Articles Posted in Tax Liens and Levies

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There are many scenarios that may result in an individual accruing tax debt. In cases where an individual is notified by the IRS via a Notice and Demand for Payment of an outstanding tax bill, it’s wise to address such matters in a prompt manner. At times, an individual may refute the amount or existence of tax debt. When contacted by the IRS, individuals who fail to take action with regard to an outstanding tax bill may be subject to fines and penalties including a federal tax lien.

Individuals who receive a Notice of Federal Tax Lien are likely to have many questions and concerns about how a lien affects their financial standing and credit. An attorney who handles tax issues can assist with problems that stem from and disputes related to tax debt.

When the IRS issues a tax lien, the government is effectively notifying other creditors of its legal right to a taxpayer’s property. A lien not only attaches to all of an individual’s existing assets, but also to any future assets that are acquired or purchased while a lien is still in place. Individuals who are subject to a tax lien are likely to encounter difficulty when attempting to secure a home or car loan or other lines of credit.

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Tax day, April 15, is just a few days away and if you are like many New Yorkers, you may be hoping to win the lottery before then in order to be able to pay your tax bill on time.

Believe it or not, you may not need a winning lottery ticket in order to make good with the IRS this tax season.

A tax payment plan, or an IRS Installment Agreement, is a great way for people who cannot afford to pay their tax debt to avoid getting into trouble — and more debt — with the IRS. Here is how it works:

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This week, actor Robert De Niro was hit with a tax lien from the IRS on his Manhattan condo for owing $6.4 million in unpaid taxes. De Niro took action right away to pay the debt, and his spokesperson said that the taxes were unpaid because he had not received the notices.

This isn’t the first time that a celebrity has run into trouble — or a misunderstanding — with the IRS. In fact, there are at least three lessons that celebrities have had the opportunity to teach us about tax liens, in particular.

1. Make sure the IRS has your current address.

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Is the upcoming tax season drawing up a sense of fear and anxiety within you over your unpaid taxes? Do you feel overwhelmed and at a loss over how you will ever be able to pay the back taxes you owe? Are you expecting your tax debt problems to only get worse with the upcoming tax deadline?

If you answered “yes” to any of these questions, you can now breathe a sigh of relief because we are here to help.

Our firm of skilled tax attorneys knows how to work with the IRS to:

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IRS wage garnishment is a form of tax levy imposed by the tax authorities for unpaid tax debt under the tax law. A tax levy is a seizure of your property to satisfy an unpaid tax bill. Wages and salary include fees, bonuses, and commissions and can be subject to the tax levy. The tax levy may also attach to future payments until the levy is released.

Under the tax law, the IRS can not levy a taxpayer until three requirements are met: 1.) The IRS assesses your tax and sends you a Notice and Demand for Payment; 2.) You did not, or refused to pay, the tax; 3.) The IRS sent you a Final Notice of Intent to Levy and Notice of Your Right to a Hearing, at least 30 days before the levy. If the IRS levies your wages or salary, the tax levy will end when: 1.) The levy is released; 2.) you pay your tax debt in full; or 3.) The time expires for legally collecting the tax (usually 10 years). It is important to note that there is no limit on the amount that the IRS can levy from your wages. There is, however, an amount that is “exempt.” Anything you earn about the “exempt” amount is what the IRS can tax levy from your wages. This “exempt” amount from the tax levy is determined based on your filing status of your last tax return, how frequently you are paid, and the number of exemptions you claim. Overall, it tends to be that only about 10% to 20% of your wages are exempt from the tax levy.

Under the tax law, New York State Department of Taxation can not issue a levy until a tax warrant is filed (in most cases). A tax warrant is a formal legal action again a taxpayer. The warrant is a public record filed with your local county clerk’s office and the New York State Department of State, disclosing that you owe taxes to the State. The warrant states that the Department of Tax has a right to collect your tax debt through a tax levy, income execution, and seizure and sale of property. The warrant may show up on your credit report, which as a result will make if more difficult for you to borrow money or buy and sell property. For levies with the New York State Department of Tax, you may remove all or part of a levy if you: 1.) Pay your tax bill in full; or 2.) Document the funds as exempt (if they are exempt, the NYS Tax Department will work with you to resolve the levy). Examples of exempt funds include: social security and supplemental security income, public assistance (e.g., welfare), alimony or child support, benefits such as unemployment, disability workers’ compensation, and public or private pensions, under the tax law.

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Once the Internal Revenue Service (the “IRS”) has begun collection action, the taxpayer has several options. One of which is establishing a Currently Not Collectible, or “CNC” status. To qualify, a taxpayer must demonstrate that payment of the tax liability would impose a financial hardship.

Financial hardship means that paying the tax liability would leave the taxpayer without sufficient resources to cover necessary living expenses1.   Upon establishment of CNC status, all IRS collection and enforcement activity is suspended. In other words, the taxpayer will no longer have to worry about wage garnishments or bank levies.

Establishing CNC status does not relive a taxpayer of underlying liabilities, and therefore it is important to know that penalties and interest will generally continue to accrue. Further, tax liens may be placed on a taxpayer’s property and all returns must be filed, to date, for qualification.

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If you are audited by the IRS and owe money, the IRS collections department has a process that determines what a taxpayer can afford to pay. The IRS Collection Financial Standards are used in calculating the repayment of delinquent taxes. These standards are used to determine if a taxpayer is able to pay a delinquent tax liability.

The IRS can determine what your total income is and what your expenses are. These numbers are collected using IRS forms and your numbers are compared to national set standards.

National Standards apply nationwide, and you are allowed the total national standard amount for your family size, without questioning the amount you actually spent. These standards can include items like transportation, housing and utilities, clothing and miscellaneous. The amount of the National Standard depends on the size of the family, and taxpayers can claim the total amount for the number of people in the family, without needing any documentation or proof. There are also National Standards for out-of-pocket health care expense, and these are calculated by a set standard amount per person, and again, there is no questioning the amount actually spent.

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