ENFORCED COLLECTIONS

What exactly is enforced collections?

Enforced collections is when the government has exhausted their efforts to get a taxpayer to voluntarily pay the taxes that they owe.  When this happens the government will go into enforced collections mode.  This means levies, garnishments, and liens.  It is not where you want to be with the government.  The government will work with you to pay your taxes based on your current financial situation.  Thus, there is rarely a good reason to get into a situation whereby the government has to take extreme measures to collect the tax.

Garnishments, Levies and liens can be an embarrassment that you never have to face.  All you need to do is cooperate and work out a plan.  Remember this plan will be based on your current wherewithal to pay.  

What are Your Options?

Your easiest option or the option to use to buy time is to enter into an installment arrangement.  This can also be done while you are doing something else like an Offer in Compromise.  This will stop enforced collection and allow you to have time put other alternatives together while not being under the constant threat of enforced collections.

You can also enter into an Offer in Compromise to pay less than you actually owe.  This is based on your current financial situation and ability to pay.  We analyze our clients current financial situation and present it in the best light possible to the government.

Another option is some circumstances is to put the client on uncollectable status.  No further collection efforts are made while the taxpayer is on uncollectable status, but interest and penalties continues to accrue.  In certain circumstances this can work very well.

Finally, and usually the last step we consider is bankruptcy.  Believe it or not, there are a number of taxes that can be discharged in bankruptcy.

A combination of the above techniques may be used on any given client.  Each case must be reviewed independently to determine the best course of action.  This is why we offer a free initial consultation.  A no risk way to have a tax professional review your situation.

New Tax Problem Website Launched by The Lively Law Group, PC

TAX PROBLEMS?

 The Lively Law Group specializes in handling IRS Tax Problems and has launched a new website to specifically address the issues of individuals and businesses that are facing Tax Problems.  The site  www.USTaxRescue.com will specifically address the issues of Tax Problems and offer a Free Initial Consultation for anyone that has such a problem to make sure they do not make a mistake in the early stages of their case that could seriously damage their defense.

This is great news for anyone or any business seeking professional advice when they receive a letter or contact from the government on a Tax Issue.

USTaxRescue.com can be contacted through the contact section of the site or by calling 714-708-2593.

Residential Energy Efficient Property Credit

IRC Section 25D.  The Internal Revenue Service provides for a 30 percent credit for the installation of qualified solar water heating property, qualified solar electric property, geothermal heat pumps, and small wind energy property.  This credit will apply for property placed in service through December 31, 2016.

The expenditures that are eligible for this credit include the cost of installation.  However, costs that are allocable to a swimming pool or a hot tub are not eligible for the credit.  The installation does not have to be in the taxpayers principal residence, but it does have to be in a property located in the United States and used by the taxpayer as a residence (ie, could be a second home). 

This credit can be applied against any Alternative Minimum Tax through the 2011 tax year and any unused credit is carried forward.  There is no Adjusted Gross Income limitation for this credit.

Items Not Considered Alimony

Items Not Considered Alimony

In a couple of recent Tax court cases the court ruled on a few items that cannot be considered alimony.

Attorney Fees – The court held in Nicholas v. Comm, TCS 2011-91, that attorney fees incident to a divorce were not alimony.  These were attorney fees and costs paid on behalf of a husband’s ex-wife.  The court reasoned that because the payments made by the husband were not made contingent upon any factor of event, they did not constitute deductible alimony.

Contingency Related to a Child – In Knoedler v. Comm, TCS 2011-18, the court held that an individual cannot deduct as alimony the payments he made to his former wife under a postnuptial agreement where the agreement contained a contingency pertaining to his child.  The court reasoned here that the reduction of payments after the child’s graduation represented a contingency related to a child and, the payments were nondeductible child support.

Also, remember that if a divorce or separation decree provides for both the payment of alimony and child support and the spouse that is to pay the amount does not make payment in full, non-deductible child support will be deemed to be paid first pursuant to IRC Section 71(c)(3). 

Foreign – Earned Income Exclusion

IRC Section 911.  Revenue Procedure 2010-40.  For 2011 a United States individual that is living abroad can exclude up to $92,900 of foreign-earned income.  To take this exclusion the taxpayer must satisfy one of two tests.

The bona fide foreign residence test or the foreign physical presence test.

The exclusion applies separately to spouses.  Therefore, if both of the spouses are qualified individuals, the two spouses together can exclude up to $185,800, as adjusted for inflation, from their income.

Remember, that all United States Citizens are taxed on a World Wide basis and must report their income and prepare a United States Income Tax Return.  If United States citizens have foreign bank accounts they must be disclosed to avoid criminal and civil penalties.  These issues are not the focus of this article, but foreign based United States Citizens must be aware of these issues.

Exclusion of Disability Income for Police Officer

IRC Section 104 provides that compensation for injuries and sickness are not taxable and are excluded from income.  In Bakken v. Commissioner, TCS 2011-55, the court concluded that the disability income of a police officer who was injured in the line of duty and became permanently disabled remained nontaxable under Section 104 when he reached the eligible retirement age under the plan.

Officer Bakken served on the police force for 18 years and was injured in the line of duty, becoming permanently disabled and unable to perform the duties of a police officer.  The Austin Policemen’s Benefit Association approved his application for a disability pension as a result of his injuries.  He was not qualified for retirement due to his age at the time the benefit was granted by the Association.  He was given the same benefit as someone that would have retired at the regular retirement age.  Once the officer reached retirement age the Association converted the payments to a pension payment and issued Bakken a 1099-R showing the payments as taxable.

The Tax Court held that since Bakken had completed less than 20 years of service when he attained age 50, he remained ineligible for retirement.  Thus, the character of the payments remained unchanged, and he was entitled to exclude his pension distribution from income.

Exclusion of Disability Income for Police Officer

IRC Section 104 provides that compensation for injuries and sickness are not taxable and are excluded from income.  In Bakken v. Commissioner, TCS 2011-55, the court concluded that the disability income of a police officer who was injured in the line of duty and became permanently disabled remained nontaxable under Section 104 when he reached the eligible retirement age under the plan.

Officer Bakken served on the police force for 18 years and was injured in the line of duty, becoming permanently disabled and unable to perform the duties of a police officer.  The Austin Policemen’s Benefit Association approved his application for a disability pension as a result of his injuries.  He was not qualified for retirement due to his age at the time the benefit was granted by the Association.  He was given the same benefit as someone that would have retired at the regular retirement age.  Once the officer reached retirement age the Association converted the payments to a pension payment and issued Bakken a 1099-R showing the payments as taxable.

The Tax Court held that since Bakken had completed less than 20 years of service when he attained age 50, he remained ineligible for retirement.  Thus, the character of the payments remained unchanged, and he was entitled to exclude his pension distribution from income.