Arizona Tax Lawyer Blog

Carel A. Prater, also known as Chad Prater, was indicted by a Florida Grand Jury a few weeks ago. The charges were based on Mr. Prater's business which was built apparently around the notion that income is not taxable.

He would in support of this, prepare false tax returns and bogus documents for his clients, tell them to conceal assets and income from the IRS by setting up "shell limited liability companies" and "unincorporated business trust organizations", and by transferring ownership of assets to nominees.

In 2002 he was ordered to stop operating his business, and continued anyway.

He was charged as a result with "aiding and assisting in the filing of false tax returns", "failure to file a tax return", "criminal contempt", and "structuring transactions to avoid reporting requirements" among other things and if convicted on all counts, he could face 33 years behind bars and a fine of as much as $1.95 million.

His business was called "New Found Freedom" and it operated in Sarasota as "Tax Escape Service". The irony is abundant.

The point of this blog post is to convey the idea that the IRS does prosecute those who don't pay tax on income. I dislike the IRS as much as anyone, and believe that an income tax is counterproductive.

Having said that, I also believe that the "right to vote" is the best way to combat ill conceived government policy.

If you agree that the income tax system as currently constituted is corrupt and counterproductive...vote.

If you have fallen prey to the notion that the government can't force you to file a return or pay a tax in income and want to re-enter the "system", call me to discuss your options.

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Posted by Michael S. Anderson | Permalink | Email This Post

Posted In: Delinquent Tax Returns , Tax News

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Many reading this entry are likely wondering who "Koko Taylor" is. at least those who don't follow "Blues" singers.

To tell the truth, I didn't know either until I read this forbes article.

Apparently, Koko Taylor is a blues singer who has won at least one Grammy as well as 25 "Blues Music Awards."

In the 90s, she had some good years income wise, and just didn't withhold enough income tax resulting in a rather large tax debt.

She is now about 80 years old and you'll probably agree that, her name is cool.

The point of this entry though is not to acquaint you with Koko Taylor, Blues singers, or to help you find a name for your child or your dog.

It is for the purpose of pointing out a few things about the offer in compromise that can be gleaned from this article. Things that may be of interest to the average consumer or small business taxpayer with serious tax debt and a sleepless night or two.

First, Offers in Compromise are legal matters as are all tax issues. This means that they fall under the jurisdiction of the U.S. Tax Court. They must be signed under oath, and the signer is subject to perjury penalties.

Second, A "rejected" Offer in Compromise can be appealed to the U.S. Tax Court.

Third, the appeal is often made on the basis that the IRS "abused" it's discretion in determining to reject the offer in compromise.

Fourth, whether the IRS "abused" it's discretion or not is a factual matter. A successful appeal is therefore factually driven, and the process of preparing, filing, negotiating and then appealing the offer in compromise should be done very carefully as a result. Every communication, and every word in every communication may have significance in the end. It is wise to seek local legal counsel.

Fifth, Koko Taylor doesn't appear to have filed an offer in compromise based on a doubt as to her ability to pay the debt, she appears to have filed it under a much less common method, "effective tax administration". She probably had enough assets and income to pay the debt off, but she felt that it would be "unfair" for a number of reasons to make her do so. This was probably a more difficult case to make the "abuse" claim stick then a doubt as to the ability to pay may have been.

Sixth, Tax Court Judges don't care about your fame or lack thereof.

If you have serious income tax debt, and are potentially an offer in compromise candidate or have had one recently rejected, call me, Arizona Tax Attorney, Michael S. Anderson at 480 507 5985 to discuss the seriousness of doing it right the first time, or whether it may be worth it to appeal to the U.S. Tax Court.

Posted by Michael S. Anderson | Permalink | Email This Post

Posted In: Appeals/Litigation , Offers in Compromise

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Should bankruptcy be considered a last resort in dealing with IRS debt? In my opinion, yes.

It should however, always be carefully considered.

The potential benefits of a bankruptcy can be undeniable in relation to a taxpayer's potentially less effective options.

Having said that, bankruptcy does have some obvious negatives for the taxpayer with serious income tax debt. The more common are as follows:

1. Bankruptcy Costs Money

There is the attorney who is analyzing your case and representing you, the court who wants to be paid something i.e filing fees, the trustee takes 10% of non exempt assets in a chapter 7 and amounts paid in a chapter 13.

Also, what about lost wages due to time spent in preparing and cooperating, lost sleep and stress (does that cost money?) etc. etc.

2. Filing Gives The IRS More Time to Collect the Tax

What? If I file bankruptcy, the IRS will have more time to collect after the bankruptcy is over. But, I thought the bankruptcy would deal with the debt i.e. wipe it away?

It will if the debt meets certain criteria. But what if...

- the statute of limitations on collection that bars the IRS from collecting tax debt after 10 years is about to run out? Would it be wise to file a bankruptcy and stop that clock from ticking to deal with that same tax debt? Probably not. (There are some limited circumstances where it would make sense)

3. Credit Report

Bankruptcy does damage what otherwise was a good credit score. It typically comes back with time and some work, but nonetheless...the tax debt must be serious, with no other way out, to justify the hit.

4. Stigma

The "stigma" of bankruptcy has been diminishing over the years. Many consider this a good thing. You know..."stick it to the man" and all of that jazz.

I think that certain "stigmas" have their place.

The bankruptcy stigma can be especially harsh. For the rest of your life, if asked formally, you will have to answer yes. For some, this is reason enough to probe every other legal option before bankruptcy is used.

If you have a serious tax debt, call me, Arizona Tax Lawyer, Michael S. Anderson to talk about what the other options might be for you. 480 507 5985

Posted by Michael S. Anderson | Permalink | Email This Post

Posted In: Tax Motivated Bankruptcy

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No matter what you have heard, a bankruptcy filing, motivated by serious income tax debt, is a common occurrence.

The reason is obvious. There are benefits to filing bankruptcy.

6 of the most important potential benefits are as follows:

1. The Automatic Stay

"Automatic Stay" is the common term used to describe that section of the bankruptcy code that governs what creditors must do or stop doing, once a bankruptcy is filed. It applies in every bankruptcy case. This law requires that almost every creditor in almost every situation, stop collection activity once the case is filed. This includes the IRS.

If the IRS has proper notice of the bankruptcy, the filer can actually sue the IRS for violation of the Automatic Stay Provision and recover actual damages including court costs and attorney fees, if the automatic stay provision is violated.

2. Elimination of Tax Debt after Discharge

The most obvious reason to file the bankruptcy, is the ability to get rid of the debt. As I often say, "believe it or not" certain income tax debts can be wiped away in bankruptcy along with accumulated penalty and interest. Determining "dischargeability" can be more complicated than it seems. Use of experienced legal counsel is a must.

3. Threat of Bankruptcy in an Offer in Compromise

A good bankruptcy candidate may be able to use threat of bankruptcy to obtain a better installment agreement or overall settlement in an offer in compromise without ever having to file. The key? A good bankruptcy candidate and experienced legal counsel.

4. Force payment plan

In a chapter 13 bankruptcy a payment plan can be forced on the IRS, if the IRS won't agree to a better and more reasonable payment plan outside of bankruptcy

Whether the plan is approved is not up to the IRS, but decided by bankruptcy law and the bankruptcy judge.

5. Deal with all other debt at same time

Most with serious tax debt have other debt problems as well. Credit card debt, medical bill debt, foreclosure issues, business related debt etc. etc.

A bankruptcy, chapter 7 or 13 depending on which best fits, can deal not only with the tax debt but also with these other problems, via discharge, cramdown, or payment.

6. Re-determination of Taxes Due

The bankruptcy code allows the Bankruptcy Court to redetermine the amount of tax owed.
Bankruptcy can be used to determine the amount of the debt even if you lost the argument in tax court.

If you have serious tax debt, you must talk to an attorney experienced in the relationship between tax debt and bankruptcy in order to find the best solution to the problem.

Call our office, Michael S. Anderson P.C. to discuss your tax situation over the phone with Mr. Anderson for free. 480 507 5985

Posted by Michael S. Anderson | Permalink | Email This Post

Posted In: Offers in Compromise , Tax Motivated Bankruptcy

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If you have been researching your tax debt options for any length of time, you may be confused about bankruptcy and it's relation to the debt.

Some "experts" claim bankruptcy won't work and others claim that it may be your best option. Who to believe?

Let's make three things clear.

1. Income tax debt can be wiped away by a bankruptcy.
2. Whether bankruptcy is the best option depends on a number of different factors.
3. Everyone with serious tax debt should analyze their best options with bankruptcy in mind.

Number 3 is the quick topic of this post.

Why?

Even if you do not use bankruptcy to deal with the tax debt, the IRS is required to consider the fact that the tax debt could be discharged in a bankruptcy when determining ability to pay in response to an offer in compromise.

In english...a true bankruptcy candidate has more leverage in an offer in compromise.

In this office, every client is treated as a potential bankruptcy client in an effort to determine if that leverage exists and if it can be used.

Don't let anyone tell you that bankruptcy shouldn't be at least considered as an option. It is in more ways than one.

Call Arizona Tax Attorney Michael S. Anderson P.C. at 480 507 5985 if you have serious tax debt and need to find a solution. He will talk to you for free over the phone.

Posted by Michael S. Anderson | Permalink | Email This Post

Posted In: Offers in Compromise , Tax Motivated Bankruptcy

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Many spouses in Arizona are caught off guard each year, by an unexpected IRS audit letter or IRS bill.

The audit and the bill are often the result of the other spouse's failure to disclose some income OR the his or her "overstatement" of a deduction or two on the tax return.

The unsuspecting spouse, has signed the joint return, but truly believes that all the tax due has been correctly calculated and paid, and that the return contained the entire truth about income and deductions.

Surprising to some, the spouse who is "out of the loop" may meet the legal criteria to qualify as an "innocent" spouse as defined by the tax code.

This means that as to that spouse the tax will not be considered due and owing. He or she won't have to pay it.

In order to be "forgiven" the liability for the resulting tax the proposed innocent spouse MUST be able to show 4 things:

1. Incorrect Items

The other spouse disclosed incorrect or erroneous items in the tax return that caused the understatement of the tax owed on the return and thus the unexpected post audit additional tax.

Erroneous or incorrect items are either unreported income or an overstated and incorrect deduction. This includes outright lies about costs or purchases, and items that were paid for or purchased but aren't legally deductible,

2. Unaware or No Reason to Know

The "innocent" spouse was unaware (or had no reason to know) of the errors i.e. this understatement when the return was signed.

One knows or had reason to know of an understatement, if there was of course actual knowledge of the understatement, or a reasonable person in similar circumstances would have known of the understatement.

Continue reading "Surprised by an IRS Audit or IRS Bill in Arizona? You may be an "Innocent Spouse"." »

Posted by Michael S. Anderson | Permalink | Email This Post

Posted In: Innocent Spouse Relief

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I commonly receive calls from taxpayers in Arizona who have just hung up the phone with a "tax controversy" firm they found on the internet or tv.

Despite the fact that these calls are common, I continue to be shocked at the fees charged and tactics used by these firms.

If you have serious tax debt, great care needs to be taken when paying someone to help you solve it. Here are some reasons why:

1. Most tax organizations that you see on tv and hear on the radio are not law firms. They are highly specialized sales organizations.

2. The salespeople in these organizations are trained to scare the taxpayer about what the IRS may do to them in order to... you guessed it, make the service seem much more valuable then it is.

3. They are also trained to make it appear there is some "secret" ability to obtain an enormous reduction in the overall debt and remove the fear, and they are in on the secret.

4. They usually base a fee not on what the time involvement may be to help solve the problem, but on what they believe can be paid by the taxpayer. They do this by reviewing your assets a bit with you over the phone, including available credit you may have.

5. This fee is not typically based on the remedy. There is no correlation between the solution and the fee. You may end up paying the same very large flat fee for whatever is done, no matter how small or large.

6. The solution they sell although promising for some, doesn't work for most. That promised solution is the offer in compromise.

7. Despite the fact that the solution is usually something that requires less work than the offer in compromise, they keep the large fee anyway in the end.

My advice to Arizona taxpayers:

If a "firm" quotes you a very large fee for a tax resolution service without reviewing all of your documents, history and then comparing the available non bankruptcy options to bankruptcy itself, be very wary.

In fact, do yourself a favor by contacting a local tax attorney who bills by the hour, or whose flat fees are reasonable, and have that firm review your case.

Posted by Michael S. Anderson | Permalink | Email This Post

Posted In: Offers in Compromise

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The IRS issued a statement recently claiming that it is aware of the economy and it's affects on taxpayer's income, home values, and ability to pay debt overall. It has laid out three ways that it is going to try and help.

First, the IRS is offering to be more lenient with those who have recently lost a job, rely on social security, welfare or who have large medical bills. It will not be calling these people or sending them letters.

The IRS already has a program that allows taxpayers without income or with "low" income to be placed on "non collectible" status. This means that they are left alone by the collections department of the IRS until the income situation improves. This new leniency in relation to collections appears to be expanding the realm of those who may qualify for this treatment.

Second, the IRS is going to allow those that are in an installment agreement arrangement to miss a few payments and stay in the arrangement if they have been steady payers.

The installment agreement program has long been in existence. Previously, if a taxpayer missed a payment during the plan, the IRS would withdraw the plan and the full amount would become due. They would however, typically allow the plan to be re-instated with a fee.

Third, the IRS is promising to review the valuations of homes in cases where the taxpayer is filing an offer in compromise.

Normally, in an offer in compromise, the IRS would require the payment of any equity in a home as part of the settlement. Many homes have little or no equity now, but the IRS systems may be showing the valuations based on previous years. This will help more offers to be accepted.

If you have a serious tax debt and are facing IRS collection activity, please call Arizona tax attorney Michael Anderson at 480 507 5985 for a straightforward evaluation of your options.

Posted by Michael S. Anderson | Permalink | Email This Post

Posted In: Installment Agreement , Non Collectible Status , Offers in Compromise

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Taxpayers with large tax debt are initially confused about what to do. They start making calls to companies they have seen on the TV, only to receive a high pressure sales pitch. Confusion and frustration set in, and only the notice of levy or lien forces further action.

For all Arizona Taxpayers with debt, I encourage you to call my office to talk generally about what your options may be over the phone as soon as you find trouble.

However, there is no way for me to give specific advice without spending more time with the taxpayer's specific set of facts than I can during a short phone call.

For those who are wary of paying a larger retainer or who just don't have the funds to retain an attorney, a "strategy meeting" in my office may be the solution to obtaining some of that more specific advice without the higher cost of full representation.

The strategy meeting is designed to answer all of the taxpayer's questions at one time for one flat fee.

Many of those who choose the Strategy Meeting are then able to handle the issue themselves without spending more money. On occasion, a situation can be resolved during the meeting with a phone call.

Of course many situations are too complicated to be fully analyzed during a 2.5 hour meeting. In those instances, taxpayers will need further analysis and representation.

My goal is to help my clients solve the tax problem in a cost effective and timely manner. This meeting allows me to do that in many situations.

In order to set up the meeting, call to talk to me first. I will ask you some questions and discuss whether a strategy meeting may help you. Call 480-507-5985.

Posted by Michael S. Anderson | Permalink | Email This Post

Posted In: Appeals/Litigation , Delinquent Tax Returns , Installment Agreement , Non Collectible Status , Offers in Compromise , Penalty Abatement , Tax Audit , Tax Levy , Tax Lien , Tax Motivated Bankruptcy , Trust Fund Recovery Penalty

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Licensed Attorneys, Certified Public Accountants, and "Enrolled Agents" are allowed to represent clients in front of the Internal Revenue Service. Licensed Attorneys are automatically allowed to be admitted to practice before the U.S. Tax Court. CPAs and Enrolled Agents must pass a rigorous exam.

Anyone on the other hand, can own a business that "sells" tax controversy and resolution services to taxpayers nationwide. This ability to "sell" tax resolution services with little oversight has led to a tremendous amount of misinformation about a taxpayer's ability to deal with overwhelming tax debt.

I receive a number of calls from taxpayers who are certain, based on an ad or telephone sales pitch, that they will be able to simply settle their tax debt for a very small amount.

Many who call have paid the company, went through the process, and failed.

Not only have they failed, they don't really understand why, and probably paid a large sum for the opportunity.

Attorneys have as a profession become the butt of many jokes. Many are quite funny. Most attorneys I know however are smart, hardworking and have the best interests of the client at heart.

For these reasons as well as the following, I always encourage taxpayers to talk to a real, live, licensed, experienced, and local tax controversy attorney before deciding what to do about their tax debt.

1. Lawyers Are Regulated

Attorneys have all sorts of legal obligations placed on them by various regulatory systems that have been set up to ensure the highest standards of representation. These include state ethics rules, and IRS rules of practice. No CPA or Enrolled Agent is held to a standard as high as an attorney. Tax controversy businesses are unregulated. These regulations ensure that most attorneys are as mentioned above, hardworking and conscientious.

Continue reading "For Arizona Taxpayers - Why use a local tax attorney to help you deal with the IRS?" »

Posted by Michael S. Anderson | Permalink | Email This Post

Posted In: Appeals/Litigation , Delinquent Tax Returns , Installment Agreement , Non Collectible Status , Offers in Compromise , Tax Audit , Tax Levy , Tax Lien , Tax Motivated Bankruptcy , Tax and Politics , Trust Fund Recovery Penalty

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Many Arizona taxpayers who call me for help, have a few years of un-filed federal and state income tax returns.

Most will be worried about whether they can be arrested and sent to jail. They have seen the stories about Wesley Snipes and other famous types who are currently residing in a federal prison for similar offenses.

The good news is that the IRS typically and as a matter of internal policy will not prosecute the taxpayer who files their returns voluntarily or in other words beats them to it. Visit the IRS.gov website for information about this policy.

Obviously, prosecution is not the easiest way for the IRS to collect, or they would do it to everyone with a late return. It would seem that the prosecution of a few high profile cases would be more cost effective. Fear trickles down.

Prosecutions of the "rest of us" do occur however, and much more often than one would think. There are many "average joes" whose careers and families have been lost while they sit in jail as a result of unfiled returns.

Therefore, the non filer should get the returns prepared and filed as a first step. If the IRS does decide to prosecute, it usually won't lose.

Not only does the non filer risk jail, he or she also risks the loss of tax refunds, lost earned income credit, lost social security benefits, and increased debt as a result of penalty and interest add ons.

I can help a taxpayer who hasn't filed for years to prepare the returns even if they are missing documentation, file them properly, and then find the best way to deal with the debt, all while protecting the attorney client privilege.

If you have un-filed tax returns, call Michael S. Anderson, an experienced Arizona tax controversy attorney at 480-507-5985 to discuss your situation for free.

Posted by Michael S. Anderson | Permalink | Email This Post

Posted In: Appeals/Litigation , Delinquent Tax Returns , Installment Agreement , Non Collectible Status , Offers in Compromise , Tax Motivated Bankruptcy

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A man calls an attorney and asks her how much she would charge to answer three quick questions. The attorney replies, "one thousand dollars." "A thousand dollars!" cries the man. "That's very expensive isn't it?" "It certainly is," replies the attorney. "Now, what is your third question?"

This is one of my favorite lawyer jokes. It is funny because there is truth in humor. Most attorneys I know however are not trying to get something for nothing, as is this attorney They know their practice area, and their knowledge and experience can be worth their weight in gold to those with serious problems.

The problem is that in between it's "weight in gold" and zero, it is hard to determine what a taxpayer should pay a tax attorney.

Generally, the fees charged are set by the market. Sometimes the market is skewed a bit by the high pressure sales skills of the tax resolution company employee. When promises are made that aren't necessarily true, apples can't be compared to apples.

In our office, we feel that the best way to bill a client for tax related work is by the hour.

The hourly rate solves a number of problems related to the determination of what should be paid.

1. The rate can be compared to other attorneys with similar experience and knowledge.
2. The hourly rate provides the attorney an increased incentive to work personally on the case instead of handing the file off to staff and turning the office into a "mill" as "flat" fees often do.
3. The hourly rate provides the taxpayer client an incentive to fully participate and cooperate with the Attorney. This results in a more educated client, and a better outcome.
4. Hourly rates do not end up costing the client more necessarily than flat fees. They are often less in reality and less when the results are considered. Would a client pay $500.00 more in fee, if it resulted in $10,000.00 in additional savings?
5. Hourly rates provide the client more control over what is being accomplished.
6. Hourly rates provide the client more opportunity to participate and thereby be active in the reduction of the fee.

Continue reading "Tax Controversy and Arizona Attorney Fees " »

Posted by Michael S. Anderson | Permalink | Email This Post

Posted In: Appeals/Litigation , Delinquent Tax Returns , Installment Agreement , Non Collectible Status , Offers in Compromise , Penalty Abatement , Tax Audit , Tax Levy , Tax Lien , Tax Motivated Bankruptcy , Trust Fund Recovery Penalty

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