March 19, 2007

New Federal Offer in Compromise Rules

          Under new rules, taxpayers submitting lump sum offers under the OIC Program must make a 20% non-refundable, up-front payment of the offer (not the liability) to the IRS.  Similarly, taxpayers submitting a periodic payment OIC must make a nonrefundable, up-front payment of the first proposed installment, while the IRS evaluates the offer.

 The IRS may compromise tax liabilities on any of these grounds:
 1) doubt as to collectibility
 2) doubt as to liability
 3) economic hardship; and
 4) extraordinary events beyond the taxpayer’s control

          The IRS recognizes that taxpayers are sometimes unable to pay their tax liability.  However, before a taxpayer decides that he is unable to pay, the IRS advises that he consider liquidating his/her assets (including pension plans) to satisfy the tax debts.  Taxpayer should attempt to get a loan, if possible, because the loan costs may be lower than the combination of interest and penalties that will be imposed by the IRS.  An OIC may be considered only after all other payment options have been exhausted.  IRS Notice 2006-68

Undeliverable Refunds

          An IRS news release reports that an average refund of $963.00 is waiting for 95,746 taxpayers whose refund checks have been returned to the IRS as undeliverable.  The checks can be claimed as soon as their owners update their addresses with the IRS.
          If you feel you are affected, the IRS says you can use the "Where’s My Refund?" feature on the IRS home page at http://www.irs.gov to learn the status of your refund.  You can also access a telephone version by callling 1-800-829-1954.  IR 2006-178 11/16/2006

Tax Relief and Health Care Act of 2006

          At the last minute, Congress did a lot more than revise provisions that had expired.  Many new tax breaks were added.

Partial AMT Relief
Starting in 2007, those with unused alternative minimum tax credits can use them ratably over a five year period with the tax break phasing out for MFJ with AGI above $234,600 and singles with AGI over $156,400.  The key to this is you must have kept track of your unused AMT tax credits! Kiplinger Tax Letter 12/15/06, Federal Tax Weekly Alert 12/14/06

HSAs
Health Savings Accounts contributions are larger and IRA funds can be rolled over into HSAs after 2006 for those who need money to pay medical bills.  This will save you tax and the 10% penalty on early payouts. Kiplinger Tax Letter 12/15/06, Federal Tax Weekly Alert 12/14/06

PMI
Private mortgage insurance premiums can be written off only in 2007 for mortgage insurance issued in 2007. Kiplinger Tax Letter 12/15/06, Federal Tax Weekly Alert 12/14/06

IRS Interest Rates

          remain the same for the first quarter of 2007.  On overdue taxes, the IRS will charge 8%.  For corporations that owe more than 100,000 the rate is 10%.
          On refunds, the IRS pays 8% to individuals and 7% to corporations.  For corporate refunds exceeding $10,000 the rate on the excess is 5.5%.  Kiplinger Tax Letter 12/5/06

More IRS Audits

          are on the way for upper income filers, self-employed as well as large and mid sized business.To make matters worse, additional rounds of the dreaded random line by line exams are coming.   Congress has allowed the IRS to resume them.  Kiplinger Tax Letter 10/6/06

Tax Quote

          It used to be that death and taxes were inevitable.  Now there’s shipping and handling.   Bert Murray

          If you have any questions about the foregoing or any other financial matters, please call us.  If you want to read more, visit the AOHL Newsletter Archives at www.lisch.com

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