Tax Law

Individual Tax Debt

An IRS levy is when the IRS issues a bank levy to obtain your cash in savings and checking accounts. The IRS can also levy your accounts receivable, your IRA or your 401(k).  When the IRS levies a bank account, the levy is only for the particular day the levy is received by the bank. This type of levy does not affect any future deposits made into your bank account, unless the IRS issues another bank account levy.

IRS and state tax liens act as security against all of your property, including your home, cars, furniture and other household items.  A tax lien is not a levy, it does nothing more than provide the IRS or state tax commission with a security interest in your real and personal property.

You Have several options in dealing with or reducing your individual tax debt.  They include:

  • Setting up a payment plan with the IRS
  • Making an offer in compromise to settle your tax debt
  • Filing a penalty abatement request
  • Filing an innocent spouse request

The IRS has various levels of payment plans that they offer.  If you owe less than $25,000 you can set up a Stream Line Installment Agreement with the IRS, where the IRS doesn’t care about your financial assets or income so long as you pay off your tax debt within 60 months.  If you owe more than $25,000 but less than $50,000 you can set up a Fresh Start Installment agreement, where the IRS doesn’t care about your financial assets or income so long as you pay off your individual tax debt within 60 months and set up your payment plan as an auto debit payment plan from your bank account.  If you owe more than $50,000 then you will need to submit a financial statement to the IRS and request a payment plan based upon your finial ability to pay.

The ultimate goal of an offer in compromise is to reach a settlement with the IRS that is in the Government’s and taxpayer’s best interest. An Offer in Compromise based upon doubt as to collectability means that it is unlikely that the IRS will be able to collect the full amount you owe and you are willing to pay the IRS what they would reasonably collect from you.  In determining how much you have to pay in an offer, the IRS considers first the amount of collectible equity you have in your assets and second the amount you could pay from your present and future income. Generally, the IRS will not accept an offer unless all of your tax returns have been filed.

The IRS penalizes millions of taxpayers each year and taxpayers often find out about IRS problems years after they have occurred.  The most common penalties are-Failure to File and Failure to Pay penalties. IRS Penalties can substantially increase the amount you owe the IRS, and to make matters worse, the IRS charges you interest on penalties.  While the original goal of penalties was to motivate taxpayers to timely file and pay their taxes, penalties have turned into additional sources of income for the IRS.  The IRS does abate penalties and before you pay the IRS any penalty amounts, you may want to consider requesting an IRS penalty abatement.

Married taxpayers who file a joint tax return are individually and jointly held responsible for all the tax due even if one spouse earned all the income or claimed improper deductions or credits.  This means that the IRS can collect against you as an individual and you and your spouse as a couple.  This liability remains even if you later divorce and your divorce decree states that your former spouse will be responsible for any amounts due on previously filed joint returns.  In some cases, a spouse can get relief from joint and several liability under the innocent spouse provisions.   You must request relief no later than 2 years after the date the IRS first attempted to collect the tax from you, regardless of the type of relief you are seeking.

The IRS is very aggressive in collecting unpaid payroll taxes. I believe it is critical to have a CPA, Attorney, or Enrolled Agent represent you, the taxpayer, in these types of situations. How you answer the first five questions asked by the IRS may determine whether you stay in business or find your business liquidated by the IRS.  You should avoid meeting with any IRS representatives regarding payroll taxes until you have met with a professional to discuss your options.

Like individuals, businesses can also incur income tax debt and be penalized for filing returns late, making payroll tax deposits late, and paying tax due amounts late.  You Have several options in dealing with or reducing your business tax debt.  They include:

  • Setting up a payment plan with the IRS
  • Making an offer in compromise to settle your tax debt
  • Filing a penalty abatement request
Business Tax Debt
Tax Audits

The most common IRS audits are done through the mail where the IRS sends you a letter and asks you to mail in verification of certain items from your tax return.  Typically, correspondence audits are for missing documents in your tax return the IRS computers have attempted to find. These usually include W-2’s and 1099 income items or interest expense items. This type of audit can be handled through the mail with the correct documentation.  It is important that you respond to these mail requests because if you do not, the IRS will either deny the deduction in question, or increase your gross wages, which will lead to you having to pay more in taxes.

The IRS can also conduct an audit by having you come down to their office of by having IRS auditor come to your office or home. The location of your audit is a good indication of the severity of the audit.  Audits where the IRS sends someone to your location are the most sever and involved kinds of audits.   Audits scheduled at an IRS office or at your home or office should be taken seriously because the IRS Auditor is generally a Revenue Agent, who receives more training and auditing techniques than a typical Tax Examiner.

If you don’t agree with the results of an IRS Audit, DON’T SIGN ANYTHING the IRS gives you.   If you sign and agree with the results of an IRS audit, you are going to be stuck with those results.  If you don’t agree on an audit, the IRS is required to issue you a 30 Day Notice or a 90 Day Notice of Deficiency.

If you receive a 30 day notice from the IRS you have the right to appeal your case to the Internal Revenue Service’s Appeals Division.  It is important that you do not ignore this notice.  Appealing your issue may allow you to present your case to an IRS appeals officer who will independently review and who may change the outcome of an audit or an offer in compromise.

If you receive a 90 day notice or a Notice of Deficiency, you have 90 days to file a petition with the United States Tax Court.  It is important that you do not ignore this notice.  Filing a tax court petition will allow you to bring your case before the U.S. Tax Court and allow a judge to review your case.  If you fail to response to the notice, you lose your right to bring your case in tax court, the IRS can immediately assess any tax liabilities that they have proposed, and the IRS may begin collecting on the tax liability.

Tax Planning

My goal in tax planning is to help you maximize the tax benefits and savings that you are provided under the Internal Revenue Code.  The Internal Revenue Code provides various means by which to maximize your tax savings, such as contributing to a 401(k); contributing to a health savings account; claiming all credits that you are entitled to claim; and, properly tracking and claiming all deductions you are entitled to, including health care deductions, charitable contributions, mortgage interest, etc.  Whether you are filing an individual return or filing a corporate or partnership return, I can help you maximize your tax savings.

Unfiled Tax Returns

If you have unfiled tax returns, you should be aware that failure to file tax your returns may be construed as a criminal act by the IRS.  If you don’t file your own returns, the  IRS may file “SFR” (Substitute For Return) tax returns for you. Because SFR returns are filed in the best interest of the government, the only deductions you’ll see are standard deductions and one personal exemption. You will not get credit for deductions to which you may be entitled, such as exemptions for spouse and children, interest and taxes on your home, cost of any stock or real estate sales, business expenses, etc.  You may have heard, you have the right to file your original tax return, no matter how late it’s filed.

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