The IRS has some significant collection tools it can use to collect federal taxes. The IRS can lien assets such as your home, seize cash in bank accounts and garnish wages. Although the IRS does have these significant collection tools, there are also numerous tax payer protections available during the tax collections process. The process of tax collection from the IRS can be long and “taxing” and the IRS has ten (10) years from the date when your tax liability was assessed to collect on the taxes. During this collection process, it is important that you are proactive in dealing with an outstanding tax liability. Below is a list of options that are available to taxpayers. I would note that none of these options resolve around settling for pennies on the dollar.
1. Appeals Process. If you disagree with the decision of an IRS employee at any time during the collection process, you may ask that employee’s manager to review your case. If you disagree with the manager’s decision, you have the right to file a written appeal under the Collection Appeals Program. You can appeal collection actions such as liens, levy’s of bank accounts or garnishment of wages. You are also entitled to a Collection Due Process Hearing where you can challenge the IRS’s determination of tax owed.
2. Tax Court. If you are unsuccessful in the IRS appeals process you may file a petition in the U.S. Tax Court to challenge the amount due. This appeals process is far more difficult to understand and usually requires the assistance of an attorney.
3. Installment Agreement. If you have tax owed which you do not dispute but cannot afford to pay you may set up an installment agreement with the IRS to re-pay the tax owed. Under an installment agreement the IRS does charge interest on the amount owed but will cease collection activity and will allow you to pay the tax over time. If you owe $50,000 or less then you don’t have to complete an extensive financial statement and the process can be done on-line or by phone with the IRS. If, however, you owe over $50,000, then you must complete IRS form 9465 which outlines your assets, income, and debts to the IRS.
4. Offer in Compromise. You may make a deal with the IRS under what is called an offer-in-compromise. Under an Offer in Compromise you agree to pay a certain amount to the IRS as a settlement for all amounts they have assessed as due. There are three grounds under which the IRS will accept and Offer in Compromise. First, if there is a doubt as to whether you are truly liable for the tax. Second, if there is doubt as to whether you are actually able to pay the IRS back. Lastly, an offer may be accepted if the offer promotes efficient tax administration due to an economic hardship or special circumstance of the taxpayer.
5. Office of Taxpayer Advocate. At any time in the collection process where the IRS office has been unresponsive to taxpayer requests, a taxpayer may receive the assistance of the Office of The Taxpayer Advocate. The Taxpayer Advocate is an independent office within the IRS but it is their responsibility to assist the taxpayer in dealing with other offices within the IRS. Only the IRS would have such an office. The Taxpayer Advocate can help give you advice on how to resolve your tax problem. We have used the Office of the Taxpayer Advocate in many instances and while they are within the IRS office they can be helpful in getting responses to requests for information and in obtaining decisions on Offer in Compromises and Appeals.
Many CPA’s and Attorney’s are familiar with tax collection and it is crucial that a taxpayer facing collection actions be aware of the procedural options available to them. We have helped numerous clients in our office resolve difficult tax situations by using some of the procedures above. The key is to be proactive in your case to ensure that you don’t miss deadlines and other opportunities to resolve your tax problem.
By: Mathew Sorensen, Attorney and Author of The Self Directed IRA Handbook