South Florida Sun-Sentinel Palm Beach (Sunday)
IRS warns of tax scams
Q: I’ve heard of businesses offering to settle back taxes for a fraction of the amount owed to the IRS. Is this too good to be true?
A: With tax season underway, the IRS is once again warning taxpayers to be wary of “Offer in Compromise” scams. These promotions claim that they can help taxpayers pay back taxes for just “pennies on the dollar.” Victims often end up paying the promoters thousands of dollars in fees and still end up owing money to the IRS.
While the IRS’s Offer in Compromise program allows taxpayers to request a reduction in unpaid taxes, the guidelines are strict, and only a small percentage of applications are approved. To be eligible for the program, you must be up to date on your tax returns and have received at least one bill from the IRS. You’ll be required to provide supporting documents, including a breakdown of your expenses.
The IRS will then review your income and assets, such as equity in your home, to determine whether you’re eligible to have some of your tax debts forgiven. If it determines that you can afford to repay your taxes in full through an installment program, it will likely reject your offer.
You can find out if you prequalify for the OIC program by going to https://irs.treasury.gov/oic_pre_qualifier. The IRS charges a $250 application fee but waives it for low-income taxpayers.
Q: I got an advance on the child tax credit last year. How do I report that on my tax return now?
A: When filling out your 1040, use Schedule 8812 to compare the monthly payments you got in 2021 with the actual credit that you can claim on the return.
IRS is mailing Letter 6419 to parents who the agency says got payments in 2021. Keep this with your tax records to help fill out your return. And give a copy of the letter to your preparer, if you use one.
For most, the child credit will exceed the advance payments because the IRS made only six monthly payments in 2021, generally accounting for half of the credit. If this is the case for you, claim the excess as a refundable credit on your return by transferring the amount on line 14i of the 8812 to line 28 of the Form 1040.
If the credit amount is less than the payments you received, you may or may not have to repay the excess. After filling out Part I of the 8812, complete Part III to figure whether you have to pay any amount back. See www.kiplinger.com/letterlinks/cc2021 for more details on reporting this credit.
Rivan Stinson is a staff writer at Kiplinger’s Personal Finance magazine and Joy Taylor is editor of The Kiplinger Tax Letter.