Can The IRS Take Your 401K
Regular Post
Written by Craig B

Can You Compromise With the IRS?

es, you can compromise with the IRS through a program called the Offer in Compromise (OIC). This program allows taxpayers to settle their tax debt for less than the full amount owed if they can demonstrate that paying the full amount would create a financial hardship or if there is doubt about the liability or collectibility of the debt. Here’s how the process works:

1. Eligibility Criteria:

  • Inability to Pay: The IRS will consider an Offer in Compromise if you can demonstrate that you are unable to pay the full amount of your tax liability either in a lump sum or through a payment plan.
  • Doubt as to Liability: If you believe that the tax assessment is incorrect, you can file an OIC based on doubt as to liability.
  • Doubt as to Collectibility: This applies when there is doubt that the IRS can collect the full amount of the tax debt from you due to your financial situation.
  • Effective Tax Administration: Even if you can technically pay the full amount, you might qualify for an OIC if doing so would create an economic hardship or be inequitable.

2. Offer Amount:

  • Reasonable Collection Potential (RCP): The IRS evaluates your ability to pay by determining your RCP, which is the sum of your assets and future income. Your offer should generally be equal to or greater than the RCP.
  • Calculating the Offer: You’ll need to calculate your offer based on your income, expenses, and the value of your assets. The IRS provides forms (Form 433-A for individuals and Form 433-B for businesses) to help with these calculations.

3. Application Process:

  • Form 656: You must submit Form 656, Offer in Compromise, along with a $205 application fee (which may be waived for low-income applicants) and an initial payment.
  • Supporting Documents: You’ll need to provide detailed financial information, including income, expenses, and asset documentation, to support your offer.
  • Payment Options: You can choose to pay your offer amount in a lump sum or in installments. The IRS requires a down payment with your application—20% for lump-sum offers or your first monthly payment for periodic payment offers.

4. Review and Decision:

  • IRS Review: The IRS will review your offer, which may take several months. During this time, you must continue to comply with all filing and payment requirements.
  • Acceptance: If the IRS accepts your offer, you must comply with all terms, including filing and paying taxes on time for the next five years. If you fail to do so, the IRS can revoke the offer and reinstate the original tax liability.
  • Rejection: If your offer is rejected, you have the right to appeal the decision within 30 days using Form 13711, Request for Appeal of Offer in Compromise.

5. Considerations:

  • Impact on Credit: Unlike bankruptcy, an OIC is not public information and doesn’t directly affect your credit score. However, the IRS does file a Notice of Federal Tax Lien, which could impact your credit.
  • Not a Guarantee: The OIC is not guaranteed, and the IRS accepts less than half of all offers. Proper documentation and a realistic offer increase your chances of acceptance.
  • Professional Help: Given the complexity of the process, many taxpayers seek help from tax professionals to navigate the OIC application.

6. Alternatives:

  • Installment Agreement: If your offer is not accepted, you may still be able to set up an installment agreement to pay off your tax debt over time.
  • Currently Not Collectible (CNC) Status: If you are unable to make any payments, the IRS may temporarily halt collection actions by placing your account in CNC status.

In summary, the Offer in Compromise is a legitimate way to settle your tax debt for less than what you owe, but it requires careful preparation, documentation, and understanding of the IRS’s criteria. If successful, it can provide significant financial relief.

Tax Settlement in Mesa, Arizona

If you need IRS Debt Help, Tax Debt Settlements or Tax Debt Advising in Phoenix, Mesa or anywhere else, Tax Debt Advisors can help! Give us a call at 480-926-9300 or fill out our contact form for a free consultation. This family owned tax practice has been serving the public since all the way back in 1977!

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Can The IRS Take Your 401K
Regular Post
Written by Craig B

Can The IRS Take Roth IRA

The IRS generally cannot directly take or seize your Roth IRA, but there are situations where your Roth IRA could be affected if you owe taxes to the IRS. Here’s how it works:

1. IRS Tax Levy:

  • Levies on Financial Assets: The IRS has the power to levy (seize) financial assets, including bank accounts, brokerage accounts, and retirement accounts, to satisfy unpaid tax debts. This includes Roth IRAs.
  • Process: Before levying your assets, the IRS will typically send several notices demanding payment and providing you with opportunities to resolve the debt. If you do not take action, the IRS may issue a levy and seize funds from your Roth IRA.
  • Exemptions: Certain assets may be exempt from IRS levies, but retirement accounts like Roth IRAs are not automatically exempt.

2. Impact of Early Withdrawal:

  • Taxes and Penalties: If the IRS levies your Roth IRA, the amount withdrawn to satisfy the tax debt may be subject to income taxes and, if you are under age 59½, a 10% early withdrawal penalty on the earnings portion of the withdrawal.
  • Order of Withdrawal: Roth IRA withdrawals are generally considered to come first from contributions (which can be withdrawn tax- and penalty-free), then from earnings. The IRS would apply the levy to your account, which could trigger taxes and penalties depending on the amount and source of the funds withdrawn.

3. Avoiding IRS Levies:

  • Payment Plans: If you owe taxes and are concerned about a levy, you can contact the IRS to arrange a payment plan or offer in compromise, which may allow you to pay your tax debt over time or settle for less than the full amount owed.
  • Communication: Promptly addressing IRS notices and seeking professional advice can help you avoid more severe collection actions, such as a levy on your Roth IRA.

4. Bankruptcy Protection:

  • Protection in Bankruptcy: Under certain circumstances, Roth IRAs may be protected from creditors, including the IRS, during bankruptcy proceedings, subject to specific limits and rules under federal bankruptcy law.

5. State Laws:

  • State Protections: Some states offer additional protections for retirement accounts against creditors, including the IRS. These protections vary by state and may limit the IRS’s ability to levy your Roth IRA.

In summary, while the IRS can levy your Roth IRA if you owe back taxes, this typically occurs after multiple notices and opportunities to resolve the debt have been provided. To avoid this, it’s important to address any tax issues promptly and seek professional advice if you are unable to pay your tax debt.

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If you need IRS Debt Help, Tax Debt Settlements or Tax Debt Advising in Phoenix, Mesa or anywhere else, Tax Debt Advisors can help! Give us a call at 480-926-9300 or fill out our contact form for a free consultation. This family owned tax practice has been serving the public since all the way back in 1977!

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Can The IRS Take Your 401K
Regular Post
Written by Craig B

How Much Should I Offer In Compromise to the IRS?

Determining the amount to offer the IRS in a formal Offer in Compromise (OIC) is a complex process that depends on your unique financial situation and the specific tax debt you owe. An Offer in Compromise is a program that allows eligible taxpayers to settle their tax debt for less than the full amount owed. The IRS considers several factors when evaluating OIC requests. Here’s a general guideline to help you decide how much to offer:

  1. Calculate Your Reasonable Collection Potential (RCP): The IRS uses a formula to determine your RCP, which is essentially your ability to pay. It takes into account your income, expenses, assets, and future earning potential. The RCP calculation considers:

    • Your monthly income: This includes wages, self-employment income, rental income, and other sources.

    • Your allowable monthly expenses: These are based on IRS standards and include expenses like housing, transportation, and food.

    • Your equity in assets: The IRS may consider the value of your assets, including real estate, vehicles, bank accounts, investments, and other assets.

  2. Add Lump Sum Cash Offers: If you have a lump sum of money available, such as from savings or a loan from family or friends, you can offer this amount in addition to your RCP. The IRS will consider this in your OIC evaluation.

  3. Select the Payment Option: You have two options for making payments in your Offer in Compromise:

    • Lump Sum Cash Offer: You offer a one-time payment, usually within five months of acceptance.

    • Periodic Payment Offer: You make a series of payments over a specified period, which can extend up to two years.

  4. Determine the Total Offer Amount: If you choose the lump sum cash offer, add your lump sum amount to your RCP. If you choose the periodic payment offer, add your first proposed installment to your RCP.

  5. Filing Fee and Initial Payment: Include the appropriate filing fee and an initial payment (if applicable) with your OIC application. As of my last knowledge update in September 2021, the filing fee is $205. The initial payment amount depends on your payment option:

    • For a lump sum cash offer, include 20% of the total offer amount with your application.

    • For a periodic payment offer, include the first proposed installment with your application.

  6. Consult a Tax Professional: Given the complexity of OIC calculations and the importance of submitting a comprehensive and accurate offer, it’s highly advisable to consult with a tax professional or tax attorney experienced in OIC submissions. They can help you gather the necessary financial information, complete the required forms, and ensure that your offer reflects your true ability to pay.

Remember that the IRS evaluates OIC requests on a case-by-case basis, and not all offers are accepted. If your offer is accepted, you must comply with all IRS filing and payment requirements for the next five years. Additionally, if your financial situation improves during this period, you may be required to pay any newly accrued tax liabilities.

As tax laws and IRS guidelines can change, it’s essential to check the latest information and consult with a tax professional for guidance tailored to your specific circumstances.

Tax Settlement in Mesa, Arizona

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Can The IRS Take Your 401K
Regular Post
Written by Craig B

Can The IRS Take Your 401K

The IRS (Internal Revenue Service) generally cannot directly seize your 401(k) account to satisfy tax debts or other liabilities. 401(k) accounts are protected by various laws, including the Employee Retirement Income Security Act (ERISA), which provides safeguards for retirement savings.

However, there are some situations where the IRS may indirectly access funds from your 401(k):

  1. Early Withdrawals: If you make early withdrawals from your 401(k) account before reaching the age of 59½, you may be subject to income tax on the withdrawal amount, as well as a 10% early withdrawal penalty. These taxes can reduce the funds available to you.

  2. Required Minimum Distributions (RMDs): Once you reach the age of 72 (or 70½ if you reached that age before January 1, 2020), you are required to start taking minimum distributions from your traditional 401(k) account. These distributions are subject to income tax.

  3. IRS Levy: While the IRS cannot directly seize your 401(k), if you have a tax debt that you are not paying and the IRS issues a levy against you, they can potentially levy other assets, such as your bank accounts. If you decide to withdraw money from your 401(k) to cover the tax debt, it may still be subject to taxes and penalties.

  4. Divorce or Court Orders: In the case of divorce or other court-ordered settlements, a portion of your 401(k) may be subject to division between you and your former spouse or another party, as determined by a court.

  5. Bankruptcy: In the event of bankruptcy, your 401(k) is generally protected from creditors. However, this protection may vary depending on your state’s bankruptcy laws, so it’s essential to consult with a bankruptcy attorney for guidance specific to your situation.

Here are some things you can do to avoid having your 401(k) levied by the IRS:

  • File your taxes on time and pay your taxes in full.
  • If you cannot pay your taxes in full, contact the IRS to set up a payment plan.
  • Keep your 401(k) balance low. The less money you have in your 401(k), the less the IRS can take if they levy it.
  • Consider rolling over your 401(k) to an IRA. IRAs are not protected from levies by the IRS, but they may be less attractive to the IRS than 401(k)s because they are more difficult to access.

If you have any questions about whether or not the IRS can take your 401(k), you should speak to a tax advisor.

It’s crucial to consider the tax implications and penalties associated with early withdrawals from a 401(k) before taking any action. Generally, it’s advisable to preserve your retirement savings for its intended purpose—retirement. If you are facing financial difficulties and have a tax debt, it’s a good idea to contact the IRS to explore options for resolving the debt through installment agreements or other means that do not require depleting your retirement savings. Additionally, seeking advice from a tax professional or financial advisor can help you make informed decisions regarding your financial situation and retirement accounts.

Tax Settlement in Mesa, Arizona

If you need IRS Debt Help, Tax Debt Settlements or Tax Debt Advising in Phoenix, Mesa or anywhere else, Tax Debt Advisors can help! Give us a call at 480-926-9300 or fill out our contact form for a free consultation. This family owned tax practice has been serving the public since all the way back in 1977!

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Can The IRS Take Your 401K
Regular Post
Written by Craig B

What Is The IRS Fresh Start Program?

You may have heard about the Internal Revenue Service’s “new start” program and wondered if you might use it to pay off your tax obligation. But what is the Fresh Start program precisely, and how does it work?

The Fresh Start program is meant to allow taxpayers to pay off their debts in full within six years without incurring significant financial hardship. It is open to any taxpayer with a tax obligation of $50,000 or less owed to the IRS. The IRS started the program in 2008 and expanded it in 2012 to help people with their credentials and financial constraints.

The Fresh Start program streamlines the process of repaying a big tax obligation while also removing some of the hassles that come with owing the IRS large quantities of money, such as liens, levies, wage garnishments, and penalties. An extended installment plan, tax lien withdrawals, and the Offer in Compromise are the three repayment options available under the program.

The extended installment agreement is the most prevalent of these alternatives, and it is meant for taxpayers who owe $50,000 or less. This option allows taxpayers to pay off their tax obligation over a six-year period without incurring any further fines or interest. Wage garnishments, tax liens, and tax levies will all be put on hold by the IRS. This program requires the taxpayer to make monthly payments in an amount determined by their income and the value of their assets. The goal is for the payments to be affordable to the taxpayer so that they may be made on time and without financial hardship.

Taxpayers can use a direct debit payment option to pay off their debts under the tax lien withdrawal. Once this is in place, the taxpayer can request that any tax liens on their accounts be removed by the IRS. This also prevents the tax lien from being disclosed to the three consumer credit reporting organizations.

The Offer in Compromise, or OIC, program is the final option. Taxpayers who participate in the OIC program may be able to settle their debt for less than they owe. The taxpayer submits an offer based on the worth of assets that can be liquidated to pay off the debt. In calculating what the IRS believes the taxpayer can reasonably repay, the IRS will take into account the taxpayer’s ability to pay, current income and costs, and any asset equity. Because an OIC must be negotiated with the IRS and can take months to get, you may wish to enlist the services of a tax professional to walk you through the process and negotiate with the IRS on your behalf. Even then, only a small percentage of taxpayers will be successful in settling their debt for a lower sum, and if the IRS accepts the offer, their assets will be severely diminished.

Of course, there are certain extra requirements in order to be eligible for the Fresh Start program. To begin, you must be current on all of your tax returns, including those from previous years. If you have any unfiled returns, you cannot apply for the Fresh Start program, and you must file timely taxes for any subsequent years.

For many taxpayers, dealing with the IRS collections department is a terrifying prospect, but you don’t have to go it alone. If you’re not sure whether Fresh Start program is ideal for your particular tax debt situation, you should seek counsel from a specialist Acting today, whether you decide to handle your tax burden on your own or with the help of a professional, is the best way forward. Tax issues do not go away on their own, and they can cause a great deal of stress in your life and relationships. With the Fresh Start program, you know you’re on your way to getting rid of this load.

The Fresh Start Program includes the following key components:

  1. Expanded Offer in Compromise (OIC) Eligibility: One significant aspect of the Fresh Start Program is the expanded eligibility for the Offer in Compromise program. An Offer in Compromise allows taxpayers to settle their tax debts for less than the full amount owed if they meet certain criteria. Under the Fresh Start changes, the IRS revised its calculation of a taxpayer’s reasonable collection potential, making it more accessible for financially struggling individuals to qualify for an OIC.

  2. Streamlined Installment Agreements: The IRS increased the threshold for streamlined installment agreements. Taxpayers who owe less than $50,000 can enter into installment agreements without submitting detailed financial statements or extensive documentation. These streamlined agreements simplify the process of paying off tax debt over time.

  3. Reduced Tax Lien Filings: The IRS raised the threshold for the automatic filing of tax liens. The Fresh Start Program increased the minimum tax debt amount that triggers a tax lien filing, reducing the number of liens imposed on taxpayers. A tax lien can negatively affect a taxpayer’s credit and financial standing.

  4. More Flexible Offer Terms: The IRS extended the time frame for taxpayers to pay off their accepted Offer in Compromise amounts. This extension allows taxpayers more time to satisfy their negotiated tax debt settlements.

  5. Suspension of Collection Activities: In certain cases, the IRS may temporarily suspend collection activities for taxpayers facing economic hardship. This gives taxpayers additional time to stabilize their financial situations.

  6. Easier Penalty Abatement: The Fresh Start Program introduced more lenient criteria for requesting the abatement of certain penalties, such as the failure-to-pay penalty. Taxpayers who have a good compliance history and can show reasonable cause may be eligible for penalty relief.

It’s important to note that while the Fresh Start Program offers relief options to taxpayers, the IRS still expects taxpayers to fulfill their tax obligations. These initiatives are designed to help taxpayers who genuinely need assistance due to financial hardship.

If you owe back taxes to the IRS and are struggling to meet your tax obligations, it’s advisable to consult with a tax professional or seek assistance from the IRS to explore the options available to you under the Fresh Start Program or other tax relief programs. Keep in mind that tax laws and IRS policies can change over time, so it’s essential to stay informed about the latest updates and requirements.

Tax Settlement in Mesa, Arizona

If you need IRS Debt Help, Tax Debt Settlements or Tax Debt Advising in Phoenix, Mesa or anywhere else, Tax Debt Advisors can help! Give us a call at 480-926-9300 or fill out our contact form for a free consultation. This family owned tax practice has been serving the public since all the way back in 1977!

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Can The IRS Take Your 401K
Regular Post
Written by Craig B

IRS Fresh Start Program

You may have heard about the Internal Revenue Service’s “new start” program and wondered if you might use it to pay off your tax obligation. But what is the Fresh Start program precisely, and how does it work?

The Fresh Start program is meant to allow taxpayers to pay off their debts in full within six years without incurring significant financial hardship. It is open to any taxpayer with a tax obligation of $50,000 or less owed to the IRS. The IRS started the program in 2008 and expanded it in 2012 to help people with their credentials and financial constraints.

The Fresh Start program streamlines the process of repaying a big tax obligation while also removing some of the hassles that come with owing the IRS large quantities of money, such as liens, levies, wage garnishments, and penalties. An extended installment plan, tax lien withdrawals, and the Offer in Compromise are the three repayment options available under the program.

The extended installment agreement is the most prevalent of these alternatives, and it is meant for taxpayers who owe $50,000 or less. This option allows taxpayers to pay off their tax obligation over a six-year period without incurring any further fines or interest. Wage garnishments, tax liens, and tax levies will all be put on hold by the IRS. This program requires the taxpayer to make monthly payments in an amount determined by their income and the value of their assets. The goal is for the payments to be affordable to the taxpayer so that they may be made on time and without financial hardship.

Taxpayers can use a direct debit payment option to pay off their debts under the tax lien withdrawal. Once this is in place, the taxpayer can request that any tax liens on their accounts be removed by the IRS. This also prevents the tax lien from being disclosed to the three consumer credit reporting organizations.

The Offer in Compromise, or OIC, program is the final option. Taxpayers who participate in the OIC program may be able to settle their debt for less than they owe. The taxpayer submits an offer based on the worth of assets that can be liquidated to pay off the debt. In calculating what the IRS believes the taxpayer can reasonably repay, the IRS will take into account the taxpayer’s ability to pay, current income and costs, and any asset equity. Because an OIC must be negotiated with the IRS and can take months to get, you may wish to enlist the services of a tax professional to walk you through the process and negotiate with the IRS on your behalf. Even then, only a small percentage of taxpayers will be successful in settling their debt for a lower sum, and if the IRS accepts the offer, their assets will be severely diminished.

Of course, there are certain extra requirements in order to be eligible for the Fresh Start program. To begin, you must be current on all of your tax returns, including those from previous years. If you have any unfiled returns, you cannot apply for the Fresh Start program, and you must file timely taxes for any subsequent years.

For many taxpayers, dealing with the IRS collections department is a terrifying prospect, but you don’t have to go it alone. If you’re not sure whether Fresh Start program is ideal for your particular tax debt situation, you should seek counsel from a specialist Acting today, whether you decide to handle your tax burden on your own or with the help of a professional, is the best way forward. Tax issues do not go away on their own, and they can cause a great deal of stress in your life and relationships. With the Fresh Start program, you know you’re on your way to getting rid of this load.

Tax Settlement in Mesa, Arizona

If you need IRS Debt Help, Tax Debt Settlements or Tax Debt Advising in Phoenix, Mesa or anywhere else, Tax Debt Advisors can help! Give us a call at 480-926-9300 or fill out our contact form for a free consultation. This family owned tax practice has been serving the public since all the way back in 1977!

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Can The IRS Take Your 401K
Regular Post
Written by webtechs

How Many Years Does The IRS Go Back To Collect On Unfiled Tax Returns?

The IRS will require any taxpayer to go back and file your last six years of tax returns. Taxpayers are encouraged by the IRS to file all missing tax returns if possible, though.

All payments can be arranged via the IRS, with several programs like installment agreements and offer in compromise settlements, among others. 

How To File Back Tax Returns

Here are five simple steps to follow when filing back tax returns:

Set Up Payment Agreement With IRS

If you cannot afford to pay back your tax returns immediately, you are allowed to set up payment agreements with the IRS. There are numerous payment options available, depending on your financial needs. If you don’t set up a plan and avoid paying the IRS altogether, the IRS can and likely will put their collections department on the case. 

Only Go Back Six Years

Before starting this process, call the IRS or a trusted tax professional. Confirm with them that you only have to go back as far as the past six years for unfiled taxes. 

Help With Transcripts

It is crucial to match the IRS’ exact records when preparing a return. Trace your income history by first requesting wage and income transcripts from the IRS. The IRS can question the accuracy of your return without this information being obtained. 

Request Penalty Abatement

It is true that the IRS can be lenient in these situations. You can request that the IRS not charge you for failure to pay or face the burden of other financial penalties. You can file a first-abatement for the first year if you qualify. Another option would be to file a reasonable cause agreement for some late filing relief. Always be aware of any penalties you may be facing ahead of time. 

IRS May Have Already Filed A Return For You

It is possible for the IRS to start a process referred to as a substitute for a return up to three years after the due date of return. Whenever you file a return to replace the substitute of return, the IRS will check the replacement return by comparing it to statements already on file. In some cases, this process can take as long as four months for the IRS to complete.

Tax Settlement in Mesa, Arizona

If you need IRS Debt Help, Tax Debt Settlements or Tax Debt Advising in Phoenix, Mesa or anywhere else, Tax Debt Advisors can help! Give us a call at 480-926-9300 or fill out our contact form for a free consultation. This family owned tax practice has been serving the public since all the way back in 1977!

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