Wingfield & Corry, P.A., assists its clients in resolving their tax liabilities by making a thorough analysis of the specific liabilities involved, the financial circumstances of each client and considering the many options available under current federal and state law. Many factors are considered in determining which option is recommended for each client, including, but not limited to, the type of tax due, is the tax federal or state or both, whether tax returns have been filed, how long the tax has been assessed, the financial condition of the client, whether the taxes are dischargeable in a bankruptcy proceeding, whether and when the taxes will become dischargeable in the future, whether all income has been reported, the validity of the tax assessed and whether there is a possibility of an audit adjustment.
The first step in resolving any tax liability is to make sure that the client is or becomes compliant on future filing and deposit requirements. Any unfiled tax returns for at least the past six years must also be prepared and filed. If the client is an employee and has taxes withheld from his or her wages, deposit requirements are fairly simply to meet. However, if a client is self-employed, restructuring of the business may be required to ensure that the client can make the estimated tax deposits timely. Wingfield & Corry, P.A., also assists its clients in any business restructuring necessary to ensure that future tax liabilities do not continue to accrue, and to obtain other tax favorable benefits.
After making sure a client is no longer accruing additional tax liabilities, Wingfield & Corry, P.A., determines the accuracy of the past tax liabilities. Many factors are considered in making this determination. If the Internal Revenue Service or the state filed a substitute for a return, it is likely that legitimate deductions available to the client were not taken into consideration in arriving at the assessed tax liability. By preparing a return utilizing those deductions, it may be possible to eliminate much of the tax liability. If the client is married and the income was earned by his or her spouse, it is possible that the client is entitled to innocent spouse or injured spouse relief. If a client has filed a prior bankruptcy, it is possible that the Internal Revenue Service or the state has not eliminated the taxes that were discharged in the prior bankruptcy. Wingfield & Corry, P.A., looks at all of the circumstances surrounding its clients’ tax liabilities to determine whether or not the tax is valid and whether or not it would be cost beneficial to correct any such inaccuracies.
A typical area where we help determine the amount of liability deals with cases where a business failed to pay its payroll taxes and the Internal Revenue Service asserts the personal liability against responsible persons. The Internal Revenue Service usually computes this penalty incorrectly. Other inaccuracies typically can be corrected through an Offer in Compromise as to liability, a Taxpayer Advocate inquiry or, in some cases, litigation.
Once it is determined that the amount of the client’s tax liability is accurate, there are many available options for resolving the tax liability. Wingfield & Corry, P.A., assists each client in selecting a plan most efficient for the client’s specific needs. Following is a brief description of some of the options available:
Audit Assistance: Audits have recently been expanded by the Internal Revenue Service, specifically to include small businesses. Usually the taxpayer’s accountant is involved with this process. This law firm typically involves itself at the appellate level and occasionally at the Tax Court level where issues can be resolved which could not be settled between the taxpayer and the Internal Revenue Service. Wingfield & Corry, P.A., can assist clients and their accountants at the audit level.
Injured Spouse Relief: If the taxpayer is married and only one spouse is liable for prior taxes, the other spouse may be entitled to claim a refund of a portion of the joint tax refunds applied toward the debtor spouse’s tax liability. Even if the statute period has passed to claim an actual refund payment, such refunds may be applied toward outstanding liability that is owed by both spouses. While this option may not provide complete relief, it may provide sufficient relief so that the remaining tax liability of the injured spouse can be eliminated or more easily paid.
Innocent Spouse Relief: If a taxpayer filed a joint return with his or her spouse and tax liability has been assessed for that return year, all or a portion of which is not attributable to one spouse, the innocent spouse may be entitled to abatement of the assessment against him or her. This usually is an issue in divorce cases. However, if Wingfield & Corry, P.A., represents both spouses, innocent spouse relief may be used to clear one spouse of liability in order that the innocent spouse could continue to draw a salary and maintain assets without fear of an IRS levy while the liable spouse works to resolve the outstanding liability. This would lower an Offer in Compromise or Installment Agreement payment.
Installment Agreement: The Internal Revenue Service has a detailed process for computing an appropriate monthly payment toward outstanding tax liabilities. This process takes into account the taxpayer’s monthly income and necessary monthly expenses. If a taxpayer enters into an Installment Agreement with the Internal Revenue Service, attempts by the Internal Revenue Service to collect the tax is suspended as long as the client makes the agreed upon payments. While an Installment Agreement is in place, various statute periods affecting the collectibility and dischargeability of the tax continue to run. For example, the Internal Revenue Service has ten years from the tax assessment date to collect the tax. If the tax is not collected within that time period, the liability is erased and any liens securing the liability are released. Further, after certain statute periods pass, some taxes become subject to discharge in a bankruptcy proceeding. Although some options for dealing with the tax liabilities will cause the applicable statute periods to be tolled, an Installment Agreement put in place, after negotiation as to the amount, will not toll the periods. Therefore, an Installment Agreement might be used to prevent collection activity by the taxing authority while a client waits out the time necessary to make the tax liability dischargeable in a bankruptcy.
Penalty Abatement Request: Once we have determined a taxpayer can and will actually pay the liability in full (as opposed to paying monthly until the statute for collection runs, compromising the tax liability, or filing bankruptcy), we look at whether we can reduce or eliminate penalties and related interest. Penalties are getting more difficult to abate, requiring greater skills for negotiation. The failure to file a penalty is much more difficult to abate than the failure to pay the penalty. We compute the amount of penalties that are potentially abatable make an estimate of the cost involved to do so, and determine the likelihood of success, to assist the client in making an educated decision on whether to pursue that route before proceeding. Such cost benefit analysis must be performed before an attempt to abate penalties is made, as many times the cost to abate the penalties could easily exceed the penalties to be abated, especially after factoring in the chance of success.
Offer in Compromise: The Internal Revenue Service has established a detailed formula for determining an acceptable offer by a taxpayer to “compromise” his or her tax liability. This formula looks at 80% of the fair market value of the taxpayer’s assets, less any secured debt, and the taxpayer’s disposable income for forty-eight months (determined pursuant to the Installment Agreement process). If a client has an ability to borrow (or otherwise obtain from a source not subject to a levy by the Internal Revenue Service) the funds necessary to pay the amount determined by this formula, this option may allow the client to reduce the amount of the tax liability and make a one-time payment to settle the same.
If the taxpayer does not have access to funds to cover the appropriate offer in one lump-sum payment, the offer amount may be paid over a period of time. However, if the offer is to be paid over a period of time, the amount of the offer will be increased.
If a taxpayer is eligible to discharge his or her tax liabilities in a bankruptcy proceeding, and the taxing authority would receive less in a bankruptcy proceeding than it would under the Offer in Compromise formula, an acceptable offer may be one that is less than the standard formula amount, but more than the amount the taxing authority would receive through a bankruptcy. This is why it is so important to know the rules of dischargeability of taxes in bankruptcy, as the threat of bankruptcy may be used to reduce the acceptable offer amount. Most firms practicing in this area do not utilize this strategy and, therefore, may not obtain the best result for their clients.
A requirement of any Offer in Compromise is that the taxpayer must stay compliant on all future filing and deposit requirements for five years following the acceptance and payment of the Offer. Failure by the taxpayer to file any return when due, including extensions, or pay any tax when due will cause a default of the Offer in Compromise and the settled tax liability will be reassessed against the taxpayer.
Appeals: The Office of Internal Revenue Service Appeals is involved where the Internal Revenue Service asserts a penalty for nonpayment of business payroll taxes, Penalty Abatement Requests, Offers in Compromise, and Collection Due Process (CDP) and Collection Appeals Process (CAP) hearings. The latter two involve dealing with the collection function of the Internal Revenue Service. Appeals is a higher level review of the Internal Revenue Service’s actions by an appellate officer or a settlement officer. Usually, these officers are well trained, experienced, and knowledgeable, and offer the client an opportunity to get a better deal by taking into account the uncertainty of litigation. It is helpful to know the appeals officer or settlement officer with whom you are dealing, and with whom you have an established rapport and credibility in order to obtain the best results. Wingfield & Corry, P.A., prides itself on a long history of successful appeals and a good working relationship with local appeals and settlement officers as well as others throughout the county.
Collection Due Process (CDP) and Collection Appeals Process (CAP): These are taxpayer-friendly procedures to ensure that the Internal Revenue Service’s collection efforts are carried out in the fairest manner. These remedies put in place by Congress in 1998 have grown in importance since then. Recently, laws were changed and various statutes of limitations were extended regarding use of these procedures. These processes can be used to deal directly with a problem for the first time, such as an Offer in Compromise, Innocent Spouse, or Installment Agreement, or they can be used to appeal a Revenue Officer’s determination, for instance, on the amount of an Installment Agreement. It is important to know when to exercise these rights, how to exercise these rights, and how to get these rights reinstated, as the Internal Revenue Service typically issues the notices which force the exercise of these rights in a premature manner. Wingfield & Corry, P.A., has the knowledge and experience to insure these rights are protected and used appropriately.
Tax Court Petition: Tax Court Petitions are usually associated with disputes over the amount of a tax liability. However, Tax Court proceedings can also be used as an inexpensive method to appeal the decision in a Collection Due Process hearing. It is an avenue of relief which, although used sparingly, can result in another high level Internal Revenue Service employee, typically an attorney, reviewing the facts of the taxpayer’s case and taking another look at the actions contemplated by the Internal Revenue Service. Wingfield & Corry, P.A., has been successful in Tax Court proceedings, as well as successful resolving matters prior to an actual Tax Court hearing.
Bankruptcy: If the taxpayer is unable to pay the taxes due, or unable/unwilling to pay the amount the Internal Revenue Service Installment Agreement or Offer in Compromise rules might dictate, and the taxes are or will be dischargeable in bankruptcy, we offer advice on the benefits of bankruptcy and the options for waiting out statute periods in anticipation of a future bankruptcy. Waiting out statute periods in anticipation of a future bankruptcy may involve the use of procedural avenues provided by the Internal Revenue Code to delay collection (if the taxpayer has legitimate issues to contest) while the time frames to discharge taxes in a Chapter 7 bankruptcy are running. Our competitor’s workers in this area frequently fail to consider bankruptcy in order to obtain the best deal for a client.
Some taxes are not dischargeable in a Chapter 7 bankruptcy (direct liability for employment taxes as a sole proprietor or single member LLC, sales taxes, or trust fund taxes personally assessed against the taxpayer, etc.); said taxes would be more successfully dealt with in bankruptcy under a Chapter 13 bankruptcy plan, which generally requires payment of the tax liability in full through payments made to the Bankruptcy Trustee over a period of time up to five years. During that time period, no further penalties or interests are assessed.
Wingfield & Corry, P.A., also uses bankruptcy to efficiently resolve disputes as to the amount of tax liability. This is done by filing a lawsuit inside the bankruptcy proceeding (called an adversary proceeding). Many times, this is the only option available to force the IRS to accept the taxpayer’s position. This forum is one of the most efficient forums for resolving tax disputes as the goal of the Bankruptcy Court, unlike the Tax Court or the U.S. District Court, is to give the debtors a “fresh start.”
As of October 17, 2005, the bankruptcy laws in the U.S were significantly altered to reduce the availability of a Chapter 7 debt liquidation proceeding and to force taxpayers into Chapter 13 deferred payment plan, increasing the costs to debtors of a discharge in bankruptcy and increasing the time required to obtain the discharge. However, significant opportunity still exists to utilize the bankruptcy laws to discharge taxes and to pay less than the amount that the Internal Revenue Service would determine is due under an Offer in Compromise or an Installment Agreement.
State Tax Liabilities:
The many national firms who offer advice in this area, are unfamiliar with Arkansas tax laws. Wingfield & Corry, P.A., has an expansive knowledge of state tax procedures, which differ significantly from those used by the Internal Revenue Service. Most of the time, taxpayers who have an income tax liability or an unpaid withholding tax/trust fund penalty will have similar state tax liability or potential tax liability. Our firm knows which tax liabilities are likely to become a reality and need to be dealt with and which liabilities may not become a collectable tax against the taxpayer. In addition, the state’s procedures for Installment Agreement, Offers in Compromise, Innocent Spouse and Injured Spouse, are different from those used by the IRS. It is of no benefit to a taxpayer to compromise a large IRS tax liability without simultaneously compromising a usually smaller related state tax liability. Taxpayers need complete relief from their tax problem and a coordinated effort between state and federal taxing authorities must be made. Wingfield & Corry, P.A., has an intimate knowledge of state tax laws and the procedures to assist a client with a coordinated effort to resolve both IRS and state tax liabilities while minimizing the impact of collection as that process is being undertaken.
Unlike many of its competitors, Wingfield & Corry, P.A., uses one or a combination of the above options to assist its clients in resolving their tax liabilities, taking into account the time required, the ultimate amount to be paid toward the tax liabilities and the amount of attorneys’ fees involved. Wingfield & Corry, P.A., helps each client devise a plan that will resolve all of his or her tax liabilities (federal and state) in the best manner.