Yes! Here we go again. It’s that time of year again for financially struggling and distressed taxpayers who haven’t made arrangements with the IRS to pay their income tax debt. Although the IRS sends out notices all year round, the IRS ramps it up every summer, the IRS sends a series of notices to try to collect unpaid taxes. The IRS then starts collection activity against delinquent taxpayers who haven’t paid or made arrangements to pay. These activities include the use of federal tax liens and levies to collect unpaid taxes. This type of enforcement/collection activity will usually increase in September, October, and November.
During the government shutdown, the IRS had temporarily stopped issuing federal liens as well as bank and wage levies, but IRS computer systems (automated collection system) were still sending automatically generated notices warning taxpayers, like you, about potential future collection action. With the end of the government shutdown, the IRS collection process is in full enforcement mode.
You can avoid these IRS enforcement/collection actions by arranging to pay your unpaid balances or using collection alternatives.
THE VERY BEST WAY YOU CAN AVOID AN IRS TAX LIEN OR LEVY IS:
FLAT FEE TAX SERVICE, INC.
How the IRS issues a levy:
To satisfy unpaid income taxes, the IRS can issue a levy to seize a taxpayer’s income and assets. The IRS enforcement process follows several steps. First, the IRS is required by law to provide the taxpayer with:
- Notice and demand for payment;
- Notice of intent to levy;
- Notice of a right to a Collection Due Process hearing.
The IRS will accomplish these requirements by sending five letters, starting about six weeks after the taxpayer files a return. The five letters are often referred to as the automated collection “notice stream” (notice numbers CP14, CP501, CP503, CP504, and L1058/LT11). If you, the struggling taxpayer, receives the last notice and if you do not pay the balance or make other arrangements to pay, the IRS can levy your income and assets, including levying/garnishing your wages and seizing your bank account(s). In the fiscal year 2012, the IRS issued almost three million levies (bank and wages).
How Flat Fee Tax Service, Inc. helps our clients avoid an IRS levy:
If you owe the past due to income tax debt, one way to avoid an IRS levy is to reach a payment agreement with the IRS to pay the balance. This means our tax professionals will need to analyze your financial situation and ability to pay the IRS.
One common solution is an extension of time to pay the balance in full. Extensions can give the client up to 120 days to pay the balance and avoid a levy.
If you can’t pay with an extension, an installment agreement allows the client to make monthly payments.
If the client is unable to pay anything, the proper strategy is to request to have the client placed in currently not collectible status, which classifies the client as temporarily unable to pay. Requests for both of these agreements suspend levy actions.
Once an installment agreement is accepted, the IRS will not issue a levy unless the client defaults on the agreement. If the IRS places a client in currently not collectible status, the client’s assets will not be levied, however, the IRS can remove the currently not collectible status in the future if it determines that the client can pay the tax balance.
If you are eligible and qualified to settle with the IRS, Flat Fee Tax Service, Inc. will prepare and shepherd your Offer in Compromise settlement through the IRS process. 90% of our clients who have submitted an Offer in Compromise to the IRS has received a successful IRS settlement.
How the IRS issues their Federal liens:
When a taxpayer owes federal taxes that he or she has neglected or has refused to pay, a federal tax lien arises for the amount owed. This gives the IRS legal claim to your property. A Notice of Federal Tax Lien may be filed at a local courthouse and is a public record. A recorded federal tax lien establishes the government’s right of priority to the taxpayer’s assets as against third parties (to protect its interests).
The IRS could formally file a Notice of Federal Tax Lien when the IRS meets its legal requirement to send the taxpayer a notice and demand for payment and doesn’t receive payment within 10 days. In practice, the IRS waits to record most tax liens until after it has sent all five notices in the notice stream and has not received a payment.
You will want to avoid a Notice of Federal Tax Lien because it can reduce their credit score by an average of 100 points, according to the IRS Tax Advocate. Liens can also affect a taxpayer’s ability to attract new business clients, secure and maintain credit, and obtain employment. Because a Notice of Federal Tax Lien is public record, taxpayers want to avoid the potential harm to their reputation, as well.
How to help a client avoid a Federal income tax lien:
Avoiding a tax lien filing is more complicated than avoiding a levy. The IRS can file a tax lien even if you have an agreement to pay the back taxes. IRS rules for business dictate that an IRS tax lien won’t be filed if a taxpayer owes less than $10,000. However, the IRS does reserve the right to file a lien to protect its interests. For example, the IRS might file a lien in the case of a pending bankruptcy or if it thinks the taxpayer is dissipating assets to avoid paying an income tax debt.
If you owe more than $10,000, they can still avoid a federal tax lien filing. If the client can’t pay the tax immediately, the most effective ways to avoid a federal tax lien filing are to request an extension of time to pay for up to 120 days or enter into a streamlined installment agreement to pay the full balance.
Streamlined installment agreements require that you pay the full balance within six years or before the collection statute of limitation expires, whichever is sooner. If the unpaid balance is less than $50,000, or if the balance can be paid down to less than $50,000 before the streamlined installment agreement is established, a tax lien filing can be avoided. For an individual taxpayer client, if the unpaid balance is between $25,000 and $50,000, the IRS will not file a federal income tax lien if you allow the IRS to make installment agreement payments directly from your bank account.
When financially distressed clients can’t pay their back income taxes, tax professionals, the IRS tax relief team at Flat Fee Tax Service, Inc., with a thorough understanding of IRS rules for liens and levies can help you avoid enforced collection action. The key is to be proactive (don’t wait for a wage levy to strike you) in securing an agreement with the IRS that avoids liens and levies.