Articles Posted in Tax Appeals

Typically, when you owe a creditor, such as a credit card company, and you have an unpaid balance they would have to go to court and get a judgement against you before they could take steps to take your assets to pay the unpaid balance. Unfortunately, this same legal mechanism is not in place for tax debts owed to the IRS and the States. A tax lexy is a tax collection tool available to the IRS and the States where there is an unpaid tax balance owed, but it does not require court intervention. Technically, a tax levy is a seizure of your assets to pay back taxes owed. The tax levy is difference from a tax lien (or tax warrant), which does not require the taking the assets, but is a lien against your property (for instance your home), similar to how a bank would have mortgage against your property for the balance you owe to the bank. However, a tax lien will affect your FICO score in a very substantial negative way, so it is not harmless.

a1-300x300Before your assets can be seized by the IRS, typically you have been given a fair amount of warning that a tax issue exists. The first step is that the IRS will assess the taxes, either from a tax return you filed, or if you did not file a tax return they would prepare a substitute tax return for you. They will then send you a tax bill and demand payment. They will usually send out three bills, over a 90 day time period. If that tax bill is not paid, your account will go into collections and they will issue a CP504 letter (notice of intent to levy). Even at this stage, the IRS is not levying your assets. If the CP504 letter is not responded to, then they issue a CP90 Notice, that is also known as a Notice of Levy. If that demand letter is not responded to, they have a right to levy and take your assets.

The assets that the IRS and States most likley to levy are wages, bank accounts, physical assets, social security, accounts receivable, and vehicles. From a collection perspective, the IRS will use the levy mechanism that will produce the quickest and easiest method to get your assets to pay off the tax debt. For wage garnishments, they would notify your employer of the tax debt, and under the law in most cases can receive a substantial amount of your salary, often leaving the taxpayer with not enough money to pay their bills.   For bank levies, the IRS contacts your financial institution and tell them to put a 21 day hold on your account. The hope is that during those 21 days an alternate payment mechanism can be worked out with the IRS, such as a payment plan. If that does not happen, at the end of the 21 days they take the assets in the  account to pay the balance owed. For assets seizures (cars, motorcycles, boats) the IRS can just seize them and sell the asset to pay down the debt.

The IRS appeals function has the mission of attempting to resolve tax disputes between taxpayers and the IRS by negotiated settlement discussions rather than litigation. Since tax litigation is very expensive, the IRS appeals process is a very useful tool to help resolve tax disputes. Today, in our society, using means other than litigation has caught on in the form of mediation and arbitration.

The ability to utilize the IRS appeals function, as demonstrated by Facebook’s failed attempt to gain access to the appeals group and ended up going to court just to have the right to go to IRS appeals, can sometimes be a tricky process. I have used the IRS appeals process many times to try to avoid tax liens, for collection and exam issues, and penalty abatement cases. If you desire, the appeal can be heard in person, or over the phone.

a8-300x301-299x300Fast Track Mediation is geared mostly to the small business and self employed taxpayers that are disputing tax assessments as a result of an income tax audit, the imposition of a trust fund recovery penalty (for unpaid payroll taxes), offers in compromise settlements, or IRS collection actions where a Revenue Officer is involved. The trained mediator (who does not force either party to accept his or her decision), listens to both sides to understand the tax issues involved and try’s to formulate a solution that both parties can accept. This process is usually complete in about 30 to 40 days. The mediation process is started when the IRS and the taxpayer both sign a Form 13369, for the case to transferred to the mediation group. With the form, you also provide a written explanation of your position, with legal support (tax law, court cases), that supports your position. The mediator reviews all the evidence, speaks to each party, and then renders a decision.

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When it comes to options for debt management, the immediate goal may be relief from creditors. If payments become unmanageable and collection tactics become too aggressive, some may consider bankruptcy.

Yet a recent article reminds New York readers that they need to understand how any outstanding or disputed federal tax liabilities may survive a bankruptcy filing before considering this approach to debt relief. As a preliminary matter, if a taxpayer’s return has been audited, the bankruptcy filing will not halt that investigation. In addition, a Chapter 7 bankruptcy will not discharge a recorded federal tax lien.

For example, if an audit results in an outstanding tax liability, the Internal Revenue Service may file a tax lien against the taxpayer after give ten days’ notice in person, on the telephone, or by mailing to the taxpayer’s last known address. A taxpayer does have the option of disputing the tax liability by requesting a Collection Due Process hearing under Section 6320 of the Internal Revenue Code. However, that CDP hearing may be difficult to attend to amidst the obligations of a bankruptcy filing.

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In 1966, the Freedom of Information Act, commonly referred to as FOIA, was enacted. This act gives individuals the rights to access federal records or information from federal government agencies. FOIA exists due to the belief that the federal government belongs to the people, therefore the federal governments information should belong to the people.

In 1996, FOIA was amended so that federal agencies were required to make their records available to citizens online. Along with the OPEN Government Act of 2007, FOIA helps to promote government transparency.

There is tax information available to taxpayers without a FOIA request, including:

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One of the most common reasons why individuals fail to file Form 1040, the U.S. Individual Income Tax Return, that should be filed annually, is because they know they will owe the Internal Revenue Service, but are unable to pay the liability.

Filing returns that are past due are not any different than filing for the current tax year. If you choose to not file your past due returns or do not contact the IRS, the IRS will start to take action. Deliberate non-compliance can lead to additional tax penalties and potentially criminal prosecution.

Taxpayers should file every year, even if a full payment cannot be made. Taxpayers who are not able to pay the tax liability due on the bill are encouraged to pay as much as possible. This will help limit the amount of interest and penalties owed. Taxpayers should file all unfiled returns that are past due to avoid additional penalties and interest. The IRS can impose penalties for filing returns late, paying tax liabilities late, or both. The IRS will charge interest on any unpaid tax.

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