FIRST TIME TAX DEBT PENALTY ABATEMENT: How it works

The IRS has an administrative waiver that provides penalty relief for certain penalties for taxpayers who have a clean compliance history.  This waiver is called the IRS’ first-time abatement or “FTA.”  FTA has been around since 2001, but few use it to abate their penalties.

Let me break down the rules for you.  For a list of forms that FTA applies, see this blog post.

FTA applies to 3 very common penalties: FTA is primarily directed at three common penalties-  failure to pay (“FTP”- 56% of all penalties), failure to file (“FTF” – 12% of all penalties), and the failure to deposit (“FTD”) penalties for employers who remit payroll deposits.

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S corporation and partnership late filing penalties qualify for FTA: yes, those dreaded late filing penalties for the pass-through entities qualify for FTA.  You will have to find someone at the IRS who is aware of this rule to be successful in abating late filing S corp or partnership penalties.

Look back 3 years for a clean compliance history: the last three years need to be penalty free, with the exception of the estimated tax penalty.  For example, if you have a qualifying penalty in 2018, you cannot have a penalty in 2015-2017 to qualify.

Past estimated tax penalties do not qualify for FTA and do not disqualify you from FTA: if the taxpayer has an estimated tax penalty in the past three years, it will not disqualify the taxpayer from FTA.

If you owe taxes, you can use FTA from any year past 2000: FTA can only be “refunded” for the past three tax years or any penalty paid within the past two years (the IRS refund statute rules).  However, if you owe back taxes, you can use FTA from 2001 to the current tax year to be offset against the amount owed.  See this blog post for more.

Accuracy penalties do not qualify for FTA: if you are audited or receive a CP2000, you may be assessed a 20% accuracy penalty in addition to the tax owed.  Accuracy penalties do not qualify for FTA.  However, the IRS provides a get out of jail free card for the accuracy penalty for negligence if it is the first time the taxpayer received a CP2000 notice.

You must be in “good standing” with the IRS: this means all required returns must be filed and, if you owe back taxes, you are in a collection agreement with the IRS.

If you qualify for FTA, the IRS will code a reasonable cause abatement as FTA if it applies: this is a new rule in 2018.  If you qualify for penalty abatement for FTF, FTP, or FTD based on reasonable cause (you have reasons outside of your control, like sickness, that caused the noncompliance), the IRS will code your penalty abatement as FTA if the taxpayer has a clean compliance history.  This will disqualify any penalty in the next 3 years from qualifying for FTA.  In the past, taxpayers could get reasonable cause abatement in Year 1 and use FTA in Year 2.  Prior to 2018, the IRS considered penalties abated for reasonable cause in prior years as “clean compliance.”

How do you find out if you qualify? 

The easiest method to understand if you qualify and can use FTA is to review your IRS account transcripts.  Transcripts will show penalties applied, by year, and you can apply the rules above to check if you qualify.

GET TAX RELIEF HELP TODAY

If you think that you may need help filing your 2014, 2015, 2016, 2017, 2018, 2019 & 2020 Form 1040 tax returns or past due tax returns, you may want to partner with a reputable tax relief company who can help you get the max refund and reduce your chances for an IRS AUDIT.

Advance Tax Relief is headquartered in Houston, TX. We help many individuals just like you solve a wide variety of IRS and State tax issues, including penalty waivers, wage garnishments, bank levy, tax audit representation, back tax return preparation, small business form 941 tax issues, the IRS Fresh Start Initiative, Offer In Compromise and much more. Our Top Tax Attorneys, Accountants and Tax Experts are standing by ready to help you resolve or settle your IRS back tax problems. 

Advance Tax Relief is rated one of the best tax relief companies nationwide.

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FOUR WAYS UNFILED TAX RETURNS CAN HAUNT YOU AND CAUSE A WAGE GARNISHMENT BY IRS

Haven’t filed taxes in a year or two (or four or ten)? You’re not alone. While the majority of people pay their taxes on time, about 7 million taxpayers fail to file their taxes every year. If you’re in that 5% of taxpayers, you might be asking yourself, “What’s the worst that can happen if I haven’t filed my taxes for this past year or previous years?” Well, the consequences for unfiled tax returns aren’t pretty.

We’re not saying that the IRS operates like a scary movie villain, but they do know how to haunt people who don’t follow their rules and file on time. Their tactics range from disappearing tax refunds and credits to a not-so-pleasant surprise filed tax return on your behalf. The kind of haunting that the IRS will do isn’t so easily solved with burning sage or sprinkling some salt. Instead, this IRS haunting might be best solved by tax preparation help.

 

1. You Could Face Suspenseful Silence from the IRS About Your Unfiled Tax Returns.

Believe it or not, if you don’t file your taxes, it’s possible the IRS may not reach out to you immediately.

You’ve probably heard horror stories about notices piling up in your mailbox and IRS tax collectors knocking down your door. But you rarely hear about the even spookier outcome: that you don’t file, and the IRS seemingly doesn’t do anything in response.

 

In case the IRS hasn’t contacted you, don’t be quick to assume that this suspenseful silence means they haven’t noticed. It’s possible, especially if you’re self-employed and don’t have any W-2s or Form 1099s that get sent to the IRS.

 

However, it’s equally possible that the IRS doesn’t have your correct address. They could be mailing you notices left and right. But if they don’t have an updated address for you, you won’t get those notices. And unfortunately, that’s on you. It’s your responsibility to update the IRS on your current address.

 

2. Tax Refunds and Credits Can Disappear Before Your Eyes.

Say you didn’t file your tax return four years ago. If you had any tax refund due to you from that return, it’s long gone by now. See, if you’re due a refund for withholding or estimated taxes, there’s a statute of limitations that kicks in. If you don’t file your return within 3 years of the due date, you’ll lose that money that was rightfully yours.

NEED HELP WITH OFFER IN COMPROMISE, TAX SETTLEMENTS, TAX PREPARATION, AUDIT REPRESENTATION OR STOP WAGE GARNISHMENTS?

ADVANCE TAX RELIEF LLC

www.advancetaxrelief.com

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CALL (713)300-3965

 

Disappearing Tax Returns

The same goes for tax credits like the Earned Income Credit. In fact, the IRS can be even more stingy with tax credits. If tax credits can cause a refund on a previously unfiled tax return, the IRS is unlikely to give them to you in retrospect.

Why let the IRS keep money that is rightfully yours? By leaving your tax returns unfiled, you’re giving them the go-ahead to hold onto your hard-earned money.

 

3. You Can Struggle to Make Big, Life-Changing Purchases.

Think about those monumental purchases you may make in your life:

 

A brand-new car

A mortgage on the perfect house for your family

A loan to start your own business

Tuition to attend the college of you or your child’s dreams

One of the unexpected ways an unfiled tax return can haunt you is your sudden inability to make these big purchases.

When you make purchases this big, you’re typically borrowing money. When you borrow money, financial institutions tend to require income verification to ensure you’ll be able to repay them. If you aren’t a W-2 employee, how will banks verify your income? You guessed it: using your tax returns.

Not having tax returns could indicate to lenders that they cannot trust you’ll be able to repay the loan. This isn’t to say you’ll be unable to buy a home or a car; just keep in mind that these processes will be much more difficult without tax returns.

Also, you’ll need your federal income tax returns to complete the Free Application for Federal Student Aid (FAFSA). Without this info to prove your financial need, you’ll be unable to apply for federal financial aid. Whether it’s for you or your child, this means you’ll miss out on helpful federal grants and subsidized student loans. And for similar reasons to those posed above with loans for cars and houses, you may find it difficult to take out private student loans as well.

 

4. The IRS Can Surprise You with a Twist Ending by Filing for You.

If you don’t submit a complete tax return, the IRS may do themselves a favor by filing a substitute.

Notice that we don’t say they do you a favor by filing your unfiled return. That’s because the substitute return they file on your behalf will not give you any of the credits, deductions, or exemptions you may have qualified for.

When the IRS files for you, it’s because they believe you owe them a tax debt. With a tax bill in play, the IRS has more to gain by filing for you.

 

IRS files for you

 

What This Twist Ending Looks Like

You’ll receive a Notice of Deficiency CP3219N, which will walk you through their substitute return. You’ll have 90 days to file the return in question or file a petition in Tax Court. If you don’t do anything in those 90 days, the IRS will go ahead with their return.

 

Once the IRS has hit you with that twist ending bill (plus any failure-to-file and failure-to-pay penalties they see fit to charge), you’ll then have to figure out how to pay your balances owed. Otherwise, you risk facing further IRS collection actions like levies and liens. Of course, you always have tax relief help options you can explore like an installment agreement or an IRS debt forgiveness program.

However, it’s still best for you to focus on filing your own tax return to try and take advantage of those deductions and exemptions the IRS may have glossed over in their substitute return. Once they have your filed return, the IRS usually will adjust your account accordingly.

Instead of ignoring unfiled taxes, take control of your life. When unfiled tax returns are haunting you, seek tax preparation experts to help to clear the air. With years of experience under their belt, tax professionals like ours can make sure your unfiled tax returns are filed correctly while maximizing deductions to minimize any potential tax bills.

GET TAX RELIEF HELP TODAY

If you think that you may need help filing your 2014, 2015, 2016, 2017, 2018, 2019 & 2020 Form 1040 tax returns or past due tax returns, you may want to partner with a reputable tax relief company who can help you get the max refund and reduce your chances for an IRS AUDIT.

 Advance Tax Relief is headquartered in Houston, TX. We help many individuals just like you solve a wide variety of IRS and State tax issues, including penalty waivers, wage garnishments, bank levy, tax audit representation, back tax return preparation, small business form 941 tax issues, the IRS Fresh Start Initiative, Offer In Compromise and much more. Our Top Tax Attorneys, Accountants and Tax Experts are standing by ready to help you resolve or settle your IRS back tax problems.

 

Advance Tax Relief is rated one of the best tax relief companies nationwide.

 

#FreshStartInitiative

#OfferInCompromise

#TaxPreparation 

#TaxAttorneys

#TaxDebtRelief

#TaxHelp 

#TaxRelief

#BestTaxReliefCompanies

SELLING YOUR HOUSE? HOW TO REMOVE AN UNPAID TAX DEBT LIEN

Selling your house? How to remove an unpaid IRS tax lien

You are in the process of selling your house, and your bank alerts you that they found an IRS tax lien, and it needs to be removed for your buyer.

It is not financially feasible for you to pay the IRS lien in full to have it immediately removed.

However, you can still successfully clear the title and sell your house.  

The IRS has a lien removal process that allows us to clear the lien, the title, and close your sale even if you are only able to pay some, or none, of what you owe.

The lien removal process begins with IRS calculations based on the amount you will receive from selling your house.

The IRS formula includes the following:

Sale price of  your house.

Amount you owe on your home mortgage.

Closing costs (like real estate commissions).

From the sale price, the IRS deducts the amount you owe on your mortgage along with the closing costs.  After the deductions, the amount you are left with is your home equity.  

If your home equity is less than what you owe the IRS, you will be able to pay some but not all of your taxes.  That is not a barrier to lien removal.  The IRS can agree to remove the tax lien even if you have no home equity and cannot pay at all.

Here are two examples, one demonstrating the lien removal process if you have some leftover home equity, the other if you do not:

Example #1 – Equity

You owe the IRS $70,000 and have your house under contract at a sale price of $190,000.  Your mortgage balance is currently $150,000, and  closing costs will be $10,000.  Your home equity is $20,000 ($190,000 sale price – $150,000 mortgage – $10,000 closing costs).  

 

The IRS will accept $30,000 (home equity) of the $80,000 you owe them and remove their tax lien from the house.  

NEED HELP WITH OFFER IN COMPROMISE, TAX SETTLEMENTS, TAX PREPARATION, AUDIT REPRESENTATION OR STOP WAGE GARNISHMENTS?

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CALL (713)300-3965

Example #2 – No Equity

You owe the IRS $70,000, your sale price is $190,000, but you owe $180,000 rather than $150,000 on your mortgage.  Closing costs are still $10,000.  In this case, your home equity is $0 ($190,000 sale price – $180,000 mortgage – $10,000 closing costs).

The IRS will remove their tax lien from your house without any payment to them as you have no home equity.

If your home equity is less than the amount you owe the IRS, they will accept the equity in exchange for removing the lien.  As the examples demonstrate, the IRS can approve removal of your tax lien so you can sell your house even if there is not enough home equity to pay them. IRS just gets what you would have received from the sale.  

The IRS does have a formal application process we need to follow for acceptance of your payment amount on the lien.  

The process for lien removal requires the following.

Proof that your house’s value is not worth more than your sale price.  The IRS wants to make sure that you receive full market value for selling your house to ensure they get as much from their lien as possible. To show your sale price is correct, the IRS will require two appraisals of your house, consisting of

An independent appraisal by a professional appraiser, and

Your county tax assessor’s valuation of the property, or an informal valuation of property by a disinterested third party.

The two valuations should be equal to or less than your sale price.  If they are greater than your sale price, the IRS can reject the lien removal and want you to get more for the house (and for them).

Copy of your sales contract/purchase agreement.

Copy of a title report on your house, listing all mortgages and liens (including the IRS’).

Closing/settlement statement for the sale, showing your real estate commissions and closing fees that will be deducted.

Copy of the deed/title to your house.

Copy of your Federal tax liens.

Filing of IRS Form 14135, Application for Discharge of Property from Federal Tax Lien.  The IRS calls your lien removal a “discharge,” the legal terminology under Internal Revenue Code Section 6325.  Section 6325 of the tax code grants the IRS the power to remove your tax lien in return for payment of any equity.  The discharge application is designed to satisfy the requirements of Section 6325.

It is important for us to get the application for lien discharge and supporting records filed with the IRS as soon as your house is under contract.  It can take the IRS 45-60 days to approve the application, so prompt action is best to manage delays in your closing.  

A discharge application is not required if your home equity is more than your IRS debt, resulting in your receipt at closing of enough money to pay your tax debt in full.  The IRS will require payment in full and will file a lien release showing you no longer owe the taxes.

An IRS lien removal on your home requires a formal application process and must comply with Internal Revenue Code 6325.   Your application requires that the IRS receive your equity to remove the lien.  If you have no equity to pay the IRS, that’s okay too.  IRS can approve lien removal for as little as nothing.  News of an IRS tax lien should not change your plans of selling your house.

GET TAX RELIEF HELP TODAY

If you think that you may need help filing your 2014, 2015, 2016, 2017, 2018, 2019 & 2020 Form 1040 tax returns or past due tax returns, you may want to partner with a reputable tax relief company who can help you get the max refund and reduce your chances for an IRS AUDIT.

Advance Tax Relief is headquartered in Houston, TX. We help many individuals just like you solve a wide variety of IRS and State tax issues, including penalty waivers, wage garnishments, bank levy, tax audit representation, back tax return preparation, small business form 941 tax issues, the IRS Fresh Start Initiative, Offer In Compromise and much more. Our Top Tax Attorneys, Accountants and Tax Experts are standing by ready to help you resolve or settle your IRS back tax problems.

Advance Tax Relief is rated one of the best tax relief companies nationwide.

#FreshStartInitiative

#OfferInCompromise

#TaxPreparation

#TaxAttorneys

#TaxDebtRelief

#TaxHelp

#TaxRelief

#BestTaxReliefCompanies