Internet Tax Lawyers

The Offer in Compromise is a contract which is entered into between the IRS and the taxpayer where the taxpayer agrees to pay a specific amount to the IRS in full satisfaction of the tax debt. That is to say, the IRS has “compromised” the tax debt with the taxpayer for a sum certain.

If the IRS has got you down, pick yourself back up again knowing that you have options. You may be able to set up an Installment Agreement, attain Currently Not Collectible status, or solicit an Offer in Compromise. For those that qualify, an Offer in Compromise is a great way to settle your tax debt for less than you actually owe to the IRS.

If the IRS accepts the offer, the taxpayer is contractually obligated to timely make the agreed-upon payment or payments as well as remain current with all of his or her taxes for the next five tax years. If he or she fails to do so, the Offer in Compromise is terminated by the IRS, and the IRS may then choose to resort to other more aggressive (i.e., unpleasant) collection techniques to satisfy the tax debt.

The IRS can be quite picky when it comes to determining who qualifies for the Offer in Compromise, so it is essential that the taxpayer offer an amount which is less than his or her total tax debt, but substantial enough to satisfy the IRS that the taxpayer has taken significant steps to satisfying the total tax debt. An analysis of the amount of assets that the taxpayer has, versus his or her total debt, is made in order to determine the amount that is to be offered.

New Vehicle Tax Credit

• Taxpayers who purchased new vehicles (cars, light trucks, motor homes and motorcycles) from Feb. 17, 2009 through Dec. 31, 2009 can deduct state or local sales or excise taxes paid on up to $49,500 of the purchase price of each qualifying new vehicle, regardless of whether or not the taxpayer itemizes deductions.
• Joint filers with MAGI between $250,000 and $300,000, and individuals with MAGI between $125,000 and $135,000, qualify for a reduced deduction; whereas taxpayers with higher incomes do not qualify.

Low and Moderate Income Workers

• The Earned Income Tax Credit (EITC) helps taxpayers whose incomes fall below a certain level. Families who were not eligible in the past may qualify in 2009, either because their income dropped due to the economic downturn or because eligibility requirements have been expanded.
• For 2009, earned income and adjusted gross income (AGI) must each be less than:

$43,279 ($48,279 married filing jointly) with three or more qualifying children

$40,295 ($45,295 married filing jointly) with two qualifying children

$35,463 ($40,463 married filing jointly) with one qualifying child

$13,440 ($18,440 married filing jointly) with no qualifying children

• This credit could be worth up to $5,657 this year.

Education

• The American Opportunity Credit provides eligible parents and students with up to a $2,500 per student annual credit. This federal education credit offers greater savings than existing education tax breaks by allowing for items such as required course materials as a qualified expense and expanding income guidelines.
• Taxpayers with modified adjusted gross incomes (MAGI) of $80,000 or less ($160,000 or less for joint returns) may take advantage of the full credit, even if they do not itemize. Up to 40% of the credit is refundable, and thus taxpayers may acquire a refund even if the credit exceeds the tax owed.

October 15th is fast approaching, and as such taxpayers will want to take note of several key changes in order to maximize savings this tax season. A number of new and expanded deductions and credits emerged in 2009, including education tax benefits for parents and students, tax breaks for vehicle and home purchases, and “green” energy credits for homeowners.

Home Buyer Tax Credit

• The Worker, Homeownership, and Business Assistance Act of 2009 extends and expands the tax credit originally made available to first-time homebuyers through the American Recovery and Reinvestment Act of 2009. Now, homebuyers who have not owned a primary residence for three years prior to the purchase are eligible for the $8,000 credit.
• Homebuyers must have purchased a home between Jan. 1, 2009 to April 30, 2010 to be eligible for this credit. Because many people were experiencing paperwork delays, Congress has provided buyers who signed a binding contract by April 30 an extension until September 30 to close their deals to claim the break.
• Repeat homebuyers who have owned their primary residence for five consecutive years out of the last eight are eligible for a tax credit of up to $6,500. Repeat homebuyers must have purchased a home from Nov. 6, 2009 to April 30, 2010 to be eligible for this credit.

Going “Green”

• Two expanded home energy tax credits are available for people who make energy improvements: the residential energy efficient property credit and the non-business energy property credit.
• The residential energy efficient property credit equals 30 percent of a homeowner’s expenditures on qualifying property such as solar electric systems and hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property. Labor costs are generally included under this credit, and no cap exists on the available credit except in the case of fuel cell property. Before making improvements or purchases, homeowners should check the manufacturer’s tax credit certification statement and review Form 5695, Residential Energy Credits.
• The non-business energy property credit equals 30 percent of a homeowner’s expenditures on eligible energy-saving improvements, with a $1,500 cap for combined tax years 2009 and 2010. Thus to maximize this credit, the homeowner should spend at least $5,000 in qualifying improvements. Unlike the residential energy efficient property credit, the non-business energy property credit is limited to an existing principal residence (new construction does not qualify).

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Some buzz is building in favor of a payroll tax holiday. In a time of skyrocketing unemployment, many experts are saying that there doesn’t seem to be much sense in keeping a tax that is literally a tax on employment. Orange…

Chairman Levin decried the lack of civility and bi-partisanship that has been building over the many years he has been in Congress. Ohio Rep. Steve Driehaus pointed out that the Democrats have quite divergent views in their caucus but have been able to arrive at compromises in order to move critical pieces of legislation forward. For example, Rep. Driehaus said, the Democrats in the House reached a compromise to pass a bill to fix the estate tax problem last year, but the Republicans in the Senate have been holding the bill hostage. Rep. Driehaus also noted that quite a few pieces of legislation contained amendments put forward by Republicans, yet few, if any, Republicans vote in favor of the legislation when it comes up for a final vote.

Rep. Driehaus and Chairman Levin agreed that if the Republicans don’t start to work with the Democrats to fix the tax problems this year, the prospects for legislative compromise in the new Congress in 2011 will likely be worse. Even if the Republicans increase their numbers in Congress, they probably won’t win control of both houses. No pundit has even suggested that the Republicans can win a majority in the House and the 60 seats in the Senate needed to get the legislation passed it is promising the public.

At lunch today, Sandy Levin, Chairman of the House Ways and Means Committee, told a small group of business people, tax attorneys, and accountants that he had no idea what was going to happen with the mess left by the Bush income tax and estate tax situations. The tax cuts, of course, are due to expire at midnight on December 31st, and the estate tax will come roaring back with a vengeance at the same time.