JAMES ROBERT COLEMAN E.A.,A.T.A.

Professional Tax Help from an Ex-IRS Revenue Officer with over 30 years experience.  I am an Enrolled Agent licensed to practice before IRS and an Accredited Tax Advisor. I have worked thousands of cases in my career and resolved millions in tax debt on both sides of the equation.  I am now very proud to be affiliated with Guardian Tax Service and Brett Kerr.  Guardian has been in business over 20 years.

I can help you in an IRS Audit, with an IRS Collection problem on past due taxes, or filing back tax returns.  I work out payment plans, make penalty abatement requests, and for those who qualify; get accounts placed in temporary hardship or settle with an Offer-in-Compromise.  I get your taxes filed and if you don't have the W2 or income info, I get it from IRS.

Is IRS threatening to levy your wages or bank account?  Call me!  If I can't help you, I will tell you straight-up. I can't guarantee an outcome, but I can promise that I will be honest with you.      


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IRS STATUTE OF LIMITATIONS

Do Taxes Ever Expire?

Many Americans believe that an IRS debt is a debt for life and that the tax collector can hound them to the grave. Thankfully, that is not the case. There are statutory time limits on the ability of the IRS to examine and collect taxes. Taxes do expire at some point and in some cases IRS does not get the money they were legally entitled to collect.

Basically, IRS has 10 years from the date they send out their first bill to collect the tax. The 10 year rule does not apply to the states. Some, like California have no statute of limitations and the state tax collector can indeed hound you forever. The federal tax collector must get the cash before the clock runs out.

For tax assessments made after November 5, 1990, the IRS cannot collect the tax after 10 years from the date of the original assessment absent special circumstances. Special circumstances that may extend the statute are: a bankruptcy not completed or wherein the tax is not discharged; filing an Offer-in-Compromise; or signing a Form 900 Waiver allowing the United States additional time to collect the tax. Also, it is possible for the government to sue to reduce the tax claim to judgment before the 10 years expires.

If you never file a tax return, there is no statute of limitations on IRS requiring you to file, but as a matter of policy, IRS generally only requires non-filers to file the last 6-7 years. If IRS files for you by doing a Substitute-for-Return (SFR), they have 10 years from the date they file the SFR to collect from you. If a Federal Tax Lien is on file against you, it expires and becomes void if the underlying statute expires.

You can find out when the statute expires on your tax bill by requesting a Record of Accounts (ROA) from IRS for each tax year you owe. If you can’t afford to pay the tax, your account might be eligible to be put in a “temporary hardship” status. It may be possible to “ride out” the statute in hardship if you qualify. An impending statute might also be a beneficial factor in an Offer-in-Compromise.

If you have a refund coming to you, you only have 3 years from the due date to collect your refund. If you file 3 or more years after the due date, the refund is lost. In some cases you can persue a refund beyond the three years. If you full-pay the tax, you can file a claim for refund within 2 years of the payment. If your claim relates to a bad debt or worthless security, you have 7 years to make a claim.

The flipside to the 3 year refund rule is that in most cases IRS only has 3 years to examine a filed return by audit. The tax code is complicated and there are exceptions to these rules. If you have committed fraud or tax evasion, there is no statute for audit. There is also a 6 year rule for audit in cases of “substantial omission” of 25% or more in income. But for most folks, the three year statute will apply on audits.

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TAXATION OF FORGIVEN DEBT

Foreclosures & Credit Cards

Often people fall on hard times and stop paying on credit cards. After a while the account may go to an outside debt collector who might offer a settlement of the debt for 30-40% of the original sum. Once this is paid, the debtor often thinks the matter is closed, but it is not! It is very likely that the creditor will issue a 1099-C. This is a notice to IRS of the forgiven debt. If the debtor does not address this on his return he may get an IRS bill a year or two later with penalties and interest.

A foreclosure on a home may also result in a 1099-C from the mortgage lender if the property is sold for less than the amount of the loan. In this instance, a person loses their home and may also face a tax bill. Usually, the bill comes many months after the tax return was filed as a result of an IRS document matching program. This "under-reporter" notice brings grief to the taxpayer.

The key issue is whether or not the debtor was insolvent. If they were insolvent, it may not be taxable depending on the circumstances. There is an "Insolvency exclusion." You are insolvent when, and to the extent, your liabilities exceed the fair market value of your assets. So it is possible none of your forgiven debt is taxable or it is possible that all or only a portion of it is counted as income.

You may not have any taxable income from the 1099C, but you must account for it on your return. The issue is whether or not you were solvent at the time of the debt cancellation. You only owe tax on the forgiven debt to the extent you were solvent. For instance, if the forgiven debt was $10,000 but you are only worth $5,000; you would only be liable for income tax on that amount. A home foreclosure is complicated and you may have other legal arguments besides insolvency.

There are five situations where a cancelled debt does not have to be reported as income:

Bankruptcy – the debt was already discharged through a bankruptcy proceeding.

Insolvency – your total debts exceed your total assets at the time your debt was settled or deemed non-collectable.

Indebtedness is due to a qualified farm expense.

Indebtedness is due to certain real property business losses.

Discharge of your debt was treated as a gift (You owed Mom $10K and she said "Don't worry honey, consider it a gift").

If you are insolvent you need to explain this to the IRS on your tax return. You can fill out IRS Form 982: Reduction of Tax Attributes Due to Discharge of Indebtedness or attach a detailed letter to your tax return explaining the calculation of your total debts and assets.

Do not ignore a 1099-C! Failure to address the 1099C will result in a tax assessment by the IRS for any amount over $600 plus penalty and interest. This will likely occur 12-18 months after you file when IRS matches up the info reported to them with what is on your tax return. Have a tax professional do your return and they can help you determine how much of the 1099-C is taxable.

If you get a letter from IRS on a 1099-C you left off your return, get help ASAP.

DIVORCE AND TAXES

You may need more than a divorce attorney!

Divorce is something no one hopes will happen to them when they get married. Unfortunately, almost half of all marriages do end in divorce. Since few people have pre-nuptial agreements, most divorces involve bitter tangles over children, money and assets. When it comes to the tax and financial implications of divorce, an attorney is not the only one you should rely on for advice.  I have found ten common mistakes people make in the divorce process.  A tax or financial pro can help you avoid them.  

  1. Don’t let emotions guide you in determining the divorce settlement.  Divorce is about a lot of things, but it is mainly caused by emotional issues or financial problems.  You may love or hate your soon-to-be ex, but don’t trust him or her to do what is right for you or your children.  You must make the settlement using reason, planning for the unexpected. He or she may want to pay a large alimony and a small amount in child support by telling you they want to see you are “taken care of.”  That may result in less tax for them, but a large tax burden for you and your children should you die before they reach 18. Financial planning is critical!

  2. Get a good family law attorney, but don’t forget to hire a financial professional to assist in evaluating assets and financial strategies.  It may cost extra, but in most cases it will result in a far better settlement.  A Certified Public Accountant (CPA), Certified Financial Planner (CFP), or an Enrolled Agent (EA) can be invaluable.  What is the house really worth?  If a business is involved, what are the consequences of its disposition or its true value in the divorce settlement?  Your spouse might tell you their business is losing money or has no assets. You need to know the truth!

  3. Getting the house in the divorce is not always a good deal. Women often want the house in the divorce because they are raising a family or are emotionally attached to it.  If it has a mortgage attached to it,  it might be better to sell it and split the equity.  If you aren’t working and are raising kids, do you really want a big mortgage payment?

  4. Failing to fight for the most child support you can get! Large alimony and low child support payments are generally not a good deal to the spouse receiving the payments.  Alimony is tax deductible to the party paying but taxable to the party who receives it.  Child support is tax free to the recipient and not deductible to the payer.  Also, alimony may terminate upon marriage or death, but Child Support continues until the child reaches 18.

  5. Failure to specify who can claim the kids on the tax return.  The divorce should specify who is entitled to claim the children.  In some cases, Form 8332 Release of Claim may need to be filed with IRS.

  6. Lack of planning with regard to life insurance.  Life insurance should be reviewed in the event of divorce.  You may want to take your ex off of your policy as beneficiary, but do you really want to make your children beneficiaries?   This can be a big mistake as the funds may go to a trustee until the kids reach majority.  Work with your attorney and life insurance agent on styling the beneficiary designation so your wishes are carried out.  A trust or estate plan may be necessary.  If you are the party getting child support or alimony, make sure you have a policy on your ex in the event of death.  Otherwise, the alimony and child support stops and you could face disaster.  If you have insurance you are protected.  A 20 year term plan should cover you until the kids are out of the house.

  7. No income modeling done in the calculation of alimony.  Your spouse may be a corporate executive and have great future earning potential.  He or she may have stock options.  An income model should be made to determine the potential he or she has and how it can affect your claim in the divorce.

  8. Failure to secure a Qualified Domestic Relations Order (Quadro) in the event of a 401K or other tax impacted investment that is divided in the divorce.  If you don’t do the right thing, huge tax penalties can be imposed on taking money out of IRAs, 401Ks, or Annuities.   A good family law attorney can help with this but your uncle Joe or aunt Jane who handles bad check defense may not be the one to handle your divorce.  He or she may not be familiar with a Quadro.

  9. Failure to have assets professionally appraised. If you have rental houses, oil and gas investments, etc., get a professional valuation or you may be cheated in the divorce settlement. The spouse who handles these investments may not be honest with you on the values. Just because he or she loves the kids or was married to you for thirty years does not mean you can trust them.

  10. Lack of faith in yourself and your future.  Divorce is bad but it is not the end of the world! You may have some tough times but your life will go on. Nobody knows what tomorrow may bring. It may bring love and happiness. You must have faith that you can take care of the kids and be successful in whatever you choose to do. Money’s not everything, but if you don’t have faith in God and yourself, you won’t be financially successful.  

Frequently Asked Questions

Can I file my taxes late and what is the penalty?

Yes, but if you fail to file a timely extension, or file after the extension deadline, severe penalties may be incurred. It is still better to file late that not file. The longer you wait, the worse the problem becomes. A penalty of 5% a month which tops out at an amount equal to 25% of the total balance due applies if you owe on the 1040. Late Payment Penalty also accrues and can reach another 25%. Interest is charged as well. If you have a refund, there is no penalty. However, if you wait 3 years or more to file, you may lose your right to a refund.

I want a payment plan, what expenses will IRS allow me?

The IRS allows you to keep an amount equal to whats left over in your budget based on their "National Standard Expenses." This is negotiable and a tax professional can help you with getting a better deal if you have special circumstances.  In many cases you can pay less based on hardship or if you can qualify for "Stream-lined" case status.

What is an IRS Levy?

An IRS Levy is a type of collection enforcement action. It can be used to attach bank accounts, investment accounts, and accounts receivable. In the case of bank accounts, a 21 day hold is placed on the funds before they are remitted to IRS. This gives the taxpayer an opportunity to get the levy released. It can also be used to attach employee wages due or funds due to an non-employee independent contractor. In the event of a wage levy, a certain amount is allowed each payday to the taxpayer, the rest goes to IRS. On most other levy actions, 100% goes to IRS up to the total due.


The IRS has levied my paycheck and I have received a Form 668-W. My employer wants me to fill out part of it. What should I do with this and why is it important? 

It is very important that you complete this form and return it to the Payroll Department ASAP! If the Payroll Department does not receive the exemption form from the employee, the default of Married filing separately with one exemption must be used to determine the amount of net pay that is exempt from levy. This may be a lower amount than you are entitled to, based on your completion of this form. 

If you are married and have children, you should claim Married and the number of people in the household. It doesn't matter what is already on your W-4. Your employer will not use your existing W-4 for the levy. You must complete the form or have more money taken from you. 

What is an IRS/Federal Tax Lien, how is it different from a levy, and what impact does it have on the debtor?

A Federal Tax Lien (FTL) is a legal instrument that secures the claim of the United States in the right, title, and interest of the debtor taxpayer. It is a public document and is recorded at the County Clerk's office or the Secretary of State, depending on local law. This is done to serve notice on all creditors or other interested parties of the government's claim. The FTL generally becomes the most senior claim against the debtor's assets with the exception of first mortgage holders who have properly filed prior financing documents. The lien may also displace the primary security position of factoring firms lending on accounts receivable and bank revolving lines of credit 45 days after filing (each situation is unique and must be considered on individual circumstances). In some jurisdictions, local law provides for separate filing of liens for real property and personal property. In that case, the IRS will file two identical liens, one under personal property records and one under real property records. Failure to file both could result in the government's claim not being perfected on all assets. If the debtor is a corporation, failure to file at the Secretary of State may also result in an imperfect claim depending on local law. The FTL is the basis for IRS legal authority to foreclose on debtor assets by conducting a seizure. Since the IRS Reform Act of 1998, seizures by IRS Revenue Officers have dropped dramatically. The lien is not to be confused with an IRS levy. The IRS can levy on a debtor taxpayer's bank accounts or wages without a FTL. They only need a valid assessment and must have served legal notice in the form of a certified mail letter to the debtor's last known address 30 days prior to levy. However, usually the IRS has filed an FTL before levy action even though it is not required. A Federal Tax Lien is a negative item on the credit bureau report of the debtor. It may result in some creditors calling in their notes upon becoming aware of the FTL against a debtor. IRS may negotiate with other creditors to subrogate the lien to their claim provided it is in the mutual interest of the government and the debtor taxpayer.