Unpaid IRS & State Tax Debts
Dallas Tax Attorney for Unpaid Tax Debts
Back taxes – or tax debt – are unpaid taxes assessed against a taxpayer by a level of government (i.e., Federal, state, or local) that are past due. Internal Revenue Service (IRS) back taxes are past due Federal income taxes. The IRS assesses back taxes in one of three ways.
Back Taxes Triggered by Filing a Tax Return
First, the back taxes are typically the result of a filed but unpaid Federal income tax return. This means that a taxpayer filed his or her Federal income tax return, but he or she failed to subsequently pay the tax due by the deadline (typically, April 15).
Once the IRS processes the return and assesses the balance due, the taxpayer will now owe the IRS back taxes – plus an additional “failure to pay” penalty.
Back Taxes Triggered by Missed Items
Second, the back taxes can be assessed against a filed and paid Federal income tax return, when the return failed to account for all income earned during the previous year. This means that the taxpayer prepared, filed, and paid his or her federal income tax return. However, when preparing the Federal income tax return, the taxpayer failed to include all of the income he or she earned throughout the year.
Remember, the IRS receives records from all employers and financial institutions showing all amounts paid to taxpayers throughout the year (i.e. Form W-2, Form 1099, etc.). If the IRS records do not match that of what the taxpayer claimed on the return, then the taxpayer may face an underreporting issue.
If the taxpayer does not promptly account for the disparity in records, the IRS can amend the taxpayer’s filed return to account for the unreported or underreported income, and assess back taxes against the taxpayers.
Back Taxes from Unfiled Tax Returns
Third, back taxes can occur even if a taxpayer does not file a tax return. If a taxpayer fails to file a tax return, the IRS may file a return on his or her behalf. These are called “substitutes for returns” (“SFRs”).
The IRS will often prepare the SFR in a light least favorable to the taxpayer. Often the substitute return reflects a much higher tax than what the taxpayer would have been assessed, had the taxpayer filed their own return. Once that tax is assessed and remains unpaid, it becomes back taxes.
Regardless of how the back taxes are assessed, the IRS typically only has ten (10) years from the date of assessment to collect the back taxes. The date to which the IRS has to collect any particular taxpayer’s past due taxes for any particular tax year is called the “collection statute expiration date” or CSED.
When the IRS or state comes to collect, you need to have a tax attorney working for you.
The IRS and State Collection Powers
The IRS and state tax authorities have broad collection powers. They can, and often do, seize bank accounts and garnish wages. In other cases, they foreclose on real estate. Even the generous Texas homestead cannot project against tax debts.
If a taxpayer does not pay their taxes the IRS will demand payment by sending letters and making field visits. If the taxpayer disregards the demands for payment the IRS will give legal notice that it will be resorting to other means to collect the taxes. The IRS does not have to provide any further notice before beginning collection activity for IRS debt.
The IRS & State Bank Levy
An IRS bank levy refers to when the IRS simply sends a letter accompanied by an IRS levy notice that they are seizing a taxpayer’s bank account. The bank is instructed to freeze all funds that are in the account and to forward the funds to the IRS.
Banks are obligated to follow the instructions of the IRS and the IRS imposes serious penalties upon banks that disregard levies. The IRS commonly uses bank levies as a way for collecting back taxes. These types of levies are most commonly sent to banks. However, the IRS can seize funds from any institution, business or individual that has funds belonging to the taxpayer. For example, the IRS can seize funds from a utility company holding a deposit, an escrow company, an investment company, a stockbroker, etc.
An IRS bank levy can have a devastating impact on a taxpayer’s financial situation. Taxpayers can avoid bank levies by not waiting for the IRS to start collection efforts and by resolving their account beforehand. Our tax attorneys have conducted hundreds of bank levy release negotiations over the years. If you have an IRS or state bank levy, contact us today.
Wage garnishments are one method that the IRS uses to collect overdue taxes. The IRS is given broad collection powers and when the IRS takes such action it is not an unlawful IRS wage levy.
An IRS wage garnishment or IRS wage levy is a written notice sent by the IRS to the taxpayer’s employer requiring the taxpayer’s employer to withhold a significant percentage of the employee’s pay and to forward it directly to the IRS.
Employers are obligated to follow the instructions of the IRS. If employers disregard IRS wage garnishments serious penalties can be imposed. If a taxpayer is self-employed, the IRS can send an IRS wage levy to the taxpayer’s accounts receivable. Those businesses and individuals are required to send the taxpayer’s funds to the IRS debt wage garnishment department. The IRS commonly uses this means of enforced collection activity to collect back taxes.
IRS wage garnishments can have a devastating impact on a taxpayer’s financial situation. Many taxpayers struggle due to the garnishment of wages by the IRS. An IRS wage levy can remain in place until the tax liability is paid or until it is resolved through some other means such as an installment agreement, an offer in compromise or a currently not collectible status. Taxpayers can stop wage garnishments from the IRS by not waiting for the IRS to start collection efforts and by resolving their accounts beforehand. To learn how you may be able to stop a wage garnishment from the IRS contact us today.
IRS Revenue Officers
Revenue Officers are by definition “Collection Officers” for the IRS. Revenue Officers are assigned to accounts to collect back taxes. Their objective is to collect the taxes that are owed as quickly as possible and to have the account paid in full.
When taxpayers work with Revenue Officers, it is very important that they understand their rights. Revenue Officers have the authority to garnish wages, levy bank accounts, file Federal tax liens and even seize assets. Although Revenue Officers hold such a position of power, they must comply with statues and regulations set forth by Congress.
In general terms, the IRS is prohibited from taking a taxpayer’s income and assets, if such taking will result in an undue hardship to the taxpayer. The IRS is also barred from taking certain specified exempt assets. Additionally, Revenue Officers must conduct themselves in a professional manner and must provide taxpayers with reasonable time frames to respond to their requests. Unfortunately, not all Revenue Officers respect these limitations and sometimes conduct themselves in a discourteous manner and act without regard to the financial impact of their actions against taxpayers.
When dealing with a Revenue Officer, one should identify the appropriate means of resolving the taxpayer’s account given all facts, circumstances, and laws and prevent the IRS from taking any inappropriate collection activity. If you have had a revenue officer assigned to your case, call us today so we can help prevent any inappropriate collection activity.
Help with IRS and State Tax Debts
We help taxpayers manage their IRS and state tax debts. This includes:
- Finding tax resolution options for unpaid income taxes, including business income taxes and individual income taxes.
- Helping business owners with payroll taxes and trust fund recovery penalties and excise taxes.
- Helping estates deal with unpaid estate taxes.
As tax attorneys, we use a wide range of advanced techniques to resolve unpaid taxes.
IRS Offer in Compromise
An IRS Offer in Compromise with the IRS allows taxpayers that cannot afford to fully pay their back tax liability the opportunity to settle for less than what they owe. An Offer in Compromise can reduce IRS debt.
IRS tax settlements are subject to certain terms and conditions. The IRS sets guidelines for accepting an Offer in Compromise. The IRS looks at a taxpayer’s past, current and future financial situation when evaluating whether an Offer in Compromise should be accepted.
It is important to know what aspects of a taxpayer’s situation the IRS is looking at when filing an Offer in Compromise. Not everyone qualifies for an IRS Offer in Compromise, as each person’s financial situation is different. Additionally, the length of time varies but the average generally is 8 to 12 months. Thus, pre-qualifying for an Offer in Compromise is an important first step to take prior to attempting an Offer in Compromise with the IRS.
The IRS Offer in Compromise process involves completing the appropriate forms, having the necessary records on hand, being compliant with the IRS tax regulations, and filing the Offer in Compromise for review with the IRS.
Once filed, the IRS begins its investigation of the taxpayer’s reasonable collection potential based on his or her financial situation. They also evaluate the taxpayer’s history of filing tax returns. It usually does not factor in the taxpayer’s lifestyle expenses.
Unfortunately, many taxpayers who file an IRS Offer in Compromise, get it returned due to procedural deficiencies and never make it to a point of final review. Thus, satisfying the many procedural requirements is necessary if an Offer in Compromise is to be reviewed by the IRS and is one of the benefits in hiring an experienced tax professional for filing an IRS tax settlement.
After the IRS completes its review, it makes a determination either to reject or accept the Offer in Compromise. If the Offer in Compromise is rejected, another remedy may be needed, such as an Installment Agreement, Currently Not Collectible status.
If the Offer in Compromise is accepted the offer amount is paid and the back taxes are resolved. In addition, the taxpayer must file all future IRS tax returns and make all necessary payments on time and in full.
An IRS Offer in Compromise is an excellent way to resolve back taxes and to get a fresh start with the IRS. Click here to read more about the IRS offer process or contact us today to see if you qualify.
An Installment Agreement with the IRS allows taxpayers that cannot afford to fully pay their back tax liability the option to pay their back taxes through monthly payments.
There are guidelines regarding how the IRS determines the payment amount and time frame for the agreement. Additionally, a taxpayer must be compliant with all past tax filings before establishing the agreement. Depending on the circumstances and the amount of time that the IRS has left to collect the tax debt, the Installment Agreement may pay all or part of the back tax liability.
Often, when a taxpayer attempts to establish an installment agreement with the IRS, they encounter competing interests. The IRS wants to collect the entire amount of the taxes as quickly as possible, while the taxpayer wants a payment that is manageable and affordable for their financial situation.
Unfortunately for many taxpayers, they end up with monthly payments greater than they can reasonably afford and this results in a financial hardship. In many situations like this, the taxpayers end up defaulting on their Installment Agreement causing the IRS to begin collection activity all over again. Therefore, it is important to have an affordable installment agreement established properly the first time.
Once an installment agreement has been established the IRS suspends its collection efforts and refrains from issuing wage garnishments, bank levies, sending notices and making harassing phone calls. Consideration for being on an installment agreement is that penalties and interest continue to accrue on the unpaid portion of back tax liability throughout the duration of an installment agreement. Additionally, depending on the circumstances, the IRS may file a “Notice of Federal Tax Lien” to protect their interest until the liability is paid in full.
There are certain conditions that must be kept after the installment agreement is established such as being compliant with future tax filings and payments. For those that cannot afford to full pay their back taxes immediately and do not qualify for an offer in compromise or a currently not collectible status, an installment agreement may be the best alternative.
Currently Not Collectible
The IRS will place a taxpayer’s account in a Currently Not Collectible (CNC) status when they have determined that the IRS is presently unable to collect the taxes from the taxpayer by full payment, through an installment agreement or by way of an offer in compromise.
Once the account is placed in a Currently Not Collectible status, the IRS does not pursue collection activity against the taxpayer and the statute of limitations on the tax liabilities will continue to run. Generally, unless the taxpayer’s financial situation changes, the account will remain in a Currently Not Collectible status until the tax liabilities expire.
However, if the taxpayer’s financial situation improves the account will be taken off of Currently Not Collectible status so that the IRS can collect the taxes through full payment or an Installment Agreement.
When a taxpayer has a negative cash flow and has equity in assets that the taxpayer is dependent upon, the taxpayer could attempt to resolve their account by having their account placed in a Currently Not Collectible status depending on their circumstances. For Currently Not Collectible status, the underlying issue is that liquidation of a particular asset is either not feasible or would cause a financial hardship.
If you have an unpaid tax debt, we’d like to hear from you. Call our Dallas tax attornneys at (469) 895-5141 to schedule an appointment.
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