Articles Tagged with IRS collections

What Happens After I Receive an IRS Notice?
The IRS sends taxpayers millions of notices per year. Whenever you receive correspondence from the IRS you should read it carefully and attempt to understand what the IRS is trying to tell you. This can be difficult because some notices are unclear to those who do are not familiar with tax laws or IRS procedures.

IRS notices can be informational, such as when you are notified that your tax return is going to be adjusted. However, you may still disagree with this notice, and you can attempt to take action to dispute the mistake by the IRS.

Other notices will warn you that the IRS is about to take a specific action. This could a Notice of Intent to Levy, which means that the IRS is about to seize some of your assets, including the funds in your bank account or a state tax refund. Another common notice is the Notice of Deficiency, which states that the IRS is planning to assess a tax liability against you, and gives you one last chance to dispute the amount in Tax Court before the IRS begins to collect it.

How Does the IRS Collect FBAR Penalties?
The IRS imposes severe penalties on taxpayers who fail to file a Report of Foreign Bank and Financial Accounts (FBAR). Those who are required to file an FBAR and fail to do so can face the following penalties:

  • a civil penalty not to exceed $12,459 per violation for non-willful violations that are not due to reasonable cause
  • a penalty equal to the greater of $124,588 or 50 percent of the balance in the account at the time of the violation, for each willful violation

Can the IRS Take My House or Car?
The IRS may seize your real estate, car, or other property to satisfy delinquent tax debt. The IRS will sell your interest in the property and apply the proceeds, after the costs of the sale, to your tax debt.

Before selling your property, the IRS will calculate a minimum bid price. You will be given the chance to challenge the fair market value determination of your property.

Then, the IRS will notify you and the public of the pending sale, and wait at least 10 days before proceeding with the sale of your house or other property. If there is money left over after the costs of the seizure and sale and your tax debt has been satisfied, you should receive a refund.

What To Do When You Receive an IRS Notice
Receiving a notice from the IRS is not something most people look forward to. You may be confused as to what the notice is saying, and afraid of the possible consequences, such as owing substantial back taxes, interest, and penalties.

However, there are two important things to know about most IRS notices:

  1. You may have the right to challenge or appeal the action the IRS is taking, and

Will the IRS Ever Return Seized Property?
The IRS is generally required to send you a notice before levying or seizing your property. You may be able to prevent a levy by timely requesting a Collection Due Process (CDP) hearing, and negotiating a payment plan or otherwise contesting the levy. You have 30 days from the date of the notice to request a CDP hearing.

There are situations where the IRS is not required to send you a pre-levy notice, and can take your property without giving you a chance to contest the levy. State tax refunds can be taken without notice, and the IRS can levy without notice if they believe that collection of the tax is in jeopardy.

There are also other situations where you may not get the chance to contest the levy until after your property has been seized. The IRS sends notices to your last known address, and you may never receive these notices if the IRS does not have your current address. You may also simply be unaware of your CDP rights or the 30-day deadline, and miss your chance to request a CDP hearing. Payroll taxes are also subject to different rules.

Is Certain Property Exempt From IRS Seizure?
The IRS has broad authority when attempting to collect delinquent tax, but there are limitations to what collections actions they can take. The IRS generally has to follow certain procedures before they can levy, or seize, your property, and certain property is exempt from IRS seizure.

Generally, the IRS must send a taxpayer a Notice of Intent to Levy, which gives the taxpayer 30 days to request a Collection Due Process hearing. This gives you a chance to avoid the levy by negotiating an IRS installment agreement, an offer in compromise, or disputing the underlying tax liability, if you have not previously had an opportunity to do so.

The IRS also has a general policy to only seize a taxpayer’s assets as a last resort. If you are attempting to negotiate and cooperate, you should be able to work out an arrangement and prevent your assets from being levied.

What Is an IRS Jeopardy Levy?
The IRS must generally issue a notice to a taxpayer before proceeding with a levy on their assets. The taxpayer is given 30-days to request a Collection Due Process hearing (CDP hearing), where the taxpayer can attempt to avoid the levy action by negotiating an installment agreement, disputing the tax liability that resulted in the levy, or presenting other defenses. The IRS will usually not take any levy actions during the 30-day period, or while the CDP hearing process is ongoing.

There are exceptions to the 30-day notice requirement. One situation where the IRS is not required to provide a notice is when they believe that collection of the tax is in jeopardy, known as a jeopardy levy. In this case, the IRS can bypass the notice requirement and immediately levy the taxpayer’s assets, such as a bank account, the taxpayer’s wages, cars, or other property.

In these situations, the taxpayer has no choice but to request an appeal of the levy after it has taken place. The taxpayer may request a CDP hearing, or hearing under the Collection Appeals Program, to argue that the jeopardy levy was unreasonable.

When to Use the IRS Collection Appeals Program
The Collection Appeals Program (CAP) is an IRS procedure available to appeal a broad range of collection actions. However, it does have some pitfalls when compared to a Collection Due Process (CDP) hearing, so consider consulting with a tax attorney if you are not sure which procedure to use.

The CAP procedure can be used to dispute the following collection actions:

•  Before or after the IRS files a Notice of Federal Tax Lien

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

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.