Howard's IRS and the Law Blog

Do you need IRS audit or collection help, or can you go at it alone with the IRS?

You may currently be uncomfortable with what an IRS agent is telling you, or what your rights are, or if your case is proceeding the way it should.

Or there may be IRS threats of enforcement against your wages, bank accounts, or real estate – are they real, and if so, how can they be avoided?

Maybe the IRS may be requesting to interview you, or visit your house, or tour your business. Can they, should they?

Are there better options and solutions to your problem than what the IRS is telling you?

What are they not telling you?

Here are a few things you should know about your rights with the IRS:

To enter your house, you can voluntarily let the IRS in, but you may be uncomfortable with that.  Absent your permission, know that the IRS cannot enter your house without a court warrant allowing them to enter.  The same is true for your business.  You want to cooperate with the IRS, sure, but maybe usually we arrange a meeting at a neutral site, like my office.

The IRS likes to conduct interviews.  In audits, it is the first thing they will usually request – to meet with you, and interview you about your finances and tax return.  But you may uncomfortable with that, too.  Know that to interview you, the IRS must send out a summons to require your attendance if you do not want to voluntarily do it.

In most every audit, the personal interview process is alleviated as the IRS interview with me, about you.  In other words, I familiarize myself with your situation to answer the IRS questions about you, and for you.  Most IRS agents permit this provided their questions are satisfactorily answered.

If the IRS is threatening to levy your accounts or wages, know that before the IRS can take your property, the IRS has to send you a registered-mail letter notifying you of their intent to levy.  They can’t just do it randomly, by surprise, and without notice.

You also have the right to appeal most every IRS decision and not accept an auditor or collector’s decision as final.  You have rights to appeal the following:

–    The findings of an IRS auditor, both to the IRS Office of Appeals, and if that’s unsuccessful, to the independent U.S. Tax Court.  Yes, IRS audits are not final, nor are the findings of an IRS auditor.

–    Any decision by an IRS collections employee that you disagree with can be appealed by using the IRS Collection Appeals Program.  While the review is pending, the IRS is put on hold, and no enforcement occurs.

–    A rejection of an IRS offer in compromise is not final.  You have the right to appeal any dispute over settling your debt by an offer in compromise to an IRS appeals officer.

–    Similar to IRS audits, you have the right to appeal an IRS decision to levy to an IRS appeals officer, and then to Tax Court.  The appeal stops the IRS from levying until it is decided.

–    If you have offered to pay the IRS with an installment agreement, but the IRS denied your request, that decision is not final – you have the legal right to have a denied installment agreement reviewed by an independent, third party at the IRS.

–    If you already have an installment agreement, but the IRS sent you a notice to terminate it, you can appeal that, too, before it becomes final.

Taking your living quarters, denying you transportation, or taking your business from you is possible – and serious – but also fairly low on the IRS to-do list, all appearances and myths aside.

As a former IRS attorney, I have an appreciation of how the IRS works, how they think, and the best strategies to negotiate with them.

I spend most of my work day talking to the IRS, and I work to understand their job demands, work flow, and internal criteria to close a case.  My IRS experience and has helped me to bridge the gap between my clients and the IRS by having a better understanding for both sides.

So my answer is yes, if you have professional representation, the IRS will treat you differently. And that is exactly what you should want – to be treated in a manner where your rights are preserved, protected, and respected.

 

Can bankruptcy get you out of a bind with the IRS and eliminate your tax debt?

If this was a true or false law school exam, I would say that’s a trick question.  The answer is both – bankruptcy can discharge tax debt, and it can’t.

Huh?

There are many rules in the bankruptcy code that must be followed to have a tax debt discharged. And those rules make some taxes dischargeable, and some not. You can’t always just file bankruptcy and poof!, the IRS is gone.  But if you know the bankruptcy discharge rules, and follow those rules before you jump in, then yes, bankruptcy can be a friend in solving your IRS problem.

Here it is a nutshell:  Bankruptcy makes some debts easy to discharge, like credit cards and medical bills.  This is because Congress does not consider those debts to be of a type where extra effort has to be exerted for a fresh start.

Congress gives the IRS a chance to collect unpaid taxes before they can be discharged in bankruptcy.  That is different from, say credit cards, where there is no direct law giving credit card companies time to collect the debt before you can say bye-bye to them.  Congress has also made some taxes – like unpaid payroll taxes, or tax fraud – never dischargeable in bankruptcy.

Sometimes, you are ready to file bankruptcy and we determine that the time the IRS is allotted to collect has already expired, and you can immediately file bankruptcy and be done with your taxes, whether the IRS likes it or not.

Other times, we may have to put the IRS on hold and buy a little bit of time to get your bankruptcy filed so your taxes can be eliminated.

And there may be times where your taxes cannot be discharged in bankruptcy no matter how long you wait to file, such as when you owe employment taxes, have tax fraud, or your debt is the result of an IRS substitute for return.

Here, then, are the rules to making the IRS go away with bankruptcy.

First, the timing rules – how old must your tax debt be to wipe out the IRS in bankruptcy – there are three main rules to follow:

     1.  Three Year Rule.  Your bankruptcy must be filed at least three years after your tax return was due to filed with the IRS, including extensions.

Example:  You owe the IRS for 2010 taxes.  Your 2010 tax return was due to be filed with the IRS on April 15, 2011.  Your tax debt is eligible for bankruptcy after April 15, 2014.

and

      2.  Two Year Rule.  Your bankruptcy must be file at least two years after your tax return was actually filed.

Example:  You owe the IRS for 2010 taxes.  You filed the return late – on June 1, 2013.  Your debt is eligible for bankruptcy after June 1, 2015.

and

      3.  240 Day Rule (usually, eliminating tax debts from an IRS audit).  Your bankruptcy must be filed at least 240 days after the IRS puts the balance you owe on its books (called an assessment).  This rule usually applies in audit scenarios, when the IRS finds you owe them money after your return has been filed.  After the audit is complete and the IRS puts the money owed on its books, you have to wait 240 days to file the bankruptcy.

Example:  Your 2010 tax return was due on April 15, 2011, and filed on time.  The IRS then audited you, with audit completed and tax owed put on the IRS’ books on February 1, 2014 (assessment).  Your tax debt is eligible for bankruptcy on October 1, 2014, which is 240 days after the audit assessment was made, and more than three years since the return was filed.

All three of these rules – the Three Year Rule, the Two Year Rule, and the 240 Day Rule – must be met before you file bankruptcy.

But be careful – there are traps to avoid on the way to beating the tax bankruptcy timing rules.  Avoid these actions, which can extend the timing rules:

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Losing your house to the IRS may be your worst fear.  And it’s true that the IRS can seize and sell a home to pay a back tax debt.  But it is harder – and less likely – than you what you may have read or believe.

To begin with, the Department of Justice seizes and sells houses for unpaid taxes, not the IRS.  To sell a house, the IRS makes a referral over to the Department of Justice; the IRS does not sell houses on its own. Unless you have heard from the Department of Justice Tax Division, your house is not in the process of being sold.  And rest assured, the Department of Justice does not get involved in many unpaid tax cases – the IRS is usually pretty picky and choosy about what cases they send to the Department of Justice.

How many houses do you think the Department of Justice forecloses on every year because of a tax problem?  25,000?  10,000?  5,000?  1,500?

If you thought those numbers seem too high, you are correct.  In 2013, for example, the IRS Data Book reports that there were 547 seizures of real property (houses) and personal property (cars) made.  That’s out of over 11 million tax accounts in the IRS’ inventory.  547 out of 11,000,000.  Chances are, the IRS is not interested in your house.

The IRS is not a maniacal house-seizing machine that relishes the thought of putting people out on the street.  Referring a case to the Department of Justice to deprive a taxpayer of his house is usually the last, not the first, thing the IRS wants to do.

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When the IRS Comes Calling: Settling with the Tax Man

by Howard S. Levy, Esq. on September 28, 2014

in IRS Collection Problems

What do you do when the IRS knocks on your door?  Fear, anxiety, jail time – many different ideas pop into mind about what the government will do because of a failure to pay taxes.  A knock on the door from the IRS is extremely important, but most of what you fear is more myth than reality.

Your anxiety:  Is the IRS going to show up one day and seize my house?  Levy on my income so I cannot provide for my family?  Shut down my business?  Take my retirement account? Put me in jail.

The answers may surprise you, and your fears are usually bigger than the reality.

On Thursday, October 2, 2014, I will be giving a live webinar with myLawCLE.com that will give you the knowledge of how the IRS works, how to defend against aggressive IRS actions, and ultimately, reach settlement and case resolution.  The webinar is at 9 am PST, 10 am MST, 11 am CST and 12 pm EST.

Here is the agenda of what will be covered:

  1. Knock, Knock – Who is at My Door from the IRS?
  2. The Power of the IRS to Destroy: What Can the IRS Really Seize, and What Are the Likely Sources?
  3. IRS Seizure Process: Is There Due Process in IRS Collections?
  4. IRS Collection Enforcement Priorities: Is it Likely that the IRS Will Take a House?  Retirement Account?
  5. Settling with the IRS: Offers in Compromise – Myths vs. Reality.
  6. Negotiating Payment Agreements: Providing the IRS with Financial Statements.
  7. IRS Forbearance: Convincing the IRS to Leave an Unpaid Tax Debt Alone.
  8. Yes, My Dear, Bankruptcy Can Eliminate an IRS Tax Debt: Here’s How.
  9. How Long Can the IRS Collect a Tax Debt? Expiration Dates on the IRS Collection Power.

To learn more, please visit MyLawCLE.com.

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