Back Taxes
Do you have delinquent taxes or unfiled previous tax returns? We will assist you! We can prepare up to ten years back tax returns, both state and federal. There is a statute of limitations on back taxes owed, which expires after ten years, but this does not affect delinquent tax returns not filed. Our fees are reasonable and we do not charge a larger fee because it is old, unless data must be reconstructed. Many firms charge huge fees because clients are overwhelmed by the paperwork and terrified by the IRS or FTB. If there are 1099 forms filed without corresponding tax returns, the government taxes the entire income and adds various penalties and interest which resulting in huge scary tax bills until a filed return relieves the situation. Sometimes taxpayers that have delinquent taxes avoid the issue until tax liens are placed. This creates tax problems with the IRS, however we can pursue a settlement with the IRS. We have resolved many tax problems in lieu of IRS audits even found ways around the statute of limitations for audit reconsideration.
OFFER IN COMPROMISE
The television used to be full of people blasting away that they would save you from your tax nightmare for pennies on the dollar. Then they would charge you thousands to throw paperwork against the wall and wait for the usual rejection from the Atlanta IRS center. In recent years the IRS has dutifully taken on more of the egregious promoters and the advertising has changed to back taxes, which every tax preparer does as well for less money. The problem was that the Offer in Compromise requires a lot of paperwork and financial statements from the taxpayer to settle an issue that they will settle only if there is no other possible way to collect or lien the money from the taxpayer. There was a technical correction to the problem a few years back when the IRS began requiring a non-refundable deposit of 20% of the taxes owed with the filed application. That was the end of the quickie solution. I remember only one Offer in Compromise that was settled in favor of the taxpayer and it really shouldn’t have been. Maybe they felt sorry for her because my client was a lawyer.
The ten-year rule. If you owe taxes, the IRS generally owns your economic life. They can lien all property including employment, excepting pensions. They have access to titles, banks, and everything with your social security number on it. If you owe for more than one year they will apply all credits and payments to the oldest year first.
The only escape is bankruptcy [but not for some recent returns or trust fund money] or to outlive the ten year statute of limitations. Yes, after ten years you are free. If you filed ten years tax returns late, the clock begins ticking on the date filed, however.
TAX DEBT FORGIVENESS
If I loan you a million dollars and you don’t pay me back [presuming you are not a close relative {gift implications}], by virtue of the tax code you have a taxable gain which is shown as a short-term loss on the tax return. This would offset loss carryovers but also results in ordinary income taxation. There are two kinds of debt forgiveness:
The first is ordinary debt such as credit card. You and the bank or their collection agency agree to pay 50% of the balance for an economic divorce. The half of the debt they let go is now taxable income to you and will show up on a 1099 form at year-end. On the other hand, if they don’t agree and you manage to hide from their people, there is an escape offered by the California four-year statute of limitations.
Unfortunately, after four years have passed the phone could ring and another collection agency asks you, what your name is and second, to remind you that you still owe the money. If you agree that you still owe it, then you have affirmed the debt and been tricked into paying it back again.
The other is real estate debt which gets complicated. Both California and the federal tax codes allow for debt forgiveness, with very high limits, for real estate purchases and improvement debt. This is acquisition debt and generally non-recourse. Non-recourse means the lender can’t go after other assets to collect. Refinancing the original loan or renting the property [thus converting it to business property] disqualifies the debt by making it new recourse debt. My clients who bought many houses to rent during the Great Speculation Period were quick to head to the bankruptcy court afterward which is the only way to get rid of the tax problem.
One problem with many of the second trust deeds and lines of credit are that they are usually recourse debt and although you can wash out the first trust deed with debt forgiveness, the other debts could come back to haunt you years later on.