“The lesson is that fighting a war, cutting taxes and funding a major new entitlement program all at the same time doesn’t work.”

“This is putting the American taxpayer on a collision course with higher taxes”

A good or bad thing? At the very least, the individual should always be planning ahead: business operations-wise, estate planning-wise, and investment-wise

* 100% of your cash, investments, and accounts receivable, plus
* the realizable value of your vehicles, real estate, and personal assets (minus allowances), plus
* your monthly disposable income over a period of 48 months or 60 months (depending on how you are going to make your offer payments).

Section 7203 of the Internal Revenue Code permits the IRS to charge you with the “willful failure to file a tax return.” The statute subjects you to a risk of being guilty of a misdemeanor and a $25,000 penalty ($100,000 in the case of a corporation), and imprisoned for not more than one year. If the failure to file is “willful” the charge is a “felony” and the imprisonment is up to five years.

YOU ELIMINATE THE RISK OF IMPRISONMENT IF YOU VOLUNTARILY FILE YOUR TAX RETURNS, and payment of your tax liability.

1. Offers will be accepted: The Service will accept an offer in compromise when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential. An offer in compromise is a legitimate alternative to declaring a case currently not collectible or to a protracted installment agreement. The goal is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the Government.

2. In cases where an offer in compromise appears to be a viable solution to a tax delinquency, the Service employee assigned the case will discuss the compromise alternative with the taxpayer and, when necessary, assist in preparing the required forms. The taxpayer will be responsible for initiating the first specific proposal for compromise.

3. The success of the compromise program will be assured only if taxpayers make adequate compromise proposals consistent with their ability to pay and the Service makes prompt and reasonable decisions. Taxpayers are expected to provide reasonable documentation to verify their ability to pay. The ultimate goal is a compromise which is in the best interest of both the taxpayer and the Service. Acceptance of an adequate offer will also result in creating for the taxpayer an expectation of and a fresh start toward compliance with all future filing and payment requirements.

WARNING: If the IRS perceives that an OIC is a delaying tactic and collection is in jeopardy, it may continue collection actions during the OIC procedure.

A Sumner man who earned $2.1 million from the U.S. Postal Service installing and maintaining mailboxes was sentenced last week in U.S. District Court in Tacoma to a year in jail for not paying taxes on that income.

Guy V. Flake had contracted with the Postal Service from 1998 through 2000.

Federal prosecutors said that they conservatively estimated that Flake underpaid $154,433 in taxes.

Prosecutors accused him of grossly underreporting the amount of money he received from the Postal Service when he filed his taxes with the IRS. He apparently failed to file taxes at all in 1998 and was late in 1999.

The extra cash Flake kept allowed him to pay for a “comfortable lifestyle,” including the purchase of homes in Tennessee and Utah, as well as a house in Lake Tapps, said Assistant U.S. Attorney Janet Freeman, who investigated and prosecuted the case.

Flake pleaded guilty to income tax evasion in September, according to court records. He was indicted in May.

At Flake’s sentencing Friday, U.S. District Judge Franklin Burgess also ordered the man to immediately cut a check for his back taxes.

Average dollar amount of an OIC accepted: $12,725

2. On the payment application form, the IRS asks how you are going to pay the amount if the amount is accepted. They’re getting at whether you either have hidden funds or that you have a third source. Offers to be paid by a non-liable party, such as Mom, Brother, Sister-in-law, often receive more favorable treatment. The IRS does this because they’re getting access to funds not otherwise available.

3. Never never offer zero. It’s a plain negotiating tactic. Even if your tax professional finds that the total amount due is legally in doubt (doubt as to liability), if any offer is submitted offering “zero” dollars, the offer will not even be processed. Sounds crazy? It’s always the better course of action to offer some amount, even if it is believed nothing should be paid.

4. This is a big one: don’t lie about assets. Tell your tax professional the truth about all assets. A lie detected will nullify the agreement and could, in extreme cases, lead to criminal prosecution.

5. This is also a big one after the IRS has accepted your offer: all tax returns and payments have to be processed timely for the next five years or the offer, if accepted, is subsequently revoked, and you’re left paying the original amount.

6. This last tip goes with previous one: always make your scheduled payment. Once in a payment agreement accepted by the IRS, errant taxpayers frequently default (miss a payment) and often end up with forced collection efforts, levies and the like. The agreement is null and void and you’re back at square one, or in most cases, having to pay the original tax liability amount.