Category: Blog

Worried About The IRS? Know Your Bill of Rights

Worried About The IRS? Know Your Bill of Rights – Part 1

Most taxpayers in the US lack knowledge about the inner workings of the IRS, which results in a palpable fear of IRS audits and various doubts about the intentions of the taxman. This is the reason why there are many taxpayers who claim to have been harassed by the IRS. All these feelings of animosity and discomfort do not manifest, if taxpayers are cognizant of the fact that the IRS is an organization that works for the nation and its taxpayers, and will under no circumstance compromise the latter’s interests. In fact, until 2014, the IRS offered its version of the Bill of Rights highlighting the fundamental rights of every taxpayer and the obligations of the IRS to protect those rights.

In this 2-part series on the Bill of Rights of US Citizens, we discuss the rights that the IRS has rolled-out to protect the interest of all taxpayers.

1. Right to Be Informed

No matter the state you are in, you have the right to be informed about your taxation affairs and to know what you are supposed to do. You also have the right to clear explanations from the IRS about the laws and IRS procedures which should explicitly be there in all tax forms, publications, instructions, notices and correspondence. The IRS is also obliged to inform you of the decisions they take with respect to your tax accounts and you have the right to ask them for written explanations for any of their actions.

2. Right to Quality Service

The IRS is obliged to provide prompt, courteous and professional assistance to you as a taxpayer. The information it sends or has on its website must be clear and easy to digest. In case of any confusion or inadequate service, you have the right to speak to a supervisor.

3. Right to Pay No More than the Actual Tax Owed

You are not supposed to pay an amount more than what is legally due. The IRS also spares no effort to ensure that you are not asked to pay more than what you owe. If you suspect or discover that you have overpaid, you can file a claim for a refund. Similarly, you can file an offer in compromise, if you believe that you do not owe the full or part amount of the tax debt and ask the IRS to accept an amount you think is correct.

4. Right to Challenge the IRS’s Position and Be Heard

As a taxpayer you have the right to challenge the IRS if you think that there is a mathematical or clerical error on its part. You must raise your objection within 60 days of receiving any such incorrect information from the IRS. To help the IRS rectify the errors, you may send additional documents and if the IRS finds it to be correct, they will make the necessary adjustments and send you a modified notice.

5. Right to appeal IRS Decisions in an Independent Forum

Taxpayers have the right to appeal against most of the decisions of the IRS and that includes penalties as well. As a taxpayer, you may appeal to the Office of Appeals, an independent office that is separate from the office that reviewed your case the first time. The Office of Appeal is obliged to give you a written response regarding its decision about the appeal. If you taxpayer are not satisfied by their response then you may move to the court.

To Be Continued

These were five of the ten Bill of Rights that the IRS rolled out in the interests of taxpayers. For the remaining five rights, read the continuation in ‘Worried About The IRS? Know your Bill of Rights – Part 2’, the second of this 2-part series. In the meanwhile, if you have any questions regarding the Bill of Rights discussed in this post, feel free to get in touch with our expert tax lawyers at our Dallas based tax law firm and we will be more than happy to help.

IRS More Willing to Compromise Than Ever

IRS More Willing to Compromise Than Ever

In 2011, the IRS began to implement a series of policy changes known as the “Fresh Start” initiative.

What does that mean to the ordinary taxpayer? Basically, the intent of the initiative is to make it easier for taxpayers to pay back taxes, avoid IRS liens, and get tax relief through an installment agreement.

The threshold for filing a tax lien went from $5,000 to $10,000, except in certain cases. It’s also easier to remove a lien from your credit report once it has been released, (paid in full). In the past, a lien would stay on your credit report for up to seven years. As part of the Fresh Start Initiative, the IRS may now issue a “withdrawal” of a tax lien after it’s paid, which will remove it from your credit records. They are also a lot more willing to deal. An Offer In Compromise is when the IRS agrees to settle your tax obligation for less the actual amount owed. They look at your income and assets to make a determination of the “reasonable collection potential.” Depending on the circumstances, they can also issue full or partial penalty abatements. These “Deals” can be arbitrary and subject to the interpretation of the Agent you are dealing with. For best results, it’s always to your advantage to have professional representation during negotiations with the IRS. It can make a big difference in the outcome.

IRS Tax Return Audit

IRS Tax Return Audit: All You Need to Know

Taxpayers who fail to sub their taxes deter the country’s growth, marginalizing the inputs of a large number of fellow citizens who pay their taxes on time. The IRS therefore, must address and take actions on all cases of non-compliance. Among others, conducting a tax audit is one sure way of identifying defaulters; although it must be remembered that the selection of a tax return for examination does not necessarily imply that the taxpayer has defaulted or has been dishonest at the time of filing. More often than not, tax returns are randomly picked for audit and the purpose of selecting these returns is to check if the filings are accurate and in accordance with tax laws. In fact, in a lot of cases, an IRS audit may actually lead to a refund for the taxpayer.

How the IRS Selects Returns for Examination

The IRS uses a variety of methods to select returns for audit. Let’s take a look:

  • One of the ways the IRS selects tax returns for verification is by obtaining information about individuals or companies that promote or participant in tax avoidance transactions. One such example, is the information received from John Doe Summons to pursue investors in tax shelters, donors of real estate, account holders, and many others.
  • The IRS may also select returns based on the method of ‘Computer Scoring’. In this method, each return gets a numeric score. The IRS uses two types of scoring systems for this purpose, namely the Discriminant Function System (DIF) and the Unreported Income DIF system (UIDIF). These systems are used to calculate the ratings of taxpayers, based on the potential for change in income and for being unreported. Both the systems also consider the past filings by taxpayers. The IRS officials screen the returns that are rated the highest and select a few for the purpose of auditing and in-depth investigation of items that need to be reviewed.
  • Information mismatch is another criterion when selecting a return for tax audits. In certain cases, reports such as Form 1099 – the interest statement from the bank or Form W2 from the employer – may not match with the income reported on the taxpayer’s tax return. In such cases, the IRS selects the return for audit.
  • Large corporations have several transactions in a financial year, which is why the IRS examines many large corporate returns annually to verify that the same are accounted and filed accurately for tax related purposes.
  • Even in cases where the taxpayer’s return is related to an issue or transaction of another taxpayer, the IRS may select the related taxpayer’s return for the purpose of auditing both the returns. The taxpayers may be related in any manner, such as being business partners, investors, friends, or family, among others.

A Word of Advice

If your tax return has been selected for auditing this year, there is no need to panic. The IRS is sensitive towards the rights of its taxpayers and strives to make sure that they are protected, however, if you think that any of your rights are being violated, feel free to contact us and discover what makes us one of the most credible Dallas law firms specializing in taxation affairs.

Employee Shared Responsibility Provisions

Employee Shared Responsibility Provisions: An Overview

Employer shared responsibility provision, also known as “the pay or play provision” or “the employer mandate”, came into effect on 1st January, 2015. Under the provision, all Applicable Large Employers (employing 50 or more full time employees), also known as ALEs, are required to either pay their employer shared responsibility (ESR) dues to the IRS, or provide an essential coverage that is “affordable” and offers the “minimum value” applicable, to their full-time employees and their dependents.

Who is an Applicable Large Employer?

Employers are assessed and qualified as an ALE depending on the number of full time employees working for the employer during the previous year. If an employer has an average of 50 or more full time employees during any given year, they are considered as an ALE in the next. If, for instance, an employer has an average of 50 or more full time employees in 2015, will be regarded as an ALE in 2016.

Why Is It Important to Identify Full Time Employees?

Generally, any employee who, on an average, is employed for at least 30 hours of service in a week or 130 hours of service per month is considered as a full time employee. Reasons why it is important to determine full time employees include.

  • To find out whether your company is an ALE.
  • To identify employees eligible for minimum essential coverage and avoid employer shared responsibility payment to the IRS.
  • To determine the amount of employer shared responsibility payment liability that the company owes to the IRS.


Children under the age of 26 are the only qualified dependents for coverage. Kindly note that the child may be placed for adoption or legally adopted. Stepchildren, foster children or for that matter even spouse is not considered as a dependent.

When does an ALE make an ESR Payment?

ALEs are required to offer minimum essential coverage to at least 95 percent of their full time employees. It is important to remember that even if one of the full time employees receives Premium Tax Credit (PTC) through the marketplace for the purchasing coverage, the ALE would owe an ESR payment to the IRS.

A Few Last Words

Employers need to note that shared responsibility provisions in no way stops them from extending the minimum essential coverage beyond their full-time employees. If they want, they may extend the coverage to their part time and contractual employees, too. Should you have any questions regarding Employee Shared Responsibility provisions, feel free to contact our team of experts. We will be happy to assist.

Received 5591, 5591A or 5596 Letter from IRS? Here’s What to Do.

Received 5591, 5591A or 5596 Letter from IRS? Here’s What to Do.

Every year, the IRS sends a large number of reminders in the form of letters (numbered 5591, 5591A, or 5596) to taxpayers who received discounts on their health insurance premiums, but failed to file their tax return along with Form 8962. The purpose of this form is to reconcile the Advance Premium Tax Credit (APTC) with your Premium Tax Credit (PTC). This post is designed to help you understand what APTC and PTC are and why the IRS sends letters 5591, 5591A or 5596.

Premium Tax Credit (PTC)

A PTC is financial assistance given to taxpayers who enroll or whose family members enroll in a qualified health plan offered through the marketplace. They receive it either in the form of a rebate on the amount of tax owed or an increase in the refund amount of taxpayers, thereby reducing their overall tax burden. To get the benefit of PTC on your tax return, you need to file Form 8962.

Advance Payment Premium Tax Credit (APTC)

The advance payments made to a tax payers insurance pays for their individual and/or their family member’s premiums for that year are known as Advance Payment Tax Credit (APTC). These payments may pay the premium amount in part or in full.

Form 8962

If APTC was paid for a taxpayer or one of their family members, they are required to file Form 8962. The purpose of filing this form is to compare APTC paid with the PTC the taxpayer was eligible for, in the financial year. If the APTC is more than PTC, the taxpayer received more than they were eligible for. In some cases, taxpayers must repay the excess amount. If the PTC is more than APTC, the taxpayer received less than what they were eligible for and they can claim the leftover amount as a reduction in the amount of taxes they are supposed to pay, or as an increase in the refund amount that the IRS owes to the taxpayer for the financial year.

Form 1095-A

This form is needed to complete Form 8962. Health Insurance Marketplace provides this to individuals, to help them claim (PTC) or reconcile it with the advance payment tax credit (APTC) in order to file accurate tax returns.

A Word of Advice

It is essential for you to file Form 8962 to inform the IRS of any advance premium tax credit that you have received. This way the IRS is aware you received an advance credit and not give you further rebate on your taxes or any additional amount on your tax return. If you fail to do so, you may be taking more benefits from the IRS than what you are entitled to, and therefore, you will not be eligible for advance payments of the premium tax credit the following year. In addition, you may also be contacted by the IRS for repayment of advance payments of premium tax credits that you have already received.

Dealing with the IRS is complicated. Let us guide you through the maze. Meet with Nick for your FREE consultation 972-484-0829.

IRS Selects Returns for Examination

How Does the IRS Select Tax Returns for Audit?

Many of our clients feel as though they have an IRS target on their back.  Once the IRS has them in their sights they begin to attack and won’t let up.  Why do some taxpayers have to go through this year after year?  This post gives insight how the IRS selects individuals and companies for audit.

The IRS uses a variety of methods to select returns for review:

  • One of the ways the IRS selects tax returns for audit is by obtaining information about individuals or companies that promote or participate in tax avoidance transactions. One typical example of these transactions is when for-profit entities use tax-exempt entities such as charities to avoid paying tax.
  • The IRS may also selects returns based on a method called ‘Computer Scoring’. In this method, each return gets a numeric score. The two types of scoring systems are the Discriminant Function System (DIF) and the Unreported Income DIF system (UIDIF). They rate based on the potential for change in income and the potential for being unreported, respectively. Both systems rate based on experiences from past filings by taxpayers. IRS officials screen the returns that are rated the highest and select a few for the purpose of auditing and in-depth investigation of items that need to be reviewed.
  • Information mismatch is another criterion for selecting a return for tax audits. At times, reports such as Form 1099 – Interest statement from the bank or Form W2 from the employer, may not match with the income reported on the taxpayer’s tax return. In such cases, the IRS and flag the return for audit.
  • Large corporations are frequently targeted for audit to verify that accurate returns have been filed.
  • Even in cases where the taxpayer’s return may be related to an issue or transaction of another taxpayer, the IRS may select the related taxpayer’s return for the purpose of auditing both returns. The taxpayers may be related in any manner, such as being business partners, investors, friends, and family, among others.


If your tax return has been selected for audit, we can guide you through the process. We solve IRS problems.

Group Of Students Attending Graduation Ceremony

Education Credit: All You Need to Know

Education credit enables people to afford the increasing costs of higher education by reducing the amount of tax owed on their overall tax return. If you’re paying for higher education, the US government grants you aid in the form of an education credit that reduces your tax liability. In other words, the education credits that you receive are adjusted against the tax you owe to the IRS. The best part is that if the credit you receive reduces your tax liability to less than zero, you become eligible for a partial refund, provided you fulfill other requirements.

Types of Education credit

If you are planning for higher education, you become eligible for two types of education credits:

    1. American Opportunity Tax Credit (AOTC)

    2. Lifetime Learning Credit (LLC)

Let’s take a closer look at what they entail.

American Opportunity Tax Credit (AOTC)

During the first four years of higher education, qualified students can claim education credit of a maximum of $2500. Once the tax has been adjusted, 40 percent of the remaining education credit is refundable. For instance, if you had no tax liability, then the education credit remaining is $2500. The amount refundable is 40% of it, that is $1000. To claim the credit, your modified adjusted gross income (MAGI) should be less than $90,000 for individuals and $ 180,000 for married couples filing jointly.

Lifetime Learning Credit (LLC)

A qualified student enrolled in an eligible educational institute is entitled to receive a financial aid of $2000 per tax return. Students can use this aid to pay for their undergraduate, graduate or professional degree courses. An individual may claim the credit for any number of years provided they do not claim for any other benefit under the same heading as “education credit”, during those years. To claim the credit, the modified adjusted gross income (MAGI) of the applicant should be less than $64,000 for individuals and $ 128,000 for married couples filing jointly.

Eligibility Criteria

To be eligible for an education credit, you must meet the below mentioned criteria:

    1. Either you, your dependent or a third-party must pay the qualified education expenses (amounts paid for tuition, fees and other related expenses).

    2. A student eligible for education credit must enroll at an eligible educational institute (an educational institution qualified to participate in the U.S. Department of Education’s student aid program.

    3. The student eligible for exemption must be you, your spouse or any of your dependents listed on your tax return.

There are additional rules for education credit, however, the above three are common to both education credit types.

When Can You “Not” Claim?

You may not be eligible for an education credit claim under the following circumstances:

    1. If your name is listed under someone else’s tax return. For example, your parent’s.

    2. If your filing status is married filing separately.

    3. If you have already claimed a higher education benefit for the same expense.

    4. If you or your spouse chose to be treated as a non-resident alien instead of resident alien during any part of the year for tax purposes.

Form 1098-T

Form 1098-T, also known as “Tuition Statement”, is a tax form that eligible educational institutions file for the students they enroll and for whom a reportable transaction is made. The form shares important information such as the student’s name and social security number. It also gives information about the payments received for qualified tuition, the actual amount billed, scholarships or grants (if applicable) and more such relevant information.


The rules of claiming credits can be tricky and unless you have an in-depth understanding of them. It is advisable to seek expert advice to help you with the process of claiming education credits.

Tax Exemption on Home Sale Gains

Tax Exemption on Home Sale Gains: FAQs

Whether large or small, tax exemptions are a welcomed relief for taxpayers. Ironically, many people are either unable or unaware of the tax exemptions that may apply to them, and miss the chance to take advantage of these savings. In this blog post, we’ll answer some of the most commonly asked questions about one benefit in particular: home sale gains. Let’s look at the tax exemption gains driven by the sale of a house.

1. What are the requirements?

To be eligible for a partial or full tax exemption on the gains from the sale of your home, you must have lived in the property for a minimum of 2 years, with the total ownership of no less than 5 years. In addition, it is worth mentioning that the tax exemption is applicable only if the property sold is the seller’s main home.

2. Are there any exceptions?

The eligibility rules are slightly different for military personnel, people with a disability, and those who work with the Peace Corps or the US Government, as uniformed, intelligence personnel. For instance, if someone has a disability and are unable to care for themselves, they would need to stay in the property for 12 months to meet the residence requirements.

3. What is the maximum exclusion limit?

According to Section 121, (of what code?? )the maximum gain amount that can be exempted from tax payment is $250,000 for individual taxpayers and $500,000 for married couples filing jointly. Therefore, Net Investment Income Tax will not apply to the amount that is exempted as per the criterion mentioned. This section is confusing, can it be simplified or further explained?

4. When to report a sale?

If the gain from the sale of your home is not taxable, you may not have to report the sale on your tax return. If, however, you can’t exclude a part or all of the gain, it must be reported. Similarly, you must report the sale when you receive Form 1099-S (used to report the sale or exchange of a real estate asset).

5. What is the exclusion frequency limit?

Though exceptions may apply to this rule, in most cases, the gain from the sale of your main home may be excluded from tax returns only once every 2 years.

6. How many homes qualify for exemption?

Only the gains from the sale of your main house qualify for a tax exemption. If you own more than one residential property and use all of them, your main home would be considered the one in which you spend most of your time.

7. When to pay back credits and subsidies?

If you receive any federal mortgage subsidies or homebuyer credits, you are supposed to pay back some or part of the amount received in tax exemption. Reword this sentence? Doesn’t flow. To learn how much of the first-time homebuyer credits you are supposed to pay back or if your case falls under any exception, see Form 5405 (Repayment of the First-Time Homebuyer Credit). Fact checking this.

A Few Last Words

If you have recently changed your house or are planning to, do not forget to update your address with the IRS, once you have moved to the new address. To update your address, you need to fill Form 8822. The address where you need to send the form is mentioned on page 2 under form’s instructions.

Military Tax Tips FYI. Uncle Sam’s tax breaks for YOU!

While nothing can truly compensate for the dedication our military men and women give our country, there are a few tax benefits people in the US Armed Forces get from Uncle Sam as a way of saying ‘thank you’ for your service. Too often these benefits go unused because almost no one has less time to research tax benefits than military personnel, especially if they are not working with a tax professional knowledgeable in this area.

If you or a member of your family is part of the US Armed Forces, make sure your tax professional knows the cost saving benefits accorded to military personnel.  The Law Offices of Nick Nemeth, PLLC provides a high-level breakdown for you.

Extension in Tax Filing Deadlines

The deadline to file tax returns, filing claims for refund  and paying taxes is automatically extended for 180 days if:

  • You serve in the armed forces, in a declared war zone.
  • You serve in the armed forces for deployment outside the US away from your permanent duty station while participating in an emergency operation.
  • You serve in a war zone in support of armed forces such as accredited correspondents.

In addition, spouses of individuals who served in a war zone or offshore emergency operation also qualify for the provision.

Exclusion of Combat Pay

If you are a member of the US armed forces serving in a combat zone, your compensation includes non-taxable combat pay. It means you don’t need to include combat pay in the gross income on Form W-2 – a.k.a. Wage and Tax Statement. You can exclude combat pay if:

  • You serve in a war zone that the US President designates in an executive order.
  • You serve in a qualified dangerous duty area designated by congress while receiving enemy fire pay in agreement with 37 USC 10.
  • You serve in a region outside war zone and Department of Defense certifies that your service is in direct support of military operations in a war zone.

Utilization of Earned Income Tax Credit

Combat pay is non-taxable, and therefore, you don’t need to report it for Earned Income Tax Credit (EITC). You can view the amount of your non-taxable pay on your Form W-2, in box 12 with code Q. You and your spouse, however, may also opt for inclusion of combat pay in your gross income for EITC. It might reduce the amount of your tax burden or help you get a higher refund.

Deduction of Travel Expenses

If you are a member of the US Armed Forces, you can remove unreimbursed travel expenses if they happen during your travel away from home. The term “home”, in the current context, implies your permanent duty station, such as a base or ship. The expenses include transportation cost, laundry, and business phone calls, while you:

  • Travel from one place to another, 100 miles or more away from home.
  • Attend a work-related conference away from your permanent duty station.

Deduction Related to Uniform

All members of the US military must wear uniforms whenever they are on duty, but may also be required wear them during off hours,  you can typically deduct  expenses which were not reimbursed  for their cost and upkeep. These include:

  • Utility and military dress uniforms
  • Uniforms for reservists
  • Objects that can’t be replaced by regular clothing (Corps devices, swords, insignia of rank, etc.)

Deduction of Expenses Related to Education

Military personnel can remove unreimbursed cost of qualifying education that relates to their work, if it fulfills any of the two criteria defined by the IRS. These are:

  • If a certain law or employer mandates the education to sustain the current job or salary.
  • If the education sustains or develops skills required for existing work.

No Tax Payment on Profits from Sale of Home

Profits from the sale of the main residential property may be tax-free for the members of the US Armed Forces. In 2014, you could discount up to $250,000 of profit from the sale of a house; however, you can’t remove a loss from the sale of your main residence.

Nullification of Tax Liability

Tax obligation is forgiven, or if already paid, refunded, if a member of US Armed Forces dies:

  •    During active service in a war zone
  •    Due to any disease or wounds received while being posted in a war zone
  •    Due to wounds received during a terrorist attack

Limit on Interest Rates

Regardless of the amount of liabilities you accumulated  before joining the military, you can’t be charged more than 6 percent per year. This reduction in rate applies only if your service significantly upsets your capacity to pay. However, the reduced rate applies only during the period you are in active service.

Penalty-Free Retirement Plan Withdrawals

If you’re serving in the military reserves, you might be able to take early withdrawals from IRA and 401(k) accounts without having to bear any penalty. To qualify for this exemption, you must have been called to active duty after Sept. 11, 2001 for more than 179 days, and you must make the withdrawal while you are on full-time, active duty.

For more info, visit IRS Armed Forces’ Tax Guide (Publication 3) on

Tax Lawyer Nick Nemeth Offers Tips on Your Taxes If You Receive Social Security Benefits

Tax lawyer Nick Nemeth offers some great tips that can help you with your taxes if you receive social security benefits. If you are a recipient of social security benefits, a portion of these benefits may be taxable. According to attorney Nick Nemeth many people have questions about their Social Security benefits. This area of tax requirements can be confusing. The following tips from the IRS can help you evaluate whether you owe taxes on the benefits that you received during the year. These tips can also help you identify the best method to file the tax return.

• Any social security benefits received in 2014 should generate form SSA-1099. in the mail. This form is a Social Security Benefit statement that will be mailed. It will show the exact amount of benefits received during the year.
• If the only income that you have for the year is Social Security benefits, they may not be considered taxable. It may not be necessary to file a federal tax return for the year, if this is the case. Income from sources other than Social Security benefits may cause some of the to be taxable.
• The IRS offers a free interactive tool that can help you determine whether the benefits you receive from the SSA are taxable To utilize the Interactive Tax Assistant, visit the website. The tool is available within the site.
• Take advantage of IRS Free File in order to prepare your tax return. It’s best to electronically submit it to the IRS at no cost. Taxpayers who earned less than $60,000 in the year can use brand name software from recognized companies who have partnered with the IRS to deliver this service. The software performs calculations for you and typically walks you through the process step by step to avoid any mistakes. Taxpayers who earn more than $60,000 can file electronically for free by using the Free File Fillable Forms available. Electronic versions replace paper forms offered by the IRS. This option is available at and is typically best for those who have experience doing their own tax returns.
• One simple way to determine if taxes are owed on Social Security benefits received. Is to Calculate 50% of the benefits received during the year. Add this amount to all the other income. Make sure to include any tax-exempt interest received in the total. Compare this amount to the base amount the IRS gives for your filing status. If the total of all other income plus 50% of your annual SSA benefit is more than the base amount allowed for your filing status, you could owe tax on some of the Social Security benefits.
• In order to determine whether any of your Social Security benefits are taxable you will need to know the base amounts for the different filing statuses.
• If you file married filing separately and you resided with your spouse at any point during the year in question, your base amount is $0.
• If your filing status is married filing jointly, your base amount is $32,000.
• If you file as single, married filing separately and did not live with your spouse at all during the year, qualifying widow or widower with a dependent child, or head of household your base amount is $25,000.