FREQUENTY ASKED QUESTIONS – Resolution Of IRS Debt
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CAN THE IRS GARNISH MY WAGES WITHOUT GIVING ME PRIOR NOTICE?
Yes. The IRS has the ability to take extreme actions to collect past due back taxes. This authority includes the ability to garnish the wages of taxpayers with past due liabilities. Before the IRS can garnish your wages, the law requires them to send you a letter called a Final Notice. After this letter is sent, the IRS needs to wait approximately 45 days before taking any further action. After that time period, the IRS can move forward with enforced collection action, including a wage garnishment. The IRS only needs to send the final notice once. They do not need to send the notice every time they want to garnish your wages or take other collection action. Because of this rule, years can go by after the Final Notice is sent. Many taxpayers are taken by surprise when they are suddenly garnished after months or years of hearing nothing from the IRS. Also, some taxpayers never receive the Final Notice because the IRS sent it to an old address. Unfortunately, this is completely legal.
IS MY SPOUSE LIABLE FOR MY TAXES, EVEN IF I INCURRED THE LIABILITY BEFORE WE WERE MARRIED?
No. If you accumulated an IRS tax liability before your current marriage, your spouse is not liable to pay the debt. However, in order to reach a resolution regarding your liability, the IRS may require the financial information for your entire household. This may include information regarding your spouse’s income and expenses as well as anyone else who lives in the household (including but not limited to, parents, children, other relatives, roommates and companions). Although your spouse or such other party is not liable, the IRS will use this information to determine the amount you (the taxpayer) can afford to pay.
Also, in some community property states, the marital community is responsible for paying liabilities that pre-date the marriage. In these states, the IRS may be able to take collection action against your spouse. The most typical collection action is a wage garnishment. You will need to speak to an attorney in your state to find out if this rule applies to you.
WHY DO I NEED TO MAKE ESTIMATED QUARTERLY TAX PAYMENTS?
All taxpayers are required to pay their taxes throughout the entire year. People with wage earning jobs have this requirement meet for them when their employers withhold taxes from their paychecks. However, this automatic withholding does not happen for self-employed people. If you are self-employed, you are required to make estimated tax payments four times a year. Many people decide not to make these payments. Instead, they decide to pay all of the taxes when they file their return in April. Unfortunately, for most people, this decision is a mistake. First of all, the IRS will charge you a penalty for failing to make your estimated payments. Secondly, many people find they do not have the funds available in April. Many taxpayers accumulate large liabilities by failing to make estimated payments. It is much easier to budget for four smaller payments, then trying to scrape together a huge payment once a year.
Also, if you have a history of failing to make your estimated tax payments, the IRS will demand that you correct the problem before they will agree to a resolution regarding your past due liability. Therefore, we always tell our self-employed clients to immediately begin making estimated tax payments.
WHO IS THE AUTOMATED COLLECTION SERVICE (ACS) OF THE INTERNAL REVENUE SERVICE (IRS)?
The Automated Collection System (ACS) is a division within the IRS that focuses on “balance due” accounts and “non-filer cases”. In other words, those taxpayers that owe the IRS money and/or have not filed tax returns. ACS handles incoming and outgoing phone calls, generates wage and bank levies and sends out collection notices. Additionally, ACS monitors and tracks taxpayers’ accounts. Based on our experience, ACS can be very aggressive with their collection efforts.
CAN THE IRS GARNISH ALL OF MY WAGES?
Many taxpayers think that the IRS takes a certain percentage of a taxpayer’s income. In fact, the IRS only leaves taxpayers with a certain dollar amount depending on the taxpayer’s filing status. Thus, there could be two taxpayers that are single with no dependents with one earning $1,000.00 per month and the other earning $10,000.00 per month. Both taxpayers will be left with the same amount of money in their check after the garnishment. Therefore, regardless of your income level, a wage garnishment can have a devastating impact on your personal finances.
IF MY SPOUSE OWES BACK TAXES BEFORE OUR MARIAGE, WILL THE IRS TAKE MY REFUND EVERY YEAR?
No. The IRS provides a simple procedure you can follow to make sure you receive your portion of the tax refund, even if your spouse owes back taxes. This IRS program is referred to as Injured Spouse Relief. In order to take advantage of this program, you must complete and file IRS Form 8379, Injured Spouse Allocation, at the time you file your joint form 1040 tax return. The IRS will use the Injured Spouse Form to determine the portion of the refund that should be allocated to you. The IRS may then refund the appropriate funds to you and apply the remaining refund to your spouse’s back taxes.
According to the IRS, to qualify for Injured Spouse Relief, you must meet the following conditions:
- You must not be legally obligated to pay the back taxes;
- You must report income such as wages, taxable interest, etc., on the joint return; and,
- You must have made and reported payments, such as federal income tax withheld from your wages or estimated tax payments, or you claimed the earned income credit or other refundable credit, on the joint return.
If you do not complete the Injured Spouse Allocation Form when you file your joint tax return, the IRS will most likely keep the entire refund to pay down your spouse’s back taxes. Some people also try to solve this problem by filing as Married, Filing Separate. If you choose the solution, you will receive your refund. However, you may give up some important tax advantages. You should probably consult with a qualified tax preparer before making the decision to file separate returns.
CAN THE IRS HOLD ME PERSONALLY RESPONSIBLE FOR UNPAID PAYROLL TAXES?
Yes. Failing to properly file and pay payroll taxes is a serious matter. If an employer fails to timely file and pay payroll taxes, the IRS is authorized to collect these taxes from the business or even a person who was responsible for withholding and paying these payroll taxes to the IRS.
In situations where a corporation incurs a payroll tax liability, and the IRS is unable to collect the taxes from the entity itself, the IRS may seek to collect the payroll taxes from individuals within the corporation. To accomplish this objective the IRS will interview different individuals of the corporation to identify who should be assessed the Trust Fund Recovery Penalty (TFRP). An individual is not responsible for a corporate payroll tax liability unless the IRS assesses a TFRP. The TFRP is the amount equal to the tax that an employer withheld or should have withheld from employees’ wages and failed to pay over to the IRS. It is important to note that payroll taxes and this penalty cannot be discharged in bankruptcy.
When the IRS tries to identify who should be assessed this penalty and made personally liable for the tax, the IRS looks to see who was responsible and willfully failed to pay the federal payroll taxes. The IRS is supposed to conduct a formal interview called a Form 4180 interview to determine if they are personally liable. The liable person is only responsible for the TFRP amount and not both the TFRP and the payroll tax amounts.
The IRS looks at many factors in determining whether someone is responsible for a payroll tax liability. However, one of the most important factors is control. Generally, the IRS considers anyone who has the authority to sign checks or the authority to operate the business on a day-to-day basis as someone who would have control over the business sufficient to assess a TFRP. Therefore, owners, officers, executives and payroll personnel may be considered responsible parties.
HOW LONG DOES THE IRS HAVE TO COLLECT BACK TAXES FROM ME?
The IRS generally has 10 years to collect back taxes. The Statute of Limitations on Collections is the amount of time that the Internal Revenue Service (IRS) has to collect a tax liability. According to the Internal Revenue Code, Section 6502, the IRS generally must collect the tax owed, “within 10 years after the assessment of the tax.” Depending on your situation, the assessment of tax may be the date you filed the tax return, or the date that the IRS filed the tax return for you. Thus, the Statute of Limitations will begin once the tax has been “assessed” by the IRS.
Although the IRS generally has just 10 years to collect on an outstanding tax liability, there are certain events or transactions that may extend or suspend the statute from expiring. For example, if you file bankruptcy or file an Offer in Compromise, the statute of limitations is generally suspended during the time the bankruptcy or Offer in Compromise is under review. Also, additional assessments of tax owing may extend the amount of time that the IRS is allowed to collect. Generally, an additional assessment occurs after the IRS completes a tax audit. Therefore, if the IRS is going to collect taxes owed, they must do so within the time frame permitted by law.
HOW MUCH DO YOUR SERVICES COST?
Many people think that they cannot afford to hire a tax attorney to assist them with their IRS back tax matter. They are wrong! The great news is that we have made our fees very affordable. Our fees in many of our cases are structured on a flat fee basis so that you know the total amount of our legal fees before you hire us.
We know that many of our clients are under a great deal of financial stress. Therefore, we try to work with our clients as much as possible by allowing them the opportunity to pay their legal fees to us over time. This is important so you know for sure how much you will pay even before you hire us!
As you can imagine, the amount of our legal fees depends on the facts and circumstances of your case. For example, some factors that will affect the amount of our fees depend on such issues as whether you are a wage earner, self-employed, and the type of taxes that you owe. Also, our fees vary depending on the type of service you hire us to perform for you and at what stage of tax enforcement you may be under.
It is very important that you contact us to receive your free and confidential tax analysis. Why? It is during your tax analysis that we will discuss the fees that we will charge to help you with your IRS back tax problem. We quote fees only after learning enough information about your situation and the type of service that we may be able to provide you. You should be cautious of any tax professional who quotes their fees to you before fully learning about your IRS back tax situation.
I AM LOCATED OUTSIDE THE SAN FRANCISCO BAY AREA. CAN YOU STILL HELP ME?
Yes! The IRS has offices all over the country and every office is subject to the same guidelines. With today’s instant communication, mail, phones, facsimiles, and e-mail, it has become relatively easy to accommodate taxpayers who reside anywhere in the country.