Helping You Handle Your Tax Situation
Tax levies are the way that the Internal Revenue Service gets your immediate attention. Levies are used to seize your wages (commonly referred to as garnishments). The IRS will send a notice to your employer forcing them to with-hold up to 75% of your earnings to help satisfy the tax debt.
The IRS will also attempt to seize other assets you have: Checking accounts, savings accounts, autos, stocks, bonds, or anything else that you own. If you have more in the bank than you owe, the IRS will only take that amount to satisfy your liability, leaving the rest for you.
If the IRS levies your bank account, your bank must hold funds you have on deposit, up to the amount you owe, for 21 days. This period allows the taxpayer time to solve any problems from the levy. After 21 days, the bank must send the money plus interest, if it applies, to the IRS.
If the IRS made a mistake by levying your bank account and you incurred bank charges because of the erroneous levy, you may be entitled to reimbursement from the IRS by filing a claim with the IRS within one year after your bank charged you the fee.
A lien is different from an IRS levy. A lien is a claim used as security for the tax debt, while an IRS levy actually takes the property to satisfy the tax debt. Not only can the IRS seize and sell assets that you hold, but the IRS can also levy property that is yours but held by someone else (such as your wages, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, the cash loan value of your life insurance, or commissions).
Before the IRS can take any of these actions, the IRS must issue a “Final Notice of Intent to Levy and Notice of Your Right To a Hearing” to the taxpayer, allowing up to 30 days from the date of the Final Notice to pay in full or to find another solution.
If the IRS levies your state tax refund, you would receive a “Notice of Levy on Your State Tax Refund, Notice of Your Right to Hearing.” Ignoring these notices will only make matters worse.
If the IRS has filed a federal tax lien against your assets, we can analyze your situation to find the best course of action for you to avoid the levy. Once the 30 days have passed, the IRS does not have to give any further notice before seizing your assets, including your checking accounts, savings accounts, and your wages.
A timely filed Collection Due Process request within 30 days of the date on the Final Notice can stop the levy and allow us to discuss and resolve your case with an Appeals Officer.
Some of the issues on appeal may include:
- You paid all you owed before the IRS sent the levy notice,
- The IRS assessed the tax and sent the levy notice when you were in bankruptcy, and subject to the automatic stay during bankruptcy
- The IRS made a procedural error in an assessment,
- The time to collect the tax (called the statute of limitations) expired before IRS sent the levy notice,
- You did not have an opportunity to dispute the assessed liability,
- You wish to discuss the collection options, or
- You wish to make a spousal defense.
- At the conclusion of the hearing, the Office of Appeals will issue a determination. We would then have 30 days after the determination date to bring a lawsuit in Federal Court to contest the determination.
- If you decide to do nothing or fail to timely file a request for a CDP Hearing, the levy will commence immediately and will end when:
- The levy is released
- You pay your tax debt, or
- The time expires for legally collecting the tax.
By retaining the services of South Coast Tax resolution, we can place a hold on the account to stave off any further collection activity by the IRS, thus providing us the time to analyze and determine the best course of action to resolve your case permanently.
Established by the Internal Revenue Service, the Offer in Compromise Program is a formal application to the IRS requesting that it accept less than full payment for what you owe in taxes, interest, and penalties.
An offer in compromise may allow you to settle tax liabilities at a substantial discount on the basis of doubt as to collectability, liability, or effective tax administration. In addition, while your offer is under consideration, the Internal Revenue Service is prohibited from instituting any levies of your assets and wages.
While an offer in compromise can help pay IRS debt for less, most people do not have the necessary skills or knowledge of the IRS collection process to make an offer in compromise that is in their best interest.
Many people fill out the forms incorrectly, overstate their assets and income, and offer too much. Government figures show that 75% of offers are returned at the beginning due to forms being filled out incorrectly, and of the 25% that are processed, approximately 50% are rejected.
The following are examples of the two most frequent types of Offers in Compromise, doubt as to collectability and doubt as to liability:
- Doubt as to Collectability: Doubt exists that the taxpayer could ever pay the full amount of tax liability owed within the remainder of the statutory period for collection.
Example: A taxpayer owes $20,000 for unpaid tax liabilities and agrees that the tax she owes is correct. The taxpayer’s monthly income does not meet her necessary living expenses. She does not own any real property and does not have the ability to fully pay the liability now or through monthly installment payments.
- Doubt as to Liability: A legitimate doubt exists that the assessed tax liability is correct. Possible reasons to submit a doubt as to liability offer include: (1) the examiner made a mistake interpreting the law, (2) the examiner failed to consider the taxpayer’s evidence, or (3) the taxpayer has new evidence.
Example: The taxpayer was vice president of a corporation from 2004-2005. In 2006, the corporation accrued unpaid payroll taxes, and the taxpayer has assessed a trust fund recovery penalty as a responsible party of the corporation. The taxpayer was no longer a corporate officer and had resigned from the corporation on 12/31/2005. Since the taxpayer had resigned prior to the payroll taxes accruing and was not contacted prior to the assessment, there is legitimate doubt that the assessed tax liability is correct.
If you cannot pay all that you currently owe for prior year taxes and do not qualify for an offer in compromise, an IRS installment agreement may be your next best option. Payment Plans allow you to pay IRS debt in full in smaller, more manageable amounts, usually in equal monthly payments. The amount of your installment payment will be based on the amount you owe and your ability to pay the liability within the time available to the IRS to collect tax debt from you, also known as CSED (Collection Statute Expiration Date).
A tax settlement attorney can help you to set up an installment agreement with the IRS. You should be aware that while you are making payments on your tax debt through an Installment Agreement, the IRS continues to charge interest and penalties on the unpaid portion of that debt. Another cost associated with an Installment Agreement is the initial setup fee of $105 charged by the IRS.
The IRS uses a complicated formula to set their terms and guidelines, which favor the government’s agenda to collect the total amount owed as quickly as possible. The IRS feels they are being very generous to allow back taxes to be paid overtime and underestimating this fact can be dangerous.
Remember that many try to set up their own installment agreements without the aid of licensed professions. However, due to inexperience or intimidation, they fail to negotiate a payment plan that preserves their livelihood. These payment plans are then doomed for default and those who fail to make a payment are dropped quickly into collections, which means that levies will begin to be issued.
Even if you agree to the Installment Agreement, the IRS may still file a Notice of Federal Tax Lien to secure the government’s interest until you make a final payment. However, the IRS cannot levy against your property (1) while your request for a Payment Agreement is under consideration, (2) while your agreement is in effect, (3) for 30 days after your request for an agreement has been rejected, or (4) for any period while an appeal of the rejection is being evaluated by the IRS.
Partial Payment Installment Agreement: Through programs such as the Offer in Compromise have received tremendous attention through the media and tax relief firms offering ‘pennies on the dollar’ settlements, oftentimes one of the most impactful solutions is a partial payment plan, where-in we structure a shortened IRS payment plan that expires long before the tax debt is paid in full. The reasons to qualify for this type of solution are numerous, and if applied correctly, can save the average taxpayer thousands of dollars in tax debt and end the stressful collection process quickly.
Contact us today if you would like South Coast Tax Resolution to work with the IRS on your behalf to get you the right tax payment plan to fit your current lifestyle.
The Internal Revenue Code authorizes the abatement of penalties imposed by the IRS for failure to file tax returns or for failure to pay tax and other penalties if the failure is due to reasonable cause and not willful neglect.
Forgiveness of penalties is decided on a case-by-case basis. Generally, if the taxpayer exercised ordinary business care and prudence and was still unable to file the return on time, the delay is considered due to reasonable cause. Also, a failure to pay may be due to reasonable cause if the taxpayer exercised ordinary business care and prudence, yet could not pay the tax liability.
Eliminating these penalties may lift a huge financial burden off of your shoulders. Normally, penalties make up 25% of the total tax debt amount but can be up to 90% of the total amount owed because of the large failure to file penalties and overall underpayment interest rates. If the IRS determines that failure to pay or failure to file was due to reasonable cause and not willful neglect, the penalty will not be assessed. You would still be responsible, however, for the underlying tax owed plus interest due.
Let us seek abatement of your penalties due to reasonable cause and get a reduction in the amount you owe.
The IRS continues to use Enforced Collection when it comes to unpaid payroll taxes and unfilled payroll returns. Enforced Collection can include a levy on the assets of the business, including the accounts receivable, equipment, automobiles, and the bank account. The IRS can also close a business for non-payment of payroll taxes.
If the business is closed or files for bankruptcy protection, the IRS will look to the owner of the business for collection of the penalties, interest, taxes, and trust funds. In the case of a corporation or partnership, the IRS will look to the person responsible for paying the payroll taxes to collect the trust funds.
The employer that you worked for or are currently working for has been delinquent in paying its employment taxes to the IRS. To the extent that these taxes represent that portion withheld from the employees’ wages (i.e., trust fund taxes), the IRS can assess and seek collection from “responsible persons” in their individual capacity the amount of the unpaid trust fund taxes. Such liability is referred to by the IRS as Trust Fund Recovery Penalty (“TFRP”). The IRS can file a federal tax lien or take seizure actions in the form of a levy or seizure of personal assets. Clearly, TFRPs should be treated as serious IRS tax problems.
Under a TFRP, potential persons who can be held responsible for and required to settle back taxes can be officers, partners, corporate directors, shareholders, or employees of a business organization. If the IRS has classified you as a responsible person, you will be held jointly and severally liable for the outstanding trust fund taxes. The business does not have to stop operating in order for the liability to be assessed to you.
The TFRP may be assessed against any person who is responsible for collecting or paying withheld income and employment taxes and willfully fails to collect or pay them.
A responsible person is a person or group of people with the duty to perform and the power to direct the collecting, accounting, and paying of trust fund taxes (employment taxes). This person may be:
- An officer;
- A member or employee of a partnership;
- A corporate director or shareholder;
- A member of a board of trustees of a nonprofit organization;
- Another person with authority and control over funds to direct their disbursement, or another corporation.
For willfulness to exist, the responsible person:
- Must have been, or should have been, aware of the outstanding taxes and either intentionally disregarded the law or was plainly indifferent to its requirements (no evil intent or bad motive is required).
- The employment tax is an indication of willfulness.
Figuring the TFRP Amount
The amount of the penalty is equal to the unpaid balance of the trust fund tax. The penalty is computed based on:
- The unpaid income taxes withheld, plus
- The employee’s portion of the withheld FICA taxes.
Assessing the TFRP
If the IRS determines that you are a responsible person, the IRS will provide you a letter stating that it plans to assess the TFRP against you. You have 60 days after the date of the letter to get help paying IRS debt and appeal the determination. Your case would then be assigned to an Appeals Officer for review.
If you do nothing, the IRS will assess the penalty against you and send you a Notice and Demand for Payment. Thereafter, as previously noted, the IRS can take collection action against your personal assets, including filing a federal tax lien, enacting a tax levy, or taking seizure action.
By allowing us to analyze your situation and determine the best course of action, we should be able to formulate a strategy to settle this liability. For many taxpayers, this typically leads to an Offer in Compromise.
Filing jointly with your spouse makes you jointly and severally liable for the tax on the joint return, plus any interest and penalties. However, under special conditions, you can be relieved of this liability by claiming to be an innocent spouse, if you can show that you were not aware of the understatement or erroneous information when you signed the return, the IRS may grant you relief from paying the tax.
The three types of relief to a non-liable spouse are:
- Innocent spouse relief
- Relief by separation of liability, and
- Equitable relief
Innocent Spouse Relief
By requesting innocent spouse relief, you can be relieved of responsibility for paying tax, interest, and penalties if your spouse improperly reported items or omitted items on your tax return. Generally, the tax, interest, and penalties that qualify for relief can only be collected from your spouse. However, you are jointly and individually responsible for any tax, interest, and penalties that do not qualify for relief. The IRS can collect these amounts from either you or your spouse.
The four required elements for Innocent Spouse Relief are:
- You filed a joint return which has an “understatement of tax” due to “erroneous items” of your spouse.
- “Understatement of tax” is generally the difference between the total amount of tax that should have been shown on your return and the amount of tax that was actually shown on your return.
- “Erroneous items” are either (a) unreported income of your spouse, or (b) incorrect deduction, credit, or basis claimed by your spouse.
- You establish that at the time you signed the joint return you did not know, and had no reason to know, that there was an understatement of tax.
Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understatement of tax. Indications of unfairness considered by the IRS are:
- Whether you received a significant benefit either directly or indirectly from the understatement;
- Whether your spouse deserted you;
- Whether you and your spouse have been divorced or separated;
- Whether you received a benefit on the return from the understatement
Relief By Separation of Liability
Under this type of relief, you allocate (separate) the understatement of tax (plus interest and penalties) on your joint return between you and your spouse (or former spouse). The understatement of tax allocated to you is generally the amount you are responsible for.
To qualify for this relief, you must have filed a joint return and meet one of the following conditions:
- You are no longer married to, or are legally separated from the spouse with whom you filed the joint return for which you are requesting relief, or
- You and your spouse are not members of the same household because you have been living apart for at least 12 months.
Equitable Relief
- Equitable relief may be available where you meet each of the following conditions:
- You are not eligible for innocent spouse relief or relief by separation of liability,
- You or your spouse did not transfer assets to one another as part of a fraudulent scheme,
- Your spouse did not transfer assets to you for the main purpose of avoiding the tax or the payment of tax,
- You did not file your return with the intent to commit fraud
- You did not pay the tax and taking into account all the facts and circumstances, you establish that it would be unfair to hold you liable for the understatement or underpayment of the tax.
Has it been years since you’ve filed tax returns? While the Internal Revenue Service may have not yet notified you, delinquent taxes will catch up to you sooner or later. And with technology and sharing of information advancing at light-speed, it may be sooner than you think.
The IRS may seek to impose a criminal offense for failure to file past tax returns as required. Even if you do file, the tax returns must be accurate and truthful because, if the IRS detects false returns, a fraud referral to the Criminal Investigation Division will be generated.
The IRS may also create a “substitute return” to establish an account for a taxpayer who refuses or is unable to file a required return. Such a return almost always results in a higher liability than if the taxpayer filed a tax return because the IRS does not take into account any of the following:
- basis information for assets sold
- business expenses
- adjustments to gross income
- itemized deductions
- married filing joint status
- exemptions for dependents
Under certain circumstances, if the Internal Revenue Service hasn’t contacted you already, it may be possible to avoid criminal penalties and file a return that was previously unfiled. Back taxes could still exist once you file an overdue return.
The Bank Secrecy Act requires that a Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), be filed if the aggregate balances of such foreign accounts exceed $10,000 at any time during the year. This form is used as part of the IRS’ enforcement initiative against abusive offshore transactions and attempts by U.S. persons to avoid taxes by hiding money offshore.
The FBAR covers a calendar year and must be filed no later than June 30th of the following year and includes any interest a U.S. person has in:
- Offshore bank accounts
- Offshore mutual funds
- Offshore hedge funds
- Offshore variable universal life insurance policies
- Offshore variable annuities a.k.a Swiss annuities
- Debit card and prepaid credit card offshore accounts
The penalties for FBAR noncompliance are stiffer than the civil tax penalties ordinarily imposed for delinquent taxes. The penalties for noncompliance which the government may impose include a fine of not more than $500,000 and imprisonment of not more than five years for failure to file a report, supply information, and for filing a false or fraudulent report.
The Department of Justice started pressuring Swiss Banks including UBS and Credit Suisse to reveal bank account information on their account holders who are U.S. citizens or U.S. residents. Information from the Swiss Banks and other European Banks has now been flowing to the IRS and is being used by the IRS to uncover taxpayers who have not disclosed foreign income and foreign accounts.
We can assist with IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.
The IRS has established programs for taxpayers to voluntarily come forward and disclose unreported foreign income and foreign accounts under what the IRS calls an “initiative” (amnesty program).
The first initiative was announced by the IRS on March 23, 2009. The program designated as the IRS Offshore Income Reporting Initiative (the “First Initiative”) was initially available until September 23, 2009, and then extended to October 15, 2009.
The First Initiative required that taxpayers:
- File 6 years of back tax returns reflecting unreported foreign source income;
- Calculate interest each year on unpaid tax;
- Apply a 20% accuracy-related penalty under Code Sec. 6662 or a 25% delinquency penalty under Code Sec. 6651; and
- Apply up to a 20% penalty based upon the highest balance of the account in the past six years.
The IRS is now aggressively supplementing and corroborating prior leads, as well as developing new leads, involving numerous banks, advisors, and promoters from around the world, with a new emphasis in Asia and the Middle East, pressuring banks like HSBC and others to reveal U.S. accountholder information.
The IRS, on February 8, 2011, announced the terms of its Second Voluntary Disclosure Initiative (the “Second Initiative”) which is available until September 9, 2011. Taxpayers who qualify for the Second Initiative will be required to follow certain filing procedures in exchange for not being subject to criminal and civil fraud penalties.
The Second Initiative requires that taxpayers:
- File 8 years of back tax returns reflecting unreported foreign source income;
- Calculate interest each year on unpaid tax;
- Apply a 20% accuracy-related penalty under Code Sec. 6662 or a 25% delinquency penalty under Code Sec. 6651; and
- Apply up to a 25% penalty based upon the highest balance of the account in the past eight years.
In return, the IRS has agreed not to pursue:
- Charges of criminal tax evasion which would have resulted in jail time or a felony on your record; and
- Other fraud and filing penalties including IRC Sec. 6663 fraud penalties (75% of the unpaid tax) and failure to file a TD F 90-22.1, Report of Foreign Bank and Financial Accounts Report, (FBAR) (the greater of $100,000 or 50% of the foreign account balance).
Recent closure and liquidation of foreign accounts will not remove your exposure for non-disclosure as the IRS will be securing bank information for the last eight years. Additionally, as a result of the account closure and distribution of funds being reported in normal banking channels, this will elevate your chances of being selected for investigation by the IRS.
For those taxpayers who have submitted delinquent FBAR’s and amended tax returns without applying for amnesty (referred to as a “quiet disclosure”), the IRS has blocked the processing of these returns and flagged these taxpayers for further investigation. You should also expect that the IRS will use such conduct to show willfulness by the taxpayer to justify the maximum punishment.
We have found that the Revenue Agents working these cases have made errors that favor the IRS. These errors include using the wrong exchange rate, wrong valuation dates, including foreign assets not subject to the FBAR penalty, and not considering all mitigating circumstances to abate penalties or apply a lower FBAR penalty rate of 12.5% or 5%. Let our experience work for you to avail you of the benefits of this amnesty program with the lowest liability possible.
This program does not only affect tax cheats but hundreds of thousands of honest U.S. taxpayers including immigrants living in the U.S. and U.S. citizens living overseas, who have offshore accounts that innocently have gone unreported.
Given the wealth of foreign account information released to the IRS and the IRS’ expansion of resources to enforce compliance, this may be the last opportunity for taxpayers to resolve unreported foreign income issues without criminal prosecution. We recommend that taxpayers in this situation act immediately and seek assistance from a tax attorney with expertise in the Voluntary Disclosure Program for undisclosed foreign accounts.
The Internal Revenue Service (IRS) will place a taxpayer’s account on a Currently Non-Collectible (CNC) status when they have determined that the IRS is presently unable to collect the taxes from the taxpayer by full payment, through an Installment Agreement or by way of an Offer in Compromise.
Once the account is placed on a CNC status, the IRS does not pursue collection activity against the taxpayer and the statute of limitations on the tax liabilities will continue to run. Generally, unless the taxpayer’s financial situation changes, the account will remain in CNC status until the tax liabilities expire. However, if the taxpayer’s financial situation improves, the account will be taken off of CNC status so that the IRS can collect the taxes through full payment or an Installment Agreement.
When a taxpayer has a negative cash flow and has equity in assets that the taxpayer is dependent upon, the taxpayer could attempt to resolve their account by having their account placed on a CNC status depending on their circumstances. For CNC status, the underlying issue is that liquidation of a particular asset is either not feasible or would cause financial hardship.
If you are delinquent in paying back taxes, you are subject to a serious collection action called a tax lien. You need the help of a qualified tax specialist to take action now to prevent having your finances restricted.
The Basics and Dangers of Tax Liens
Tax liens are legal claims filed by the IRS against anything of value which you own. This can be your home, business, income, automobiles, jewelry, property, etc. It is basically a public announcement of your back tax debt and gives the IRS precedent over any other creditors. Our team here at SC Tax Resolution is experienced in tax law and will help you obtain a more affordable solution to pay your tax liability.
Before a tax lien can be filed against you, the following criteria must be met:
- The tax liability has been assessed
- A written “Notice and Demand for Tax Payment” has been sent
- You have refused or are unable to pay off your tax debt within ten days of receiving the notice
Once these criteria are met and a lien is established, it will appear on your credit report. Having a record of an IRS attachment in your credit history can ruin your financial future. Your tax lien remains a public record until the amount is paid in full. This is a method used by the IRS to embarrass or intimidate you into accepting an impossible agreement.
Attempting to negotiate settlements for back taxes with the IRS on your own can lead to increased penalties and fines, additional financial stress, and missed opportunities. You need the help that an experienced tax professional can provide. Our professionals know your financial rights and what repayment options are available for what you owe. We will represent you in all negotiations to bring your problems to an end.
Some of our most skilled areas include:
- Prevention, withdrawal, and release of IRS tax liens
- Repayment negotiations (such as debt reduction and installment agreements)
- Tax debt elimination
- Accurate submission of unfiled tax returns
Lien versus Levy: What is the difference?
A levy is an execution of the power to seize property, while the federal tax lien remains a dormant right of the government. That right can be awakened by events such as the taxpayer’s sale or attempted sale of the property, or the IRS seeking to foreclose on the lien through a judicial procedure.
A lien can lull the taxpayer into a false sense of security by allowing the use of the property or the opportunity to derive income from it. Sometimes the taxpayer may even sell the property to a buyer who has no knowledge of the lien, without incurring any legal obligation. But forget it’s there and it may spring up out of the legal shadows when you least expect it.
The lien is authorized by the Internal Revenue Code, which states that if anyone liable to pay any tax neglects or refuses to pay it after demand has been made, the amount—including interest, tax, penalties, and any additional fees—shall be a lien in favor of the United States on all property and rights to property, whether real or personal. The IRS is required to give notice and demand payment 60 days after assessment of the tax debt.
Three things must exist for tax liens to come into existence:
- The assessment of the tax liability
- The demand for payment and
- The refusal or neglect to pay it
Requesting a Release
The Notice stays in place until you pro-actively take action to release it. Typically, it will be released within 30 days if:
- The debt is paid in full.
- The amount owed is adjusted appropriately.
- An accepted bond guaranteeing payment is provided.
It can actually be withdrawn if:
- It is determined that the filing was not done according to procedure;
- The taxpayer chooses to participate in a payment plan (this is more easily negotiated with the help of a qualified tax professional acting on your behalf); or
- It would be in the best interest of both parties to withdraw