Every mortgage loan has two parts, a note and a deed of trust.  The note is your debt to the mortgage company.  The deed of trust is the document secures the debt with your home. 

If you get behind on your payments, the mortgage company may foreclose on your home and sell it at an auction.  The difference between your loan amount and what the mortgage company sold it for can create a deficiency. (For example, if you have a $300,000 mortgage loan and the house sells for $200,000 at a foreclosure auction, there is a $100,000 deficiency.)

 The mortgage company may choose to forgive your debt.  In our example, the mortgage company could forgive $100,000 deficiency after the foreclosure sale.

When the mortgage company chooses to forgive a loan, it normally is a taxable event.  In tax terms, it is called discharge of indebtedness income or cancellation of indebtedness income.  The borrower who no longer has to repay the loan must pay tax on that amount.  In our example the taxpayer would be deemed to have received receive $100,000 of income.

Because of the recent foreclosure problems, congress has passed the Mortgage Forgiveness Debt Relief Act of 2007.  This act allows taxpayers to exclude any discharge of indebtedness income on their principal residence.  This exception does not apply to second homes or investment properties.

For more information on how Robinson & Henry can help taxpayers nationwide with their tax problems, visit us at www.wlhenry.com or contact us at (303) 688-0944.  Robinson & Henry has extensive experience in defending and advising homeowners facing foreclosures including in Rule 120 proceedings, loan modifications, and bankruptcy.  Visit our foreclosure defense website at http://www.blockcoloradoforeclosure.com/

The IRS recently released its annual enforcement figures for its 2008 fiscal year.   The bottom line–$56.4 billion in enforcement revenue collected.

Collecting the billions required the IRS to issue over 2.6 million tax levies (IRS garnishments and bank levies) and 750,000 tax liens on taxpayers’ property.  Many of these levies and liens occurred after taxpayers failed to file their tax returns or pay tax. 

Tax levies and lien normally occur after numerous notices from the IRS.  Taxpayers can stop tax levies and tax liens from occurring by negotiating with the IRS.  In certain circumstances, penalties, interest and the underlying tax liability can be significantly reduced. 

For more information, go to www.wlhenry.com or contact us at (303) 952-5064 to learn how we can help you with your tax debt problems.   Visit our tax blog at http://wlhenry.com/tb/.

Yes.  Failing to file taxes is a serious problem.  Under Colorado law, for example, a person who “willfully attempts in any manner to evade or defeat” any tax or the payment thereof is guilty of a class 5 felony pursuant to Colorado Revised Statute 39-21-118.   So, what does that mean:  that means that you can be sentenced to three years in jail or fined up to $100,000 in some cases. 

Visit www.wlhenry.com for more information or contact us at (303) 952-5064 to learn more.

Every business is allowed to take “ordinary and necessary” business expenses.  But is the activity a hobby or a business?

Under the “hobby loss rule,” a taxpayer can only take business deductions if the activity is engaged in for profit and carried on for a trade or business.  An activity is presumed to be carried on for profit if it makes a profit in at least three of the last five tax years, including the current year.  For breeding, showing, or training race horses, a profit must be achieved in two of the last seven years for the presumption arises.

If the presumption does not arise, a list of non-exclusive factors must be examined to determine if the activity is a hobby or a business.   Failure to properly classify the activity may result in denied deductions and cause the IRS to impose underpayment penalties or accuracy related penalties. Because the IRS may not audit your return for years, penalties and interest associated with the hobby loss rule can be significant.

The IRS will not impose penalties if a tax lawyer gave the taxpayer a written opinion stating that the activity was a business.  However, the IRS will only accept a properly written opinion meeting certian criteria before it will waive penalties, so ensure the lawyer or other professional has the experience in providing written tax opinion.

For more information, visit Robinson & Henry’s tax practice webpage at http://www.wlhenry.com/practice_area_taxation.php  or contact us at  (303) 688-0944 .

Thousands of taxpayers across the country receive a notice of intent to levy from the IRS each year.  Many of those taxpayers, however, do not know what that notice means or what they should do. A notice of levy is the IRS’s way of telling the taxpayer that they are going to garnish the taxpayer’s wages or levy the taxpayer’s bank accounts. 

If the IRS chooses to levy a bank account, it can levy all money in the bank account up to the amount of tax that the IRS says that it is owed.  All of the taxpayer’s outstanding checks will bounce if the money in the bank account is not sufficient to cover the IRS levy and the outstanding checks.  When an IRS levy occurs, taxpayers often do not have sufficient funds to pay their mortgage or rent payments (not to mention the bank fees!).

If you get a notice of levy, it is extremely important that you do not ignore it.  A notice of intent to levy means that the IRS has started the collection process and will not stop until the debt is satisfied. An IRS tax lawyer should immediately work on preventing a levy from occurring or reducing any damage that has occurred while he or she negotiates with the IRS on your behalf.    

For more information, please visit the tax section of Robinson & Henry, P.C., at http://www.wlhenry.com/practice_area_taxation.php or contact us at   (303… .

As an employer, you act as a fiduciary withholding money from your employee’s paychecks and depositing the money with the IRS.  It’s not your money, so the IRS takes employment tax problems very seriously.  The IRS can assess a special penalty and hold you personally responsible for not depositing employment taxes. You can avoid the penalty if you can demonstrate reasonable cause not caused by willful neglect. 

Because of the seriousness of employment taxes problems, all employers should take immediate action if they fall behind on depositing employment withholdings.   Do not ignore the IRS!

Charles O’Byrne, Chief of Staff to New York Governor David Paterson, failed to pay or file his personal tax returns for 2001 – 2005.  He owed nearly $300,000 in back taxes, penalties, and interest.

The reason?  According to his lawyer, Richard S. Kestenbaum, he has “late-filing syndrome” (also called called nonfiling syndrome or failure-to-file syndrome).  This disorder, however, is not recognized as a psychiatric condition according to the American Psychiatric Association.

So, if you suffer from late-filing syndrome and have failed to file your tax returns or pay taxes we can help.  We can help reduce penalties and interest, stop wage garnishments and bank levies, and possibly reduce the underlying tax liability. Unfortunately, a psychiatrist probably can’t. 

Here is a breakdown of Mr. O’Byrne’s tax liability.  As you can see, everyone is human and makes mistakes.

FEDERAL TAXES

$127,018 in back taxes

$50,836 in penalties

$34,005 in interest

STATE TAXES

$51,303 in back taxes

$16,711 in penalties

$12,905 in interest

Please call us for a free consultation if you think we can help (303) 952-5064 or info@robinsonandhenry.com

Bill Henry

According to the IRS, the tax gap is “the difference between the amount of tax that taxpayers should pay and the amount that is paid voluntarily and on time.”   So, if you have failed to file taxes or you have failed to pay on time, then you are in the tax gap.

The IRS’s ability to collect tax debts exceeds those remedies of other creditors.  Unlike other creditors (like credit card companies), the IRS can levy your bank accounts and garnish your wages administratively.  That means that after the IRS fulfills procedural requirements it merely sends a letter to the bank or your employer and the money must be sent to the IRS—the IRS does not need to go to court.

How to get out of the gap?

The IRS provides several ways to negotiate a debt, including penalty abatement; collection arrangements including offers in compromise based on doubt as to liability, doubt as to collectability, and effective tax administration; and payment arrangements.   

The key to having your offer or abatement letter approved is understanding how the IRS makes its decisions.  That includes understanding the Internal Revenue Code, Treasury Regulation, and case law.  Making a strong argument—with case law and regulation to support it—are the cornerstones of a good offer letter.