Articles Posted in Tax Debt

What Happens at a Collection Due Process Hearing?
A Collection Due Process (CDP) hearing may be your last chance to prevent an IRS collection action, such as  bank account levy. It is also an opportunity request that the IRS withdraw or release its tax lien.  At a CDP hearing, you may request an installment agreement, offer in compromise, innocent spouse defense, or you may dispute the amount of tax you owe. However, you can only receive a CDP hearing if you request it in writing within 30-days of receiving the IRS Notice of Intent to Levy.

A CDP hearing will be available if you receive any of the following notices:

  • Notice of Federal Tax Lien Filing

IRS Actions Affecting Passports of Delinquent Taxpayers
Your unresolved tax debt could prevent you from taking your next trip overseas. The IRS has the right to certify to the State Department that an individual has seriously delinquent tax debt. Upon receiving this certification, the State Department will generally not issue you a new passport, and will revoke your current passport.

Tax debt is considered “seriously delinquent” if it is unpaid, legally enforceable and assessed, is greater than $50,000 (indexed for inflation annually), and a notice of federal tax lien has been filed, AND the rights to appeal a levy have expired, or a levy has been made. In other words, the IRS has been doing everything it can to collect your tax debt, and you still have a large outstanding balance owed to the Treasury.

There are exceptions where debt will not be included when determining if you have seriously delinquent tax debt. The following amounts will not be included:

Can the IRS Collect From a Non-Liable Spouse?
The IRS may be able to collect delinquent tax debt from a non-liable spouse in some cases. This means that tax debt that was accrued by one spouse on a return filed separately, may still result in collection action being taken on the other spouse. However, the IRS cannot pursue collection from a non-liable spouse in every case.

First, it is important to distinguish between joint tax debt and separate tax debt. Joint tax debt is any tax debt related to a return filed jointly. Separate tax debt could be related to a return filed before the taxpayer was married or a return filed after the marriage using the married filing separately status.

For joint tax debt, the IRS can collect from either or both spouses. They can levy your bank account, or your spouse’s bank account, or both. The Internal Revenue Manual states that wage levies should generally be applied to the spouse with higher earnings. However, in flagrant cases of neglect or refusal to pay, the IRS can levy the wages of both spouses.

How Much of My Wages Can the IRS Levy
An IRS levy on your wages or other income is limited by a defined exemption amount. Your exemption will be determined based on the standard deduction, your filing status, and the number of exemptions you claim. All income that exceeds the exemption amount will be taken by the IRS.

Unlike bank account levies, wage levies are continuous. The IRS will continue to take many out of every paycheck you receive until your full delinquent tax balance is paid off.

A few examples can illustrate how much money you will actually receive while the IRS is levying your wages:

How Can I Stop IRS Collection Actions?
The IRS is a fearsome creditor that can gain access to many of your assets to satisfy your tax debt. Unlike other creditors it doesn’t need to bring a lawsuit to go after you’re the bulk of your assets. The IRS has the ability to use any of the following collection actions against you:

  • Serve a levy on your bank account
  • Serve a levy on your wages

How To Apply for Currently Not Collectible Status
If you are unable to pay your tax debt, you can request that the IRS report your account as currently not collectible (CNC). This will temporarily delay all collection activities by the IRS.

Applying For Currently Not Collectible Status

The most common reason the IRS determines that an account is currently not collectible is due to economic hardship. You will often be required to submit a Collection Information Statement when applying for CNC status. This statement lists all of your assets, income, and expenses. The IRS will not take your word for it if you claim you have a financial hardship; they will make their own determination based on your financial information.

Do I Qualify for First Time Tax Penalty Abatement?
Many taxpayers are unaware that they may be eligible for relief from tax penalties under the IRS First Time Penalty Abatement policy. The penalty abatement is available for penalties due to a failure to file, failure to pay taxes, or a failure to deposit taxes.

Requirements for First Time Penalty Abatement

To qualify for First Time Penalty Abatement, you must meet the following requirements:

How to Negotiate an Installment Plan With The IRS
An IRS installment plan is an agreement to pay your tax debt back over time in monthly payments. When you owe a tax debt to the IRS, they have a number of ways of collecting from you, including levying your bank account or wages, seizing your state tax refund, or seizing your home and selling it at an auction. An installment agreement is one strategy that can be used to halt these collection activities.

Before you consider negotiating an installment plan, you should be aware that there are other options that may be able to reduce your tax debt. If you are unable to pay back your tax debt, you may qualify for an Offer in Compromise. You may also consider using a tax bankruptcy, obtaining innocent spouse relief, or disputing the amounts you owe to the IRS.

All of these strategies can be used to effectively wipe out some or all of your tax debt, and they can also be combined with installment agreements in some cases. Consult with a tax attorney before you commit to a monthly payment plan with the IRS.