Attorney
The IRS is an intimidating beast. With their comprehensive knowledge of tax laws and ways to get more out of your paycheck, it’s not always comfortable to have a conversation with them. It can be difficult to find the answers to any tax questions without navigating their FAQ section that leaves much to be desired. We offer advice on our page[1] on some solutions to end IRS issues you may be having.
The IRS can be an aggressive bully when it comes to their techniques in getting their money back. There are steep penalties that come with late filing, delinquent payroll tax deposit and there can be an increase in the total a mere months that can make it hard to get ahead.
We strongly encourage consulting with a CPA, attorney or enrolled agent to help represent your side before every meeting with an IRS agent. Obtaining professional advice can give you the guidance you need in these difficult situations and help you to state your case. They specialize in working with the IRS and are not intimidated by their vast knowledge and laws because of their expertise. The answers given to the questions they ask are legally binding and can make the difference between closing the doors to your business and liquidation or freedom from your tax debt.
Liens and Levies
The IRS has ways to make your life difficult such as federal tax liens or a levy. Each of these are different strategies implemented by the government to attempt to collect their money, prevent you from selling off your things, and even make it more difficult for you to conduct daily living.
Liens
A tax lien is simply a public record, filed with your local county clerk, that tells everyone that you owe them money. In doing this, it effectively blocks you from obtaining new credit or tampers with existing credit you may have. When filling out loan applications, obtaining lines of credit or conducting business, these become available to the lender which can make your life a little harder. This also creates complications for our personal property and real estate. Since the federal government has put a lien on them, you cannot sell or transfer them until the debt is paid. This leaves you stuck where you are unable to use your property as collateral on a loan or credit source.
Levy
A levy placed by the IRS in order to take property to satisfy a debt. Because of the Internal Revenue Code (IRC), the IRS has the right to take your things if you owe them money. They typically only levy in situations where they have: sent multiple statements and received no payment or haven’t heard from you, send you a notice and demand for payment, you refused or didn’t pay, and they sent you a Final Notice of Intent to Levy and a Notice of your Right to a Hearing. It can be mailed to you, given in person, left at your home or work or even take part of your tax refunds. The IRS has the right to seize assets to try to nullify your debt and though is usually a final resort, can happen.
A levy can be done in multiple forms such as a bank levy or wage levy. A bank levy involves the IRS taking all the money from your account on a particular day up to the amount of the debt. It is only valid for that one day and doesn’t affect the future of the account unless another levy is issued. Whereas a wage levy is a mound of paperwork sent to your employer. They have to fill it all out and take a percentage of your wages to be sent to the IRS to pay the debt. Companies/corporations are forced to comply with the request for the wages or be faced with their own penalties. The relationship between the taxpayer and employer can be damaged irreparably because of this. The wage levy, or wage garnishment, stays in effect until the debt is full. In other words, you won’t get a full check until the debt is paid off. Also, these percentages are determined by the IRS and can cause you to be very uncomfortable until the debt is paid if you live paycheck to paycheck.
What’s the Difference?
The difference between a lien and levy deal with how they get their money. A lien is a legal claim to the property to ensure that you will pay them where as a levy is the IRS takes whatever property in order to clear the debt. A levy should be avoided at all costs. These methods are how the IRS gets their money back; but how do they know who owes them?
Audits
An audit is a financial review of the information that has been sent or a lack of information sent to the IRS. This can be done because of related examinations that have been conducted, such as auditing your personal taxes if your business was audited. This can also be completely random. The IRS uses a computer screening process and can randomly select individuals and businesses. Their taxes are compared with other normal returns and they look for similarities and differences through a computer system that can alert the IRS if it needs attention. Alternatively, you could be selected from luck of the draw, with no rhyme or reason. Filings amended returns doesn’t affect it, filing late or filing early It doesn’t mean you have done anything wrong necessarily, it just happens.
How will I know?
The IRS will send you a notification if you are audited. It will only be done via mail. Emails, phone calls and texts are frequently associated with scams and you should never send your information through these means. You should call the IRS directly via their 1-800 number so that you can tell you if you are dealing with a scam debt collector of the real IRS.
How do they audit?
Audits can be done in person or through mail. When done through the mail system, it is often a simple paperwork error that needs remedy such as sending in a missing W-2 or 1099 income items. These can be done without having to meet in person and have very simple processes.
Audits can also be done through in person interviews. These are performed at an IRS office (office audit) or at your home/place of business/accountant’s office (a field audit). Both are face-to-face meetings with an IRS tax examiner or revenue agent who will ask for additional information, documents, and want to speak with you. You could also be asked for receipts, bank records or to explain answers you gave when you filed the taxes. Revenue agents are tax examiners that receive additional training and have auditing techniques to look for errors and should be taken seriously if they come to your home or place of business. Any audit, be it mail or in person, should be taken seriously as they can ask questions about other tax years, deductions, expenses and the answers that you provided.
What if I don’t file?
Taxpayers are required to file their returns and earnings. Failure to do so is considered a criminal act by the IRS and can be punished. You can receive up to a year in prison for each year that taxes are not filed. Additionally, there are fines and penalties that can be accrued for not filing. While owing the IRS is worrisome, spending time in prison for failure to file taxes is more concerning.
The IRS can potentially file a SFR or Substitute for Return on your behalf. They do this for a tax return that is not filed. These are completed with all the information of your income, but the government is filling this out. This means that they are not looking to save you the most money, add deductions and make sure that you receive savings. These are done in the best interest of the government and do not consider the tax breaks you could have been entitled to.
Penalties
There are punishments for not filing your taxes, being late, not paying, and more. The IRS has a way of adding fees and fines to all possible instances in order to capitalize. The most common penalties given are failure to file and failure to pay. Both of these possess fees that can add up quickly. Not to mention that the penalties added to the amount are also included when calculating the interest owed to the IRS. This can make a huge difference as some of the penalties can add up to more than you owed with interest added. It is possible to have some of these forgiven and to reduce the amount, but you are at the mercy of the IRS. While these fines, fees, and interest were originally used as a scare tactic to keep taxpayers on time, they have now become a source of income as well. The IRS can not only make money on the taxes you pay but also from the fees and fines they add to it.
Wrap Up
The IRS has many tools under their belt to make taxes a complicated mess. Failure to pay or file can lead to penalties that are higher than the amounts you owed. When you don’t communicate or attempt to pay the debt, the IRS can lien against your things so your daily life becomes harder or even seize what they can sell to satisfy the debt. While this all sounds terrifying and complicated, there are ways to remedy the situation. We provide some assistance in navigating their vast information. There are also local professionals that you can turn to for advice. The important thing to know: you’re not fighting the IRS alone.
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