Some essentials to guide you when confronted with the IRS.
I haven’t filed tax returns or paid taxes for a few years and my records are not up to date. How do I get squared away with the government?
There are certain circumstances under the IRS Voluntary Disclosure program where it may be possible to file returns without incurring criminal penalties. In most cases, IRS policy is to accept the last six years of unfiled returns as full compliance.
Incomplete records should not slow the process of becoming compliant with the IRS. Most of these records can be obtained directly from the IRS without alarm. Bank statements can help accurately prepare an unfiled return. Expense records can be recreated based on reasonable standards of your spending patterns. There are solutions to help you move on.
Believing you might owe the IRS should not prevent the filing of returns either. Solutions exist to solve unpaid tax problem, including offers in compromise, bankruptcy and installment payments.
The IRS has sent me a notice that a previous year’s tax return is under audit.
In most audits, the IRS will investigate whether you reported all your income on the return and if you are entitled to your deductions. The IRS will often seek to review your bank statements or lifestyle habits for signs of unreported income. It is important to remember that IRS auditors, who are employed on the civil side, are specifically trained to spot red flags for potential fraud and can refer taxpayers to the Criminal Investigation Division.
We take great care to identify sensitive areas for the audit. Some audits require very delicate handling, balancing straight answers to IRS inquiries with strong legal defenses. It is important to recognize and diffuse an audit issue that could result in the IRS expanding a one year investigation into multiple years.
I owe the IRS back taxes and have not heard from them in several years. Is there an end date to how long the IRS has to collect?
Many of our clients contact us after having owed the IRS for 7, 8 or 9 years, often unaware their problem is close to over. The end date for IRS to collect an unpaid tax is 10 years from the date it was assessed. This is called a statute of limitations.
As to why you have not heard from the IRS in a while, we understand that the IRS has an Inventory Delivery System which ranks each delinquent account. The IRS risk scores take into consideration the amount of tax owed, the age of the account and the type of tax involved. Some types of tax delinquencies, such as trust fund employment taxes, are assigned a high risk score. Newer accounts are often assigned a higher risk factor than older accounts.
I just picked up a certified mail letter from the IRS called a Final Notice of Intent to Levy. What does this mean? And how much trouble am I in?
Before any garnishment or seizure takes place, the IRS must issue this letter informing you they want to take your assets, including your wages. This notice also gives you very important rights, including the right to dispute and appeal the proposed seizure before it occurs.
The IRS must wait 30 days after sending you the letter to start collecting. Within this 30-day period, you have the right to file an appeal with the IRS. This appeal will stop any IRS collection action until your case is heard by an IRS Appeals Officer.
It is important that your case either be resolved within the next 30 days, or an appeal be filed to protect your rights and interests.
I just got home from work to start the weekend and found an IRS collection officer’s business card in my door.
You have been contacted by a high-level IRS collection official, known as a Revenue Officer. Revenue Officers are the most experienced and sophisticated collection employees within the IRS. They mainly work high-dollar cases deemed to be of significance. Revenue Officers have the ability to closely watch and monitor your activities and can act swiftly against you, if necessary.
If you have unfiled returns, they will need to be filed with the Revenue Officer. Based on your financial situation, a proposal to solve your tax situation will need to be analyzed and presented to the Revenue Officer. Options could involve an offer in compromise, bankruptcy, or an installment agreement.
Failure to timely cooperate would most likely result in the garnishment of your wages and bank accounts.
Can bankruptcy eliminate my unpaid taxes?
A properly planned bankruptcy can eliminate your unpaid state and federal income tax liabilities. It will also force the IRS to immediately stop their collection actions, including the immediate release of wage and bank garnishments and asset seizures.
If you are unable to repay the IRS, you could be able eliminate all of your income tax liabilities without any repayment in a Chapter 7 bankruptcy. If you are able to make some payment to the IRS, we often suggest that you elect to make your payments through a Chapter 13 bankruptcy. This stops the accrual of interest and penalties and can also result in you repaying substantially less than the full amount of what you owe, sometimes as little as 5%.
There are many factors that Howard Levy is experienced in analyzing to determine whether bankruptcy is right for you, including whether income or employment taxes are owed, when you filed your tax returns, and if the IRS has filed a tax lien against your property.
Is everything I own fair game for the IRS to take in a collection case?
Tax laws prevent the IRS from taking your furniture and household goods up to $7,040 in value. Tools that are necessary for your profession are protected from the IRS up to $3,520 in value. Clothing for you and your family is also protected. These “exemptions” are in Section 6334 of the tax code.
The IRS cannot take your unemployment benefits, workmen’s compensation, court-ordered child support and supplemental social security benefits.
The IRS will also not take property that, if sold, would not result in any payment to it. For example, if your car is worth $4,500 and you owe $5,000 on it, the IRS cannot take it since the sale would not result in any recovery to the government. This is known as the “no equity” rule from Section 6331(f) of the tax code.
In addition to the no equity rule, the IRS cannot take your home if you owe under $5,000.
I am a small business owner and cash flow problems have caused me to miss several employment tax payments. What do I do?
The IRS takes employment taxes very seriously, and is very aggressive in pursuing recovery of these taxes when they are not paid. As an owner of a small business, you may be personally liable for the employment taxes that were not paid by your business.
The IRS will also pursue any other decision makers in your business that were responsible for the company’s finances, including officers, directors, stockholders and management-level employees. Aggressive IRS officers will also seek to pursue bookkeepers or clerical staff of the company, particularly if they had authority to sign checks.
It is extremely important to implement changes so that you do not miss future employment tax deposits. The IRS considers the “pyramiding” of employment tax payments to be a serious offense, and it can sometimes be criminal.