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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In short, yes.

In order for the IRS to levy your wages or bank accounts to pay a tax liability they must give your written notice of their Intent to Levy by either personally delivering it to you, leaving it at your home, or sending it by certified mail to your last known address.  Practically speaking, 99% of my clients receive their levy notice by certified mail.

This notice must be given at least 30 days prior to any seizure by the IRS.  And the letter must give you notice of the tax periods the IRS is trying to collect for and an explanation of the levy process, your collection alternatives, and your right to an appeal.

Since you have an opportunity to appeal, this can help give you a little more time to get things together and work out a settlement with the IRS for your tax liability.  As you can see, the amount you owe the IRS is not a factor in whether they can levy against you or not.

Question: I would like to file an Offer in Compromise so I can negotiate my tax liability with the IRS for a smaller amount.  I haven’t filed tax returns in a few years, do I need to file those before I file my offer in compromise?  I am getting collection notices for some of the unfiled years and I would like to use the numbers the IRS has because it seems low.

Answer: The IRS requires that the current year tax return and the prior six returns be filed before an offer in compromise is "processable."  Sometimes after you have not filed a tax return for several years, the IRS will prepare what is known as a "Substitute for Return."  This is a very basic return and does not give you all of the tax deductions that you would otherwise be entitled to claim.  They do this because the law requires the IRS to assess the tax against you prior to attempting to collect the tax.  They cannot assess the tax until a return or substitute for return is filed.  Even though the IRS has prepared a substitute for return, that is still not considered a "filed return."  Therefore, you will still need to file any unfiled returns for the last six years. 

So today, in July 2008, what returns are required to be filed?  The current year return (2007) and the previous six years: 2006, 2005, 2004, 2003, 2002, and 2001. 

Tags: irs problems, offer in compromise, unfiled returns

In talking with some of my new clients and other attorneys the gas prices are having a pretty deep impact on businesses and families everywhere.  Specifically, with regard to my practice area - helping people and businesses resolve their IRS problems - people are not able to pay their estimated taxes; businesses are not able to pay their employment taxes, etc. because the cash flow is eaten up by the rising price at the pump. 

One thing that the IRS has not accounted for is the high gas prices.  Recently, the national collection standards were changed; however, the transportation standard is well below what most people have to spend on gas and maintenance of their vehicle each month.  For example, the standard in Greenville County, South Carolina (the South Region) is about $181 per month.  It costs me nearly $70 a week to fill up my tank just to get to work. 

I think the IRS still has some work to do to make their collection standards more fair with the cost of life in America today.