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Owe Back Taxes To IRS?

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By GARY PINNELL Highlands Today

The Tampa Tribune

Published: January 12, 2009

The Internal Revenue Service kicked off the 2009 tax filing season by announcing steps to help financially distressed taxpayers. And yes, they're literally giving away money.
IRS Commissioner Doug Shulman is encouraging taxpayers to take advantage of new tax credits and deductions this filing season, and announced an enhanced Free File program that will allow taxpayers to accelerate their refunds.

"With so many people facing financial difficulties, we want taxpayers to get all the tax credits they're entitled to as quickly as they can," Shulman said. "In addition, we are creating new protections to help people trying to meet their tax obligations. The IRS will do everything it can to help."

Tough Times
IRS employees may be able to adjust payments for back taxes, to avoid defaulting on payment agreements, or defer collection action.

Contact the phone numbers listed on IRS correspondence. There could be additional help available for these taxpayers facing unusual hardship situations.

The IRS can:

••Suspend collection actions in cases when the taxpayer has recently lost a job, is relying solely on Social Security or welfare income, or is facing devastating illness or significant medical bills.

••Allow a skipped payment or a reduced monthly payment amount without automatically suspending the installment agreement.

•Settle the taxpayer's tax debt for less than the full amount owed.However, theequity taxpayers have inrealproperty can be a barrier. Real-estate valuations used to assess ability to pay may be falling, so the IRS is creating a second review of theinformation.

•Speed the delivery of levy releases by easing requirements on taxpayers.Be prepared toprovide the IRS with the fax number of the bank or employer processing the levy.

New Debt

Taxpayers who can't pay when they file 2008 tax returns also have options available. IRS.gov has a list of "What If?" scenarios that deal with payment and other financial problems. A question-and-answer format provides information on specific actions taxpayers can take.

Free Money

•The unique First-Time Homebuyer Credit of up to $7,500 works like a 15-year interest-free loan. IRS.gov has more details.

"It really is like a free loan," said Will Bennett, with Management Experts in Avon Park. It works like this: buy a house, and take $7,500 off your taxes. Then, over the next 15 years, pay back that $7,500.

"They're trying to spur first-time homebuyers," Bennett said.

•A taxpayer may qualify for a Recovery Rebate Credit if he did not get an Economic Stimulus Payment, had a child in 2008, or had a change in income level. See the Form 1040 Instructions, Fact Sheet 2009-3 or the information center on IRS.gov for details.

Here's the deal, said Bennett: If you had a child in 2008 and didn't get that $300 check, file a tax return this year, and you'll get a check.

•Taxpayers can claim an additional standard Real Estate Tax deduction, based on the state or local real estate taxes paid in 2008. The maximum deduction is $500, or $1,000 for joint filers.

This deduction, said Bennett, increases the cap on the standard IRS property tax deduction.

•Eligible homeowners can exclude debt forgiven on their principal residence if the balance of the loan was less than $2 million. The Mortgage Workouts and Foreclosures limit is $1 million for a married person filing a separate return. See Form 982 and its instructions for details.

Did your bank forgive debt on a home or a credit card?

"They're trying to help out, and then the IRS comes back and kicks them in the head," Bennett said. "They consider it forgiven income, and you have the pay the difference."

That's right. If your home, with a $200,000 loan, sells for $150,000, and the bank forgives $50,000 on the loan, then the IRS has considered that $50,000 to be income, and the taxes owed - if you're in a 20 percent tax bracket - are $10,000.

But this year, the IRS is forgiving the $10,000, Bennett said.

However, Bennett cautioned, if you're involved in a complex real estate deal, consult a tax professional.

E-File, E-Pay, Direct Deposit

The IRS in 2009 is again offering free tax preparation and filing through the Free File program. Anyone with an adjusted gross income up to $56,000 can use the standard Free File options this year - that is approximately 98 million Americans. The program also has usability improvements, including a standardized set of electronic forms that are most frequently used by Free File-eligible taxpayers.

This year the IRS and its partners are offering a new option, Free File Fillable Tax Forms, that opens up Free File to virtually everyone, even those whose incomes exceed $56,000.

Free File Fillable Tax Forms allows taxpayers to fill out and file their tax forms electronically, just as they would on paper. This option does not include an "interview" process like the other Free File offerings, but it does allow taxpayers to enter their tax data, perform basic math calculations, sign electronically, print their returns for recordkeeping and e-file their returns.

It may be just right for those who are comfortable with the tax law or those who use electronic software to prepare their returns but file using paper forms.

1040 Central

On the IRS.gov homepage, taxpayers can click on 1040 Central for help preparing and filing tax returns. Like last year, this popular section of IRS.gov has a wide range of offerings that address taxpayer needs.

Finally, the IRS is producing podcasts on IRS.gov. In addition to Tax Tips, Fact Sheets and News Releases, these short audio interviews cover a wide range of topics.

Highlands Today senior reporter Gary Pinnell can be reached at gpinnell@highlandstoday.com or 863-386-5828

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