Howard's IRS and the Law Blog

Owing just credit cards or just the IRS is a heavy load.

But what if you are strugglng with credit card debt and have fallen behind on your taxes, and are understandably sinking under their combined weight?

For a while, it may be manageable – the IRS sometimes takes a while to rear its ugly head, and you can buy a little time by paying the credit cards a little every month and keeping them off your back.

But the monthly credit card payments get you nowhere – despite the good money you are throwing their way, you hardly make a dent in the balances.

And then the IRS come calling.  A local Revenue Officer pays you a visit at home or work, or maybe your bank account or wages are garnished, it could even be the onslaught of IRS collection letters filling your mailbox.

And you find out that the IRS really does not care about your credit card problem.  The payments you are sending to the credit cards, well, the IRS tells you to send that to them, or they will garnish your accounts.  In debtor-creditor law, the IRS is often considered a preferred creditor, meaning that they have a right to get paid before the credit cards.

Your house of cards is crumbling.  If you pay the IRS what they want, then the credit card companies are going to start dunning you – calls, letters, third-party debt collectors, threats of lawsuits from lawyers.

There are solutions to slay this two-headed monster.

First, if you owe the IRS under $50,000, they will give you a 72 month payment plan on your taxes and not inquire about your credit card debt. The IRS will not ask you to send the credit card money to them if you can afford to repay the taxes over 72 months.  In fact, the IRS won’t even ask you for financial disclosures of where you work, what you drive, how much your house is worth, or if you even have credit card debt. The IRS offers this as a simplified method to repay your taxes. It is called a direct debit installment agreement.

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The average amount the IRS settles for in an offer in compromise is $6,629.  Sounds good, doesn’t it?

If only it was that easy – everyone would be doing it, right?

The reality is that in 2014, the IRS received 68,000 offers in compromise from taxpayers.

The IRS accepted 27,000 of those offers.

That’s an acceptance rate of 40%.  Or, if you are a glass half full kind of person, that’s a rejection rate of 60%.

The total amount accepted in those offers was $179 million.

If you are keeping score, that’s an average settlement of $6,629.

Now, that does not mean that you can settle with the IRS for that amount, or that there is a 40% chance your offer will be accepted.  The IRS uses a very specific formula in determining the settlement value of an OIC and whether to accept or reject it.  Your success depends on how you fit into the IRS formula.

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An IRS auditor wants to interview me – do I have to go?

by Howard S. Levy, Esq. on May 3, 2015

in IRS Audits

You just received a notice from the IRS that your tax return has been selected for audit.

But the real kicker is the IRS auditor’s request to interview you, face-to-face, possibly at your home or office.

IRS auditors like to move fast, and your letter probably has a date and selected for the interview.  There is not much time allowed for you to prepare, ready, or even steady yourself for the IRS.

Meeting with the IRS auditor is especially problematic – there is the anxiety, nerves, taking time off work, fear of the known or unknown, concern over saying something that could inadvertently hurt you, lack of familiarity with the process, or even a feeling of intimidation.

You have rights in IRS audits to protect you against yourself.

One of your most important IRS rights is that of representation.  You have the right to retain a professional – it can be an attorney, certified public account or enrolled agent – to help you and represent you in the audit.  Your representative takes you out of the middle of this.  Your nightmare is their expertise.

Once you have retained a professional, all IRS calls, correspondence and, yes, interviews, route through your representative.

That means your representative handles all the talking, writing, documents and negotiations with the IRS agent.

That includes meeting with the IRS agent – your attorney, for example, is fully authorized and permitted to meet with the IRS for you, and handle all interview questions for you.  You do not have to go to the interview and meet with the auditor.  Your attorney can do it for you.

Here’s why you don’t have to submit to an interview with the IRS auditor:

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An IRS offer in compromise is available to virtually anyone who owes the IRS back taxes.  But it is important to avoid confusing the program’s widespread availability with success in getting your offer accepted.

After all, the last thing you want to do is waste time and money with the IRS on an offer that has no chance.  The offer in compromise program does work – but only in the right situation. To have success with an IRS compromise, you have to understand the IRS guidelines for analyzing your offer.

Is there a point where you could earn too much money to get a compromise accepted, and as a result have to consider other options with the IRS (installment agreements, tax bankruptcy).

There are two rules to follow when considering how your income could affect the success of your offer in compromise:

The first rule is that the IRS has no set rules that limit an offer in compromise to certain income levels.  There are no earnings caps to the availability of an offer in compromise. Whether you make $25,000 or $250,000, the IRS compromise guidelines will not, standing alone, make you ineligible for settlement.

The second rule, though, is that the IRS does have living expense guidelines that limit how much you can spend to get to “yes” in a compromise.

Sure, the IRS says, go ahead and make $250,000 – but if you spend it in a way that is different from what the IRS guidelines permit, your compromise could run into trouble.

The IRS determines the amount of your settlement by figuring out how much they think they can collect from your cash flow over the time they have to collect your tax debt from you.

Cash flow is defined by the IRS as your earnings less your monthly living expenses (remembering that the IRS has guidelines that limit your living expenses). The IRS has 10 years to collect a debt from you, beginning on the date you initially owed the IRS the money.

If your monthly cash flow, after being multiplied by the amount of months the IRS has left to collect the debt from you, is less than what you owe, then your in the game for an offer in compromise.  If your monthly cash flow, as defined by the IRS, can full pay what you owe, then your offer will be rejected.

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What if you can afford a monthly installment agreement with the IRS, but your payments will not ever repay what you owe?

The good news is that the IRS will give you a payment plan – and leave you alone – even though you cannot pay them back.

The IRS calls this partial pay installment agreements (PPIA).  Payment agreements that do not pay the IRS in full are permitted not only by IRS internal guidelines (Internal Revenue Manual 5.14.2), but by law (Internal Revenue Code Section 6519).

Internal Revenue Code 6159(a) specifically states that the IRS can enter into an agreement that facilitates either full or partial collection of an unpaid tax liability.

Even better news:  In conjunction with your partial pay installment agreement, keep in the back of your mind that the IRS does have a time limitation on how long they can collect a tax debt.  The time limitation, which is known as the statute of limitations on collection, is 10 years.  The 10 years starts when the IRS first determines that you owe them money – that can be when you filed your tax return, when the IRS completed an audit of your tax return and found you owed additional money, or when the IRS filed a tax return for you (called a Substitute for Return) because you never filed on your own.  Whenever the IRS puts a balance owed on its books, that’s when the 10 year time to collect starts. IRS collection does not last forever, and neither do payment agreements.

They are called partial pay installment agreements for a reason.

What does this mean to you?  To sum up, the IRS will accept partial pay installment plans, and combined with the limitation on how long the IRS has to collect a debt, this results in an agreement where you repay the IRS less than what you owe. In other words, partial pay installment agreements present a viable settlement alternative to the IRS offer in compromise program.

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You were brave enough to pick-up and open your certified mail, and there it was – an IRS Final Notice of Intent to Levy.

The law is intended to avoid surprises from the IRS and protect you, and the Final Notice of Intent to Levy does just that, giving you notice in advance that they are considering sending a levy to your employer or bank or even taking your personal property or real estate.

Now that you are on notice that the IRS wants to gear up its collection activities, what are your next steps?

You do have rights.

First, it is important to make sure you have received an actual Final Notice of Intent to Levy from the IRS. The IRS sends out many, many different collection letters, and they all tend to look like, but they are not all are equal.

To determine if you have received an actual Final Notice of Intent to Levy, look in the upper right hand corner of your letter.  You are looking for IRS identifiers LT11 or LT 1058 – if your notice does not have have either of those, it is likely not a Final Notice of Intent to Levy giving the IRS the rights to take your property.

If your letter is either an LT11 or LT 1058, then you now have important rights to stop the IRS from levying you.

The IRS not only has to give you notice before they levy, but also the right to prevent a levy by the filing of an appeal to negotiate alternatives to seizure.

Tax laws give you 30 days after the date of your LT11 or LT 1058 notice to file an appeal.  Filing your appeal is extremely important as it stops the IRS from levying you while it is pending. This enables you to continue to protect your wages and accounts from the IRS while you work out a solution with them.

If more than 30 days have passed since the IRS sent you the final notice, that’s okay, too. The IRS is actually somewhat flexible in giving you the ability to appeal their final notices of intent to levy, extending the tax law requirement of appealing with 30 days and giving you up to a year if you missed the deadline.

After the appeal is filed, procedurally, it will take the IRS about 3-5 months to process it. In most situations, during that entire time, the IRS continues to be barred from taking collection enforcement against you.

The IRS will then forward your appeal to a settlement officer.  IRS settlement officers are not collection employees and are trained to settle unpaid tax cases.  They cannot levy you.  They are there to resolve your case.

If you have been frustrated by dealings with the IRS Automated Collection Service or a local IRS Revenue Officer, your collection due process appeal changes that and put you in front of a different IRS employee – a settlement officer – who likely has a different perspective.  After you have reached resolution with the settlement officer (without the threat of levy), the IRS has to abide by it.

The IRS Final Notice of Intent to Levy is probably the most important letter the IRS will send you.  After all, without it, the IRS cannot levy your wages, bank accounts and property.

With the final notice, you have rights to stop the levy before it happens, and meet with an IRS settlement officer to negotiate a solution that is better than levy.  Solutions that the IRS settlement officer can consider include an offer in compromise, a monthly payment plan, currently uncollectible and even penalty abatement.  If you owe back taxes to the IRS, properly responding to the final notice can be an important element of getting the best result.

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