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National Tax Resolution Blog

Discharging of tax debt in bankruptcy and late tax filings

While a Chapter 7 bankruptcy filing assists in discharging most debt, it would be a mistake to automatically assume it will discharge tax debt in every circumstance. Whether tax debt is dischargeable depends on a number of factors.

Determining whether it is possible to discharge tax debt is dependent upon the type of tax relative to the kind of bankruptcy. What are called “stale” tax debts generally are dischargeable, but the same is not true for “fresh” debts. Also, there is to be no discharging of tax debt if there was a failure to file the appropriate tax returns.

Coping with a federal tax lien against your property

Tax debt can quickly become a significant burden. This sort of debt can even inhibit the enjoyment of owning property you have worked hard to accumulate.

The IRS can place a lien upon property you own – even if title to that property is free and clear. An IRS tax bulletin concerning federal tax liens explains in plain language actions the government can take when it comes to tax debt. In the bulletin, it states that a lien is a “legal claim” by the government in the event you fail to pay a tax debt.

Tax-sharing agreements not binding upon the IRS

There is much that Michigan taxpayers need to consider before entering tax-sharing agreements with other parties. Most importantly, these sorts of agreements are not binding upon the IRS.

For example, the IRS recently disallowed a number of rental property loss deductions claimed upon the joint income tax return of two former spouses prior to filing for divorce. In other words, the IRS now said they owed more money. Also, as a part of their divorce, the two parties agreed that each spouse would be liable for 50 percent of any taxes owed. However, the IRS did not agree with such a computation and came up with a separate formula regarding the liability of each party.

Be wary about tax refunds that are unexpectedly large

Simply because you receive a refund check does not guarantee you are safe from any audit. The IRS reserves the right to audit the majority of returns for up to three years.

The IRS often sends a tax refund before approving the payment. Any processing of a refund check usually will occur prior to any federal tax audit determination. So in the event you mistakenly receive a tax refund, it is possible that you will have to pay that money back with interest.

Received an IRS audit letter? 4 steps you should consider taking.

As a small business owner, there are few things as frightening as receiving an IRS audit notice. Even the most confident and meticulous book-keepers can instantly be filled with fear and doubt as they imagine the IRS pouring over their financial records looking for potential problems.

This is particularly true for owners who transact much of their business in cash -- such as gas station owners -- since cash transactions can sometimes be more difficult to accurately track, meaning it is easier to make an accidental mistake.

4 things the IRS will examine closely during a gas station audit

When it comes to IRS audits, gas stations owners are often at a disadvantage. Not only is a great deal of their business transacted in cash -- making it more difficult to accurately track -- but with few employees, owners often don't have the resources or time to maintain perfect financial records. Even when records are maintained, they are sometimes disorganized or done so sporadically that they are hard to decipher.

However, regardless of the challenges faced by gas station owners, the IRS will not hesitate to audit them and other small business owners who deal primarily in cash. While these audits often involve several issues -- ranging from payroll taxes to withholding sales and use tax, and everything in between -- the examinations will often focus primarily on the following four issues:

Offers in compromise and tax debt

There are certain instances where you can settle a tax debt for less than what you owe through an offer in compromise. However, this is not a simple matter.

The IRS has a particular procedure they follow when it comes to offers in compromise, and they also have tremendous discretion on whether to approve such an offer. Generally, the IRS will only accept an offer to compromise if you met certain criteria.

Supreme Court will not rule on retroactive tax legislation

We previously wrote about a legal challenge brought by a number of corporations concerning changes to Michigan tax law. The U.S. Supreme Court has now declined to hear this challenge. Because of this, the changes to Michigan laws will stand.

These changes in law resulted in some of these businesses retroactively owing back taxes. Michigan legislators passed such legislation in 2007 and 2014, and our courts in turn upheld such laws. The 2007 laws went into effect at the beginning of 2008. This led to some businesses, in compliance with the rules at the time, finding out later they owed more money due to changes in the law.

Passive income and the strict reporting requirements

While the taxes you pay concerning foreign investments may not always be large, the failure to comply with rules pertaining to reporting of this income can result in severe consequences. The rules for reporting such income are also highly complex.

Most importantly, it is important to understand how serious the penalties for noncompliance with these rules can be. For example, the minimum penalty to simply not filing a Foreign Bank Accounting Report (FBAR) can exceed $10,000 or 10 percent of the value of the foreign account.

The seizure of IRS tax refunds

Many Michigan taxpayers anticipate receiving a tax refund. However, sometimes the processing of a refund takes time. And, unfortunately, there are also certain circumstances when the refund may never come.

The Treasury Department's Bureau of the Fiscal Service does more than just issue tax refunds. In some circumstances, its job is to seize all or a portion of a taxpayer’s refund. As the world’s most powerful collection agency, federal authorities can seize assets, garnish wages, and even shutdown a business when collecting back taxes.

When you hire us, we can help: you:

  • Obtain emergency relief from IRS actions
  • Stop the IRS from garnishing your wages
  • Prevent levees from being placed on your bank accounts
  • Keep tax payments and penalties from spiraling out of control

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