South Carolina Tax Attorney

Question: I have a lot of medical bills that I have to pay each month because of a surgery I had several years ago.  Will those medical bills help my offer in compromise?

Answer: Yes.  Medical bills are one expense that the IRS will allow 100% of what you can prove you actually pay.  I have many clients who bring me their “Explanation of Benefits” from the insurance company that shows what their medical bills are, but they are not actually paying those bills.  If you are in fact paying those bills, you can claim 100% of those bills in determining what your offer in compromise amount will be.

Why is this different?  Because the IRS has national standards that they require you to use for expenses such as food, clothing, housing, and transportation.  No matter what you actually spend each month, your expenses in those categories are capped at the IRS standard.  For the most part, I have found that my clients spend much more than the IRS standard.

Keep in mind that the medical expenses do not just include doctor or hospital bills.  You should remember to claim your pharmacy bills, health insurance premiums, and all other health care related costs.  Your pharmacy can provide you with a very detailed print-out that shows exactly which prescriptions you received in the past year and the total amount you actually paid so you can get a nice monthly average cost.

If you are healthy and don’t have any regular medical expenses, take heart, the IRS kindly allows you an automatic, guaranteed $54 per month per person in your household for medical expenses.

I work with a lot of taxpayers who get in trouble with the IRS because they do not make their estimated tax payments.  Some times it is because they are real estate agents, independent contractors or otherwise self-employed and they are payed directly by customers and there are no income taxes withheld by an employer.  Not paying your estimated taxes when required is a problem and can really mess up any agreements you may work out with the IRS or prevent you from working something out in the first place.  But that is a post for another day.

So how do you know if you are required to pay your estimated taxes rather than waiting until April 15 to pay your taxes with your income tax return?

You must pay estimated tax for 2008 if both of the following apply.

Note. These percentages may be different if you are a farmer, fisherman, or higher income taxpayer. See Special Rules on the next page.

For more information about estimated taxes and whether you are supposed to pay them check out this IRS web site page.

Coming next - When are estimated tax payments due and how should you pay them?  The answer is probably  not what you will expect.

QUESTION: I filed an extension of time to file my 2007 income taxes but I did not pay anything by April 15, 2007. I expect that I will owe more money when I do file the return. I am currently on a payment plan with the IRS for prior year tax liabilities. What will happen to my payment plan when I file this year? Can I just add my 2007 tax liability to my current payment plan?

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Question: What are my options after the offer in compromise I submitted has been rejected?

Answer: You still have a couple of options when your offer in compromise is rejected by the IRS.  I am going to have to make an assumption in order to answer this question with some specificity.  First, that you filed an offer in compromise based on doubt as to collectability meaning you owe the tax, but you don’t have the money to be able to afford to full pay. 

The first thing I would do is to look at why your offer in compromise was rejected.  Sometimes we can learn why the IRS has rejected your offer in compromise and resubmit an offer in compromise that gets around the issue that the IRS didn’t like the first time around.  Sometimes it is an issue of income and expenses and other times it is an issue of equity in your assets.  But many times, an offer examiner simply does not look at each issue as completely as we would like, or they simply do not have the discretion to vary from the IRS regulations.

The next option you have is to set up an installment agreement.  Depending on the amount of money you owe the IRS, including taxes and penalties, you may be able to easily set up an installment agreement.  If you owe over $25,000 you will be required to submit additional financial information and pay what the IRS says you should pay.  I would recommend that you speak to a professional who deals with the IRS regularly if you fall into this camp because they will be able to assist you in negotiating the best monthly payment plan with the IRS. 

Finally, there is currently non-collectable status.  This means that based on your financial situation, your necessary living expenses exceed your income and the IRS will not take any collection action against you for a period of usually two years.  As an aside, the IRS will almost 100% of the time file a tax lien against you if they haven’t already.  Basically currently non-collectable means you can’t afford to pay your taxes right now and they are giving you some time to get back on your feet financially speaking. 

Question: My husband and I got divorced a few years ago and now I am all of a sudden getting notices from the IRS. He always took care of the household finances and taxes so I had no idea that we owed the IRS. Is there a way for me to figure out exactly where I stand with the IRS?

Answer: You can find out exactly where you stand with the IRS.  If you are close to a local office of the IRS you can go to the office and request a “record of account” for the years you are concerned about.  If you aren’t close to a local office, or you just don’t want to go down there and wait in line you can print Form 4506-T.  Just fill out your personal information (name, address, social security number, etc.) in the top part of the form.

Next, under section 6, check the box for subsection (c) for an “record of account.”  A record of account is print out of your account that gives line item information about adjustments such as credits, penalties and interest.  It also shows if you have done anything that might extend the statute of limitations such as file an offer in compromise or file bankruptcy.  But the information that is most critical to you is HOW MUCH YOU OWE.  You will find the bottom line as well as how much the IRS has charged you in penalties and interest.

Sign and date at the bottom of page 1 and follow the instructions on page 2 about where to mail this form.  I would allow for several weeks for the IRS to process your request.  It has taken me over a month to receive information from the IRS in this manner in the past.

There is a way to receive this information much quicker if your circumstances require.  Since I deal with the IRS on a regular basis, once you retain me to assist you, I can file a copy of my power of attorney (Form 2848) with the IRS and have access to your records within 3-5 days.  If you are interested in retaining me to just help you find out where you stand e-mail or call me.

I have several clients who have come in to discuss their tax problems and told me that if the IRS would not release their wage garnishment immediately they would just quit their job. Let me tell you that is not the solution. While it is painful to have the IRS taking money from you right now, it is possible, and often times very easy, to get the IRS to release their levy with just a little work. Of course, this depends on your specific situation, but there are ways for every one to get the IRS off of their back.

Depending on your current financial situation, you may be able to settle your tax liability for much less than what the IRS says you owe. The IRS considers your income, expenses and the value of the equity you have in your assets to determine whether you would qualify for an offer in compromise. A skilled tax professional can help you properly present your case to the IRS to get the best consideration. Also, you should can look into several other opportunities to have the IRS release your wage levy. Sometimes, it is easier to set up a payment plan where you get to determine how much you pay each month rather than the IRS dictating how much they are going to take from your paycheck.

I would not recommend that you quit your job in order to stop the wage levy. Don’t let the threat of what might happen control your life and cause you to make a drastic decision. Look into all of your options with the IRS by contacting a tax professional.

If you have a tax problem, whether it is a levy, wage garnishment, or you just owe a lot of money and you want to get the IRS off of your back, you can contact me or check out my new e-book Emergency Tactics to Stop the IRS from Taking Your Paycheck. There are many solutions and ways he can help take care of your IRS debt.