The Dreaded IRS "AMT"

This blog is primarily about resolving back IRS tax issues, but I've had a few questions about the mysterious AMT (Alternative Minimum Tax) so I thought I'd give you a "101" on it.

Actually, I'm going to let someone else give you the 101. The following is an excerpt from an article by Kaye A. Thomas of Fairmark.com. You can read the entire article here.

A brief overview of the alternative minimum tax (AMT).

The alternative minimum tax (or AMT) is an extra tax some people have to pay on top of the regular income tax. The original idea behind this tax was to prevent people with very high incomes from using special tax benefits to pay little or no tax. The AMT has increased its reach, however, and now applies to some people who don't have very high income or who don't claim lots of special tax benefits. Proposals to repeal or reform the AMT have languished in Congress for years, but effective action does not appear to be on the horizon. Until Congress acts, almost anyone is a potential target for this tax.

The name comes from the way the tax works. The AMT provides an alternative set of rules for calculating your income tax. In theory these rules determine minimum amount of tax that someone with your income should be required to pay. If you're already paying at least that much because of the "regular" income tax, you don't have to pay AMT. But if your regular tax falls below this minimum, you have to make up the difference by paying alternative minimum tax.

Should You Try and Settle With the IRS If You're Unemployed?

Alright, I'm giving you a 2fer today since I've been gone so long.

Lois M. of Lovonia, MI asked me a great question: "I just lost my job. Wouldn't this be the perfect time to file an Offer in Compromise with the IRS since my income is $0?"

I love this question because at first blush you'd think Lois was right. I mean, after all, Offers in Compromise are usually based on your ability to prove a Doubt as to Collectibility with the IRS settlement unit. And that Doubt as to Collectibility is based on what you're making in monthly income right now. So it stands to reason, if you're making $0 per month now, won't the IRS settle for $0?

Well, the IRS never settles for $0, but let's put that off to the side for right now. Bottom line is the IRS is on to this line of argument, and the Doubt as to Collectibility that one is to prove is actually a doubt that the IRS will be able to collect the entire debt over the next 4 to 5 years. In other words they are projecting your future monthly disposable income. Although mathematically $0 times 60 months (5 years) equals $0, if you're unemployed the IRS assumes that this is a temporary set back and you will be employed again. Therefore they will either cancel your Offer or they will project future income based on what you were making in your old job.

Well that won't work! Heck, you're not even making that anymore!

My recommendation is to call the IRS ACS Unit at 1-800-829-1040 (or your local Revenue Officer if one is assigned to you) and try to work out a temporary non-collectible status known as a Currently Not Collectible status ("CNC"). This will allow you to pay $0 to the IRS for the next six to 12 months. It will give you a cash flow reprieve until you get a new job and you can figure out if an Offer in Compromise is right for you.

Good luck and take care.

What's an IRS Collection Due Process Hearing?

Eric Chandler from Los Angeles wrote me asking what he could do to fight an IRS assessment that he believed he didn't owe. Eric received a Notice of Federal Tax Lien ("FTL") recently claiming he owed $29,000. However, he claims the assessment was adjusted over a year ago to only $3,000.

Should Eric have to live with a $29k tax lien on his credit report if he only owes $3k? NO!

So how does he fight it? My first recommendation would be to file for a Collection Due Process Hearing (a "CDPH"). You only have 30 days to file for this so make sure you get it in on time. The CDPH allows you a forum with the IRS to present evidence as to why you believe the IRS's actions are incorrect.

Eric should request the CDPH as soon as possible and be prepared to present his arguments that the lien for $29,000 should be removed. Of course, Eric, you should also expect the IRS to re-file a new tax lien for the $3,000. The only way to get out of that is pay the $3,000 debt off, or reduce it with some of the other methods I've discussed.

Good luck and take care.

Sorry for the absence

First of all. . . my apologies. I have been away from this blog for far too long. I had some personal and professional commitments that put a lot of things in my life on hold. . . including this great blog.

So I'm back! And I'm here to start answering your questions and helping you out with your IRS problems. So ask away!