Archive for the ‘Uncategorized’ Category

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.

2014 Tax Tips for Newlyweds

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

Scott Estill – 4-22-2014

2014 Tax Tips for Newlyweds

  • For tax purposes, your marital status is determined as of December 31, 2014.  As such, it is possible to time the marriage to produce the lowest possible tax results (i.e. should we marry in 2014 or 2015).
  • If either spouse changed his/her name as a result of the marriage, make sure the name(s) has been changed at the Social Security Administration (Form SS-5) and the name matches the name used on your first tax return as a married person.
  • Married couples are permitted to file their taxes one of two ways:  married filing jointly or married filing separately.  While a joint filing status is usually best of most couples in that it will result in the least amount of taxes being paid, it doesn’t hurt to compute the taxes with each filing status to see which produces the lowest tax bill in your particular situation.   You are permitted to change your filing status in the future so any decisions for 2014 are not binding on future tax years.
  • If either spouse has a current tax issue pending from prior to the marriage, the couple should consider filing separately, especially if tax refunds are at issue and one spouse has no legal liability for the debts of the other spouse.
  • For same-sex couples, the IRS will view you as legally married for federal tax purposes.  Thus, a joint or separate filing status will need to be determined for federal tax purposes. However, there is still uncertainty for same-sex married couples who live in a state that does not recognize their marriage.  If this is the case, it may be necessary to file as married at the federal level and single at the state level.
  • It may be easier for you and your spouse to itemize tax deductions after marriage given that you both can combine your deductions if you file a joint tax return.   These deductions include charitable donations, state and local taxes, mortgage interest, investment expenses, unreimbursed employee business expenses and many other possible expense deductions.
  • It is important to review your income tax withholdings at your W-2 job.  In some instances, it may be beneficial to claim an extra exemption for income tax withholding purposes (for your new spouse), resulting in less taxes being withheld and a pay increase to you!  You should use this strategy only if you anticipate a tax refund at the end of the year.  If you owe taxes, you may be liable for additional interest and/or penalties if you are under-withheld in the tax department.
  • You should also review retirement the plan options for both spouses, as in some instances contributions to a Roth IRA or other tax-favored plan may now be available to newly-married couples.
  • For couples who each owned a personal residence before the marriage, there may be some tax breaks available when selling one of the homes.  For instance, if a home is sold as a result of combining two households, newlyweds may be able to exclude some or all of the capital gains.  If the seller owned and used the home as a main residence for at least two of the past five years before selling it, he or she can exclude $250,000 of capital gains.  Once married, the amount doubles to $500,000 if the couple files jointly and meets certain ownership and use tests.  This is one area in which a small amount of tax planning can reap very large financial rewards via tax savings.
  • If one or both spouses change addresses following the marriage, it is important to file a change of address (Form 8822) with the IRS so that you are kept aware of any notices, refund checks or other tax matters.

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.

 

 

IRA Rollover Update

Posted on: April 18th, 2014 by sashworth No Comments

IRA Rollover Update

Scott Estill – 4-18-2014

Rollovers are a popular way of moving IRA money around from one investment to another. They are also a way to get a short-term tax-free loan from your IRA. An IRA withdrawal is reported on your tax return but is treated as a tax-free transaction if:

  • You redeposit the amount you withdrew from the IRA into      the same or other IRA no later than 60 days after the date you made the      withdrawal (the IRS may waive the 60-day requirement under some      circumstances, for example, an error by a financial institution).
  • You do a tax-free rollover only once a year. The 1-year      wait period begins on the date you receive the IRA distribution, not on      the date you roll it back into another IRA.

The 60-day rule is unchanged, but the 1-year waiting period has been revised.

For years, the IRS has said that the 1-year waiting period applies separately to each IRA you own. Now, following a recent Tax Court case, the IRS says it will treat all of your IRAs as one IRA for purposes of the 1-year waiting period. However, it will not apply this more restrictive interpretation to any rollover that involves a pre-2015 IRA distribution.

For example, suppose in March of 2014, you withdrew the balance from IRA-A and rolled it over into IRA-C within 60 days. In August of 2014, you withdraw the balance from IRA-B and roll it over into IRA-D within 60 days. You haven’t previously made any rollovers. Neither withdrawal will be taxed because IRA-A and IRA-B are treated separately for purposes of the 1-year waiting period. But if you were to make two rollovers in 2015, when all of your IRAs will be treated as one when applying the 1-year waiting period, only the withdrawal from the first IRA would be tax-free. The withdrawal from the second IRA would be taxed and also could be hit with a 10% early withdrawal penalty. In addition, the rollover of the second withdrawal into an IRA, to the extent it exceeded any allowable regular contribution you could make to an IRA for 2015, would be treated as an excess contribution subject to a 6% tax unless withdrawn by the return due date for the year of the attempted rollover.

Note that rollovers between Roth IRAs are subject to the same 60-day rule and 1-year wait period that apply to rollovers between traditional IRAs. This means that after 2014, all of your Roth IRAs will be treated as one Roth IRA for purposes of the 1-year wait period between rollovers.

Keep in mind that rollovers from employer retirement plans to IRAs aren’t counted for purposes of the 1-year wait period, and neither are conversions of regular IRAs to Roth IRAs.

Finally, keep in mind that the 1-year wait period doesn’t apply to trustee-to-trustee transfers between traditional IRAs, or between Roth IRAs. These tax-free transfers, made directly from one financial institution to another, can be made any time and aren’t reported on your tax return.

The revised rules for IRA rollovers reinforce the need to speak with a competent professional before moving around your tax-favored retirement funds. Call the office – 720-922-1120 or email: info@estillandlong.com -  to set up an appointment to discuss the revised rules or to arrange for a retirement planning check-up.

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 a Collection Due Process Hearing?

Posted on: March 26th, 2014 by sashworth No Comments

 

Written by Peter McFarland, Esq. on 10/2/2013

 

Enforced collections by the IRS are no joke.  The seizure of assets through a levy or the filing of a lien can have catastrophic effects on taxpayer’s lives and ability to function.  But there is some good news if you have been receiving IRS notices threatening to collect unpaid taxes.

Recognizing that IRS collections are extremely intrusive, Congress enacted the Internal Revenue Service Restructuring and Reform Act of 1998.  By far one of the most significant changes brought about by this act was the creation of a Collection Due Process Hearing which, if requested, must take place before the IRS can use a levy to collect an outstanding tax liability.

 

The Collection Due Process Hearing Itself

So what, exactly, is this hearing?  Many people, when thinking of a legal hearing, think of suits, ties, and a judge.  While this is definitely one form of legal hearing, a Collection Due Process Hearing often involves none of these things.

A Collection Due Process Hearing is, instead, an administrative hearing that takes place between the taxpayer and the IRS.  A representative, such as an attorney, can be present at the hearing in the taxpayer’s place.  The hearing most often occurs over the phone.

For levies, the hearing is, more or less, a discussion on how the taxpayer proposes to pay the liability.  Other defenses may be presented, but generally the focus will be on collecting the debt.  Taxpayers may propose a monthly installment agreement, offer in compromise, or currently not collectible status to address the liability.  If the Appeals Officer agrees with the proposed payment plan, the IRS will not levy the taxpayer’s accounts.

For liens, the hearing is a discussion on alternative means for the IRS to be secured in its interest to collect any unpaid tax without filing a lien. Solutions may involve the taxpayer borrowing funds or selling assets to pay the liability.

 

The Road to the Collection Due Process Hearing

There are two potential paths that give rise to a Collection Due Process Hearing.

The first path involves levies, or the confiscation of a taxpayer’s property to satisfy an unpaid tax debt.  When a taxpayer owes money to the IRS, the IRS will send several notices to the taxpayer informing them of the liability with any penalties and interest applied.  After receiving the Final Notice of Intent to Levy in the mail, the taxpayer has the right to request a Collection Due Process Hearing before a levy can actually occur.

The second path involves liens.  Similar to the levy path explained above, after several notices are sent to a taxpayer he or she will receive a Notice of Federal Tax Lien.  Upon receipt of this notice, the taxpayer may request a Collection Due Process Hearing to respond to the filing of the lien.

 

What Happens if the Hearing is not Favorable?

If the Appeals Officer does not accept the proposed alternative and determines that the levy or lien is the best collection method possible, that determination is not the end of the matter.  Congress gave jurisdiction to the United States Tax Court to review Collection Due Process Hearing outcomes.

While appeals to the United States Tax Court involve significant cost, the IRS is ultimately answerable to the court and will generally deal with Taxpayers fairly knowing that an unfair determination could be reviewed.

After the IRS issues its final determination and closes the hearing, the taxpayer has 30 days to file with the Tax Court for review.

 

Conclusion

Collection Due Process Hearings, although a more informal hearing, are a powerful tool in a taxpayer’s arsenal.  It can stall IRS collection activity and allows the taxpayer to propose alternative means of collecting an unpaid tax liability.  A successful hearing can stop levies and, under some circumstances, can provide relief from a lien.

These hearings, however, can also tip the scale in favor of the IRS.  If the Appeals Officer in charge of the hearing upholds the decision to levy an account or file a lien, the IRS will proceed with the enforced collection activity.

If you find yourself receiving IRS collection notices, you could benefit greatly from taking advantage of a Collection Due Process Hearing.  I highly recommend you reach out to our office today and speak to one of the experienced attorneys at Estill & Long, LLC.

 

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.