More Flexible Offer-in-Compromise Terms Help Taxpayers Make a Fresh Start

Posted on July 9, 2012 by Camron Hoorfar


The IRS has expanded its “Fresh Start” initiative by offering more flexible terms to its Offer-in-Compromise Program. These newest rules enable some financially distressed taxpayers to clear up their tax problems even quicker.

An offer-in-compromise (OIC) is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. An OIC is generally not accepted if the IRS believes the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to determine the reasonable collection potential.

This expansion of the “Fresh Start” initiative focuses on the financial analysis used to determine which taxpayers qualify for an OIC.

Here are the OIC changes:

  • Revising the calculation for a taxpayer’s future income. The IRS will now look at only one year (instead of four years) of future income for offers paid in five or fewer months; and two years (instead of five years) of future income for offers paid in six to 24 months. All OICs      must be paid in full within 24 months of the date the offer is accepted.
  • Allowing taxpayers to repay their student loans Minimum payments on student loans guaranteed by the federal government will be      allowed for the taxpayer’s post-high school education. Proof of payment must be provided.
  • Allowing taxpayers to pay state and local delinquent taxes When a taxpayer owes delinquent federal and state or local taxes, and does not have the ability to fully pay the liabilities, monthly payments to state taxing authorities may be allowed in certain circumstances.
  • Expanding the Allowable Living Expense allowance. Standard allowances incorporate average expenses for basic necessities for      citizens in similar geographic areas. These standards are used when evaluating installment agreement and offer-in-compromise requests. The National Standard miscellaneous allowance has been expanded. Taxpayers can use the allowance to cover expenses such as credit card payments and bank fees and charges.
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Keep the Child and Dependent Care Tax Credit in Mind for Summer Planning

Posted on July 6, 2012 by Camron Hoorfar


During the summer many parents may be planning the time between school years for their children while they work or look for work. The IRS wants to remind taxpayers that are considering their summer agenda to keep in mind a tax credit that can help them offset some day camp expenses.

The Child and Dependent Care Tax Credit is available for expenses incurred during the summer and throughout the rest of the year. Here are six facts the IRS wants taxpayers to know about the credit:

1. Children must be under age 13 in order to qualify.

2. Taxpayers may qualify for the credit, whether the childcare provider is a sitter at home or a daycare facility outside the home.

3. You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.

4. The credit can be up to 35 percent of qualifying expenses, depending on income.

5. Expenses for overnight camps or summer school/tutoring do not qualify.

6. Save receipts and paperwork as a reminder when filing your 2012 tax return. Remember to note the Employee Identification Number (EIN) of the camp as well as its location and the dates attended.

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Eighth Circuit Finds FDCPA Protects Person Mistakenly Identified as Debtor

Posted on July 5, 2012 by Camron Hoorfar

In Dunham v. Portfolio Recovery Associates, L.L.C., the Eight Circuit rejected to the debt buyer’s argument and the lower court’s holding that the FDCPA did not provide any protection to a person from whom the debt collector mistakenly sought payment because the person had the same name as the debtor. The debt buyer argued that it alleged that the correct James Dunham owed the debt but mistakenly sent that allegation to the plaintiff, the wrong James Dunham. The court noted that if the misidentified Dunham paid the obligation, the debt buyer would have likely found that “James Dunham” satisfied his payment obligation.
The court also focused on the FDCPA’s broad definition of term “consumer” which “means any natural person obligated or allegedly obligated to pay any debt.” The court concluded: “Simply put, a mistaken allegation is an allegation nonetheless. Thus, we read §1692a(3) to include individuals who are mistakenly dunned by debt collectors.”

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New Help for U.S. Citizens Overseas

Posted on July 3, 2012 by Camron Hoorfar


The Internal Revenue Service has announced a plan to help U.S. citizens residing overseas, including dual citizens, catch up with tax filing obligations and provide assistance for people with foreign retirement plan issues. “Today we are announcing a series of common-sense steps to help U.S. citizens abroad get current with their tax obligations and resolve pension issues,” said IRS Commissioner Doug Shulman.
Shulman announced the IRS will provide a new option to help some U.S. citizens and others residing abroad who haven’t been filing tax returns and provide them a chance to catch up with their tax filing obligations if they owe little or no back taxes. The new procedure will go into effect on September 1, 2012.
The IRS is aware that some U.S. taxpayers living abroad have failed to timely file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs). Some of these taxpayers have recently become aware of their filing requirements and want to comply with the law.
To help these taxpayers, the new procedures will allow taxpayers who are low-compliance risks to get current with their tax requirements without facing penalties or additional enforcement action. These people generally will have simple tax returns and owe $1,500 or less in tax for any of the covered years.
The new procedures will also allow resolution of certain issues related to certain foreign retirement plans (such as Canadian Registered Retirement Savings Plans). In some circumstances, tax treaties allow for income deferral under U.S. tax law, but only if an election is made on a timely basis. The streamlined procedures will be made available to resolve low-compliance risk situations even though this election was not made on a timely basis.
Description of proposed new procedure. Taxpayers utilizing the new procedure are required to file delinquent tax returns, with appropriate related information returns, for the past three years and to file delinquent FBARs for the past six years. All submissions will be reviewed, but the intensity of review will vary according to the level of compliance risk presented by the submission. For those taxpayers presenting low-compliance risk, the review will be expedited and the IRS will not assert penalties or pursue follow-up actions. Submissions that present higher compliance risk are not eligible for the procedure and will be subject to a more thorough review, and possibly a full examination, which in some cases may include more than three years, in a manner similar to opting out of the Offshore Voluntary Disclosure Program.
Tax, interest and penalties, if appropriate, will be imposed in accordance with U.S. federal tax laws based on a review of the submission.
In addition, retroactive relief for failure to timely elect income deferral on certain retirement and savings plans, where deferral is permitted by relevant treaty, will be available through this process. The proper deferral elections with respect to such arrangements must be made with the submission.

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U.S. Supreme Court Rules Health Care Law is Constitutional

Posted on June 29, 2012 by Camron Hoorfar

The U.S. Supreme Court ruled on June 28, 2012, that President Obama’s health care law is constitutional. The main issue before the Court was whether or not the government could force individuals to purchase health insurance. Chief Justice John Roberts said the insurance mandate could survive as a tax. “Nothing in the Constitution guarantees that individuals may avoid taxation by inactivity,” Roberts said from the bench.
Individual mandate.Beginning January 2014, non-exempt U.S. citizens and legal residents are required to have health insurance. Individuals who fail to maintain minimum essential coverage are subject to the following penalty.

Year The penalty is the greater of: Or the following percent of excess household income over the threshold amount:
2014 $ 95 1.0%
2015 $ 325 2.0%
2016 and after $ 695* 2.5%

* Indexed for inflation after 2016.
The threshold amount is the amount of income required to file an income tax return under IRC section 6012(a)(1). For example, in 2012, the filing threshold is $9,750 for a single person and $19,500 for a married couple filing jointly. Individuals with income below the filing threshold are exempt from the penalty.
In the ruling, the Court said: “The most straightforward reading of the individual mandate is that it commands individuals to purchase insurance. But, for the reasons explained, the Commerce Clause does not give Congress that power. It is therefore necessary to turn to the Government’s alternative argument: that the mandate may be upheld as within Congress’ power to lay and collect taxes.”
“In pressing its taxing power argument, the Government asks the Court to view the mandate as imposing a tax on those who do not buy that product. Because every reasonable construction must be resorted to, in order to save a statute from unconstitutionality, the question is whether it is fairly possible to interpret the mandate as imposing such a tax.”
“The Affordable Care Act describes the shared responsibility payment as a penalty, not a tax. That label is fatal to the application of the Anti-Injunction Act. It does not, however, control whether an exaction is within Congress’ power to tax. In answering that constitutional question, this Court follows a functional approach, disregarding the designation of the exaction, and viewing its substance and application.”

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Tenth Circuit Narrowly Construes FDCPA to Permit Debt Collectors to Verify Unemployment and to Shift Court Costs to Unsuccessful Consumers

Posted on June 27, 2012 by Camron Hoorfar


In a split decision in Marx v. Revenue Corp., a panel of the Tenth Circuit narrowly constructed the broad definition of “communication” in the Fair Debt Collection Practices Act to not include a debt collector’s fax to a debtor’s employer requesting the employer to verify the consumer’s employment. The dissent points out that the opinion ignores the very careful approach that Congress took with regard to contracting debtor’s employers in §§1692b and 1692c(b).
The court stated that the debt collector, General Revenue Corp. (GRC), faxed a form to the student loan debtor’s employer in connection with GRC’s pursuit assessment of the garnishability of the consumer’s pay:

This form displays GRC’s name, logo, address, and phone number, and   bears and “ID” number representing GRC’s internal account number for Ms. Marx. The form indicates that its purpose is to “verify [e]mployment” and to “[request] employment information”; blanks are left for the employers to fill in the individual’s employment status, date of hire, corporate payroll address, and position, and to note whether the individual works full- or part-time.

The court noted that GRC conceded at oral argument that if its corporate name had disclosed the nature of its debt collection business, the case would be different. The court apparently assumed that GRC’s debt collection business was secret and was unaware that there is an Internet now where googling “General Revenue Corp.” or “GRC” would immediately take the employer’s staff to the debt collector’s website where it clearly reveals it is a debt collector—information that the FDCPA forbids to be conveyed to debtors’ employers without court permission or the consumer’s consent or to obtain location information, which was not sought.
The court held the employment verification for was outside the FDCPA broad definition of “communication” in §1692a(2):

This fax cannot be constructed as “conveying” information “regarding a debt.” Nowhere does it expressly reference debt; it speaks only of “verify[ing] [e]mployment.” Nor could it reasonably be constructed to imply a debt. In order to substantiate the claim that the facsimile “conveys” information “regarding a debt,” either “directly or indirectly,” Ms. Marx had the burden of proving such a conveyance; the standard is not whether the facsimile could have had such an implication.

   The opinion does not consider recent decisions in other circuits that reject narrowing constructions of the FDCPA term “communication” nor a host of similar lower court decisions finding that a broad array of brief voicemails left by debt collectors are “communications”.
The court appeared to use the broad FDCPA statement of purpose in §1692 to engraft a requirement that a communication must be “abusive” in the court’s eyes to violate the FDCPA. Congress specifically prohibited abusive debt collection in §1692d while making it a per se violation in §§1692c(b) and 1692b to contact an employer except if necessary to locate a consumer, with the consumer’s consent, or with the permission of a court. The court’s approach undermines the FDCPA’s requirements and emasculates one of the most important privacy and employment protections intended by Congress in the FDCPA.
The court also awarded $4,543 in costs to the debt collector on the basis that it prevailed in the FDCPA action. To do so the court had to narrowly construe §1692k(a)(3)’s requirement that the debt collector prove a harassing intent and bad faith to be awarded attorney fees or costs under the FDCPA, disagreeing with the contrary result reached by the Ninth Circuit in Rouse v. Law Offices of Rory Clark.

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Chapter 13- Confirmation of plan- Good faith- Fee-only plan

Posted on June 26, 2012 by Camron Hoorfar


Reversing In re Puffer, 453 B.R. 14 (D. Mass July 8, 2011), the First Circuit Court of Appeals said that a “fee-only” Chapter 13 plan (i.e., a Chapter 13 plan under which the only creditor receiving significant payment is the debtor’s attorney) is not necessarily proposed in bad faith for the purpose of Code §1325 (a)(3), nor is a Chapter 13 case necessarily filed in bad faith for the purpose of Code §1325 (a)(7) because the debtor proposes a fee-only plan. While fee-only plans should not be used as a matter of course, the court said, there may be special circumstances, albeit relatively rare, in which this type of odd arrangement is justified. The judge concurring in the judgment said that he would leave application of the test entirely to bankruptcy judges instead of prescribing a rule requiring “special circumstances” limited to “relatively rare” instances. In re Puffer, —F.3d—, 2012 WL 954860 (1st Cir., March 22, 2012).

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Twelve Tips Every Consumer Lawyer Needs to Know About Utility Disconnections

Posted on June 22, 2012 by Camron Hoorfar

A utility disconnection is one of the most serious problems a client can face. Fortunately, there are many steps that can be taken to help consumers in this situation, and consumer lawyers need to be familiar with these consumer rights.
1. Shut-Off Protections. Clients threatened by shut off of their electricity or gas have a series of protections that can at least delay termination. Over forty states limit disconnections during periods of extreme temperatures, either as specified by the time of year or by the actual temperature. The details of these protections in each of these states is found in Appx. A.5 of NCLC’s Access to Utility Service.
Virtually every state also provides protections for those with a serious illness. Other protections may apply to older residents or older residents with illnesses or older low-income residents. The protections for illness and related conditions are summarized in Access to Utility Service Appx. A.6.
2. Shut-Off Notice Requirements. Utilities in every state must notify the customer prior to disconnection and often must visit the customer at the residence prior to disconnection. Utility commissions often have detailed rules on the notice and customer contact requirements.  See Appendix A.7 of Access to Utility Service for a summary of each state’s requirements.
           3. Contact the State Public Utility Commission’s Consumer Division. The consumer division is tasked with resolving individual problems and this is often a good way to resolve client utility problems. The contact information for each state public utility commission is found in Appendix A.8 of Access to Utility Service.
4. Get Familiar with State Utility Regulations. Public utilities are highly regulated and are subject to detailed regulations providing various additional consumer rights not mentioned in items 1-3, supra,such as collection procedures, rate schedules, and rules covering meter reading, deposits, complaints, over- and under- billing, billing inaccuracies, and meter testing. Appendix A.1 of Access to Utility Service contains an 150-page summary of each state’s utility regulations.
          5. Get the Client onto a Discounted Rate, Arrearage Forgiveness, or Other Utility Assistance Program.  Utilities in Alabama, Arizona, California, Georgia, Indiana, Maine, Maryland, Massachusetts, Montana, New Hampshire, New Jersey, Ohio, Oregon, Pennsylvania, Texas, and Washington offer rate discount or special payment programs for lower income families. Each of these state programs is described in some detail in §7.2 of Access to Utility Service. Unfortunately clients are unaware of these programs—the utility may have no incentive to publicize them—and may have difficulty with the application process when they do discover the program.
  6. Sign the Client Up for the Low Income Home Energy Assistance Program (LIHEAP). LIHEAP is a federal block grant made to the states to help low-income households meet the cost of heating and cooling. States often administer the program through local community action programs, which are a good place to refer your clients. A thorough discussion of LIHEAP program and regulations are found in Chapter 8 of Access to Utility Service.
          7. Home Weatherization May Be the Best Long-Term Solution. Weatherizing a home can permanently reduce energy burdens. Weatherization funding may be obtained through a federal program or from certain utilities themselves. How weatherization works where the consumer lives is a bit more complicated, and is explained in Chapter 9 of Access to Utility Service.
          8. Make Doubly Sure Tenants in Public Housing or Publicly Assisted Housing Keep Their Utilities Turned On. In a double-whammy, tenants whose utilities are disconnected will also be evicted from public housing. Those in HUD-subsidized housing will lose their subsidy. It is far easier to prevent a utility disconnection than it is to prevent an eviction or loss of subsidy once the utility has been shut off.
9. When Landlord-Provided Utility Service Is Disconnected. Landlords facing financial difficulties may fail to pay utility bills, resulting in disconnection of service to tenants. Tenants have claims against the landlord, but that may not help to promptly turn back on the heat and electricity. Tenants have several strategies. One is to obtain service in the tenant’s own name. Another is to withhold rent and use that amount instead to pay the utility for the landlord’s obligation. When the landlord has filed bankruptcy, some additional tools may be available to tenants. These options are examined in Chapter 3 of Access to Utility Service.
          10. Filing Bankruptcy is an Effective Tool to Deal with Utility Disconnections. Filing bankruptcy immediately stops any threatened shut-off and usually can force an immediate reconnection of service. Arrears are discharged in the bankruptcy. Of course, like any bankruptcy, it should not be filed too soon or when other approaches may be superior. Moreover, the consumer will have to pay for future utility bills in full, so discount rate programs, fuel assistance, and weatherization options should be explored for these clients as well.
11. Clients May Be Eligible for Free Landline of Cell Phone Service. The federal Lifeline program traditionally provides free or discounted landlines to low income consumers. With increasing frequency, low income consumers can now obtain limited cell phone service at no charge. Even if phone service is not the client’s primary problem, signing up for a Lifeline program can free up money to pay other essential utilities. The Lifeline and other discount telephone programs are examined in Access to Utility Service’s Chapter 11.
12. Understand the Different Regulatory Approaches to Different Types of Utilities and Fuels. Much of the above discussion refers to investor-owned utilities regulated by a state utility commission. Municipal water and electric utilities and rural electric cooperatives (RECs) have a different regulatory structure that may provide consumers with different rights than those relating to investor-owned utilities. Consumer rights concerning municipal utilities and RECs are considered in §15.1 of Access to Utility Service.
In addition certain fuels, such as oil, propane and wood, are unregulated. State deceptive practices (UDAP) statutes and common law claims may be the best options to deal with problems with unregulated fuels. UDAP claims are often not available against regulated, investor-owned utilities because of specific statutory exemptions, but these exemptions may not apply to unregulated fuel deliveries. See generally §§15.3 and 15.4 of Access to Utility Service.

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FDCPA’s Strict Limits for Debt Collectors Leaving Messages for Consumers

Posted on June 21, 2012 by Camron Hoorfar

A voicemail from a debt collector is not the message many people want to share with their roommate, employer, children or parents. The May/June issue of this newsletter examined the rules for debt collectors leaving messages, particularly on shared voicemail machines. Since then, several new federal court decisions have found FDCPA violations for leaving messages on voicemail.
In Branco v. Credit Collection Services Inc., the debt collector left the following message on the consumer’s parents’ answering machine five times:
“This is for Travis Branco. If the intended party cannot be reached at this    number, please call 800-998-5000, and we will cease further attempts to this number. If you are not the intended party, please hang up at this time. This message contains private information and should not be played in a manor where it can be heard by others. …(music)… This call is from CCS, Credit Collection Services.  This is an attempt to collect a debt and any information obtained will be used for that purpose. For your privacy protection, please visit our secure website at www.warningnotice.com to access your personal account information. Your file number is 05036201574.”
The outgoing message on the parents’ answering machine stated: “You have reached the Branco residence. Please leave a message and phone number so that Steve, Sari, or Travis may return your call.” The answering machine did not have a function permitting the listener to skip the message. His mother heard the message and conveyed the information to the consumer, who was not living with his parents at the time.
Despite the collector’s claim to the contrary, the court found that the consumer’s mother need not refrain from listening to a voice message in her own home merely because the message is for another person. The court found convincing precedent in Berg v. Merchants Ass’n Collection Division, Inc. dealing with essentially the same facts. The court held the debt collector was strictly liable under §1692c(b) for communicating with a  third party, the consumer’s mother, without the consumer’s consent, whether or not the communication was deliberate, citing Zorman v. J.C. Christensen & Associates.
Smith v. Greystone Alliance L.L.C. finds a §1692e(11) violation when telephone calls did not disclose the person calling was a debt collector. The court rejected the collector’s argument that an initial §1692e(11) disclosure in a letter was sufficient to satisfy §1692e(11) in subsequent communications when the collector never raised whether the context of the subsequent contacts sufficiently disclosed that the caller was a debt collector and meaningfully identified the called as required by §1692d(6).
Beyond the ruling, the facts in the case are particularly instructive. The collector mailed a letter that indentified defendant Greystone Alliance L.L.C. as a “debt collector” and stated that the letter was an attempt to collect a debt and that any information she provided would be used for that purpose, satisfying the first prong on §1692e(11). Just the day after mailing the letter, a Greystone employee left a voice message on Smith’s residential phone, identifying himself by his own name and informing Smith that he represented Greystone Alliance L.L.C., but not informing Smith that Greystone was a debt collector as required by the second prong on §1692e(11). He simply stated his name, his employer’s name, provided a phone number, and asked her to return his call “in regards to a file that has been placed in [his] office.” This strategy violating §1692e(11) may have been designed to avoid violating §1692c(b) by disclosing the debt to a third person.
The same collector then left a message with the consumer’s business partner who returned his call. The collector informed the business partner that the call related to a personal matter and the partner responded that Smith could not be reached at that number. The collected retorted that the partner should “know who [she is] doing business with.” The collector added the number to Greystone’s records instead of noting that the number was not a number at which to contact Smith.
Greystone continued to call Smith over the next several weeks. When it called, Greystone sometimes left no message, and sometimes has its employees leave a live voice message. Only the automated message indentified Greystone as a debt collector.
Greystone required its employees to use a standard script when contacting the debtor until it had been established that the collector had reached the right person on the telephone. At that point, the collector should only indentify the employee’s name, the toll-free phone number, and file number. The policy clearly directed employees not to mention the called was calling on behalf of Greystone or that they were a debt collector. While the collectors in this case disregarded the policy and continued to identify their employer, they did follow company policy and ignored the second prong of §1692e(11) requiring a statement that they are a collector.

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Offer-in-Compromise Terms Made More Flexible

Posted on June 13, 2012 by Camron Hoorfar

The IRS has announced another expansion of its Fresh Start initiative by offering more flexible terms to its Offer-in-Compromise (OIC) program that will enable some of the most financially distressed taxpayers to clear up their tax problems, and in many cases, more quickly than in the past.


“This phase of Fresh Start will assist some taxpayers who have faced the most financial hardship in recent years,” said the IRS Commissioner Doug Shulman. “It is part of our multiyear effort to help taxpayers who are struggling to make ends meet.”

This latest announcement focuses on the financial analysis used to determine which taxpayers qualify for an OIC. The announcement also enables some taxpayers to resolve their tax problems in as little as two years, as compared to four or five years in the past.

In certain circumstances, the changes include:
-Revising the calculation for the taxpayer’s future income.
-Allowing taxpayers to repay their student loans.
-Allowing taxpayers to pay state and local delinquent taxes.
-Expanding the Allowable Living Expense allowance category and amount.

In general, an OIC is an agreement between the taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. An OIC is generally not accepted if the IRS believes the liability can be paid in full as a lump sum of through a payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination of the taxpayer’s reasonable collection potential. OICs are subject to acceptance on legal requirements.

The IRS recognizes that many taxpayers are still struggling to pay their bills so the agency has been working to put in place common-sense changes to the OIC program to more closely reflect real-world situations.

When the IRS calculates a taxpayer’s reasonable collection potential, it will now look at only one year of future income for offers paid in five or fewer months, down from four years, and two years of future income offers paid in six to 24 months, down from five years. All the offers must be fully paid within 24 months of the date the offer is accepted. The Form 656-B, Offer in Compromise Booklet, and form 656, Offer in Compromise, has been revised to reflect the changes.

Other changes to the program include narrowed parameters and clarification of when a dissipated asset will be included in the calculation of reasonable collection potential. In addition, equality in income producing assets generally will not be included in the calculation of reasonable collection potential for on-going businesses.

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