General Tax, Collection and Audits FAQs
- What is the ramification of a Federal tax lien or state tax warrant?
- Can the Internal Revenue Service (IRS) levy my bank account or garnish my wages?
- Who is the Automated Collection Service (ACS) of the IRS?
- Why do I need to make estimated quarterly tax payments?
- Can the IRS garnish all of my wages?
- Can the IRS hold me personally responsible for unpaid payroll taxes?
- How long does the IRS have to collect back taxes from me?
- Can I settle with the IRS?
- Can’t I just get into an installment agreement on my own? Why do I need help with this?
- Can outstanding tax liabilities be discharged in bankruptcy?
- What if I really can’t afford to make a monthly installment payment?
- Can I get my penalties and interest removed?
- What is innocent spouse?
- Why was I selected for audit?
- How should I handle my audit and what are my rights?
- What happens if I disagree with the findings of an audit?
- What if the IRS asks me to allow more time by extending the statute of limitations?
- What about the national tax relief firms that I see on late night commercials or hear on the radio?
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Contact Zetley Law Offices, S.C. to answer any questions regarding important legal matters.
What is the ramification of a Federal tax lien or state tax warrant?
A Federal tax lien or state tax warrant, usually filed with the county Register of Deeds, protects and secures the government’s interest for your outstanding tax balance and serves as notice to parties that may loan you money. With certain exceptions, it attaches to all property, real and personal, tangible and intangible, in which you have an interest. A tax lien can also have a negative impact on your credit rating.
Can the Internal Revenue Service (IRS) levy my bank account or garnish my wages?
Yes. The IRS has the authority to garnish wages, levy bank accounts, levy social security, and disability benefits, etc. However, before the IRS can garnish your wages or levy your accounts, the law requires them to send you a letter called a final notice. The letter gives you 30 days to respond. After that time period, the IRS can move forward with a number of forced collection actions.
Who is the Automated Collection Service (ACS) of the IRS?
ACS stands for Automated Collection System. It is a division within the IRS that focuses on taxpayer accounts where there is a balance due and/or accounts where returns have not been filed. It is too difficult to have all outstanding files assigned to a local Revenue Officer. As a result, many cases are handled through ACS. ACS does most of the same work that a Revenue Officer does, but relies heavily on computer generated notices and activity on your file. There is no one individual assigned to a case when you are dealing with ACS, which sometimes results in very aggressive or improper collection action as well as inconsistent results.
Why do I need to make estimated quarterly tax payments?
Individuals who are self-employed are required by law to make estimated tax payments on a quarterly basis. You can make them on a monthly basis if that is easier to budget. Many taxpayers make the decision not to make the payments or are unaware they should and attempt to pay the taxes in full at the end of the tax year. This is difficult because it is hard to come up with the money to pay the liability. In addition, if you fail to fully pay, the IRS will charge you a penalty for failing to make your estimated payments, along with the standard failure to pay penalties and interest.
Can the IRS garnish all of my wages?
No, but it will feel like it. The IRS is not limited to a certain percentage when garnishing wages. The IRS actually has a table whereby they determine how much they will allow a taxpayer to keep of their salary. This is determined based on number of pay periods per month, income, filing status, and number of dependents.
Can the IRS hold me personally responsible for unpaid payroll taxes?
Yes. This is a very serious matter. If an employer fails to timely file and pay payroll taxes, the IRS is authorized to collect these taxes from the business or even the person responsible for withholding and paying these payroll taxes to the IRS. As a result, an employer could have personal accounts levied or a federal tax lien placed on their home. The IRS looks at failure to turn payroll taxes over as stealing.
In situations where a corporation incurs a payroll tax liability, and the IRS is unable to collect the taxes from the entity itself, the IRS seeks to collect payroll taxes from individuals within the corporation. The IRS does what is called a Trust Fund Recovery investigation and determines who should be held responsible and assess with the Trust Fund Recovery Penalty (TFRP). An individual is not responsible for a corporate payroll tax liability unless the IRS assesses a TFRP. The TFRP is the amount equal to the tax that an employer withheld or should have withheld from employees’ wages and failed to pay over to the IRS. Payroll taxes and this penalty cannot be discharged in bankruptcy.
How long does the IRS have to collect back taxes from me?
In general, the IRS has 10 years from the date a return was filed or the tax was assessed to collect a tax liability. There are events that extend or suspend the collection statute. Filing an offer in compromise, a collection due process hearing, or filing bankruptcy all extend the collection statute. If there is a tax audit and an additional assessment is made, this too extends the statute on collections.
Maybe. The IRS has a program where you can make an offer in compromise of your liability. The IRS will only accept a settlement if they believe that they cannot collect the entire amount due, you have a hardship, or you can prove you do not owe the tax. This is the most difficult method available for handling your liability. Not everyone will qualify. It is important to have a tax professional look at your financial situation to determine if you are a good candidate. There is no need to waste time and money if you are not a candidate for the offer in compromise program.
Can’t I just get into an installment agreement on my own? Why do I need help with this?
Most of the time, an installment agreement is the best option. However, if you call the IRS yourself, you run the risk of getting into an agreement for an amount that you simply cannot afford. We are familiar with IRS rules and guidelines and we can help you establish a monthly payment that you can consistently make. Defaulting on an installment may eventually result in enforced collection action.
Can outstanding tax liabilities be discharged in bankruptcy?
In some situations, bankruptcy may be the best option to resolve your tax liability. Some tax debt is dischargeable. Individual income tax liability may be dischargeable in bankruptcy, subject to specific priority rules outlined in the bankruptcy code. It is our job to explain all of your options, which may include bankruptcy protection. If bankruptcy is the right option, we can refer you to a bankruptcy attorney who has specific experience with tax liabilities.
What if I can’t afford to make a monthly installment payment?
The analysis of your ability to make monthly payments is based on allowing certain necessary expenses and national standards. However, there are many expenses that the IRS will disregard for purposes of a monthly payment. If, after allowing the necessary expenses, there is no additional cash flow for a payment, the IRS will classify you as "currently not collectible." The taxes are still due and continue to accrue interest and penalties, but the IRS will not attempt to collect during this time and the collection statute does continue to run. This can be a useful tool to afford you the time you need without the threat of collection.
Can I get my penalties and interest removed?
The IRS will sometimes remove penalties through a formal penalty abatement request. The IRS uses the reasonable cause standard based on the certain facts and circumstances leading to the failure to file, deposit, or pay the tax. Interest is generally not abated.
Innocent spouse status is awarded to those individuals who can prove that they were unaware that their spouse filed their joint return knowing that all the tax wasn’t reported, or believed that the tax had been fully paid but later found out that it wasn’t. Innocent spouse status is not easily awarded, but it is a viable option for certain taxpayers. If awarded, the innocent spouse is relieved of liability and the responsible spouse is left with the debt to the IRS.
The IRS uses a variety of methods to select people for audit, including a computer scoring system (DIF Score) that compares certain income and expense attributes and ratios to others in similar occupations, businesses, and locations. An irregularity on your return could have triggered the audit or your return may have been simply selected at random. Often, IRS audits are targeted for family or small business owners, and self-employed individuals. The IRS will often focus on certain business industries for periods of time.
How should I handle my audit and what are my rights?
We understand that being selected for audit can cause uneasy feelings, but there is no need to panic. There are various legal and procedural protections, including the right to hire a representative to meet with the IRS on your behalf. We would strongly encourage taxpayers to consult a tax professional or an attorney to evaluate your audit, especially if you are concerned with possible discrepancies on your tax return.
What happens if I disagree with the findings of an audit?
At the audit level, we attempt to reach a resolution by meeting with the examiner’s supervisor regarding the disagreement. If a resolution cannot be reached, both the IRS and Wisconsin Department of Revenue have an appeals process that allows for an administrative and independent review of your case. If an acceptable settlement or resolution is not reached in appeals, you have the right to petition the United States Tax Court (or other federal forums) as well as the Wisconsin Tax Appeals Commission.
What if the IRS asks me to allow more time by extending the statute of limitations?
The answer to this question depends on the various facts and circumstances surrounding your case. Taxpayers should be aware of the importance of this decision as well as the fact that you have no legal obligation to sign. In many cases, signing may not be to your advantage. The terms and scope of an extension may also be negotiable.
What about the national tax relief firms that I see on late night commercials or hear on the radio?
Given how much is at stake, it is important to know and trust an experienced tax attorney to help you get the right result. Many times, large national firms do not disclose the background or qualifications of the person who will be working your case, which often may be an accountant or enrolled agent. Furthermore, many of the national tax relief firms have had consumer complaints for not getting the results they promise. We have had clients who have retained our firm after being unhappy with their experience with national agencies.