IRS Law Blog

Surprises can be fun – birthdays, anniversaries, maybe even one in a scary movie. But one surprise that you don’t want is an unannounced visit from an IRS Revenue Officer.

That can make you feel like a scary movie is coming to life.

A Revenue Officer can take your house, levy your wages, clean out your bank account, and even take your business equipment.  You may feel like confronting Freddy Krueger is a better option.

If you owe money, IRS Revenue Officers have more power than any other employee.

The decision to send an IRS Revenue Officer to you is not random, but rather based on careful consideration of your situation.  The more severe the IRS considers your case to be, the greater likelihood of Revenue Officer assignment.

But you do not have to be in the dark as to the whether you are at risk for a visit from an IRS Revenue Officer.  There are clear ways to know if a knock on your door may be coming.  You can reduce the chances, and be ready if the IRS comes calling.

Here five factors the IRS uses to determine if a Revenue Officer will be visiting you:

• How much to you owe to the IRS?

For the most part, the IRS does not use its big gun, the Revenue Officer, to go after smaller balances.  IRS Revenue Officer resources are limited.  The IRS has approximately 14,000,000 delinquent collection accounts but only around 3,500 Revenue Officers.  Clearly, all IRS tax debts are not created equal.

That means the IRS is generally not using its top tier agents on balances under $100,000.

In most cases, only if you owe $100,000 or more to the IRS, is it considered serious enough to merit contact from a Revenue Officer.

• Do you have unfiled tax returns?

Maybe you had a tax return that you knew you could not pay, and were paralyzed to file it.  Or maybe you are better at your craft than bookkeeping.  Regardless, the IRS wants your tax returns, and it is Revenue Officer’s job to collect them from you.

In most cases, the IRS considers filing the last six years’ returns as sufficient.  Even if you have returns unfiled for 10 or 20 years, Internal Revenue Manual guidelines permit the IRS to accept six, and you are done.

IRS records can be obtained with what they know about your unfiled returns, including who paid you and how much.  This can be used to prepare tax returns to get you back in the system and lower the risk of a surprise visit from a Revenue Officer looking for your filings.

• How many years of taxes do you owe the IRS?

The longer your problem has persisted, the more the IRS wants a Revenue Officer to make sure it stops.

We are human, and we make mistakes – one mistake can be owing the IRS year after year, with good intent to one day get ahead.  The IRS calls this “pyramiding.”  Every year you stack a new tax liability on top of another.

The more you pyramid your taxes, the greater your risk of contact from a Revenue Officer.  Generally, owing the IRS for three or more years is enough to cause the IRS to take notice.

We want to stop the pyramiding and lower the chances of an IRS Revenue Officer coming around.

• What type of taxes do you owe to the IRS?

If you have a business and have not been paying your employee withholding taxes, you have a higher risk of hearing from an IRS Revenue Officer.

The IRS places a high priority on using Revenue Officers to work employment tax cases because the taxes involve other people’s money.  If you have employees, you are required to deduct taxes from their paychecks, and pay that to the IRS.  But you may have run into cash flow problems, and you find there is not enough money to pay the IRS and your overhead.

When you chose to pay the overhead and not the employee withholding taxes, the IRS gets aggressive.  Cash flow needs to be addressed to find the room to pay the money to the IRS.  If you have not filed your employment tax returns, those need to be immediately prepared and filed.

The sooner we get into compliance with your employee withholding taxes, the less likely it will be for the IRS to come knocking.

• Are you paying this year’s taxes?

Simply put, the IRS wants you to get updated with filing and paying.  Now.

If you are self-employed, and have had trouble setting money aside for IRS estimated taxes, a good solution is to open a new bank account.  Every time you get paid from a customer, it is best to take a percent of that check, and put it aside in the estimated tax bank account.

For example, if your most recent tax return shows that your customers paid you $50,000, and you owe $5,000 to the IRS, we know that 10% of every dollar you are paid is for taxes.  Going forward, 10% of every check you receive should go into the estimated tax account to pay your current taxes.

The last thing you want during your day is a surprise visit from an IRS Revenue Officer.  What’s done is done, but that does not mean the future cannot be better, with less tax stress.  The risk of the IRS showing up at your house or place of business can be minimized, and the beast can be tamed.

Were you contacted by an IRS Revenue Officer, but now you can’t seem to reach them? Here’s what may be going on.