UNFILED TAX RETURNS

People who do not file their returns usually fail to do so due to some traumatic occurrence in their lives. For these people, a deal can usually be made within the collection division of the IRS. However, the IRS can and does treat failure to file as a criminal act in some cases. This usually results in imprisonment for the nonfiler. If a taxpayer does not file his return, the IRS may file a return for him called an SFR or Substitute For Return. This always results in higher taxes than if filed by the taxpayer. However, the taxpayer may always file a return, no matter how late. Before any deals can be made with the IRS, at least the past three years returns must be filed.

RETURNS FILED BUT NOT PAID

Most people try to pay their taxes on time. However, I have many clients who have filed their return every year, but simply did not send in the payment with the return. This can happen for many reasons, but a very common one is when the taxpayer withdraws money from his 401K, IRA or other retirement account and the taxes are not withheld at the time of withdrawal. Many different penalties are assessed against unpaid taxes and interest is compounded daily by the IRS. Thus, it is wise to resolve this delinquency as soon as possible. For returns several years old it is not unusual for the interest and penalties to be more than the original tax!

PAYROLL TAX PROBLEMS

The IRS pursues the collection of unpaid payroll taxes very vigorously, whether the company is a sole proprietorship, corporation, partnership or LLC. The penalties assessed for these taxes can rapidly increase the total amount owed in a very short time. If the taxpayer is a corporation and goes out of business with the taxes unpaid, the IRS, under the Trust Fund Penalty doctrine, will pursue everyone it feels is responsible for making monetary decisions in the corporation. The Trust Fund Penalty consists of that portion of the total payroll taxes which are withheld from the employee paycheck and held in by the employer. This is a very complicated and dangerous area and anyone who has payroll tax problems should not talk to the IRS without proper professional representation. The IRS can literally put a company out of business due to unpaid payroll taxes. Levies should be avoided at all costs and can usually be avoided if prompt and prudent action is taken. A levy is the name for the actual collection action the IRS employs to forcibly take money from a taxpayer. However, the IRS cannot levy unless due process (notice and opportunity to be heard) has been followed. Here are some of the most common levies. A bank account occurs when the IRS sends notice to your bank and the bank must send them all of the money in your account. This is a one time occurrence and the IRS must send another levy to take money again. A levy on wages occurs when the IRS sends notice to your employer to withhold a certain amount from your paycheck each pay period. This is an ongoing levy and will occur each pay period until released by the IRS. It usually results in the taxpayer not having enough to live on after the levy. A levy on your accounts receivable occurs when the IRS sends notice to your customers to send the IRS the money that otherwise would be coming to you. In any of these situations, the people or businesses whom the IRS contacts must cooperate or they face serious trouble themselves. As you can imagine, these contacts by the do nothing to improve your relationship with your employer or customers.

IRS LEVIES
The first type of IRS levy occurs when the IRS notifies your bank to
freeze all of the money in your account or accounts at that bank as of
the day the notice is received. The bank must hold the money for
twenty-one days and then send the money to the IRS unless notified
otherwise. This twenty-one day period gives the taxpayer an
opportunity to appeal the seizure. The second type of levy occurs when
the IRS notifies your employer to send the IRS directly a portion of
your paycheck.. this is also called a garnishment. Again, the taxpayer
has a short time to challenge this levy. In order for a levy by the
IRS to be legal, several notices must be sent to the taxpayer prior to
the actual levy, including two certified letters. However, the IRS
only has to send the letters to the last known address, which may not
be the taxpayer’s current address. Also, the certified letter does not
have to be picked up by the taxpayer, it only has to be mailed.

IRS LIENS

A lien is a public notice that a person owes money. A real estate mortgage is an example of a lien. Liens are filed at the county courthouse and also appear on your credit report. Thus they can destroy your credit and make it very difficult for you to borrow money. The IRS files a lien for the amount of taxes you owe, broken down by years. If you sell a piece of real estate, any filed and recorded lien must be paid before you can receive any money from the sale.

WAGE/INCOME GARNISHMENTS
See IRS Levies

IRS SEIZURES
A seizure of property, either real or personal, is very similar to a
levy, except the thing seized is not money. The same notices must be
sent to the taxpayer for the seizure to be legal. If the seizure is
legal, the IRS can sell the property seized and keep all of the money
to apply to the taxes owed. The only exception to this is that
property that is exempt pursuant to State law is protected from
seizure. See “IRS LEVIES” for more details.

IRS AUDITS
An audit is simply an examination by the IRS of a tax return which was
previously filed by a taxpayer. This can either be a detailed
examination of the entire return or, which is more often the case, an
examination of one or more sections of the return.

IRS PENALTIES
Any time a tax return of any type is not filed, filed late and/or not
paid, penalties are assessed against the taxpayer. This is separate
from interest which is charged when taxes are not paid on time. It is
important to note that after the penalties are assessed, interest will
be charged on the penalties until paid. There are many types of
penalties which are charged against a taxpayer, such as non-filing,
late filing and failure to pay penalties. However, under certain
circumstances most and sometimes all of these penalties can be abated
or forgiven. This can occur when the taxpayer has a reasonable
explanation for doing or failing. to do the action which resulted in
the penalty. A special request must be made for abatement and the
penalty cannot be abated until the underlying tax has been paid. On
the other hand, interest is never reduced or forgiven unless the IRS
made a calculation error which resulted in higher interest than allowed
by law.