Taxpayers could settle federal tax debt with an Offer in Compromise

  • Tax Updates
  • Comments Off on Taxpayers could settle federal tax debt with an Offer in Compromise

Issue Number: Tax Tip 2024-37

Taxpayers could settle federal tax debt with an Offer in Compromise

When a taxpayer can’t pay their full tax debt or if paying would cause financial hardship, they should consider applying for an Offer in Compromise. For assistance filing for an OIC from a legitimate representative, taxpayers are encouraged to check for a licensed enrolled agent or a reputable accountant in their area.

How an Offer in Compromise works
This is an agreement between a taxpayer and the IRS that settles a tax debt for less than the full amount owed.

The goal is a compromise that’s in the best interest of both the taxpayer and the agency. The Offer in Compromise application includes a fee of $205 and an initial payment. Low-income taxpayers don’t have to pay either the fee or the initial payment. Taxpayers should review the instructions for Form 656-B, Offer in Compromise, to see if they meet the qualifications to have these initial costs waved.

Who’s eligible
Taxpayers can check their eligibility and prepare a preliminary proposal with the Offer in Compromise Pre-Qualifier Tool.

Review the Offer in Compromise booklet
Eligible taxpayers should download and review the latest version of the OIC booklet., to avoid processing delays. This booklet covers everything a taxpayer needs to know about submitting an Offer in Compromise including:

Eligibility.
Costs to apply.
Application process.
Forms.
Application evaluation
When reviewing applications, the IRS considers the taxpayer’s unique set of facts and special circumstances affecting their ability to pay, including their:

Income.
Expenses.
Asset equity.
Beware of Offer in Compromise mills
Offer in Compromise mills aggressively promote Offers in Compromise in misleading ways to people who clearly don’t meet the qualifications, often costing taxpayers thousands of dollars.

An Offer in Compromise mill usually makes outlandish claims about how they can settle a person’s tax debt for cheap. The promoter fees are often excessive, and eligible taxpayers pay the OIC mill to get the same deal they could have received on their own by working directly with the IRS. This takes unnecessary money out of the taxpayer’s wallet.

In addition, not every taxpayer will qualify for an OIC. Some promoters knowingly advise indebted taxpayers to file an OIC application even though the promoters know the person will not qualify, costing honest taxpayers money and time.

More information:

Choosing a Tax Professional
Directory of Federal Tax Return Preparers with Credentials and Select Qualifications

Form 1040-X, Amended U.S. Individual Income Tax Return

  • Builder
  • Comments Off on Form 1040-X, Amended U.S. Individual Income Tax Return

Can I file my amended return electronically? (updated January 5, 2024)
Yes. If you need to amend your Form 1040, 1040-SR, 1040-NR, or 1040-SS/PR for the current or two prior tax periods, you can amend these forms electronically using available tax software products.

What are some reasons that an amended return cannot be filed electronically? (updated January 5, 2024)
Amended returns must be filed by paper for the following reasons:
Any amended Form 1040, 1040-SR, 1040-NR or 1040-SS/PR returns older than the current or prior two tax periods cannot be amended electronically. Amended returns for those earlier tax years must be filed by paper.
If amending a prior year return originally filed on paper during the current processing year, then the amended return must also be filed on paper.
How do I file my amended return electronically?
Contact your preferred tax software provider to verify their participation, answer any questions and for specific instructions needed to submit your amended return.

How many amended returns can be filed electronically? (updated January 2, 2024)
You can electronically file up to three amended returns per tax year. If you file a third amended return that is accepted, all subsequent attempts will be rejected.

Can I file my amended return electronically for previous tax years? (updated January 5, 2024)
You can amend your Form 1040, 1040-SR, 1040-NR, or 1040-SS/PR for the current or two prior tax periods electronically.

Will my amended return be processed faster if I file electronically? (updated January 2, 2024)
The current processing time is more than 20 weeks for both paper and electronically filed amended returns. See our processing status dashboard for timeframes.

Additionally, calling the IRS will not speed up return processing. Our phone and walk-in representatives can only research the status of your amended return 20 weeks or more after you’ve mailed it; or if Where’s My Amended Return? itself has recommended you contact us.

What forms are required with an electronically filed amended return?
An amended Form 1040, 1040-SR and 1040-NR return requires submission of all necessary forms and schedules as if it were the original submission, even if some forms have no adjustments. This is in addition to an attached Form 1040-X.

The amended Form 1040-SS/PR return requires submission of all necessary forms and schedules as if it were the original submission, even if some forms have no adjustments. Note that Form 1040-X will not be attached to Form 1040-SS/PR.

Is a new Form 8879 required when electronically filing Form 1040-X?
A new Form 8879 is required each time an amended Form 1040 or Form 1040-SR is electronically filed.

Is direct deposit available for electronically filed Form 1040-X? (updated January 2, 2024)
Beginning in processing year 2023, direct deposit can be requested for electronically filed amended returns for tax year 2021 and later. The bank account information should be entered on the electronically filed Form 1040-X (or Corrected Form 1040-SS/PR).

Can Form 8888, Allocation of Refund (Including Savings Bond Purchases), be filed with an amended return?
Yes. Form 8888 may be attached to an electronically filed amended return to request a direct deposit to multiple bank accounts. Refunds from amended returns cannot be used to buy savings bonds.

Where do I mail a paper check for an electronically filed amended return and should I use a Form 1040-V, Payment Voucher?
Use Form 1040-V, Payment Voucher, when mailing a paper check for payment made on an electronically filed amended return. Form 1040-V instructions provide the mailing address for sending paper checks.

How can I check the status of my electronically filed amended return? (updated January 2, 2024)
The Where’s My Amended Return? online tool or the toll-free telephone number 866-464-2050 can be used to check the status of your return and confirm receipt.

How soon can I use the Where’s My Amended Return? application to check the status of an electronically filed amended return?
The Where’s My Amended Return? (WMAR) online tool or the toll-free telephone number 866-464-2050 can be used for status updates three weeks after filing the return. Both tools are available in English and Spanish and have the most up-to-date information available.

Can I get the status of an amended return for multiple tax years? (updated January 2, 2024)
Where’s My Amended Return? or the toll-free telephone number 866-464-2050 can get you the status of your amended returns for the current tax year and up to three prior tax years.

What is happening when my amended return’s status shows as received?
Your amended return was received and is being processed. It currently takes more than 20 weeks to complete processing.

What is happening when my amended return’s status shows as adjusted?
An adjustment was made to your account. The adjustment will result in a refund, balance due or in no tax change.

What is happening when my amended return’s status shows as completed?
Your amended return has been processed. You will receive all the information connected to its processing by mail.

It’s been longer than 20 weeks since you received my amended return. Why hasn’t it been processed?
Some amended returns take longer than 20 weeks for several reasons. Your return may need further review if it:

Has errors
Is incomplete
Isn’t signed
Is returned to you requesting more information
Includes a Form 8379, Injured Spouse Allocation
Is affected by identity theft or fraud

Delays in processing may also occur when an amended return needs:

Routing to a specialized area
Clearance by the bankruptcy area within the IRS
Review and approval by a revenue officer
Review of an appeal or a requested reconsideration of an IRS decision

You will be contacted if more information is needed to process your amended return.

What types of amended returns aren’t available in the tool?

Where’s My Amended Return? cannot give you the status of the following returns or claims:

Carryback applications and claims
Injured spouse claims
A Form 1040, U.S. Individual Income Tax Return, marked as an amended or corrected return
An amended return with a foreign address
An amended business tax return
An amended return processed by a specialized unit—such as our Examination or Bankruptcy Department

Taxpayers could settle federal tax debt with an Offer in Compromise

  • Tax Updates
  • Comments Off on Taxpayers could settle federal tax debt with an Offer in Compromise

An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability or doing so creates a financial hardship. We consider your unique set of facts and circumstances:

Ability to pay
Income
Expenses
Asset equity

We generally approve an offer in compromise when the amount you offer represents the most we can expect to collect within a reasonable period of time. Explore all other payment options before you submit an offer in compromise. The Offer in Compromise program is not for everyone. Be sure to check the qualifications of any tax professional you hire to help you file an offer.

Who Is Eligible
Confirm you’re eligible and prepare a preliminary proposal with the Offer in Compromise Pre-Qualifier Tool.

You’re eligible to apply for an Offer in Compromise if you:

Filed all required tax returns and made all required estimated payments
Aren’t in an open bankruptcy proceeding
Have a valid extension for a current year return (if applying for the current year)
Are an employer and made tax deposits for the current and past 2 quarters before you apply

If You Apply and Are Not Eligible
If you apply for an Offer in Compromise and we can’t process your offer, we’ll:

Return your application and offer application fee
Apply any offer payment you included to your balance due

Submit Your Application
Find forms to submit an application and step-by-step instructions in Form 656-B, Offer in Compromise BookletPDF.

Complete an application package:

Form 433-A (OIC) (individuals) or 433-B (OIC) (businesses) and all required documentation as specified on the forms
Form 656(s) – you must submit individual and business tax debt (Corporation/ LLC/ Partnership) on separate Forms 656
$205 application fee (non-refundable)
Initial payment (non-refundable) for each Form 656.

Select a Payment Option
Your initial payment varies based on your offer and the payment option you choose:

Lump Sum: Submit an initial payment of 20% of the total offer amount with your application. If we accept your offer, you’ll receive written confirmation. You must pay any remaining balance due on the offer in five or fewer payments.
Periodic Payment: Submit your initial payment with your application. Continue to pay the remaining balance in monthly installments while the IRS considers your offer. If IRS accepts your offer, continue to pay monthly until it is paid in full.

If You Meet the Low Income Certification Guidelines
You don’t have to:

Send the application fee or the initial payment
Make monthly installments while we review your offer.

For details, see Form 656-B, Offer in Compromise BookletPDF.

Understand the Process
While IRS evaluates your offer:

Your non-refundable payments and fees are applied to the tax liability (you may designate payments to a specific tax year and tax debt)
IRS may file a Notice of Federal Tax Lien
IRS suspends other collection activities
Your legal assessment and collection period is extended
You make all required payments per your offer
You don’t have to make payments on an existing installment agreement
Your offer is automatically accepted if the IRS doesn’t make a determination within two years of the IRS receipt date (This does not include any Appeal period.)

If Your Offer Is Accepted

You must meet all the Offer Terms listed in Section 7 of Form 656, including filing all required tax returns and making all payments
IRS doesn’t release federal tax liens until your offer terms are satisfied
Certain offer information is available for public review by requesting a copy of a public inspection file.

If Your Offer Is Rejected

You may appeal a rejection within 30 days using Request for Appeal of Offer in Compromise, Form 13711PDF.
The IRS Independent Office of Appeals offers additional assistance on appealing your rejected offer.

Topic No. 511, Business Travel Expenses

  • Builder
  • Comments Off on Topic No. 511, Business Travel Expenses

Travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job. You can’t deduct expenses that are lavish or extravagant, or that are for personal purposes.

You’re traveling away from home if your duties require you to be away from the general area of your tax home for a period substantially longer than an ordinary day’s work, and you need to get sleep or rest to meet the demands of your work while away.

Generally, your tax home is the entire city or general area where your main place of business or work is located, regardless of where you maintain your family home. For example, you live with your family in Chicago but work in Milwaukee where you stay in a hotel and eat in restaurants. You return to Chicago every weekend. You may not deduct any of your travel, meals or lodging in Milwaukee because that’s your tax home. Your travel on weekends to your family home in Chicago isn’t for your work, so these expenses are also not deductible. If you regularly work in more than one place, your tax home is the general area where your main place of business or work is located.

In determining your main place of business, take into account the length of time you normally need to spend at each location for business purposes, the degree of business activity in each area, and the relative significance of the financial return from each area. However, the most important consideration is the length of time you spend at each location.

You can deduct travel expenses paid or incurred in connection with a temporary work assignment away from home. However, you can’t deduct travel expenses paid in connection with an indefinite work assignment. Any work assignment in excess of one year is considered indefinite. Also, you may not deduct travel expenses at a work location if you realistically expect that you’ll work there for more than one year, whether or not you actually work there that long. If you realistically expect to work at a temporary location for one year or less, and the expectation changes so that at some point you realistically expect to work there for more than one year, travel expenses become nondeductible when your expectation changes.

Travel expenses for conventions are deductible if you can show that your attendance benefits your trade or business. Special rules apply to conventions held outside the North American area.

Deductible travel expenses while away from home include, but aren’t limited to, the costs of:

Travel by airplane, train, bus or car between your home and your business destination. (If you’re provided with a ticket or you’re riding free as a result of a frequent traveler or similar program, your cost is zero.)
Fares for taxis or other types of transportation between:
The airport or train station and your hotel,
The hotel and the work location of your customers or clients, your business meeting place, or your temporary work location.
Shipping of baggage, and sample or display material between your regular and temporary work locations.
Using your car while at your business destination. You can deduct actual expenses or the standard mileage rate, as well as business-related tolls and parking fees. If you rent a car, you can deduct only the business-use portion for the expenses.
Lodging and non-entertainment-related meals.
Dry cleaning and laundry.
Business calls while on your business trip. (This includes business communications by fax machine or other communication devices.)
Tips you pay for services related to any of these expenses.
Other similar ordinary and necessary expenses related to your business travel. (These expenses might include transportation to and from a business meal, public stenographer’s fees, computer rental fees, and operating and maintaining a house trailer.)
Instead of keeping records of your meal expenses and deducting the actual cost, you can generally use a standard meal allowance, which varies depending on where you travel. The deduction for business meals is generally limited to 50% of the unreimbursed cost. For information on a temporary 100% deduction for food or beverages provided by a restaurant paid or incurred after December 31, 2020, and before January 1, 2023, refer to Notice 2021-25PDF. For more information on a special rule that allows the temporary 100% deduction for the full meal portion of a per diem rate or allowance, refer to Notice 2021-63PDF.

If you’re self-employed, you can deduct travel expenses on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship), or if you’re a farmer, on Schedule F (Form 1040), Profit or Loss From Farming.

If you’re a member of the National Guard or military reserve, you may be able to claim a deduction for unreimbursed travel expenses paid in connection with the performance of services as a reservist that reduces your adjusted gross income. This travel must be overnight and more than 100 miles from your home. Expenses must be ordinary and necessary. This deduction is limited to the regular federal per diem rate (for lodging, meals, and incidental expenses) and the standard mileage rate (for car expenses) plus any parking fees, ferry fees, and tolls. Claim these expenses on Form 2106, Employee Business Expenses and report them on Form 1040 or Form 1040-SR as an adjustment to income.

Good records are essential. Refer to Topic No. 305 for information on recordkeeping. For more information on these and other travel expenses, refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses.

What to do when a W-2 or Form 1099 is missing or incorrect

  • Tax Updates
  • Comments Off on What to do when a W-2 or Form 1099 is missing or incorrect

It’s important for taxpayers to have all their documents and information so they can file an accurate and complete tax return. This may mean waiting to file until they receive all their documentation – and it can also mean following up on missing or incorrect documents.

Most taxpayers should have received income documents near the end of January. These may include:

  • Form W-2, Wage and Tax Statement
  • Form 1099-MISC, Miscellaneous Income
  • Form 1099-INT, Interest Income
  • Form 1099-NEC, Nonemployee Compensation
  • Form 1099-G, Certain Government Payments; like unemployment compensation or state tax refund

Taxpayers should first contact the employer, payer or issuing agency directly for copies

Taxpayers who haven’t received a W-2 or Form 1099 should contact the employer, payer or issuing agency and request a copy of the missing document or a corrected document.

If they can’t get a copy, they can contact the IRS for help

Taxpayers should file their tax return on time – this year’s tax deadline is April 18 for most filers – even if they still have missing or incorrect documents. If they don’t receive the missing or corrected form from their employer or payer by the end of February, they may call the IRS at 800-829-1040 for help. They’ll need to provide their name, address, phone number, Social Security number and dates of employment. They’ll also need to provide the employer’s or payer’s name, address and phone number. The IRS will contact the employer or payer and request the missing form.

Estimating income when forms are incorrect or missing

After the taxpayer contacts the IRS about missing documents, the IRS will send the taxpayer one of these forms:

Form 4852, Substitute for Form W-2, Wage and Tax Statement or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, Etc.

If the taxpayer doesn’t receive the missing form in time to file their income tax return by the filing due date, they may complete Form 4852 or Form 1099-R to estimate their wages and earnings. They then attach the relevant form to their tax return when they file.

Taxpayers may need to file an amended return if they filed with missing or incorrect info

If they receive the missing or corrected Form W-2 or Form 1099-R after filing their return and the information differs from their previous estimate, they must file Form 1040-X, Amended U.S. Individual Income Tax Return.

Incorrect Form 1099-G for unemployment benefits

Taxpayers who receive an incorrect Form 1099-G for unemployment benefits they did not receive should contact the issuing state agency to request a revised Form 1099-G showing they did not receive these benefits. Taxpayers who are unable to obtain a timely, corrected form from the state should still file an accurate tax return, reporting only the income they received.

The EITC is a major tax benefit for millions of low- and moderate-income workers

  • Tax Updates
  • Comments Off on The EITC is a major tax benefit for millions of low- and moderate-income workers

The EITC helps workers who earned $59,187 or less when they file their tax return. Unfortunately, many people risk missing out on the credit because they don’t know they’re eligible — especially people who had a major life change and may qualify for the first time this year.

Other workers at risk for overlooking the EITC include those:

  • Living in non-traditional homes, such as a grandparent raising a grandchild.
  • Whose earnings declined or whose marital or parental status changed.
  • Without children.
  • With limited English skills.
  • Who are veterans.
  • Living in rural areas.
  • Who are Native Americans.
  • With earnings below the filing requirement.

Taxpayers can check their eligibility and how much they qualify for at IRS.gov/eitc.

The EITC is a tax credit for certain people who work and have low to moderate income. A tax credit usually reduces tax owed and may also result in a refund.

How to claim the EITC

To get the EITC, qualified workers must file a tax return and claim the credit. Eligible taxpayers should file a tax return to claim the credit even if their earnings were below the income requirement to file.

Free tax preparation help is available online and through volunteer organizations:

Most EITC refunds deposited by late February

Although the IRS began accepting 2022 returns on Jan. 23, 2023, the IRS can’t issue a refund that includes the EITC before mid-February. This is due to the 2015 PATH Act, which provides this additional time to safeguard against fraudulent refunds.

The Where’s My Refund? tool should show refund status by Feb. 18 for most early EITC filers. Most EITC -related refunds should be available in bank accounts or on debit cards by Feb. 28 if the taxpayer chose direct deposit and there are no other issues with their tax return.

More information:

The benefits of having a tax refund direct deposited

  • Tax Updates
  • Comments Off on The benefits of having a tax refund direct deposited

IRS.gov Banner

Receiving a tax refund is happy news to any taxpayer; getting it quickly is even better. Direct deposit is the safest and most convenient way to receive a tax refund. The IRS encourages taxpayers to file when they are ready and choose direct deposit to receive any refund they may be owed.

Benefits of choosing IRS direct deposit:

  • It’s fast. The fastest way for taxpayers to get their refund is to file electronically and choose direct deposit. Visit IRS.gov for details about IRS Free File, Free File Fillable Forms, free tax return preparation and more. Taxpayers who file a paper return can also choose direct deposit, but it will take longer to process the return and get a refund.
  • It’s secure. Since refunds are electronically deposited, there’s no risk of having a paper check stolen or lost in the mail.
  • It’s easy. Taxpayers can simply follow the instructions when selecting direct deposit as a refund method and enter their account information as directed. They must enter the correct account and routing numbers when they file.
  • It provides options. Taxpayers can split a refund into several financial accounts. These include checking, savings, health, education and certain retirement accounts. They should use IRS Form 8888, Allocation of Refund, Including Savings Bond Purchases to deposit a refund in up to three accounts. This form cannot be used to designate part of a refund to pay tax preparers.

Taxpayers should deposit refunds into U.S. bank accounts in their own name, their spouse’s name or both. They should avoid making a deposit into accounts owned by others. Some banks require both spouses’ names on the account to deposit a tax refund from a joint return. Taxpayers should check with their bank for direct deposit rules.

Get a bank account
Taxpayers who don’t have a bank account can visit the FDIC website for information on banks that let them open an account online and how to choose the right account. Veterans can use the Veterans Benefits Banking Program for access to financial services at participating banks.

Mobile apps may be an option
Some mobile apps and prepaid debit cards allow for direct deposit of tax refunds. They must have routing and account numbers associated with them that can be entered on a tax return. Taxpayers should check with the mobile app provider or financial institution to confirm which numbers to use.

Taxpayers must have their routing and account numbers for direct deposit available when they are ready to file. The IRS can’t accept this information after a return is filed.

There is a limit of three direct deposit refunds made into a single financial account or prepaid debit card.

More information:
Publication 17, Your Federal Income Tax (for Individuals)

Share this tip on social media — #IRSTaxTip: The benefits of having a tax refund direct deposited. http://ow.ly/Eg3n50MChpE