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Monthly Archives: February 2019

Individuals Who Need Their Passports for Imminent Travel Should Promptly Resolve Their IRS Tax Debts

The Internal Revenue Service on February 27, 2019 reiterated its warning thattaxpayers may not be able to renew a current passport or obtain a new passport if they owe federal taxes. To avoid delays in travel plans, taxpayers need to take prompt action to resolve their tax issues.

In January of last year, the IRS began implementing new procedures affecting individuals with “seriously delinquent tax debts.” These new procedures implement provisions of the Fixing America’s Surface Transportation (FAST) Act. The law requires the IRS to notify the State Department of taxpayers the IRS has certified as owing a seriously delinquent tax debt, which is $52,000 or more. The law also requires State to deny their passport application or renewal. If a taxpayer currently has a valid passport, the State Department may revoke the passport or limit ability to travel outside the United States.

When the IRS certifies a taxpayer to the State Department as owing a seriously delinquent tax debt, they receive a Notice CP508C from the IRS. The notice explains what steps a taxpayer needs to take to resolve the debt.

When a taxpayer no longer has a seriously delinquent tax debt, because they paid it in full or made another payment arrangement, the IRS will reverse the taxpayer’s certification within thirty days. State will then remove the certification from the taxpayer’s record, so their passport won’t be at risk under this program. The IRS can expedite the decertification notice to the State Department for a taxpayer who resolves their debt, has a pending passport application and has imminent travel plans or lives abroad with an urgent need for a passport.

If your Passport is Cancelled or Revoked, after you’re certified, you Must Resolve the Tax Debt by Paying the Debt in Full, making Alternative Payment Arrangements or Showing that the Certification is Erroneous.
The IRS will reverse your certification within 30 days of the date the tax debt is resolved and provide notification to the State Department as soon as practicable.

A taxpayer with a seriously delinquent tax debt is generally someone who owes the IRS more than $52,000 in back taxes, penalties and interest for which the IRS has filed a Notice of Federal Tax Lien and the period to challenge it has expired or the IRS has issued a levy.

Before denying a passport renewal or new passport application, the State Department will hold the taxpayer’s application for 90 days to allow them to:

  • Resolve any erroneous certification issues,
  • Make full payment of the tax debt, or
  • Enter a satisfactory payment arrangement with the IRS.

Ways to Resolve Tax Issues
There are several ways taxpayers can avoid having the IRS notify the State Department of their seriously delinquent tax debt. They include the following:

  • Paying the tax debt in full,
  • Paying the tax debt timely under an approved installment agreement,
  • Paying the tax debt timely under an accepted offer in compromise,
  • Paying the tax debt timely under the terms of a settlement agreement with the Department of Justice,
  • Having requested or have a pending collection due process appeal with a levy, or
  • Having collection suspended because a taxpayer has made an innocent spouse election or requested innocent spouse relief.

Relief programs for unpaid taxes

Frequently, taxpayers qualify for one of several relief programs including the following:

  • Payment agreement. Taxpayers can ask for a payment plan with the IRS by filing Form 9465. Taxpayers can download this form from IRS.gov and mail it along with a tax return, bill or notice. Some taxpayers can use the online payment agreement to set up a monthly payment agreement.
  • Offer in compromise. Some taxpayers may qualify for an offer in compromise, an agreement between a taxpayer and the IRS that settles the tax liability for less than the full amount owed. The IRS looks at the taxpayer’s income and assets to decide the taxpayer’s ability to pay. Taxpayers can use the Offer in Compromise Pre-Qualifier tool to help them decide whether they’re eligible for an offer in compromise.

Subject to change, the IRS also will not certify a taxpayer as owing a seriously delinquent tax debt or will reverse the certification for a taxpayer:

  • Who is in bankruptcy,
  • Who is deceased,
  • Who is identified by the IRS as a victim of tax-related identity theft,
  • Whose account the IRS has determined is currently not collectible due to hardship,
  • Who is located within a federally declared disaster area,
  • Who has a request pending with the IRS for an installment agreement,
  • Who has a pending offer in compromise with the IRS, or
  • Who has an IRS accepted adjustment that will satisfy the debt in full.

For taxpayers serving in a combat zone who owe a seriously delinquent tax debt, the IRS postpones notifying the State Department of the delinquency and the taxpayer’s passport is not subject to denial during the time of service in a combat zone.

If You Face This Problem, You Should Consult with Experienced Tax Attorneys
There Are Several Ways Taxpayers Can Avoid Having the IRS Request That the State Department Revoke Your Passport.
 Want To Keep Your US Passport?
Contact the Tax Lawyers at 
Marini & Associates, P.A.
for a FREE Tax Consultation Contact us at:
Toll Free at 888-8TaxAid (888)882-9243.

Read more at: Tax Times blog

IRS Payment Plans

For the 2019 filing season, the IRS projects that more taxpayers than ever will file and owe. Many will be able to pay – but a lot of them will need to make other arrangements because they can’t pay their full tax bills to the IRS.

When taxpayers can’t pay their tax bills, they have a number of options, including payment plans, to pay off their outstanding taxes and accrued penalties and interest. Of the 16 million taxpayers who owe back taxes, 97 percent of them qualify to use a payment plan that’s fairly easy to set up and would likely give them the best payment terms.
The IRS has three simplified payment plans:

  • Guaranteed Installment Agreements (GIA): 36-month payment terms for balances of $10,000 or less.
  • Streamlined Installment Agreements (SLIA): 72-month payment terms for balances of $50,000 or less.
  • Streamlined Processing for Balances Between $50,000-$100,000: 84-month payment terms for balances between $50,000 and $100,000.

Advantages of 36-, 72-, and 84-month agreements
These are the three most common IRS payment plans. They’re all easy to obtain from the IRS, because they:

  • Require minimal, if any, financial disclosure to the IRS;
  • Don’t require an IRS manager to approve the payment terms;
  • Don’t require taxpayers to liquidate assets to pay the IRS; and,
  • Can be set up in one phone call or interaction with the IRS.

The GIA (36 months) and SLIA (72 months) can be completed online using the Online Payment Agreement tool at IRS.gov. The GIA and SLIA are also attractive to taxpayers who don’t want a public record of their tax debt, because these agreements don’t require the IRS to file a public notice of federal tax lien. Taxpayers who owe between $25,000 and $50,000 must agree to pay by automated direct debit or payroll deductions to avoid a tax lien.

The “Streamlined Processing” 84-month payment plan works a little differently. The IRS started the 84-month plan as a pilot program in 2016 to make it easier for taxpayers who owe between $50,000 and $100,000 to get into a payment plan with the IRS. Taxpayers can avoid filing their financial information with the IRS if they agree to pay their tax bill by direct debit or payroll deductions. If they don’t agree to these automated payments, the IRS requires taxpayers to provide a Collection Information Statement (IRS Form 433-A or 433-F). Even with streamlined processing, the 84-month plan has one catch: The IRS will file a federal tax lien.

The pilot program for the 84-month plan is still in effect today. The IRS hasn’t completed its study on whether the 84-month plan is an effective collection option. One thing is clear about the program: It likely provides better payment terms and relieves burden for taxpayers.

The rules
GIAs are for taxpayers who owe the IRS $10,000 or less. As the name suggests, the payment plan is “guaranteed” if the taxpayer meets all conditions of the GIA:

  • It’s for individual income taxes only;
  • Total balances owed, including penalties and interest, must be $10,000 or less
  • The taxpayer must pay within 36 months;
  • All required tax returns have been filed; and,
  • The taxpayer has not entered into an installment agreement in the previous five years.

SLIAs can be used by individual taxpayers who meet these conditions:

  • It’s for income taxes and other assessments, including unpaid trust fund penalty assessments;
  • The total assessed balance is $50,000 or less (not including accruals of penalties and interest after the original assessment of tax, penalties, and interest);
  • The taxpayer must pay within 72 months; and,
  • All required tax returns have been filed.

Taxpayers can set a GIA or SLIA by:

  • Using the online payment agreement tool at IRS.gov;
  • Filing Form 9465 with the IRS; or,
  • Contacting the IRS by phone

Terms may be shorter for old tax debt
Taxpayers should be aware that they may not get the full length of time to pay their outstanding tax balances if their debt is old. For each of these simple payment plan options, the IRS will limit the terms if the collection statute of limitations (generally 10 years from the date that tax is assessed) is shorter than the prescribed payment terms.

For example, if a taxpayer’s collection statute expires in 24 months, any GIA, SLIA, or 84-month plan will be limited to 24 months. Taxpayers who can’t afford these payments may have to consider a payment plan based on their ability to pay.

Ability-to-pay installment agreements require taxpayers to file a Collection Information Statement and prove their average monthly income and necessary living expenses. In addition, the IRS often asks taxpayers to liquidate or borrow against their assets to pay their outstanding tax bill in ability-to-pay agreements.

Fees apply
There is a setup fee for all IRS installment agreements. The fees range from $225 for installment agreements set up by phone and paid by check, to $31 for agreements set up online and paid by automatic direct debit. Taxpayers who meet low-income thresholds can get the fee waived.

Tips for all three agreements
The GIA, SLIA, and 84-month payment plans are usually the best way to set up a payment plan with the IRS. They’re usually quick and easy to set up and likely provide taxpayers with better payment terms than most other options.

Taxpayers who can’t pay according to the GIA and SLIA terms face tax liens if they owe more than $10,000. Taxpayers also need to request the GIA or SLIA before the IRS files a tax lien. After the lien is filed, taxpayers must pay their full balance to get the lien released, or pay down the balance to $25,000 to start lien-withdrawal proceedings.

Here are a few other tips related to these simple agreements:
1. Avoid a tax lien – pay down the balance to get into a SLIA. Here’s the best plan for taxpayers who owe more than $50,000: Get an extension to pay of up to 120 days, get funds to pay the balance down to under $50,000, and obtain a SLIA. Doing so will avoid the filing of a tax lien.
2. For SLIA, it’s the “assessed” balance – not the total amount owed. The $50,000 SLIA threshold is based on the taxpayer’s assessed balance – not the total amount they owe. The assessed balance includes tax, assessed penalties and interest, and all other assessments for each tax year. It doesn’t include accrued penalties and interest after the original assessment. For example, if a taxpayer’s original assessment is under $50,000 for an older tax year, he may accrue additional penalties and interest that puts the total balance over $50,000. In this situation, they would still qualify for a SLIA based on the original assessed balance. Taxpayers can also designate payments to reduce their “assessed balance only” to help them qualify for a SLIA.
3. Apply and pay automatically to reduce fees. The IRS increases installment agreement setup fees if taxpayers pay by check. Reduce the setup fee by agreeing to automatic direct debit payments. Automatic payments also avoid a monthly reminder letter from the IRS about the payment due.
4. Pay by direct debit or payroll deduction to avoid default. IRS installment agreements have a high default rate. To avoid a default, taxpayers must make their monthly payments. The best way to avoid missing a payment is to have the payment automatically deducted from the taxpayer’s financial accounts.
5. Don’t owe again. The second most common cause of defaulted installment agreements is filing future tax returns with unpaid balances. Taxpayers need to change their withholding and/or make estimated tax payments to avoid owing taxes that they can’t pay in the future.
6. Taxpayers can miss one payment a year. Most IRS payment plans allow taxpayers to miss one payment per year and not default. It’s best for the taxpayer to notify the IRS in advance if they can’t make a payment.
7. If the taxpayer’s financial situation worsens, get an ability-to-pay plan. Taxpayers can always renegotiate their payment plans if their financial circumstances change. For example, if a taxpayer loses their job, they may not be able to pay the IRS. In these cases, the taxpayer can contact the IRS and provide documentation on their ability to pay. This may mean a lower payment or even payment deferral (called currently not collectible status). Be careful here: If the taxpayer owes more than $10,000 and can’t pay within 72 months, the IRS is likely to file a tax lien.
8. Remember to ask for penalty abatement at the end of the plan. One important action to take at the end of a payment plan is to request abatement of the failure to pay penalty. Taxpayers should consider using first-time abatement or reasonable cause abatement if they qualify.
Each year, more than 3 million taxpayers get into a payment plan with the IRS. With tax reform, we can expect that more taxpayers will need a payment plan in 2019. Taxpayers who owe less than $100,000 should first look at 36-, 72-, or 84-month payment plans with the IRS. Many will also benefit from the help of a qualified tax professional to find the best option.

Have a Tax Problem?   

Contact the Tax Lawyers at 

Marini & Associates, P.A. 
 for a FREE Tax Consultation Contact US at
or Toll Free at 888-8TaxAid (888 882-9243).



Read more at: Tax Times blog

CFC Partner's E&P is Increased by Domestic Partnership's Section 951 (a) Income Inclusions

The Tax Court has concluded that for the years at issue (2007 - 2010), the earnings and profits (E&P) of the upper tier controlled foreign corporation (CFC) partner of a domestic partnership had to be increased as a result of the partnership's Code Sec. 951(a) income inclusions. (Eaton Corporation and Subsidiaries, (2019) 152 TC No. 2).

KERRIGAN, Judge: The Internal Revenue Service (respondent) determined deficiencies in Federal income tax and penalties for the 2007-10 calendar taxable years (years in issue) of Eaton Corp. (Eaton or petitioner). This case is before the Court on the parties' cross-motions for partial summary judgment. Unless otherwise indicated, all section references are to the Internal Revenue Code (Code) in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

Generally speaking, a controlled foreign corporation (CFC) that is a partner in a domestic partnership must include in gross income its distributive share of that partnership's gross income, including income that the partnership included under section 951(a) with respect to any lower tier CFCs. According to respondent the upper tier CFC partners must also increase their earnings and profits (E&P) by such an amount. Adopting that approach, respondent contends that the correct amounts to be included in petitioner's gross income under sections 951 and 956 are $73,030,810 and $114,065,635 for tax years 2007 and 2008, respectively. 

Petitioner, by contrast, contends that a domestic partnership's section 951(a) inclusions do not affect the E&P of its upper tier CFC partners. The primary issue we must decide is whether the E&P of the upper tier CFC partners of Eaton Worldwide LLC (EW LLC), a domestic partnership, must be increased as a result of the partnership's section 951(a) income inclusions.

Court's conclusion. The majority Tax Court opinion held that the E&P of upper tier CFC partners of a domestic partnership, such as EW LLC, must be increased as a result of the partnership's Code Sec. 951(a) income inclusions. Each upper tier CFC partner is required to include in gross income, and make a correlative increase to its E&P to reflect, its distributive share of EW LLC's partnership income, including EW LLC's Code Sec. 951(a) inclusions with respect to the lower tier CFCs.

Have an International Tax Problem?   

Contact the Tax Lawyers at 

Marini & Associates, P.A. 
 for a FREE Tax Consultation Contact US at
or Toll Free at 888-8TaxAid (888 882-9243).

Read more at: Tax Times blog

US S.C. To Decide Whether States Can Tax Out-of-State & Foreign Trusts

More than $120 billion of our nation's income flows through trusts, and the Supreme Court will hear a case that may clarify how much states are able to tax.

According to Ostrow Reisin Berk & Abrams (via Mondaq) in April, the Supreme Court of the United States will hear an appeal against North Carolina's practice of taxing the undistributed income of an out-of-state trust that has a beneficiary living in the state. North Carolina is one of 11 states that consider trusts taxable when they hold income for a person who is using the state's services, but US courts have reached different results about whether due process prohibits these taxes.
The outcome of NC Department of Revenue vThe Kimberley Rice Kaestner1992 Family Trust will determine whether individuals are able to avoid state taxes by placing assets with trustees in states with no income tax liability.

This may also impact Foreign – Non-US trusts, who have US beneficiaries, living in states which tax the income from Out-of-State Trusts.

North Carolina has argued that the trust is holding income for the beneficiary who is living in and using its' services. The principal of Federalism, states have power to raise revenues which are essential to the existence of government, is at the core of their argument.

The Due Process Clause

While nearly every state taxes trust income, North Carolina is among 11 states that collect tax on the undistributed income of a trust that is for the benefit of a state resident. A New York trust challenged this law and the state court concluded that the law violated the trust's due process. Over the years, courts have reached different results about whether due process prohibits these taxes. Five states have concluded that the Due Process Clause forbids states from taxing trusts based on trust beneficiaries' in-state residency, while four states have concluded the opposite. The petition to the Supreme Court states that this Due Process Clause should not have different meanings in different states.

Minnesota has also filed a petition to the Supreme Court asking for a review of a Minnesota resident trust that was administered by an out-of-state trustee. Their courts upheld the decision that the Due Process Clause prohibited Minnesota from taxing this resident trust. Their petition argues that because of the differing state court interpretations of Due Process, individuals are able to avoid state taxes by placing assets with trustees in states with no income tax liability.

Other Similar Cases

These cases have many similarities to the recently decided Wayfair case involving state tax assessment. Since a trust is a legal abstraction, representing the relationship between a settlor, trustee and beneficiary, its physical location has been debated. Court decisions in the past have applied rigid formulistic rules that the trust and its' beneficiaries are legally separate. In the North Carolina case, the State Supreme Court relied on an old case regarding third parties which they applied to the trust, ruling the trust was not liable for income taxes for the beneficiary as a "third party."

Just as the Wayfair decision updated the Commerce Clause to reflect today's environment regarding sales tax, the petitioners hope that the Supreme Court will modernize current trust taxation.  Wayfair retired old formulas of physical presence to a more flexible minimum connection. This approach is consistent with an existing due process decision from Quill, which requires only "some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax".

Trusts are created for the beneficiary, and the relationship between the trustee and beneficiary is long-term and enduring. If the case for their connection is created, it will have major implications for the taxation of trusts with multi-state beneficiaries.

Have a IRS Tax Problem? 
Contact the Tax Lawyers at 
Marini& Associates, P.A. 
for a FREE Tax HELP ... Contact Us at:

Toll Free at 888-8TaxAid (888) 882-9243



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