What to do if you can’t pay the taxes?

I know the story: things are tight financially, so you either (1) do not file the tax return, or (2) file the return but don’t pay the balance due.  But do not worry, you tell yourself, next year will be better.  Now it is 2-3 years later and a letter arrives from the IRS, and the threats start, and maybe it has even gotten to the point of actual levy and seizure activity.  Now the IRS is wreaking havoc on your financial life and you simply do not know what to do. 

photo of man leaning on wooden table
Photo by Andrew Neel on Pexels.com

I know.  I have helped many clients through that exact scenario.  Fear not, there is a light at the end of the tunnel.

As it turns out the IRS is usually only too happy to work with taxpayers, but there are some ground rules you need to be aware of and a roadmap to follow.

1. Tax Compliance

The first step in resolving your tax issue is to get into “tax Compliance.”  Compliance means that you have filed all tax returns due for the last 6 years and have made your current tax payments.  Once you are in tax compliance we can now work on resolving the back-tax issue.

2. Collection Alternatives

There are three main collection alternatives to resolve a back-tax debt: Installment Agreement, Uncollectable Status and Offer-in-Compromise.

Installment Agreement

An installment agreement is an agreement to pay the taxes back over time.  There are three variations of the installment agreement: Regular, Streamlined, and Partial-Pay.  Which type of agreement works best for you will depend upon your personal circumstances and is something we can help you address when you are ready.

Uncollectable Status

Uncollectable status is when the IRS determines that you are unable to make current tax payments.  When a taxpayer is deemed uncollectable the IRS may still file a Notice of Federal Tax Lien to secure its position in the taxpayer’s assets but will not otherwise take enforcement action to seize (or levy) the taxpayer’s assets or income streams.

Offer-in-Compromise

An Offer-in-Compromise is an agreement where the IRS agrees to accept less than the total amount owed to it and the taxpayer agrees to pay the amount negotiated, as well as maintain his or her tax compliance for 5 years following the acceptance of the Offer-in-Compromise (“Offer”).

The basis for an Offer is a formula referred to as “Reasonable Collection Potential” or “RCP.”  RCP is effectively the net equity in assets plus the taxpayer’s excess future income for 12 or 24 months, depending upon how the Offer is structured.  There can be significant planning done to help a taxpayer maximize the potential for the Offer’s acceptance.

If you or someone you know has an issue with paying their federal taxes and needs help to end their IRS nightmare, please contact Camphuis Law Office by either phone at 909-493-6830 or email at office@camphuislaw.com. Matthew W. Camphuis, Esq. is a tax attorney located in Southern California. He serves taxpayers in need in Orange County, San Bernardino County, and Riverside County. Matthew has experience negotiating and litigating with the IRS and the California Franchise Tax Board and can help you get the representation you deserve.

student writing in papers with homework task

How do I be prepared in case my business gets audited by the IRS… and what to do after.

Are you self employed or do side work gigs as an independent contractor?


Here are some ways to be prepared before hand in case you later get audited.

✔️Have a separate checking account where you deposit income from your business and make business expenses out of. Don’t mix your personal income and your business income in this separate account.
✔️Keep good business records. Software like Quickbooks or Xero can make this easier. As a business owner, even if it’s just a side gig, you need to have a profit and loss statement at the end of the year showing all your business income and business expenses. You will get taxed on your net income, so keeping track of your ordinary business expenses is very important.
✔️Keep your receipts, especially for large purchases. An easy way to do this is always get your receipts emailed to an email dedicated for business purposes or have a special email inbox just for receipts.
✔️ Make sure you are making estimated tax payments on your net income each quarter. If you don’t know what this is it’s time to learn!
✔️ Have a written business plan and update it as your business changes.
✔️Have a professional prepare your returns and ask them about any expenses you want to claim as a business expense but aren’t sure about.


If you do get audited it is generally a good idea to seek out a professional with experience defending audits.

An IRS audit generally starts with an Information Document Request (IDR) letter. The examiner (auditor) requests specific documents and responses from the taxpayer and gives the taxpayer a deadline to respond by. There are different types of audits. If its a correspondence audit it will only be conducted by mail correspondence. If its an office or field audit there will be a specific revenue agent or examination office assigned to audit the taxpayer. The IRS examiner will also want to interview the taxpayer.

It is a tax payer’s right to be represented and generally it is not a good idea for a taxpayer to represent themselves during the interview or in responding to the IDR.

If you disagree with the findings of the audit you can request to speak with a manager. You also have the option of appealing the audit or requesting a reconsideration so long as the statute of limitations for doing so has not passed.

About the author: Matthew W. Camphuis is an attorney licensed by the California State Bar and the Central District Court. He focuses on IRS tax debt controversy, IRS tax audit defense, California State Tax Controversy, chapter 7 bankruptcy, and wills and trusts. His office is located in Ontario, California and he serves the Inland Empire and High Desert communities in Southern California.

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Why fix your IRS tax debt?

Why come to a resolution regarding your tax debt?

There are more than 14 million people in collection status with the IRS as of 2017. This number has only grown. As a response to the 2020 pandemic the IRS suspended a majority of collection activity for a time. But that time has now passed. The IRS is back to taking collection actions as of July 15, 2020. It is true that, from my experience, the culture of the IRS has shifted somewhat from being extremely aggressive with taxpayers to being (or trying to be) more friendly towards taxpayers. However, at the end of the day their goal is to raise revenue for the Federal government and they have some very powerful tools to do so. To learn more about the IRS collection process click here.

The IRS (in conjunction with the State Department) can, under the FAST act, suspend your passport or deny the issuance of your passport if you owe more than $50,000. Some States, such as California, can suspend your driver’s license. When California suspends your driver’s license due to a tax debt it is a lot of work to get it undone.

Some of your options to keep your passport from being suspended / revoked / denied include getting compliant with back taxes filings and paying the tax through an installment agreement or an offer in compromise. It’s possible, according to IRS policy (but not law) that getting into currently non-collectable status may help you get your passport issue fixed. However, currently non-collectable status isn’t technically one of the options under the FAST act.

The IRS can take much more aggressive steps than simply suspending or denying your passport. The IRS can levy your wages or property (including taking and selling your home).

With the advance of technology the IRS knows more about taxpayers than ever before. It’s possible that there are so many more cases in collections because technology keeps improving. If you think you can hide instead of fixing your problem you are most likely wrong. Further, resolving your IRS debt can bring you a sense of peace rather than the distress of knowing the IRS has set its collection sights on you.

If you have a tax debt with the IRS and need help contact Camphuis Law. Attorney Matthew Camphuis has experience negotiating with the IRS and cares about his clients. Contact Camphuis Law to see if Camphuis Law can help you get compliant and come to a reasonable resolution option.

About the author: Matthew W. Camphuis is an attorney licensed by the California State Bar and the Central District Court. He focuses on IRS tax debt controversy, IRS tax audit defense, California State Tax Controversy, chapter 7 bankruptcy, and wills and trusts. His office is located in Ontario, California and he serves the Inland Empire and High Desert communities in Southern California.

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How do I file for bankruptcy?

A bankruptcy case can be filed without an attorney. However, the United States Courts strongly recommend seeking the advice of a qualified attorney because bankruptcy has long term financial and legal consequences.

There are two main types of bankruptcy. Chapter 7 and Chapter 13. Chapter 7 is called a liquidation bankruptcy; it is the sale of a debtor’s nonexempt property and the distribution of the proceeds to creditors. Chapter 7 is more common. Chapter 13 provides for adjustment of debts of an individual with regular income. Chapter 13 allows a debtor to keep property and pay debts over time, usually three to five years.

Before filing you should familiarize yourself with the United States Bankruptcy Code and the Federal Rules of Bankruptcy. There are also important state rules that come into effect for the state you are filing and local rules of court where the case is filed. For example, if you file bankruptcy in California you should familiarize yourself with California’s bankruptcy exemptions.

Bankruptcy is generally form based. Bankruptcy forms are free to the public. Many courts require the use of local forms. An important first concept of bankruptcy is where to file the case. Bankruptcy cases cannot be filed in state courts; federal courts have exclusive jurisdiction over bankruptcy. Next, it is important to determine the appropriate venue — or the correct federal court location to file in. Generally, most bankruptcy cases start with the debtor filing a petition with the proper bankruptcy court venue. The debtor must also file statements listing assets, income, liabilities, and the names and addresses of all creditors and how much they are owed. Filing the petition automatically prevents debt collection actions against the debtor and the debtor’s property for a time. So long as the stay remains in effect, creditors cannot bring or continue lawsuits, make wage garnishments, or even make telephone calls demanding payment. If creditors violate this automatic stay there can be serious repercussions for the creditor.

There are some file preparation services that exist to assist persons who file bankruptcy on their own. However, debtors should be aware that these services can only enter information into forms. They cannot provide legal advice or help explain answers to any legal questions you have about bankruptcy. A licensed bankruptcy attorney, on the other hand, can give you legal advice and represent you in bankruptcy court.

About the author: Matthew W. Camphuis is an attorney licensed by the California State Bar and the Central District Court. He focuses on IRS tax debt controversy, IRS tax audit defense, California State Tax Controversy, chapter 7 bankruptcy, and wills and trusts. His office is located in Ontario, California and he serves the Inland Empire and High Desert communities in Southern California.

This post is intended to convey general information and should not be considered legal advice.

How a Power of Attorney Can Help You Prepare for the Worst

Everyone with a complete estate plan should have a power of attorney for financial matters in case you become unable to make decisions for yourself or are unable to communicate in any way.

A power of attorney is a legal document that gives the “attorney in fact” (AKA the agent) the power to act on behalf of the “principal.” In other words, in the context of estate planning, it’s a document that says someone else can make decisions for you regarding your financial affairs.

The main purpose of the power of attorney is to ensure that a trusted nominee is ready to act if needed and thereby to avoid the expense and potential conflict of a conservatorship proceeding in the event of incapacity and the unavailability of suitable alternatives.

California Estate Planning (Cal. CEB 2019) §28.1

For estate planning it is wise to name a trusted person as your attorney in fact to handle your financial affairs in case you become incapacitated. By incapacitated we mean unable to make any decisions, or unable to communicate in any way.

Capacity: a person lacks the capacity to make a decision unless the person has the ability to communicate verbally, or by any other means, the decision, and to understand and appreciate (Prob C §812):

California Estate Planning (Cal. CEB 2019) §28.2

You should chose someone you trust to be your attorney in fact since they can essentially step into your shoes and make decisions which affect your financial affairs. You don’t have to give them unlimited power though. You can limit their power by the language in the document.

Also, by the way, don’t let the phrase “power of attorney” confuse you. It doesn’t mean you make them your “attorney at law” who can legally represent you before a tribunal. Rather, an “attorney in fact” can manage financial affairs on your behalf. This terminology comes from agency law where an agent acts on behalf of the principal. It is kind of like an employee acting on behalf of an employer.

A power of attorney is general unless it is specifically limited in the instrument creating it. Prob C §4261. A general power of attorney gives the agent authority to transact any and all business for the principal and to manage the principal’s property. There are, however, limits to the authority that can be delegated by general language.

California Estate Planning (Cal. CEB 2019) §28.6

There is more to be said about powers of attorney. But I think you get the idea. They can be a great tool, but remember with great power comes great responsibility.

About the author: Matthew W. Camphuis is an attorney licensed by the California State Bar and the Central District Court. He focuses on IRS tax debt controversy, IRS tax audit defense, California State Tax Controversy, chapter 7 bankruptcy, estate planning and wills and trusts. His office is located in Ontario, California and he serves the Inland Empire and High Desert communities in Southern California.

What is a Last Will and Testament?

A will is a legal expression of your intent in how you would like your property to be distributed to others after you die. It is a document in which you state who should inherit your property, how taxes and debts are to be paid, and who should be the legal guardian for your minor children should you need one.

Will (n): The legal expression of an individual’s wishes about the disposition of his or her property after death; esp., a document by which a person directs his or her estate to be distributed upon death.

Black’s Law Dictionary (11th ed. 2019).

There are different types of wills. Generally, a will is a written expression of the testator’s intent in how to distribute her property on death, has a testator, names beneficiaries and is witnessed. Once a person dies a probate court will use the will to distribute the deceased’s estate.

Testator: Someone who has made a will; esp., a person who dies leaving a will.

Black’s Law Dictionary (11th ed. 2019).

A last will and testament is the most recent will of a deceased person, which ultimately decides how the testor’s (the person who made the will) property is to be disbursed to his beneficiaries (the persons or entities who will take the testator’s property as directed by the will).

Beneficiary:  Someone designated to receive money or property from a person who has died.

Black’s Law Dictionary (11th ed. 2019).

Probably the most used will by estate planning attorneys is the “pour-over will.” This is “a will that ‘pours over‘ property into a trust when the will maker dies. A pour-over will is intended to guarantee that any assets which somehow were not included in the trust become assets of the trust upon the party’s death. Property left through the will must go through probate before it goes into the trust.”

When creating a living trust it is a good idea to make a pour over will at the same time to catch any assets that were left out of the trust and instruct that those assets become part of the trust upon the testator’s death. This ensures that property left in the will is distributed according to the terms of the complimentary living trust.

The most obvious benefit of having a will is that it leaves instructions for the probate court in what is the testator’s intent in how property is to be distributed. Without a will a person’s property will be administered according to the default rules of intestacy. A will makes the process smoother and more clearly honors the specific intent of the testator.

About the author: Matthew W. Camphuis is an attorney licensed by the California State Bar and the Central District Court. He focuses on IRS tax debt controversy, IRS tax audit defense, California State Tax Controversy, chapter 7 bankruptcy, estate planning and wills and trusts. His office is located in Ontario, California and he serves the Inland Empire and High Desert communities in Southern California.

What is a living trust?

Many people start thinking about estate planning by looking to make a will. After all, we have all seen in movies and tv that the first thing you do to plan for your untimely demise is to make a will.

A will can be a great tool. But for most people a living trust coupled with a “pour over” will is a better solution.

But what is a living trust?

Commonly, a living trust (AKA “inter vivos trust”) is a legal agreement that states property is to be held “in trust” (by the trustee or trustees) with the understanding that the property will pass to others (the beneficiaries) upon the death of the initial trustees.

What this means is that you (as the settlor / trustor) put your property into a legal entity or agreement called a trust and name the people you want your property to go to after you die (those people are called the beneficiaries). When you do this you can name yourself as the trustee (the person who manages the property in trust for the eventual disbursement to the beneficiaries) or someone else as the trustee. Usually, when setting up a living trust for estate planning purposes people name themselves as the initial trustee so they can continue to use the property as before and then name a successor trustee to handle distributing the trust assets to the beneficiaries.

I tried to make that as non-legalese as possible, but as you can see there are a few terms you should learn the definitions of before making a living trust.

A good legal dictionary goes a long way…

It is also generally wise to set up a “pour over” will that will state that any property not in your trust at your death should be transfered into your trust to be distributed according to the terms of the trust. This is sort of like a back up in case you forgot to put some of your property into your trust. Usually people will make the successor trustee and the executor of their wills the same person.

Another important thing to do when you make a living trust is to actually fund the trust. This means you must transfer your assets into the trust. Just making the trust agreement is not enough.

Here are some important terms to learn before setting up your trust:

  1. Revocable (living) trust: A trust set up during life that can be revoked at any time before death.
  2. Trust Creation: involves a trustor, the intent / capacity to make a trust, a trustee, beneficiaries, and the trust res.
  3. Trustor: the person who creates a trust. Otherwise known as a grantor, donor or settlor.
  4. Trustee(s): A trustee is a person or firm that holds and administers property or assets for the benefit of a third party. The trustor can also be the trustee.
  5. Successor Trustee: If the trustee has named himself/herself as the initial trustee then the successor trustee is named to administer the trust for the benefit of the beneficiaries upon the death or incapacity of the initial trustee.
  6. Beneficiaries: the person or persons who are entitled to the benefit of any trust arrangement. Usually for estate planning these are your “heirs” or the people you want to take your property when you pass away.
  7. Trust Res (corpus): The “body” of the trust, this is the property that is transferred into the trust.

About the author: Matthew W. Camphuis is an attorney licensed by the California State Bar and the Central District Court. He focuses on IRS tax debt controversy, IRS tax audit defense, California State Tax Controversy, chapter 7 bankruptcy, estate planning and wills and trusts. His office is located in Ontario, California and he serves the Inland Empire and High Desert communities in Southern California.

The Camphuis Law Estate Planning Blog

Hello everyone,

I wanted to introduce my Estate Planning Blog to you. I hope you are all staying safe and healthy out there amidst the Covid-19 global pandemic. This pandemic has gotten a lot of us thinking about how we are going to take care of our loved ones. Recently, while sitting on a deserted baseball field after taking a walk, and holding my wife in my arms, I started to think to myself, what if I only have two weeks left? How do I want to spend the last two weeks of my life? Am I ready to meet my Creator?

The thought was sobering. But in a way it has recentered my life. This pandemic has a way of showing us what really matters. To me, that’s my family, my faith, and helping people.

With that in mind, I decided to start this blog to speak about estate planning information generally. I believe that the future of law practice should be more client-centered instead of law firm centered. Too many law firms cater to the ego of the attorney rather than the needs of the client. One way of being client-centered is offering helpful general information on estate planning to readers for free.

Let’s start with what is the definition of estate planning in the first place?

Estate planning is the process by which an individual or family arranges the transfer of assets in anticipation of death. An estate plan aims to preserve the maximum amount of wealth possible for the intended beneficiaries and flexibility for the individual prior to death.”

So, an estate plan is just a plan for how to give away all your valuable assets (assets meaning your personal property and land / buildings on the land) when you die, or in preparation for you death.

“An estate is the total property, real and personal, owned by an individual prior to distribution through a trust or will. Real property is real estate and personal property includes everything else, for example cars, household items, and bank accounts. Estate planning distributes the real and personal property to an individual’s heirs.”

Basically, everything you own is your “estate.”

One important consideration for estate planning is avoiding the costly probate system. The probate system is a court ordered administration of a dead persons estate. It can be expensive.

The most common way to plan your estate is through wills and trusts.

If you have no will the court will substitute the laws of intestacy to decide how to give away your property. If you have a will then the court will try follow your intent (generally speaking).

A living trust can be a good way to avoid probate and even avoid or reduce some taxes.

References:

  1. https://www.law.cornell.edu/wex/estate_planning
  2. http://www.scscourt.org/self_help/probate/property/probate_overview.shtml
  3. http://www.scscourt.org/self_help/probate/medical/living_trust.shtml