Peter McFarland, Esq.

 

So you’ve filed your tax return.  Maybe it was late and the IRS added penalties or maybe you just couldn’t afford to pay what the return said you owed.  Now the IRS is sending notices and you just can’t possibly pay them.

If you find yourself in this situation, there is some good news.  The IRS knows that for many, paying a large tax bill could spell financial ruin.  The IRS has many programs available for such situations, including monthly installment agreements, offers in compromise, and a special currently not collectible status.

A quick note: other articles on this website focus on installment agreements and offers in compromise.  The purpose of this article is to focus on the currently not collectible status.

 

What is Currently Not Collectible?

When your necessary expenses outpace your income, the IRS recognizes that you cannot pay your tax bill.  If you successfully negotiate for the currently not collectible status, the IRS will place your account on hold and wait until your financial picture changes before attempting to collect your unpaid tax liability.  Interest and penalties, however, will continue to accrue while the amount remains unpaid.

 

How do I Request Currently Not Collectible Status?

Taxpayers may make the request using the IRS’ Form 433-F.  Similar to setting up an installment agreement or negotiating an offer in compromise, taxpayers list their assets, income, and necessary expenses.  If a taxpayer’s necessary expenses outpace their income, the IRS will consider placing the taxpayer’s account in currently not collectible status, sometimes called CNC.

 

What are “Necessary Expenses?”

In the course of this article, I have been very careful to say that “necessary expenses” must outpace income.  Necessary expenses do not include all expenses that a taxpayer may actually pay monthly.  Rather, the IRS averages expenses of all taxpayers within the taxpayer’s county and limits the amount of expenses a taxpayer may claim to be in line with those averages.

The use of these averages can mean that even though you live paycheck to paycheck, the IRS may disallow expenses you actually pay and argue that you could pay more monthly toward your unpaid tax.  For taxpayers considering requesting this currently not collectible status, the use of these averages could mean that the taxpayer does not qualify and must instead make monthly payments on an installment agreement.

It is crucial, therefore, to speak to a professional or someone who has experience in negotiating for this status.  The difference between non collectible status and an installment agreement could mean the difference between financial ruin and meeting financial obligations.  The attorneys at Estill & Long, LLC have successfully negotiated for this not collectible status for many clients and can help you do the same!

 

 Conclusion

If you find yourself in the situation where you can’t pay a tax bill, the currently not collectible status may provide a way to avoid enforced collection of your unpaid tax liability.  Negotiation can be very difficult, however, because the IRS will only allow necessary expenses and the taxpayer is basically asking the IRS to not collect the debt for a certain time.  Therefore, it is best to speak to someone experienced before discussing your tax liability with the IRS.

Estill & Long, LLC is very experienced with all manner of situations dealing with unpaid taxes and the IRS.  Our attorneys have successfully negotiated hundreds of installment agreements, offers in compromise, and also excel at obtaining this special not collectible status from the IRS.  Our attorneys will draw on this experience when helping you with your tax situation.

 

About Peter McFarland, Esq.

Peter earned his Juris Doctor (J.D.) degree at the University of Denver. After becoming licensed to practice law in the State of Colorado, he earned his Master of Laws (LL.M.) in Taxation at the University of Denver. In his current role, Peter represents taxpayers before the IRS and in the United States Tax Court. He gained valuable experience as an attorney with the University of Denver’s Low Income Tax Clinic during his graduate school studies and has been representing clients at Estill & Long, LLC since his arrival in early 2013.

 

 

Lease Essentials for Every Landlord and Tenant

Posted on: April 16th, 2014 by sashworth No Comments

Lease Essentials for Every Landlord and Tenant

Written by Peter McFarland, Esq. on 4/2/2014

As a landlord or tenant, you know that the lease you sign will be the written expression of the agreement you negotiated for the rental of a property.  But how important is the lease document when the rubber meets the road?  And what’s really in the lease?

How Important is the Fine Print?

In many real estate matters, the law is just a placeholder for what should be the rule absent an agreement otherwise.  So what does that mean?  Where there is a conflict between what the law says and what the lease says, the lease will control.  The simplest examples of lease provisions impacted by this include notice, security deposits, and rental liability issues.  Therefore, the fine print in the lease is extremely important to understand as it will have a large bearing on resolving disputes in court or at arbitration.

Exceptions to this general rule apply, of course.  Not all rights can be contracted away, and not all duties can be discharged by contract.  If you are unsure whether a lease provision may be valid, it’s important to discuss whether the law would even recognize the lease provision with a qualified professional.

So what is a Valid Lease?

Leases come in all different flavors.  Most landlords use a standard, pre-printed form.  But the lease does not need to be standard and some landlords prefer to draft their own.  In order to be valid, a lease need only be a handwritten document specifying the names of the parties, the property that is being leased, the rights and responsibilities of the parties, the terms and conditions of the agreement, the rental amount, and finally the signatures of the parties.

What’s Normally in a Lease?

The following are normal provisions found in a lease and should generally be included (but note this list is absolutely not exhaustive):

  • Premises’ condition – there should be documentation of any damage, mold, roof collapses, plumbing leaks, etc. before the tenant takes possession of the property.
  • Offsets – tenants should not assume they may withhold rent because something isn’t working properly and tenants should be aware that doing so could actually lead to an eviction (called a Forcible Entry and Detainer in Colorado).  The lease should explain the ability (or lack thereof) of the tenant to offset rent payments for problems arising with the property.
  • Security Deposits – the lease should set the amount of the deposit as well as the conditions that require the deposit to be returned or withheld.
  • Pets – the lease should consider whether pets will be allowed, and a special pet deposit may be required.
  • Insurance – both the tenant and the landlord should carry adequate insurance, and the lease will often require both to obtain this insurance.
  • Lead-Based Paint Disclosure – Any lease for a rental that was built before 1978 is required by federal law to provide the renter with a Lead-Based Paint Disclosure.
  • Smoke-Free Premises – Colorado law leaves it to the Landlord whether tobacco smoking will be allowed on the premises, and the Landlord may ban all smoking on the premises.  Recreational marijuana is such a new development in Colorado that the law is untested as to whether a landlord can ban the use and smoking of the substance.  However, nothing in Colorado’s Amendment 64 would suggest that a Landlord would be overstepping to ban the use of marijuana on a rental property.

Again, the list above is by no means exhaustive but it should provide some idea of what to expect when looking over a lease.

Conclusion

Leases are critically important to the landlord tenant relationship.  Generally speaking, the lease will govern the relationship between the parties and list the terms of the agreement as well as the rights and responsibilities of the parties.  If you are a landlord seeking a custom lease or looking to rework a current lease the attorneys at Estill & Long, LLC can assist you.  Similarly, if you are a tenant who wants a second opinion about a custom lease or just would like some explanation of the fine print, give us a call today.

 

About Peter McFarland, Esq.

Peter earned his Juris Doctor (J.D.) degree at the University of Denver. After becoming licensed to practice law in the State of Colorado, he earned his Master of Laws (LL.M.) in Taxation at the University of Denver. In his current role, Peter counsels real estate investors, landlords, and tenants with respect to their rights and duties under the law. He gained valuable experience as an attorney with the University of Denver’s Low Income Tax Clinic during his graduate school studies and has been counseling clients at Estill & Long, LLC since his arrival in early 2013.

 

What is the Warranty of Habitability?

Posted on: April 16th, 2014 by sashworth No Comments

What is the Warranty of Habitability?

Written by Peter McFarland, Esq. on 4/2/2014

Prior to 2008, whether a property was fit to be rented to a tenant was left up to the landlord.  In September of 2008, however, the legal landscape changed with the enacting of the implied Warranty of Habitability.  Colorado is the 49th state to enact such legislation, joining the vast majority of jurisdictions in regulating rental property.

What is it?

Basically, the law is a double-edged sword meant to protect both landlords and tenants.  On the one hand, it imposes a duty on the landlord.  The landlord is required to provide housing that is “fit for human habitation.”  The premises must comply with this standard before it may be leased and the condition of the property must also be maintained during the tenancy.

On the other hand, the law also imposes duties on tenants.  The tenant, under the statute, has an affirmative duty to maintain housing in good, safe and reasonable condition.

What Violates the Warranty of Habitability?

The following three conditions must be met before the law is violated:

1)     The residence must be uninhabitable

2)     The residence must be materially dangerous

3)     The landlord must have received written notice of the condition and failed to cure the problem.

So looking at that first requirement, what makes a residence uninhabitable?  The residence must lack any of the following (and this list is not exhaustive):

  • Waterproofing, including unbroken windows and doors
  • Properly maintained plumbing and gas
  • Running water and reasonable amounts of hot water, which is also connected to a sewage disposal system
  • Properly maintained and functioning heat
  • Electrical lighting
  • Locks on exterior doors
  • Security devices on windows which can be opened
  • Compliance with applicable building, housing and health codes

Moving on to the second requirement, what is “materially dangerous” under the Act?  The Act is actually silent as to what would satisfy this requirement.  If you feel that a violation listed above is materially dangerous, I highly recommend you reach out to an attorney at Estill & Long, LLC or another competent professional to help you decide how to proceed and if this requirement is met.

Finally, the landlord must have received written notice of the condition and failed to cure the problem.  If you are a tenant who believes there has been a breach of the Warranty of Habitability, please reach out to us and we can assist you with notifying your landlord.  Likewise, if you are a landlord who has received notice, you should discuss the particulars of the situation with an attorney at Estill & Long, LLC who can advise you of whether it is a potential breach of the Warranty of Habitability.

What Happens if all Three Requirements are Met?

There are three possibilities if all three conditions are met and there is a breach of the Warranty of Habitability.  First, the tenant may terminate the rental agreement and surrender possession of the premises.  Second, the tenant may pursue a claim for injunctive relief, essentially forcing the landlord to remedy the problem.  Third, the tenant may sue for monetary damages.

Conclusion

The legal landscape surrounding the rental of residential property changed drastically in 2008 when the Colorado legislature codified the Warranty of Habitability.  The law is somewhat neutral, however, imposing duties on both the landlord and the tenant.  If, after reading this article, you believe your landlord or your tenant may be in violation of the Warranty of Habitability, I highly recommend you reach out to us at Estill & Long, LLC to assist you.

 About Peter McFarland, Esq.

Peter earned his Juris Doctor (J.D.) degree at the University of Denver. After becoming licensed to practice law in the State of Colorado, he earned his Master of Laws (LL.M.) in Taxation at the University of Denver. In his current role, Peter counsels real estate investors, landlords, and tenants with respect to their rights and duties under the law. He gained valuable experience as an attorney with the University of Denver’s Low Income Tax Clinic during his graduate school studies and has been counseling clients at Estill & Long, LLC since his arrival in early 2013.

 

What is a Statutory Notice of Deficiency?

Posted on: April 16th, 2014 by sashworth No Comments

What is a Statutory Notice of Deficiency?

Written by Peter McFarland, Esq. on 4/2/2014

When the IRS believes that it is owed tax for a particular year, the IRS is required by law to send you what is called a “Statutory Notice of Deficiency.”  Known as the ticket to United States Tax Court, how do you know if you have one in hand?

There are two forms of this notice that qualify.  First, in the upper right hand corner it may say “CP3219B.”  If not, near the center of the page and in bold letters it should clearly state “Statutory Notice of Deficiency.”  In either event, it should inform you that the IRS believes it is owed taxes, intends to assess those taxes, and you have 90 days to petition the Tax Court for a redetermination of the deficiency in tax.

What is it?

Speaking generally, a Statutory Notice of Deficiency is formal notice that the IRS has found a deficiency in tax.  Congress decided that the courts should be able to hear taxpayer arguments about whether that deficiency is correct and therefore Congress requires that the IRS issue a Statutory Notice of Deficiency informing taxpayers of the deficiency and their rights.

Therefore, at its most basic a Statutory Notice of Deficiency is your ticket to Tax Court.  Without getting into too much legal jargon, a court needs to have jurisdiction to hear your case.  The Statutory Notice of Deficiency basically creates that jurisdiction.  It is the window of opportunity that Congress has provided taxpayers to petition the Tax Court.

Why is the 90 Day deadline so important?

The window that creates the court’s jurisdiction, however, is very small.  From the date of notice you have 90 days to petition the Tax Court.  After that 90 day period, if no petition is filed the Tax Court loses its jurisdiction to hear your case.  It is critical, therefore, that the court receives everything needed for a petition within that 90 day window.

The 90 day period is created by statute and is absolute.  Congress specifically mandated that taxpayers only have 90 days to submit a petition.  Therefore, it is critical to meet that deadline.  The court cannot extend that time frame and the IRS cannot either.  Calling the IRS for an extension of time, therefore, will be a useless exercise.

What you need to do immediately:

  • Hire a tax professional.  While you are allowed to represent yourself in court, an adverse determination at Tax Court can have disastrous legal consequences and result in even higher attorney’s fees to fix than simply hiring the professional would have incurred in the first place.  A competent practitioner can resolve most issues at the Tax Court stage, so it can be a great opportunity to put your tax issues behind you.  Estill & Long’s attorneys, for instance, have successfully represented clients in Tax Court for years.
  • Prepare any additional information for the IRS’ review and send it immediately.
  • If you have not heard from the IRS concerning your additional information, remember that you have 90 days from the date of the notice to petition Tax Court.  If you are nearing the deadline, you should prepare and file a petition with the United States Tax Court.  Forms can be found online at http://www.ustaxcourt.gov/forms.htm. (Caveat: you really should hire a professional and not file a petition on your own).

What you should not do:

  • Ignore the notice.  This goes without saying.
  • Miss the 90-day deadline.
  • Call the IRS asking for an extension of time- they cannot and will not allow you more time.

Conclusion

Have I mentioned it yet?  Don’t miss that 90 day deadline.  The Statutory Notice of Deficiency is an important legal document and how you respond can have very important legal consequences.  If you have received a Statutory Notice of Deficiency, or if you are unsure but think you have received one, call a tax professional right away!

About Peter McFarland, Esq.

Peter earned his Juris Doctor (J.D.) degree at the University of Denver. After becoming licensed to practice law in the State of Colorado, he earned his Master of Laws (LL.M.) in Taxation at the University of Denver. In his current role, Peter represents taxpayers before the IRS and in the United States Tax Court. He gained valuable experience as an attorney with the University of Denver’s Low Income Tax Clinic during his graduate school studies and has been representing clients at Estill & Long, LLC since his arrival in early 2013.

Who is the Taxpayer Advocate Service?

Posted on: April 16th, 2014 by sashworth No Comments

Who is the Taxpayer Advocate Service?

Written by Peter McFarland, Esq. on 4/1/2014

Did you know that the IRS has a special wing within its operations whose sole purpose is to provide oversight and intervene when the IRS is acting unfairly or causing undue delay?  The IRS has its own safety-valve, called the Taxpayer Advocate Service, that every taxpayer can contact when the normal channels of dealing with the IRS either do not work or failed to accomplish the intended result.

The National Taxpayer Advocate

The National Taxpayer Advocate is the individual in charge of the Taxpayer Advocate Service.  Appointed by the Secretary of the Treasury, he or she is charged with a dual role: first, he or she is to assist taxpayers with resolving disputes with the Service and he or she is also directed to protect the rights of taxpayers.  The National Taxpayer Advocate reports regularly to the House Ways and Means and Senate Finance Committees without any prior review or input from the Commissioner of the Internal Revenue Service.  Further, the National Taxpayer Advocate cannot have been employed by the IRS for the two years preceeding appointment, nor may the individual work for the IRS for five years after ceasing to be the National Taxpayer Advocate.  All of these requirements are meant to ensure that the National Taxpayer Advocate is absolutely neutral and independent from the IRS.

Field Offices

Taxpayers who require assistance from the Taxpayer Advocate Service do not work directly with the National Taxpayer Advocate.  Rather, there are geographic offices which serve all taxpayers within their jurisdiction.   You can find your local taxpayer advocate’s contact information at the following link: http://www.irs.gov/uac/Contact-a-Local-Taxpayer-Advocate.

Getting Help from the Taxpayer Advocate Service

If you find yourself in need of immediate assistance, I highly recommend you reach out to a tax professional to assist you and determine if the Taxpayer Advocate Service can help.  At Estill & Long, LLC, for instance, we’ve been working closely with Taxpayer Advocate Service for years.

Ultimately, to qualify for assistance the taxpayer must be experiencing an economic harm or significant cost (which can include fees for professional representation) and have experienced a delay for more than 30 days to resolve their tax issue.  Alternatively, taxpayers who have not received a response or resolution by the date promised by the IRS qualify for assistance.

Conclusion

The IRS, sometimes intentionally but most often unintentionally, imposes severe burdens on taxpayers by delaying the process of resolving tax issues.  Other times, the normal channels of dealing with the IRS just break down.  In either case, Taxpayer Advocate Service is meant to step in and address these issues and assist taxpayers in reaching a fair result with the IRS.

If you find yourself at a standstill with the IRS, the attorneys at Estill & Long, LLC can assist you in requesting assistance with the Taxpayer Advocate Service.

 

About Peter McFarland, Esq.

Peter earned his Juris Doctor (J.D.) degree at the University of Denver. After becoming licensed to practice law in the State of Colorado, he earned his Master of Laws (LL.M.) in Taxation at the University of Denver. In his current role, Peter represents taxpayers before the IRS and in the United States Tax Court. He gained valuable experience as an attorney with the University of Denver’s Low Income Tax Clinic during his graduate school studies and has been representing clients at Estill & Long, LLC since his arrival in early 2013.

What is an Offer in Compromise?

Posted on: April 9th, 2014 by sashworth No Comments

 

Written by Peter McFarland, Esq.

 

Offers in Compromise are always a hot topic with clients when discussing unpaid taxes.  However, some practitioners do not understand how difficult submitting an offer can be, and this confusion is often passed down to their former clients who wind up in our office when the first offer was not accepted.

That being said, a successful offer is an extremely powerful tool to settle an IRS debt for sometimes a fraction of what the IRS says is owed.  Not all offers settle for so little, it really is dependent on your particular financial situation.  It is best to consult with an experienced professional who has experience submitting offers to determine if an offer would be the best strategy for your individual situation.

 

Offer in Compromise Defined

An Offer in Compromise is exactly like it sounds.  It is an offer of a lesser amount of money to compromise the total amount that will be paid to the IRS.  A taxpayer may generally pay a single lump sum, pay five installments, or pay 24 installments to settle the debt.

 

Requesting an Offer in Compromise

Requesting an Offer in Compromise is a large undertaking that is best done with the help from an experienced professional.  Before filing an offer, a taxpayer needs to be compliant with filing all tax returns.

An offer consists of two IRS Forms along with all manner of back-up documentation.  One form requests information concerning assets, including bank accounts, investment accounts, 401(k)s, IRAs, safe deposit boxes, credit cards, life insurance, real property owned, vehicles owned, and ends with a breakdown of monthly income and expenses.  The other form asks why the IRS should consider accepting a smaller amount of money and sets the payment amount and terms.

 

“Necessary Expenses”

As I mentioned, the taxpayer must provide a breakdown of monthly income and expenses.  Any income left over after taking out “necessary expenses” has a large bearing on the amount of the offer.  While I could go and create some monthly expenses today to attempt show the IRS I couldn’t pay anything (a nice Caribbean vacation paid for on a credit card for example), the IRS would cut through those attempts and say that only “necessary expenses” will be considered in offsetting your income.

This limitation on necessary expenses may mean that even though you live paycheck to paycheck, the IRS may still try to include much more of your paycheck in your offer’s monthly payment because it will decide that not all of the expenses you pay are “necessary.”  It is crucial, therefore, to discuss a potential offer in compromise with an attorney to ensure you are maximizing your allowable expenses and agreeing to an offer amount you can really afford.

 

Other Special Considerations

The IRS will also look at the years just before filing the offer to be sure a taxpayer did not dissipate assets.  The most common example of this would be withdrawing from your 401(k) early and buying that new car you’ve always wanted or renovating your kitchen.  Other examples include taking out a line of credit on your house or selling other assets without making any payments to the IRS.  If you find yourself in these situations, the IRS will attempt to include those amounts in a counteroffer whether you can afford the higher offer amount or not.

Another IRS tactic is to average a taxpayer’s income over three years rather than looking at the current year’s income.  The IRS does this most often when the taxpayer had a high-paying job in the past but now is unemployed.  Self-employed individuals may also find themselves in this situation if their business income is not steady.

There are ways to combat these tactics, however.  If these examples describe your situation, our attorneys can still help you negotiate a collection alternative and stop enforced IRS collections.

 

Conclusion

Offers in Compromise can be an extremely powerful tool in a taxpayer’s arsenal.  Unpaid taxes can often be settled for much less than the full amount the IRS says it is owed.  However, the IRS is very strict in its guidelines to settle these debts and the negotiations can often become very technical.

Further, many practitioners tout themselves as understanding the Offer in Compromise process.  The stark reality is that the offer process is extremely arduous and technical.  It is best to meet with a professional before hiring them to file an Offer in Compromise on your behalf to find out how experienced they are.

Estill & Long, LLC, for example, has been filing Offers in Compromise for many years.  Our attorneys are very experienced with Offers in Compromise and understand the intricacies of the Internal Revenue Service and the Service’s handling of these settlements.  Call the office today to speak to one of our attorneys if you interested in exploring an offer today.

 

About Peter McFarland, Esq.

Peter earned his Juris Doctor (J.D.) degree at the University of Denver. After becoming licensed to practice law in the State of Colorado, he earned his Master of Laws (LL.M.) in Taxation at the University of Denver. In his current role, Peter represents taxpayers before the IRS and in the United States Tax Court. He gained valuable experience as an attorney with the University of Denver’s Low Income Tax Clinic during his graduate school studies and has been representing clients at Estill & Long, LLC since his arrival in early 2013.

 

What is an Installment Agreement?

Posted on: March 13th, 2014 by sashworth No Comments

 

Written by Peter McFarland, Esq. on 10/3/2013

 

As a practitioner, I often meet with clients who have received notices from the IRS stating that they owe several thousands of dollars and must pay it by a certain date.  These clients feel overwhelmed, stressed, and feel like they are out of options because they can’t possibly pay the full amount due.

The great news is that the IRS knows taxpayers often cannot come up with the funds to simply pay their unpaid taxes right away.  There are several options available to address this reality such as installment agreements, offers in compromise, and a special currently not collectible status.  This article will focus on a monthly payment plan, which the IRS calls an Installment Agreement.

A quick note: there are several types of installment agreements.  To figure out which one is best for your situation, I highly recommend you contact Estill & Long, LLC to discuss your case with an experienced attorney.  This article will focus on the use of a Form 433-A to request an installment agreement, but other methods are available.

 

Installment Agreement Defined

An installment agreement is exactly like it sounds.  The taxpayer agrees with the IRS to pay either all or some of his or her unpaid taxes over a series of installments.  The advantage of this type of agreement is that the IRS will work with taxpayers toward some semblance of an affordable monthly payment.  The disadvantage, however, is that penalties and interest will continue to accrue while the outstanding balance remains unpaid.

 

Before Requesting an Installment Agreement

Before the IRS will work with a taxpayer toward any collection alternative such as an installment agreement, the taxpayer must first have filed all tax returns.

 

How to Request an Installment Agreement

When negotiating nearly any collection alternative, the IRS will first ask to see a collection information statement.  This statement often takes the form of a Form 433-A for an individual taxpayer or a Form 433-B for a business.

These forms generally will ask a taxpayer to list all of their assets, including bank accounts, investment accounts, 401(k)s, IRAs, safe deposit boxes, credit cards, life insurance, real property owned, vehicles owned, and a breakdown of monthly income and expenses.  In the end, whatever income is not outpaced by “necessary expenses” will generally be the amount of the monthly payment.  Sometimes equity in assets needs to be addressed, but often the IRS will accept the leftover monthly income in lieu of forcing the sale of an asset.

Here’s an example of the monthly income and expense breakdown taxpayers must provide: Monthly income and expense breakdown

 

“Necessary Expenses”

Regardless of your actual financial situation, the IRS will only allow “necessary expenses” when determining the payment amount.  That means that even though you may live paycheck to paycheck in reality, the IRS may still try to collect much more of your paycheck than you believe you can afford because it will decide that not all of the expenses you pay are “necessary.”  It is crucial, therefore, to discuss a potential installment agreement with an attorney to ensure you are maximizing your allowable “necessary expenses” and agreeing to a monthly payment you can really afford.

 

Conclusion

Installment agreements can be a handy tool to prevent more aggressive collections by the IRS such as levies.  It also allows a taxpayer to satisfy the outstanding unpaid taxes through more affordable payments.

In the end, however, the IRS will only allow monthly income to be offset by “necessary expenses.”  Often the IRS’ proposed payment amount is not what you can afford.  It is important to speak to someone experienced with IRS collections to ensure you negotiate an agreement that you can live with.  The attorneys at Estill & Long, LLC have negotiated hundreds of these agreements and can help you with yours.

 

About Peter McFarland, Esq.

Peter earned his Juris Doctor (J.D.) degree at the University of Denver. After becoming licensed to practice law in the State of Colorado, he earned his Master of Laws (LL.M.) in Taxation at the University of Denver. In his current role, Peter represents taxpayers before the IRS and in the United States Tax Court. He gained valuable experience as an attorney with the University of Denver’s Low Income Tax Clinic during his graduate school studies and has been representing clients at Estill & Long, LLC since his arrival in early 2013.

 

Obtaining Relief from IRS Penalties

Posted on: February 27th, 2014 by sashworth No Comments

 

Written by Peter McFarland, Esq.

If you find yourself with a notice in hand from the IRS, you will likely see a penalty or two assessed on your account. Often IRS penalties will add a significant portion to the total amount you need to pay. Relief from these penalties can be obtained and it is best to consult with a professional to discuss the particulars of your case and see if you qualify to receive a lessened penalty or if the penalty may be removed entirely.
A quick note, there are some programs available from the IRS for first-time issues and other situations. This article will focus on reasonable cause defenses, but it’s best to consult with a professional to determine if there’s a better way to obtain relief from a particular penalty.

Reasonable Cause
The Tax Code sections that create penalties will normally, but not always, include exceptions to provide relief from those penalties. Normally the language states that a penalty is properly assessed as long as the failure was due to reasonable cause and not willful neglect.

Often when discussing penalties with my clients, they have done a little research and say that because they didn’t willfully neglect paying or filing their tax return, it should be a done deal. They are convinced this requirement is an easy win.

Unfortunately, it’s just not that easy. Reasonable cause is a phrase that has a special meaning in the context of penalty assessments. It basically requires that a taxpayer act as a normal business person would under the same circumstances.

So What, Specifically, is Reasonable Cause?
Several situations satisfy the reasonable cause rubric. If a taxpayer, for instance, relied on a professional to assist them with their tax obligations, the IRS will sometimes abate the penalty. Fires, floods, and other natural disasters can also, under some circumstances, provide a basis for relief. Death and serious illness are also factors the IRS will consider.

Generally, a taxpayer attempting to obtain relief due to one of these explanations will be required to rectify the situation as soon as the underlying reason is no longer an issue. For instance, if the taxpayer was in the hospital and could not satisfy his or her tax obligations, he or she would need to file and pay the taxes very soon after getting out of the hospital to qualify for penalty abatement.
What is not Reasonable Cause?
Some clients ask me to help them get these penalties abated, but the facts surrounding their case disqualify them. Some examples I have seen include: forgetfulness, ignorance of the law, or simply that a mistake was made.
While everyone makes mistakes and not everyone is familiar with the details of the Tax Code, the IRS nonetheless will stand firm on any penalties if these defenses are offered. The IRS reasons that being forgetful or making a mistake is not acting as a normal business person would have acted under the same circumstances. The taxpayer, in other words, has not shown reasonable cause for the failure.

Conclusion
Is this clear as mud? As I mentioned in another article, the IRS could assess 14 penalties in the 1950’s. Today they can assess more than ten times that number. Unfortunately, the rules surrounding penalty abatements are just as complex as the rules that create the penalties themselves.

If you are interested in pursuing relief from penalties you should discuss your case with an experienced professional. After learning the details of your situation, a professional should be able to assess the potential success of one of these requests with the IRS and inform you whether it is worth exploring. At Estill & Long, LLC we routinely ask for penalty abatements in conjunction with handling other matters such as setting up a monthly installment agreement or offer in compromise. I highly recommend you reach out to one of our experienced attorneys to discuss your specific situation.

Contact us today!

About Peter McFarland, Esq.
Peter earned his Juris Doctor (J.D.) degree at the University of Denver. After becoming licensed to practice law in the State of Colorado, he earned his Master of Laws (LL.M.) in Taxation at the University of Denver. In his current role, Peter represents taxpayers before the IRS and in the United States Tax Court. He gained valuable experience as an attorney with the University of Denver’s Low Income Tax Clinic during his graduate school studies and has been representing clients at Estill & Long, LLC since his arrival in early 2013.