- IRS Audits and Appeals
- IRS Collection Resolutions
- IRS Collection Methods
- Collection Due Process Hearings
- Unfiled Tax Returns
As your tax lawyers, we will represent you before the Internal Revenue Service with competence, zeal, and practicality. We will develop strategies that minimize an audit, prevent levies, stop garnishments, provide relief to innocent spouses, and compromise the tax liability. We also represent taxpayers that face civil or criminal tax fraud allegations. Our clients are typically individuals, businesses, estates, partnerships, corporations, and international taxpayers.
- IRS Audits and Appeals
- IRS Collection Resolutions
- IRS Collection Methods
- Collection Due Process Hearings
- Unfiled Tax Returns
1. IRS Audits and Appeals
An IRS audit is a review/examination of an organization’s or individual’s accounts and financial information to ensure information is being reported correctly, according to the tax laws, to verify the amount of tax reported is accurate. Selecting a return for audit does not always suggest that an error has been made. Returns are selected using a variety of methods, including:
- Random selection and computer screening – sometimes returns are selected based solely on a statistical formula.
- Document matching – when payor records, such as Forms W-2 or Form 1099, don’t match the information reported.
- Related examinations – returns may be selected for audit when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.
An audit may be conducted by mail or through an in-person interview and review of the taxpayer’s records. The interview may be at an IRS office (office audit) or at the taxpayer’s home, place of business, or accountant’s office (field audit). The IRS will tell you what records are needed. Audits can result in no changes or changes. Any proposed changes to your return will be explained.
Your rights during an audit include the following:
- A right to professional and courteous treatment by IRS employees.
- A right to privacy and confidentiality about tax matters.
- A right to know why the IRS is asking for information, how the IRS will use it and what will happen if the requested information is not provided.
- A right to representation, by oneself or an authorized representative.
- A right to appeal disagreements, both within the IRS and before the courts.
An audit can be concluded in three ways:
- No change: an audit in which you have substantiated all of the items being reviewed and results in no changes.
- Agreed: an audit where the IRS proposed changes and the taxpayer understands and agrees with the changes.
- Disagreed: an audit where the IRS has proposed changes and the taxpayer understands, but disagrees with the changes.
At the conclusion of your audit, you have the right to request a conference with the manager to discuss and issues that you may disagree with. If that meetings does not resolve the issue(s), you may Appeal the findings. You must file the requirements including timing issues when prepared and filing an appeal. At the Appellate level you will be given an opportunity to discuss the case with an impartial referee.
2. IRS Collection Resolutions
An Installment agreement allows you to pay your full debt in smaller, more manageable amounts. Installment agreements generally require equal monthly payments. The amount of your installment payments will be based on the amount you owe and your ability to pay that amount within the time the IRS can legally collect payment from you.
You should be aware, however, that an installment agreement is more costly than paying all the taxes you owe now. As with most revolving credit arrangements, the IRS charges interest and penalties on the unpaid portion of the debt. However, a favorable installment agreement may result in substantial savings.
Note also that even if you set up an installment agreement, the IRS may still file a Notice of Federal Tax Lien to secure the government’s interest until you make your final payment. However, the IRS can’t take any collection actions affecting your property while they consider your request for an installment agreement, while your agreement is in effect, for 30 days after the IRS rejects your request for an agreement or for any period while you appeal the rejection.
Currently Not Collectible:
If you are unable to pay anything because of a current financial hardship, the IRS may agree to place you in Currently Not Collectible. In general, the IRS will suspend collection activities for usually one year if it believes that it cannot currently collect the tax liability. Once the IRS declares a taxpayer currently not collectible, the IRS must stop all collection activities, including levies and garnishments. The IRS must send an annual statement to the taxpayer stating the amount of tax still owed. This annual statement is not a bill.
Offer In Compromise:
An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles the taxpayer’s tax liabilities for less than the full amount owed.
The IRS has created a process for Offers that, for the most part, has been in place for many years. Generally, there are three types of Offers available:
Doubt to Collectability:
In connection with an Offer made with Doubt to Collectability, though many factors come into play, the focus is generally your Income and Assets. Doubt as to Collectability exists when the taxpayer could not pay the full amount of tax liability owed within the remainder of the statutory period for collection. The Offer is generally based on what the IRS believes it can reasonably collect.
Doubt as to Liability:
As to an Offer made with Doubt to Liability, the primary focus is generally your reasons why, under law, the tax liability is incorrect. A legitimate doubt exists that the assessed tax liability is correct. Possible reasons to submit a doubt as to liability offer include:
- the examiner made a mistake interpreting the law
- the examiner failed to consider the taxpayer’s evidence
- the taxpayer has new evidence
Effective Tax Administration:
An Offer based on Effective Tax Administration exists when there is no doubt that the tax is correct and there is potential to collect the full amount of the tax owed, but an exceptional circumstance exists that would allow the IRS to consider an OIC. To be eligible for compromise on this basis, a taxpayer must demonstrate that the collection of the tax would create an economic hardship or would be unfair and inequitable.
Innocent Spouse Relief
Many married taxpayers choose to file a joint tax return because of certain benefits this filing status allows. Both taxpayers are jointly and severally liable for the tax and any additions to tax, interest, or penalties that arise as a result of the joint return even if they later divorce. Joint and several liability means that each taxpayer is legally responsible for the entire liability. Thus, both spouses are generally held responsible for all the tax due even if one spouse earned all the income or claimed improper deductions or credits. This is true even if a divorce decree states that a former spouse will be responsible for any amounts due on previously filed joint returns. In some cases, however, a spouse can get relief from joint and several liabilities.
If you request relief from joint liability, the IRS is required to notify the spouse with whom you filed the joint return of your request and allow him or her to provide information for consideration regarding your claim.
There are three types of relief from joint and several liability for spouses who filed joint returns:
Innocent Spouse Relief:
Provides you relief from additional tax you owe if your spouse or former spouse failed to report income, reported income improperly or claimed improper deductions or credits.
You must meet all of the following conditions to qualify for “innocent spouse relief”:
- You filed a joint return, which has an understatement of tax, directly related to your spouse’s erroneous items.
- Any income omitted from the joint return is an erroneous item.
- Deductions, credits, and property bases are erroneous items if they are incorrectly reported on the joint return.
- 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.
Separation of Liability Relief:
Provides for the allocation of additional tax owed between you and your spouse or former spouse because an item was not reported properly on a joint return. The tax allocated to you is the amount for which you are responsible.
To qualify for “separation of liability relief” you must have filed a joint return and must meet one of the following requirements at the time you request relief:
- You are divorced or legally separated from the spouse with whom you filed the joint return for which you are requesting relief.
- You are widowed.
- You have not been a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file for relief. If, at the time you signed the joint return, you had actual knowledge of the item that gave rise to the understatement of tax, you may not qualify for separation of liability relief.
Equitable Relief may apply when you do not qualify for innocent spouse relief or separation of liability relief for something not reported properly on a joint return. You may also qualify for equitable relief if the correct amount of tax was reported on your joint return but the tax remains unpaid.
You may qualify for “equitable relief” if you do not qualify for innocent spouse relief or separation of liability relief. Equitable relief is available for additional tax owed because of a reporting error (an understatement) or you properly reported the tax on your return, but you did not pay it (an underpayment). To qualify for equitable relief you must establish, under all the facts and circumstances, that it would be unfair to hold you liable for the understatement or underpayment of tax.
3. IRS Collection Methods
The IRS has the authority to levy your wages without a court order. This means that a court will not review your case before these drastic measures take place. This is why it is very important to hire a competent tax attorney to handle your case.
As long as the following requirements are met, the IRS can garnish your wages:
- The IRS assessed the tax and sent you a Notice and Demand for Payment;
- You neglected or refused to pay the tax; and
- The IRS sent you a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) at least 30 days before the levy. The IRS may give you this notice in person, leave it at your home or your usual place of business, or send it to your last known address by certified or registered mail, return receipt requested.
If these requirements are met, a wage garnishment may be implemented and your wages may be reduced by up to 60%.
In general, employers must report federal income taxes withheld, and the employer’s and employees’ shares of social security and Medicare taxes (collectively “employment taxes”). In cases where the payroll taxes are not being paid over to the IRS, the IRS takes serious measures to recover amounts due. The Revenue Officers assigned to these cases have the authority to recover from the business or from the owners, officers, or any responsible individual personally. The IRS takes aggressive actions under the theory that these funds were withheld and not paid over to the IRS. The IRS can close your business, seize your assets, or refer to case for Criminal Investigation (CI).
Trust Fund Recovery Penalty
If an employer withholds taxes and the business does not pay those taxes to the IRS, the IRS has the authority to pursue you personally for those withholdings. This is commonly referred to as Trust Fund Recovery Penalty. The IRS does not take this penalty lightly and will, in fact, pursue all members of the business including Officers, Members, Owners, and in some case, employees. This is a case where the IRS not only has the right to pursue the business, but also has the authority to pursue you individually – home, wages, bank accounts, etc. We can assist you in minimizing the penalty and act on your behalf against the IRS.
IRS Liens and Levy
Whether the IRS has filed, or intends to file a Lien of Levy against your Home, Bank Accounts, Wages, or Business Assets, you must to action immediately. The IRS must issue a series of Notices of Intent before it issues its Final Notice of Intent to File a Federal Tax Lien (or Levy) with the right to a hearing. We can assist in removing the Lien or Levy and getting your life back in order. Liens and Levies are the central collection activity that the IRS utilizes in collection matters. Typically Liens and Levies serve to enforce collection activities.
The federal tax lien is a legal claim to your property, including property that you acquire after the lien arises. The federal tax lien arises automatically when you fail to pay in full the taxes you owe within ten days after we send our first notice of taxes owed and demand for payment. The government also may file a Notice of Federal Tax Lien in the public records. The Notice of Federal Tax Lien publicly notifies your creditors that the IRS has a claim against all your property, including property acquired by you after the Notice of Federal Tax Lien is filed . The filing of a Notice of Federal Tax Lien may appear on your credit report and may harm your credit rating. Once a lien arises, the IRS generally cannot release the lien until the taxes, penalties, interest, and recording fees are paid in full or until the IRS may no longer legally collect the tax.
The IRS will withdraw a Notice of Federal Tax Lien if the Notice was filed while a bankruptcy automatic stay was in effect. The IRS may withdraw a Notice of Federal Tax Lien if the IRS determines that (1) the Notice was filed too soon or not according to IRS procedures; (2) you enter into an installment agreement to satisfy the liability unless the installment agreement provides otherwise; (3) withdrawal will allow you to pay your taxes more quickly; or (4) withdrawal is in your best interest, as determined by the National Taxpayer Advocate, and the best interest of the government.
The IRS also may use a levy to collect taxes. The IRS may levy assets such as wages, bank accounts, Social Security benefits, and retirement income. The IRS also may seize any of your property for the purpose of selling the property to satisfy a tax debt including your car, boat, or real estate. In addition, any future federal tax refunds or state income tax refunds that you are owed, may be applied to your federal tax liability.
4. Collection Due Process Hearings
A Federal Tax Lien or Levy cannot be issues unless and until you receive a Final Notice of Intent to File a Federal Tax Lien (or Levy) With a Right to a Hearing and the 30 day time period to appeal has expired. It is very important to contact our firm immediately upon receiving this Notice. Our firm will take the appropriate action to secure an Appeal and prevent collection until a resolution is reached. At the hearing, our firm will act in your best interest in achieving the best result under the circumstances. Many collection alternatives may be negotiated at the Appeal including Installment Agreements, Currently Not Collectible Status, Offer in Compromises, and Innocent Spouse Relief. Therefore, it is imperative that you hire a competent tax attorney to handle your Appeal.
Feel free to call Attorney Joseph DiMauro or click here for a free consultation regarding your lien or levy.
5. Unfiled Tax Returns
Many individuals fail to file their tax returns for many different reasons. In some cases, the IRS sends out notices reminding the taxpayer to file a return otherwise he or she may face collection activity. In other cases, the IRS does not send any notices and the taxpayers find themselves having to decide whether to file a return and alert the IRS. As you know you have an obligation to file and pay your taxes, and not doing so can only lead to more stress in the long-run. However, non-filers should not take filing a return lightly and should understand the consequences and options available before doing so.