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Many clients reach out to me with apprehension when the IRS contacts them. Typically, their concerns stem from receiving one or more letters from the IRS, which is far less daunting than a personal visit from an IRS Revenue Officer or Special Agent. In such situations, I always request that they share a copy of their most recent IRS letter with me via email, fax, or a photo and text message. Reviewing this correspondence allows me to promptly gauge their position within the IRS collection process.
It's essential to emphasize that every communication from the IRS demands serious attention. However, it's also worth noting that some IRS letters come with stricter time constraints than others. Failing to respond promptly to these time-sensitive letters can lead to severe consequences.
Many of my clients experience extreme stress when they find themselves in a situation where they owe taxes to the IRS but are unable to pay them. This anxiety is entirely understandable because dealing with the IRS can feel like confronting an 800-pound gorilla wielding a baseball bat. It's a natural instinct for many people to consider evasion as their primary defense when facing such a formidable adversary. The temptation to stick one's head in the sand and avoid the issue may seem appealing initially. However, I always advise my clients that ignoring the IRS is never a viable solution. In fact, neglecting IRS tax problems can exacerbate the situation.
Some IRS tax issues can escalate into criminal matters, potentially involving the IRS Criminal Investigation Division (CID). Once the IRS CID becomes involved, their sole objective is to build a case for criminal prosecution. Furthermore, apart from the risk of criminal liability, disregarding IRS tax problems can result in substantial civil penalties, creating financial burdens that may persist for years and hinder a family's ability to save and plan for the future. This is why it's essential to take a proactive approach to deal with the IRS.
When clients engage my services to resolve their civil IRS tax problems, my primary objectives are to assist them in determining their accurate IRS tax liability, identify the most suitable IRS payment plan options available within the bounds of the law, and negotiate a fair resolution with the IRS under these payment plan arrangements.
Having practiced as a tax attorney for nearly 25 years, I can confidently assert that no two IRS tax cases are identical, even if they involve similar types of tax issues. However, the initial steps in addressing any IRS tax problem usually follow a similar pattern. We begin by assessing the actual amount owed to the IRS, including accrued interest and penalties, and ensure that all required tax returns are filed accurately. Once this groundwork is established, the focus shifts to determining the best method of settling the IRS debt. This process can vary in complexity depending on several factors, including:
While each IRS tax case has its unique complexities influenced by these factors, all IRS tax problems eventually boil down to a single decision: how to repay the IRS. Without oversimplifying the available IRS payment plan options, they typically include:
IRS Offer in Compromise: You may have come across commercials claiming that IRS tax debts can be settled "for pennies on the dollar." These advertisements, though sometimes misleading, highlight the existence of IRS payment plan options for individuals and businesses to address their tax liabilities. The IRS Offer in Compromise is one such option, allowing taxpayers to settle their tax debts for less than the total amount owed—provided they meet specific criteria. However, it's important to note that qualifying for this option can be intricate, requiring careful financial and legal considerations before submitting an Offer in Compromise package. To be accepted, you must demonstrate to the IRS that they would collect less by seizing your assets than the amount you're offering. Given the legal intricacies involved, it's advisable to seek guidance from an experienced tax professional, such as an IRS tax attorney, when pursuing this option.
IRS Installment Plans: The IRS offers a range of installment plans to help individuals and businesses repay their tax debts. These plans typically require monthly payments and, except for partial payment installment agreements, mandate full repayment of the tax debt within 72 months. Eligibility for IRS installment plans is initially determined by the amount of tax owed, and there are different types available, including Guaranteed Installment Agreements, Streamlined Installment Agreements, Partial Payment Installment Agreements, and "Non-Streamlined" Installment Agreements. An IRS tax attorney can evaluate your financial situation, determine the most suitable installment plan, calculate the minimum required monthly payment, and handle all necessary filings for setting up the plan.
IRS Penalty Abatement: IRS tax penalties are imposed to encourage timely filing of tax returns and payment of taxes. These penalties can have significant financial implications and are often considered one of the more unjust aspects of federal tax law. Fortunately, in many cases, these penalties can be partially or fully eliminated by requesting penalty abatement from the IRS. Demonstrating "reasonable cause" for non-compliance with tax regulations can lead to successful penalty abatement requests.
Navigating IRS tax problems can be daunting, but it's crucial to take proactive steps and explore the available options for resolving these issues. Engaging the services of an experienced tax professional, such as an IRS tax attorney, can be instrumental in achieving a favorable outcome.
Throughout my extensive career in tax law, I've received numerous calls from clients who have been contacted by the IRS regarding their unfiled tax returns. It's completely understandable for them to feel uneasy about being labeled as "non-filers" by the IRS, considering the potential serious legal consequences, both on the criminal and civil fronts, that come with failing to file IRS tax returns. Dealing with the status of being an IRS "non-filer" is a grave matter, and taking swift action to rectify it is imperative.
On the criminal front, failing to file IRS tax returns could lead to the commission of a federal crime. The penalties for non-filing can be severe, with potential consequences of up to $25,000 in fines and/or one year of federal imprisonment for each year a tax return remains unfiled. The IRS Criminal Investigation Division is responsible for investigating and prosecuting cases involving individuals who have failed to file their IRS tax returns.
On the civil side, the IRS has the authority to impose two significant penalties on non-filers:
IRS Failure-to-File Penalty: This penalty applies when you file your tax return late. It typically amounts to five percent (5%) of the unpaid taxes for each month or portion of a month that your tax return remains overdue. The penalty's maximum limit is capped at twenty-five percent (25%) of your unpaid taxes.
IRS Failure-to-Pay Penalty: This penalty comes into play when you fail to pay your taxes promptly. It equates to one-half of one percent (1%) of your unpaid taxes for each month or part thereof after the due date when the taxes should have been paid. Like the failure-to-file penalty, this penalty also has a maximum ceiling of twenty-five percent (25%) of your unpaid taxes.
During my extensive years practicing IRS tax law, I've represented numerous businesses, business owners, and employees who have faced the challenge of unpaid IRS employment taxes. The IRS is particularly aggressive in enforcing compliance with employment tax obligations, making it one of the areas they pursue most vigorously. IRS Revenue Officers assigned to such cases are known for their assertiveness in identifying individuals liable for the trust fund recovery penalty.
If your business has outstanding IRS employment taxes, here are some crucial points to be aware of:
Expect an Unannounced IRS Visit: IRS Revenue Officers commonly make surprise visits to businesses with unpaid employment taxes. These unannounced visits can be disconcerting if you're unprepared. When facing an IRS Revenue Officer's visit, remember the following:
IRS Notice CP 297: The IRS cannot seize (levy) your bank accounts or accounts receivable until 30 days after you receive an IRS Notice CP 297, which is the Final Notice of Intent to Levy and Notice of Your Right to a Hearing. This notice is of utmost significance and should not be ignored. Failure to take appropriate action within 30 days empowers the IRS Revenue Officer to legally seize your business assets, bank accounts, and other resources.
IRS Revenue Officers' Workload: IRS Revenue Officers are often handling multiple tax cases concurrently. While this means that your case isn't their sole focus, it also emphasizes the importance of being accurate, timely, and precise in all your dealings with them. Missing deadlines can lead to levy actions or official summonses demanding your cooperation. The IRS Revenue Officer typically requires the following:
Timely Payment of IRS Employment Taxes: Once an IRS Revenue Officer targets your business for not paying employment taxes, there is little tolerance for further delays in making full and timely payments. Failure to do so puts your business at risk of being shut down by the IRS.
Trust Fund Recovery Penalty: The initiation of a trust fund recovery penalty case is a significant aspect of the IRS's response to unpaid employment taxes. This process can be one of the most unfair aspects of personal tax liability determination by the IRS. During this investigation, the IRS Revenue Officer will attempt to justify holding as many individuals as possible personally liable for paying the trust fund portion of the business's unpaid employment taxes. The IRS often casts a wide net, sometimes unjustly targeting innocent individuals. Personal interviews and bank record subpoenas are part of the investigative process.
It's crucial to seek guidance from a knowledgeable tax attorney before undergoing a trust fund recovery penalty interview. If the IRS Revenue Officer determines that you are personally responsible for the trust fund recovery penalty, you have the right to appeal within 60 days (or 75 days if the letter is addressed to you outside the United States) after receiving the IRS Letter 1153(DO) and IRS Form 2751, Proposed Assessment of Trust Fund Recovery Penalty. These documents outline the IRS's plan to assess the trust fund recovery penalty against you. During the appeal process, the IRS cannot collect the trust fund recovery penalty from you personally until your appeal rights have been exhausted.
For nearly 25 years, I have had the privilege of representing numerous individuals and businesses in the intricate realm of IRS tax audits. These audits often entail substantial implications, as their primary objective is to verify the accuracy of the tax information reported in filed IRS tax returns. Remarkably, irrespective of the monetary magnitude involved, many IRS audits adhere to similar sets of rules, regulations, and procedures. Therefore, I aim to share my extensive experiences and insights into the IRS audit process with you.
Understanding the IRS Audit Process:
IRS audits can be incredibly daunting, often evoking a sense of trepidation among those subject to them. However, my extensive experience has taught me that optimism can be well-founded, particularly when coupled with a comprehensive understanding of the governing rules and meticulous preparation. It is essential to note that being selected for an IRS audit does not automatically translate into owing additional taxes upon its completion. In numerous instances, there have been no changes to the tax owed, and sometimes even refunds have been determined to be due.
Why Was Your Tax Return Chosen for an IRS Audit?
Two common questions that individuals and businesses often pose when contacting my office are, "Why am I being audited?" and "Why was my tax return selected by the IRS?" These are valid queries, and the answer typically hinges on a variety of factors. Tax returns are chosen for IRS audits for several reasons, but my experience has distilled them into three distinct categories:
1. IRS Internal Computer Selection: The IRS employs a sophisticated internal computerized selection process that assesses tax returns based on the statistical likelihood of inaccuracies. This selection process relies on algorithms that remain closely guarded secrets. Two key systems include:
2. Audits of Related Businesses: The outcomes of one audit can trigger additional audits, particularly when the IRS investigates tax returns involving transactions with other taxpayers, such as business partners or investors. When issues arise in one taxpayer's audit, it can lead to audits of others involved in those transactions or businesses that have made cash payments.
3. Incriminating Documents Provided to the IRS: Some audits result from the submission of incriminating documents pertaining to questionable tax reporting. These documents can originate from various sources, such as investigations into unscrupulous tax preparers or informants reporting tax evasion.
Different Types of IRS Audits:
Once your tax return is selected for an IRS audit, the process unfolds, and you will be contacted to provide additional information regarding your reported tax information. IRS audits are conducted using three primary methods:
1. IRS Correspondence Audit: The most common audit method involves correspondence via mail, where the IRS requests specific documentation to support items on your tax return.
2. IRS Field Audit: This method involves an IRS representative visiting your home or place of business for an in-person audit. Caution is advised, as you are typically not legally obligated to grant entry to your premises.
3. IRS Office Audit: This method requires you or your representative to meet with an IRS auditor at an IRS office. You must bring all requested documents and any additional materials supporting your tax return.
Life After an IRS Audit: Is It Over?
A significant advantage for taxpayers is the ability to dispute and appeal IRS audit findings. After the audit's completion, you will receive IRS Form 4549, detailing proposed changes to your tax return and associated interest and penalties. Your options include:
Approval of IRS Form 4549 Audit Findings: If you agree with the proposed changes, you must sign IRS Form 870, Consent to Proposed Tax Adjustment, and return it along with a copy of IRS Form 4549.
Disapproval of IRS Form 4549 Audit Findings: If you disagree with the proposed changes, you have 30 days to:
Request an Appeal: If your disapproval persists and is unresolved, you have the legal right to appeal the IRS audit determination. It is crucial to adhere to the 30-day deadline for filing an appeal using IRS Form 4549. Missing this deadline may render the IRS audit changes final.
Please keep in mind that this overview is meant to provide a general understanding of the IRS audit process. Each case is unique, and it is advisable to seek professional guidance to navigate your specific situation effectively.
Serving as a personal and business IRS tax attorney, one recurring source of confusion among my clients has been differentiating between an IRS tax lien and an IRS tax levy. Given the intricacies of the IRS's operations, it's entirely understandable that those not well-versed in its day-to-day functions may find these IRS collection actions perplexing. However, it is imperative for individuals and businesses grappling with IRS tax issues to grasp the distinctions between these two, as they constitute critical tools in the IRS's arsenal for enforcing tax collection. While both involve filings by the IRS and share some procedural aspects, tax liens and tax levies are distinct in their nature and impact.
IRS Tax Lien
In straightforward terms, an IRS tax lien is a legal claim the IRS can assert against your present or future property to secure payment of your outstanding IRS tax debt. Think of it as the IRS using your property as collateral for your tax liabilities. However, it's essential to note that an IRS tax lien does not grant the IRS the immediate authority to seize funds from your bank account; that power is wielded through an IRS tax levy, a topic we'll delve into shortly.
To establish an IRS tax lien, the IRS files a Notice of Federal Tax Lien with a public entity, such as a County Recorder's Office or the state's Secretary of State. In most cases, an IRS tax lien safeguards the U.S. government's interest in all your assets, including real estate, personal belongings, and financial holdings. In Maryland, for example, the IRS typically files a Notice of Federal Tax Lien with the Office of the Clerk of the Circuit Court in your county or city of residence or business location.
By its very nature as a publicly filed document, an IRS tax lien notifies the general public of your outstanding IRS debt. In essence, it alerts creditors, current and potential employers, business associates, neighbors, and others that you owe the IRS and that the IRS holds a legal claim against your property. Consequently, when you sell any of your assets, the IRS debt takes precedence over your receipt of any proceeds from the sale.
Due to its public nature, an IRS tax lien has the potential to severely impact your credit rating. It can negatively affect your employment prospects, complicate the approval of home mortgages and individual or business loans, and more.
Typically, an IRS tax lien remains in effect until all IRS tax debt is settled or until ten (10) years have elapsed, whichever occurs first. There are some circumstances that may extend this ten-year collection period.
For more detailed information regarding IRS tax liens, please consult IRM 5.17.2.
IRS Tax Levy
In contrast, an IRS tax levy represents an action taken by the IRS to seize your assets and apply them towards your IRS tax debt. IRS tax levies are potent tools used by the IRS to collect outstanding debts, and they grant the IRS the authority to take your wages, bank accounts, Social Security payments, accounts receivable, insurance proceeds, real estate, and sometimes, even your primary residence. Under Internal Revenue Code section 6331, the IRS is empowered to "levy upon all property and rights to property" of individuals with IRS tax debts. This can involve seizing property in your possession (referred to as a "seizure") or property held by a third party, such as a bank or brokerage house. Exemptions to IRS tax levies are outlined in Internal Revenue Code section 6334 and include items such as unemployment benefits, workers' compensation, most household goods, and certain tools of your trade.
Unlike an IRS tax lien, an IRS tax levy is not publicly disclosed; it is not a publicly filed document. When the IRS serves a tax levy on your bank, for instance, the bank is legally obliged to withhold all funds up to the amount specified in the IRS tax levy and eventually send them to the IRS. However, there is a crucial safeguard in this process: Internal Revenue Code Section 6332(c) stipulates that the bank must retain your funds for twenty-one (21) calendar days. This window provides an opportunity to negotiate with the IRS for the removal of the tax levy before the bank forwards your money. In many cases, I've successfully persuaded the IRS to lift the levy, especially when clients have been taken aback by its sudden imposition. It typically involves presenting a comprehensive picture of the client's financial situation and their commitment to complying with IRS regulations. It's important to note that the IRS may not be initially willing to remove the levy and often attempts to run down the 21-day clock to ensure collection. For instance, the IRS instructs its employees to delay sending a copy of the IRS tax levy to taxpayers (see IRM 5.11.2.2.7).
Lastly, it's crucial to understand that an IRS tax levy on your bank account applies only to the funds present at the time the levy is received. In other words, funds deposited after the levy's issuance should not be included by the bank when sending the IRS your money. Later deposits should only be remitted to the IRS under a new and separate IRS levy. In contrast, an IRS tax levy on your wages, commissions, or similar payments operates as a "continuing" levy, meaning your employer must continue diverting a substantial portion of your paycheck to the IRS until your entire tax debt is satisfied or the IRS agrees to release the levy early.I have had the privilege of representing numerous individuals and businesses in the intricate realm of IRS tax audits. These audits often entail substantial implications, as their primary objective is to verify the accuracy of the tax information reported in filed IRS tax returns. Remarkably, irrespective of the monetary magnitude involved, many IRS audits adhere to similar sets of rules, regulations, and procedures. Therefore, I aim to share my extensive experiences and insights into the IRS audit process with you.
Understanding the IRS Audit Process:
IRS audits can be incredibly daunting, often evoking a sense of trepidation among those subject to them. However, my extensive experience has taught me that optimism can be well-founded, particularly when coupled with a comprehensive understanding of the governing rules and meticulous preparation. It is essential to note that being selected for an IRS audit does not automatically translate into owing additional taxes upon its completion. In numerous instances, there have been no changes to the tax owed, and sometimes even refunds have been determined to be due.
Why Was Your Tax Return Chosen for an IRS Audit?
Two common questions that individuals and businesses often pose when contacting my office are, "Why am I being audited?" and "Why was my tax return selected by the IRS?" These are valid queries, and the answer typically hinges on a variety of factors. Tax returns are chosen for IRS audits for several reasons, but my experience has distilled them into three distinct categories:
1. IRS Internal Computer Selection: The IRS employs a sophisticated internal computerized selection process that assesses tax returns based on the statistical likelihood of inaccuracies. This selection process relies on algorithms that remain closely guarded secrets. Two key systems include:
2. Audits of Related Businesses: The outcomes of one audit can trigger additional audits, particularly when the IRS investigates tax returns involving transactions with other taxpayers, such as business partners or investors. When issues arise in one taxpayer's audit, it can lead to audits of others involved in those transactions or businesses that have made cash payments.
3. Incriminating Documents Provided to the IRS: Some audits result from the submission of incriminating documents pertaining to questionable tax reporting. These documents can originate from various sources, such as investigations into unscrupulous tax preparers or informants reporting tax evasion.
Different Types of IRS Audits:
Once your tax return is selected for an IRS audit, the process unfolds, and you will be contacted to provide additional information regarding your reported tax information. IRS audits are conducted using three primary methods:
1. IRS Correspondence Audit: The most common audit method involves correspondence via mail, where the IRS requests specific documentation to support items on your tax return.
2. IRS Field Audit: This method involves an IRS representative visiting your home or place of business for an in-person audit. Caution is advised, as you are typically not legally obligated to grant entry to your premises.
3. IRS Office Audit: This method requires you or your representative to meet with an IRS auditor at an IRS office. You must bring all requested documents and any additional materials supporting your tax return.
Life After an IRS Audit: Is It Over?
A significant advantage for taxpayers is the ability to dispute and appeal IRS audit findings. After the audit's completion, you will receive IRS Form 4549, detailing proposed changes to your tax return and associated interest and penalties. Your options include:
Approval of IRS Form 4549 Audit Findings: If you agree with the proposed changes, you must sign IRS Form 870, Consent to Proposed Tax Adjustment, and return it along with a copy of IRS Form 4549.
Disapproval of IRS Form 4549 Audit Findings: If you disagree with the proposed changes, you have 30 days to:
Request an Appeal: If your disapproval persists and is unresolved, you have the legal right to appeal the IRS audit determination. It is crucial to adhere to the 30-day deadline for filing an appeal using IRS Form 4549. Missing this deadline may render the IRS audit changes final.
Please keep in mind that this overview is meant to provide a general understanding of the IRS audit process. Each case is unique, and it is advisable to seek professional guidance to navigate your specific situation effectively.
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