The Internal Revenue Service is taking steps some people thought they might never see: It’s offering some flexibility to taxpayers hit hard by the recession and unable to pay back taxes.
For people who have installment payment plans in place, the IRS may allow them to miss a payment or pay less than the agreed-upon amount. You may qualify if you’ve lost your job or suffered another kind of financial setback.
In similar situations, IRS personnel will have more authority to suspend collection efforts on unpaid taxes. Again, it’s a matter of averting hardship when possible. This action is billed on the IRS Web site as a “postponement,” so don’t look for those overdue taxes to magically disappear forever.
Another change involves what the IRS calls “offers in compromise.” These are proposals by taxpayers to pay less than the full amount owed on a fixed schedule. When considering such a plan, the IRS has traditionally looked at the equity in the taxpayer’s home. In the current uncertain housing market, the IRS is creating a new, second review of a home’s worth before making any decisions.
Taxpayers who have an offer in compromise in place may also be facing hardships. If that’s the case, the IRS says its agents will help them work to avoid default.
The agency says if economic conditions are creating a hardship and you’re behind on tax payments, there may be other remedies. They urge taxpayers with questions to call their local IRS office. Information is also available at www.irs.gov.
All of that said, readers should be aware of some nasty efforts to soak already hard-hit people looking for tax relief in the wrong places. Last summer, Maine and 17 other states hammered out a consent agreement involving J.K. Harris and Financial Recovery Systems, both of South Carolina.
Harris failed to help people settle tax claims “for pennies on the dollar,” and Financial Recovery sent phony notices designed to pressure consumers to sign up for credit repair services they didn’t need. Both agreed to stop their questionable practices, but similar operations are to be avoided.
Other schemes made the IRS’s “Dirty Dozen” last year. Here are a few:
· Frivolous arguments. These are contentions that you can get out of paying all the tax you owe if the reason is outlandish enough. Such arguments include: Paying taxes is voluntary. Only foreign income is taxable. And Federal Reserve Notes are not considered income. If such an argument sounds too good to be true, it is. The penalty for using one of these phony arguments to avoid paying taxes is a $5,000 fine.
· Fuel tax exemption. Farmers who use fuel off-road for their business are allowed this exemption. Others who try to claim it as a business expense are not. The fine, again, is $5,000.
· Phishing. We’ve discussed those fraudulent e-mailers who try to get financial information to access people’s accounts. Don’t fall for such a ploy in the guise of a tax tip. If you haven’t initiated the communication, DON’T CLICK ON ANYTHING OR OPEN ANY ATTACHMENTS. You could damage your computer and-or give thieves access to your account information.
· Return-preparer fraud. Watch out for fly-by-night return preparers who promise big refunds; they may skim a portion of their clients’ refunds and-or charge inflated fees for their work. Some preparers encourage fraudulent claims to recover taxes paid in prior years. Again, if it sounds too good to be true, run.
Consumer Forum is a collaboration of the Bangor Daily News and Northeast CONTACT, Maine’s membership-funded, nonprofit consumer organization. Individual and business memberships are available at modest rates. For assistance with consumer-related issues, including consumer fraud and identity theft, or for information, write: Consumer Forum, P.O. Box 486, Brewer 04412, or e-mail firstname.lastname@example.org.