5 Commonly Used Ways To Deal With IRS Debt

Faced with large tax debt and feeling hopeless? Take heart…if you are willing to create a “strategy” and combine it with some hard work and patience, there may be a real solution. The following are the most 5 common methods people use to deal with tax debt.

1. Use the IRS Statute of Limitations to Your Advantage

Congress limited the time the IRS has to figure out how to get paid.  26 U.S.C Section 6502 provides this limit and as a result, the IRS has ten years to get the debt collected. Many people with IRS debt buy the time necessary to get to the 10-year period by negotiating an installment agreement or non-collectible status placement.

An example:

Imagine a tax debt of $120,000.00 and that the IRS has let 7 years pass without fully attempting to collect the debt, but they are now at the doorstep. The debt has grown to $200,000.00 with penalty and interest over time, but the taxpayer can only afford to pay $100.00 per month toward the balance. If the taxpayer were able to negotiate such a payment, only $3600.00 of the $200,000.00 would be paid before the debt disappeared.

The above scenario happens more often than you would think. However, there are things people do that stop the ten-year clock from running. Filing an offer in compromise, a bankruptcy, a collection due process appeal, or anything else that stops the IRS’ ability to collect also stops the statute of limitations clock from ticking. It isn’t always advisable to do anything other than to negotiate the payment plan or non-collectible status as a result.

2. Challenge the Tax Debt

What about a situation where the IRS assessed a debt against you that you know isn’t correct.

Usually, this is the result of an audit “gone bad” or the creation of a tax return by the IRS, because you didn’t file it yourself.

Audit Appeal

IRS Audits that go badly can be appealed. If done right, they can be appealed to the US tax court. If your audit result is wrong, you have a limited amount of time to bring the appeal, so call someone now.

Substitute Tax Return Appeal

Tax returns filed by the IRS come with appeal rights as well. Most people don’t respond in time and lose them, however. Thankfully, the assessment of the tax from the incorrect return can be challenged using the IRS audit reconsideration process.

Challenge Trust Fund Recovery Assessment

There are other things the IRS does to assess tax debt that can result in an incorrect debt amount, like the assessment of the trust fund recovery penalty against a responsible party.

Where the business has withheld the employee portion of the payroll tax but didn’t send it in, the IRS stick the amount on you personally as a penalty if you are the “responsible” party.

There are defenses to this, however, and the assessment of the debt can be challenged as a result.

Innocent Spouse Relief

Sometimes the tax is correct but it just isn’t fair that the spouse should be stuck with it. The law provides the ability to challenge the debt based on some theories about innocent spouses.

3. File an IRS Offer in Compromise

26 U.S.C Section 7122 provides the basis for the settlement or one-time reduction of the tax debt. In essence, you would be making an offer to compromise and settle the back tax liability. But this isn’t horse-trading.  The amount that the law requires the IRS to settle for is based on objective criteria. The criteria is called the IRS reasonable collection potential or the RCP.

In theory, the RCP is the amount that the IRS could collect from you before the statute of limitations period on collection runs out.

The vast majority of offers filed in the last several years fail primarily because the RCP calculation is rigged a bit in the IRS’ favor. The IRS is allowed to use as a starting point for calculation purposes, a budget that is based on averages they have created.

For instance, they may have pre-determined that a family of four only needs $1650.00 per month to pay for all housing and utilities expenses. That family may be actually spending $2100.00 per month. If in the end, the IRS were able to use the $1650.00 figure to determine the RCP, then the amount of extra income per their calculation would be at least $450.00 per month.

If the statute of limitations period remaining on collections is 8 years than the RCP, just based on this number could be as high as $43,200.00

Typically, the IRS must use a smaller multiplier than the statute period, but even then, you can see how quickly the RCP can grow.

Successful Offers in Compromise, require much thought and planning as a result. They shouldn’t be entered into lightly.

4. Bankruptcy

Bankruptcy and its relation to tax debt are misunderstood. Many people including many attorneys believe that bankruptcy can’t resolve income tax debt. Nothing could be further from the truth.

In fact, the treatment of the tax debt is not up to the IRS. The Bankruptcy Code governs the treatment of the debt. The Bankruptcy Code says that income tax and certain other tax debts can be wiped away in bankruptcy, if it meets certain date requirements and the taxpayer didn’t cheat.

Sometimes the date requirements haven’t been met yet and we guide our clients in negotiating a payment plan or non-collectible status to help them avoid collection activity while they wait for those dates to arrive.

5. Penalty Abatement

As a taxpayer, you have the right to request the cancellation of any IRS penalty. There are more than 140 penalty provisions and they all have a good faith exception.

If you have been penalized for something like a failure to pay the tax on time, but you acted in good faith and there exists some reasonable basis for the failure, then the penalty can be removed along with interest on it. This removal often makes it easier for you to deal with the underlying debt.

 

Written By:

Michael S. Anderson, Attorney
2158 N. Gilbert Rd. Ste 101
Mesa, Arizona 85203

Phone: (480) 507-5985
Fax: (480) 507-5988
Email: [email protected]
Website: www.taxlawyeraz.com

How much money can the IRS garnish from my paycheck?

taxes-man-being-shakenThe most an Arizona creditor with a judgement can garnish from your paycheck is 25%.  The IRS is a different animal and isn’t subject to Arizona’s exemption laws.  As a result, it can garnish much more.  In some cases, the majority of the paycheck can be taken.  (See IRS wage levy page)

In 2015, a parent with two children filing as head of household was able to protect about $410.00 in pay every week.  If they earn $1500.00 per week, the IRS would have taken $1090.00.

So, it is important if you have received a wage levy from the IRS that you take care of it.

You should do the following:

Make sure all required tax returns are filed

The IRS doesn’t have to stop the garnishment unless you are in what they call “compliance”.  Compliance begins with making sure all required returns are filed.  This doesn’t mean you have to file every return that is missing necessarily.  Most un-filed returns older than 6 years don’t have to be filed for purposes of compliance.

Complete a financial statement

The IRS will reduce the amount that is being garnished or eliminate the garnishment altogether if you complete a financial statement.  Some situations require a 433-f and some require a 433-a.

The IRS will use the financial statement along with it’s own budget to determine how much they think you can pay each month.

Knowledge about how the IRS calculates income and budget is good to have before you finalize the financial statement.

Contact the IRS to arrange a payment agreement or non-collectible status arrangement

What type/size of payment plan you end up with will depend on the facts of your case.   There are different ways the IRS will calculate a payment plan, some based on time and some based on finances.  You can call the IRS at 1-800-829-1010.

File Bankruptcy

Certain tax debts are dischargeable in bankruptcy.  Certain other debts are dischargeable in bankruptcy.  Bankruptcy stops the IRS garnishment.  Whether you use bankruptcy or not and whether you use a chapter 7 bankruptcy or a chapter 13 bankruptcy will depend on the facts of your case.  Sometimes bankruptcy makes the most sense given your situation even if the tax debt isn’t going to be discharged.

The first step of many in determining whether bankruptcy will make sense is to get a copy of the IRS transcript(s) regarding the tax debt you owe.  This transcript is usually called an IRS “account transcript”.

In order to obtain the transcripts quickly, you can call the IRS, or walk into the local IRS office and request them.

We can also obtain them for you.

 

 

 

 

If the IRS can’t recover, it can’t seize or levy

vocss6If the IRS can’t recover, it can’t seize or levy

Pursuant to Internal Revenue Code Sections 6331(f) and 6331(j)(2)(c), the IRS cannot seize property or levy unless doing so will result in money for it.

I recently represented a client who had some equity in a vacation home.  The IRS Revenue Officer wanted the home but the quick sale equity in the home wasn’t sufficient to guarantee that once realtors and costs of closing were paid, there would be anything left for the IRS.  The client was also unable to obtain a home equity loan.  Once the situation was made clear to the revenue officer, she backed down and accepted our payment arrangement proposal.

Many people with tax debt lay awake at night worrying about whether the car will be there in the morning, or whether the little bit of money in the bank account will be there to buy groceries.

If you have assets, bank accounts, etc. and the IRS is actively searching for a way to get paid, look closely at what those assets and accounts are really worth, how much you owe on them, and how much they would be worth if you had to sell them immediately.

Then use this rule, contact the IRS and tell IRS collections about the value or non-value of your assets, money in your bank account etc.  and prove to them what you are saying.

If you show the IRS that it will get nothing, and even cite the rules above, the collections employee or revenue officer should agree and leave the assets alone, even if it is a car or a home.

 

 

The IRS Final Notice of Intent to Levy or why you should always open your mail

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The IRS Final Notice of Intent to Levy or why you should always open your mail

I’m surprised at how often my clients bring me a box filled with un-opened mail from the IRS.  To tell you the truth, most of it is junk.

Reminders to pay, debt breakdowns, letters requesting missing tax returns, etc. But hidden within each stack of stuff is almost always a letter I wish the client had opened when it arrived by certified mail.

That letter is called the:  IRS Final Notice of Intent to Levy

Now normally…the IRS will send you several letters telling you it is going to levy before it sends this one.  To most people they all look the same.  This final notice of intent to levy letter isn’t a common letter though, and if you don’t open it on time, you will lose some rights that could have helped you to solve your IRS debt problem.

Why it is so potentially helpful to you?

First, you have to understand that the IRS is required by law to send this letter in order to give you some “due process”.  Not much due process, but just enough to help you figure things out.  You are entitled to an appeals hearing with a supposedly impartial settlement officer on the issue of whether the IRS should be able to levy your bank accounts and garnish your wage or whether there is a alternative that suits the need of you and the IRS more sufficiently.

While waiting for that hearing, the IRS isn’t allowed do any of these nasty things.

In order to get this appeal hearing and exercise your due process rights, you should file the appeal request within 30 days of the date of the letter.  Of course you can’t do that if you haven’t opened your mail.

So when you do open your mail, look closely at it. If you see an LT 1058 or LT 11 somewhere on the letter, it should be this final notice letter we are talking about.  Read it closely.  The appeal documentation and some instructions should be with the letter.

If you feel like you need help filing the appeal call someone who knows how they work.

After you file the appeal, start putting together your financials in detail.  You will need them along with some other IRS forms at some point during the appeals process.  If you don’t take the appeals hearing seriously and fail to supply the correct info and make the right argument, you will lose the appeal and head back to IRS collections for some smacking around in the way of Levy or Garnishment.

What if you opened the letter but didn’t file the appeal on time?

Don’t panic, you can still file the appeal, and the IRS should…give you an appeal hearing anyway.  It’s called an “equivalent” hearing.  (Equivalent to the Collection Due Process Hearing, get it?)

The main difference between the equivalent hearing and the collection due process hearing is that one comes with further appeal rights to tax court and the other doesn’t.

Other more subtle differences exist like, the IRS doesn’t have to grant the equivalent hearing and in some cases it won’t, and you have to file the request for the equivalent hearing within a year of the date of the final notice letter.  A hint..don’t wait a year.

So open your IRS mail, or bring the box to me.  We have a sharp letter opener.

 

 

Releasing an IRS levy when tax returns aren’t filed

Releasing an IRS levy when tax returns aren’t filed

The IRS likes to get attention.  It doesn’t take “selfies” to get it, but once it issues a wage garnishment or a bank levy on your account, you will wish that it just used a camera instead.

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It doesn’t use a camera because it wants something from you that sometimes it can only get by inflicting pain.  It wants missing returns, a disclosure of your finances or some missing estimated tax payments typically.

The IRS can condition the release of the wage garnishment or bank account levy on receipt of what it wants.  So if you have one or several years of missing returns… it can literally say “too bad, that wage levy will remain in place until those returns are filed”.

This is true with a few exceptions.  One  exception is the filing of a bankruptcy which will stop the levy by operation of law.  The other exception is based on a U.S. Tax Court Case from 2009 called Vinatieri v. Commissioner (See Office of Chief Counsel Notice re: Vinatieri here cc-2011-005).

In Vinatieri v. Commissioner, the Tax Court found that the appeals office had abused it’s discretion when it upheld a levy after the officer decided that the levy would be an economic hardship for the taxpayer but left the levy in place anyway because of missing returns.  The Tax Court based it’s decision on section 6343(1) of the IRC which requires that the IRS release a levy if it will cause the taxpayer economic hardship.   The Court reminded everyone that the statute contained no wording conditioning the release on the filing of any missing tax returns.

After the Vinatieri decision the IRS issued a Chief Counsel Notice cc-2011-005 in order to try and ensure that appeals officer would follow the Tax Court Decision.

There are a few issues to be aware of if you think you are in a hardship, the IRS has levied or garnished and you have un-filed returns:

1.  You will probably need to point out the Vinatieri decision and the Chief Counsel notice to the collection personnel you are dealing with.  They won’t want to follow it and may not be aware of it even several years after the fact.

2.  “Economic Hardship” isn’t going to be defined by you.  The IRS has a set of budget standards that help it determine whether you are truly a hardship case and it will try and apply those standards to your situation.  If after it applies those standards, it sees “excess” income, Vinatieri won’t apply.

3.    In order to finalize the case and be placed on “non-collectible status” , you will need to prepare and file the missing returns.  Vinatieri says that levy can’t take place if you are in a hardship but the case file can’t be closed and a determination made without those missing returns.  The IRS will set a deadline for the missing returns and if you don’t meet it – it will try to collect again based on your non-cooperation.

Conclusion

If you are being levied or garnished and think that you qualify for hardship status but have missing returns, review the links in this article before proceeding.  Make sure you qualify for hardship status, find out which returns need to be filed, and start working on those asap.

 

 

 

 

Does the IRS have to leave me with a “livable wage” if it garnishes my paycheck?

bigstock-Keep-Your-Head-Above-Water-44126563No, the IRS doesn’t have to leave you a livable wage.

The IRS must only follow a table that determines how much money it must leave for you to live on each month.  See IRS Publication 1494.

The amount that it must leave is small, and there are just 4 factors that play into the determination:

  • Whether you are married
  • The number of exemptions you should claim
  • Whether you are older than 65
  • Whether you are blind

For example:

If you are married filing a joint return and you get paid on a monthly basis, and take 2 exemptions, the IRS will leave you 1666.67 to live on.

It won’t matter if you make $2000.00 per month or $20,000.00 per month, the IRS will leave you 1666.67 to live on each month until the debt is paid off or you do something else to deal with the debt like:

a.              Arrange a payment plan or non-collectible status situation based on another set of budget     figures.

b.              Propose an Offer in Compromise

c.              File a Bankruptcy

Obviously the IRS doesn’t use the IRS Publication 1494 to collect the debt.  It uses it to force you to do something about the debt.  If you have serious tax debt… and a levy has been threatened by the IRS, do something about it before your life becomes governed by Publication 1494.

 

I owe the IRS and am worried about an IRS Levy, how do I prevent it?

Contact our Mesa tax law firm today to prevent an IRS LevyInternal Revenue Code Section 6331 authorizes an IRS Levy.  An IRS Levy is the taking of any property or right to property that belongs to you or any property that has a federal tax lien attached to it unless that property is exempt.  Certain minimal personal property items are exempt from levy and certain types of income are fully or partially exempt.

Before the IRS can levy your property or your income it must provide you with a notice of the debt and a demand for payment, a notice of it’s intent to levy, and finally a final notice of it’s intent and your right to a hearing.

The final notice can be served on you in person, left at your home or mailed certified to your last known address.

The IRS will levy only when the you are not responsive to their demands for information.  The best way to prevent a levy is to RESPOND. Pick up the phone and call or hire someone to do it for you.  The IRS should discuss the case with you and set up a timeline for providing the documents necessary to arrange a payment plan.

Video: How To Prevent An IRS Levy by Tax Debt Lawyer In Mesa AZ

There is one thing that people often ask a Mesa tax lawyer, and that is how to prevent a levy or a collection
generally by the IRS when they know they owe, and they know the IRS is on the way.

Responding is not just about making a phone call.  Responding may also include filing a formal request for a payment plan or compromise with a financial statement and other required documents or filing a Collection Due Process Appeal in response to a final notice of intent to levy or it may even include the filing of a Bankruptcy.

No matter what, if you have an IRS debt, the worst thing you can do is…to do nothing.

If you do nothing, the IRS will levy you.

Michael Anderson, Tax Lawyer In ArizonaWritten By:

Anderson Tax Law
2158 N. Gilbert Rd. Ste 101
Mesa, Arizona 85203

Phone: (480) 507-5985
Fax: (480) 507-5988
Email: [email protected]
Website: https://taxlawyeraz.com

Can the IRS Revenue Officer visit my Home?

taxes-man-being-shakenThe IRS Revenue Officer can visit your home or place of business and in fact, the IRS encourages the Revenue Officer to pay you a visit.  If you have serious tax debt or unfiled returns…you should expect it.

Background

There are two types of direct “collectors” that work for the IRS.

A. ACS Employees

Automated Collection Services Employees (ACS Employees) are the IRS’ first “Collectors”; they deal with Taxpayers by mail and phone.  There are several ACS Offices throughout the U.S., but there isn’t one in Arizona.  So when a notice is issued by ACS and you respond, you are dealing with someone out of State.

Despite the fact that ACS Employees are out of state, they have the ability and the will to garnish a paycheck or levy a bank account and they do so every day.  They also have the authority to issue Notices of Federal Tax Lien.

B. IRS Revenue Officers

Revenue Officers are local.  There are Revenue Officers in every state and major City.  They have some serious training from the IRS and are usually very experienced.

The IRS has access to a number of databases.   It is possible as a result that this well trained IRS Revenue Officer knocking on your door… knows more about your financial situation than you do.

Video: Can The IRS Revenue Officer Visit My Home?

Dealing with the Revenue Officer

The Revenue Officer’s goal is two-fold.  The first goal is to make sure you are in “compliance”.  Generally, IRS Compliance means that you have filed your tax returns.  The Revenue Officer’s second goal is to collect money to pay the tax debt.

If you are cooperative, the Officer will typically work with you to obtain disclosures about assets, earnings and budget.  In most cases, an attempt will be made to reach an agreement about how much can be paid each month to pay the debt off.  You might also qualify for a partial payment program, or non- collectible status.

If you file an IRS Offer in Compromise or a Bankruptcy case, the file will be removed from the Officer and will only be returned to the local office if debt remains after the Offer or Bankruptcy is completed.

Revenue Officers have the authority to seize most assets and levy wages and bank accounts.  If you don’t cooperate in disclosing your financial situation, they won’t hesitate to use that authority.

Michael Anderson, Tax Lawyer In ArizonaWritten By:

Anderson Tax Law
2158 N. Gilbert Rd. Ste 101
Mesa, Arizona 85203

Phone: (480) 507-5985
Fax: (480) 507-5988
Email: [email protected]
Website: https://taxlawyeraz.com

IRS Levy Release

IRS Levy Release

The IRS is adept at taking money from paychecks via wage garnishment and bank accounts for taxes owed the Government via bank levy. An employer is required to collect the majority of a taxpayer’s check and forward it to the IRS if it has received a notice of wage garnishment. The amount taken from the paycheck is often 30% to 75% of the taxpayer’s wages. Banks, if properly notified, must send the entire amount in your bank account 21 days after receipt of the collection notice.

These garnishments and levies do not stop until the tax is paid or until it is modified or released.

The levy or garnishment will occur if the tax has been assessed (entered into the books as a debt), the taxpayer has been sent a notice of the debt and demand for payment, he or she doesn’t pay, and the taxpayer has received a final notice of the IRS intent to levy and a right to a hearing at least 30 days before the levy actually occurs and to the taxpayer’s last known address.

The collection can be appealed via the collection due process appeal process on a number of bases:

  • No opportunity to dispute the underlying debt
  • Spousal defense
  • Alternate collection options
  • Statute of limitations expiration
  • The IRS assessed the debt and sent the levy notice while taxpayer in bankruptcy
  • The tax has been paid
  • Procedural assessment error exists

If the taxpayer misses the deadline to request a collection due process appeal hearing the IRS will still release the levy if:

It is important that you read our tax blog about levy and garnishment issues and then call to discuss your situation. If you have outstanding tax debt and/or are being levied or garnished, an Arizona Tax Attorney can help you stop it and deal with the debt.

There is one thing that people often ask a Mesa tax lawyer, and that is how to prevent a levy or a collection
generally by the IRS when they know they owe, and they know the IRS is on the way.

IRS Levy – IRS Froze my Bank Account – When Can I Use it Again

icicle-thumb-375x281-62472A common concern once the IRS Levies or “freezes” a bank account is whether it will remain in place as to all future deposits. In other words, can the frozen account still be used to make deposits and pay bills?

The good news is that the IRS Bank Account Levy only freezes the money that was in the account at the time the levy was processed.

If you have $500.00 in the account tomorrow and the levy is fully processed tomorrow, the bank will freeze $500.00.

If the next day you make a deposit of another $500.00, that money is your own and the bank should not freeze it. The levy was complete when first $500.00 was frozen. The IRS would have to issue another levy.

If someone asks you, the same question above then your answer is…”An IRS levy is not a continuous levy on your bank account”.

Video: Tax Attorney In Mesa Michael Anderson
Explains Frozen Bank Accounts

A lot of people ask their Mesa tax attorney about their bank account when it has been frozen by the IRS,
and specifically when can they use it again?

The follow up question is whether or not the IRS will issue another levy on the bank account?

One after another isn’t common, but…it could happen and I tell clients to just get the situation worked out so that all collection activity is stopped.

It is also important to know that when the bank freezes the funds, it must hold them for 20 days before mailing the dollars to the IRS. This provides some time for you to try and get the money placed back into the account.

In the end, the IRS is really just trying to rattle your cage when it grabs a bank account. If you have a serious tax debt and have been hit, you need to use the levy as extra motivation to get the entire situation analyzed and solved via a negotiated plan, offer in compromise or even bankruptcy.

Michael Anderson, Tax Lawyer In ArizonaWritten By:

Anderson Tax Law
2158 N. Gilbert Rd. Ste 101
Mesa, Arizona 85203

Phone: (480) 507-5985
Fax: (480) 507-5988
Email: [email protected]
Website: https://taxlawyeraz.com