Howard's IRS and the Law Blog

IRS tax liens are not forever.  They do expire – here is an overview of when:

For starters, the IRS has 10 years to pursue you for the unpaid taxes that caused the lien to be filed.  The 10 years starts on the date you began owing the IRS money.

After the 10 year collection timeframe expires, so does the IRS tax lien.

But beware:  Sometimes you might do something that gives the IRS more time to collect.  This can have an impact on a Federal tax lien.

Actions that can extend the IRS collection timeframe include the filing of bankruptcy, collection due process appeals or submitting an offer in compromise or innocent spouse claim.  These actions stop the IRS from collecting.  Because of that, this time is added back on to the collection statute.

The tax lien will still expire at the end of 10 years – even if the IRS has more than 10 years to collect – unless the IRS timely refiles the lien.

If the IRS timely refiles the tax lien, it is treated as continuation of the initial lien.

The refiled tax lien will be valid for the extended timeframe the IRS has to collect – it is good for the extra time you gave the IRS to collect.  It maintains any priority it has against liens of other creditors. See Internal Revenue Code 6323(g)(3) and Internal Revenue Manual 5.17.2.3.3.

However, if the IRS does not refile the tax lien within 30 days per IRC 6323(g)(3), the original lien expires and is no longer valid.

If the IRS refiles the tax lien after 30 days, then it is still a valid lien, but it is not considered a continuation of the original lien because it was filed late.  It is a new lien, and its priority against other creditors starts on the day it is filed.  The IRS will have lost any higher ground it had over other creditors.  Other creditor’s liens now jump ahead of the IRS.

For more on the IRS statute of limitations on collection, see my prior posts.

I received a call from a Wall Street Journal reporter on a story he was writing on an IRS announcement that they might use mortgage interest payments to identify non-filers.

It goes like this:  You have not filed tax returns.  You are self-employed and your income is not reported to the IRS.  But you own a home, and pay mortgage interest.  Your bank, as it is required to do, reports to the IRS the amount of mortgage interest you paid.  The theory is that if you are paying your mortgage, there is a substantial likelihood you have income. But if the IRS has no record of a tax return being filed, the conclusion is that there is unreported income and missing tax filings.

As I stated to the reporter (and was quoted in the article), this is clearly the IRS attacking the cash economy – those who are self-employed and for any number of life reasons – divorce, medical problems, business failures – and have not filed tax returns.

This will not always be black and white.  Mortgage interest could be paid by non-taxable sources – like refinancing a house, taking cash out and living off the funds during periods of unemployment.  But, as the study indicated, there are those who do pay mortgages, have income, and have not filed their taxes.

The best way to handle unfiled returns is voluntarily before the IRS comes calling. Although non-filing is an indicator of criminal tax fraud, in most cases the IRS simply wants tax returns and an approach to the unpaid taxes, like offer in compromise, repayment agreement, uncollectible or bankruptcy. These are civil issues only.

Non-filing can be stressful enough – getting a head start on the IRS is the best way to formulate a plan to prepare the returns and find solutions to nonpayment.

In an unprecedented hiring move, the IRS is bringing on board almost 2.000 new Revenue Officers, starting this fall (2009).  This is a 35% increase in high level IRS collection enforcement staffing.

The ramp up will entail over 1,000 new Revenue Officers in the fall, with another 350 coming on board in 2010 and then 500 slated to begin in 2011.

The focus on Revenue Officers is significant as they are the best trained and most aggressive IRS collection agents.  Revenue Officers live in your city, and come to your house or business as an enforcement method. They have the most power to investigate your finances, and levy or seize your assets if there is a lack of cooperation.

The IRS enforcement initiative will likely be focused on employment tax problems, non-filers and those who owe the IRS year after year.  It is better to plan in advance and get your ducks lined up before the IRS comes knocking.

If you have had trouble paying taxes to the IRS in the past and would like to settle up, the first step is to ensure that you are paying your taxes now.  The IRS will not negotiate unless it sees that you are current on your taxes. And any solution that is negotiated will quickly default if your taxes do not remain current.

If you are self-employed, the best way to make the IRS happy is to open up a separate bank account to set aside the money to pay this year’s taxes. Put you name and the words “estimated tax account” on account.

Take a percent off the top of every check you receive for your services and depositing it in the IRS tax account.  I like to review a profit and loss for my clients and recent tax returns to accurately determine the correct amount to set aside. Usually, the rate is in vicinity of 10-20% of the gross check. Once the percent is determined and the bank account is there for the money, my clients find the process is more manageable.

You then pay the money in the estimated tax account over to the IRS four times a year – on April 15, June 15, September 15 and January 15.

Doing this is sweet music to the ears of an IRS collection officer – you are demonstrating that you take your tax obligations seriously. You have “rehabilitated” yourself in the eyes of the IRS – yesteryear’s mistakes are past history.  This alleviates IRS worries that you will default on your taxes again.  You maybe self-employed, but you are finally treating yourself for tax purposes like an employee.  It is good for you, and good for the IRS.

Finding the money for estimated taxes to the IRS is as important as any other expense you have in your budget.  You cannot pay the credit cards and not the IRS – the IRS comes first.   A close budget review can find the money. If not, more severe options might be necessary to find the cash flow, like eliminating in bankruptcy unnecessary debt that is preventing you from paying the IRS.

The IRS cannot come into your private space on their own and seize business assets or your valuable personal possessions.  They first need either:

(1)   Your permission or

(2)   A writ of entry from a federal judge.

This is a basic Fourth Amendment protection against unreasonable searches and seizures.

The IRS can enter upon public areas to take your property without your consent or a court ordered writ of entry.  This means that if you car is parked at work or on your driveway, the IRS can get to it without consent or court process.  In contrast, if the car is in your garage, the IRS would need your consent to go into the garage or a writ to enter.

Your consent or court order is necessary for the IRS to enter and seize personal property in areas where there is an expectation of privacy. You do not have to let the IRS in if is not in your best interest.

I am fortunate that the National Association of Enrolled Agents has invited me to their annual Tax Institute on August 9 -11, 2009 in Baltimore, Md.

Here are the outlines for the topics I will be speaking on:

IRS collections

Tax bankruptcy

Trust fund recovery penalty

For more information on the NAEA and the National Tax Practice Institute, visit their website at www.naea.org.

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