You pick up the phone, and call the IRS Automated Collection Service, maybe with some questions, or just to try to resolve your account.
Or you have a meeting with an IRS Revenue Officer, who has contacted you to investigate your finances and gather any unfiled tax returns.
During the conversations, statements will be made to you about how the IRS collects taxes, and what they can do to you, and what your rights are.
The good news is few IRS agents will lead you astray, are familiar with the tax laws that regulate the IRS’s collection power, and will give it to you straight.
But not always.
The reality is the tax laws in the Internal Revenue Code that control IRS collection agents are long, often convoluted, and many times confusing.
Add to that the Internal Revenue Manual, which contains the IRS’s interpretation of how their agents should carry out the collection tax laws.
All that information – and need for IRS training to understand it – creates a formula that can result in an IRS collection agent giving you misinformation.
As a result, when talking to the IRS, you may find a collection agent saying the darndest things.
You need to know if what you are being told is correct, and whether the IRS is steering you in the wrong direction.
Here are three common things the IRS may get wrong:
1. The IRS has an unlimited period of time to collect taxes from you, and will be coming after you for the rest of your life.
Don’t believe an IRS agent – or anyone for that matter – telling you that your tax debt will follow you for your lifetime.
The reality is that Internal Revenue Code section 6502 gives the IRS 10 years to collect a tax debt from you. After the 10 years expires, the IRS is legally required by law to stop collecting, and forgive the debt. Internal Revenue Manual 5.1.19 restates the 10 year collection rule for IRS collection agents.
But be careful. The tax laws also give the IRS date extenders, which can give the IRS more time. For example, if you file an offer in compromise, bankruptcy, a request for innocent spouse relief, or an IRS collection appeal, the 10 year clock stops while the IRS investigates your filing. If the IRS takes a year to investigate your offer in compromise, and it is denied, the IRS will have another year to collect, now 11 years total.
The reality is time can force the IRS to permanently forgive your tax debt. It is important to not let IRS agents convince you that time is not your friend, or to make an unnecessary filing that will give them more time. Time is a real strategy in resolving an IRS debt, and being led to believe otherwise deprives you of knowledge necessary to properly deal with the IRS.
2. IRS can levy your wages, accounts, or property any time they want.
The IRS cannot do what they want, whenever they want.
Specifically, Internal Revenue Code section 6331 forces the IRS to send you a letter before they can levy your wages, accounts, or property. The IRS acknowledges the requirement of notice before levy in their Internal Revenue Manual section 5.17.3.
The letter the IRS is required to send you is called a Final Notice of Intent to Levy. To identify if you have received it, grab your IRS notice, and look in the upper-right corner for IRS identifiers LT11, CP90, LT1058, or CP297. Most likely, if your IRS letter does not contain any of these codes, it is not the Final Notice of Intent to Levy.
If you are unsure if there has been a Final Notice of Intent to Levy, the IRS can provide written records that can be analyzed to determine if one has been sent to you.
And know that even after the Final Notice is sent tax laws give you the ability to stop the levy by filing an appeal with the IRS. Known as a Collection Due Process Appeal, this filing gives you other benefits, too, including a 3-6 month hold on IRS action while the appeal is being processed. The appeal also means you will no longer be talking to IRS collectors, but rather IRS agents trained to settle cases without taking your property.
In most every situation, the IRS cannot take action against you without the Final Notice of Notice Intent to Levy. They have to follow the law, and don’t let them tell you otherwise.
3. You should file an offer in compromise to settle your tax debt.
Chances are, the IRS agent telling you to file an offer in compromise will have nothing to do with whether it is successful. If you are on the phone with an IRS collection agent, or meeting with a local Revenue Officer, and are told to file an offer in compromise, think twice.
The IRS has specific agents, known as Offer Examiners, trained to investigate and accept an OIC. Only they can determine if a compromise is right for you, something IRS phone representatives or local Revenue Officers cannot do. You are being told to file an offer from a person who does not have anything to do with it.
Also, it is important to know that an offer in compromise is not easy as it is often made to appear. The IRS does not accept all offers; in fact, the most recent annual data reveals of 59,000 offers filed, 24,000 were accepted. That’s a 40% rate of acceptance. If this were grade school, that’s an F on IRS freely accepting offers.
There is a reason for the low acceptance rate: The IRS has specific guidelines for an offer investigation which create an unrealistic settlement amount. For example, in an offer investigation, the IRS will try to limit your costs of living, replacing your budget with theirs. This results in the IRS finding you can pay more than you really can, and a rejected offer.
IRS training cannot cover every tax law and Internal Revenue Manual guideline. Some examples of where the IRS can steer you wrong include the amount of time the IRS has to collect, the legal requirements of notice before levy, and the realities of the offer in compromise program. Every conversation with the IRS has the chance of incorrect information being stated. Even if the IRS agent honestly believes it to be true, it is important to know if you are being given correct guidance by the other side.