Tax trouble or owe the IRS delinquent taxes? The IRS collection process is a world unto itself, and an experienced tax lawyer can be a life saver.
The IRS is the largest collection agency in the country and by far the strongest. But they still have to follow the rules.
The first letter a taxpayer receives is a CP14 notice, which explains the tax amount, penalties and interest due and explains the steps to resolve it.
The next notice is a CP501, which reminds the taxpayer that he or she has a balance due with the IRS. If the taxes remain unpaid or the taxpayer does not respond to the CP501, the taxpayer will then receive another reminder, CP503. If the previous notices are ignored, the taxpayer will receive CP504, “Notice of Intent to Levy,” stating that if the amount due is not paid immediately, the IRS will seize (levy) the taxpayer’s state income tax refund or other funds or property and apply it toward the amount owed. This notice must not be ignored if the taxpayer wants to avoid levies or liens. Then, the client may receive Letter 1058, “Final Notice of Intent to Levy and Notice of Your Right to a Hearing.” This is the notice that triggers the IRS collection action.
Now is the time for the taxpayer to pay if possible. However, some taxpayers cannot immediately pay what they owe. If this is the case, there are options.
Alternative Payment Options
The first option is to apply for an extension of up to 120 days to pay if the taxpayer can pay that amount in full within that time. The IRS does not charge a fee for the extension, but late payment penalties and interest accrue until the full amount due is paid.
A second option for qualifying taxpayers is a “streamlined installment agreement.” This plan is available for taxpayers that owe up to $50,000. The taxpayer is not required to submit a financial statement to the IRS, and the repayment period for the debt can be up to six years. Persons who owe $25,000 or less who want a streamlined installment agreement should file Form 9465, Installment Agreement Request, and those who owe between $25,000 and $50,000 should file Form 9465-FS. Form 9465-FS is part of the IRS’s “fresh start” initiative.
Taxpayers with amounts due of more than $50,000 can apply for a traditional installment agreement that, like a streamlined agreement, allows the taxpayer to pay the bill in monthly increments; this is usually done by direct deposit or payroll deductions to ensure timely payments. However, the IRS requires the taxpayer to provide financial information so that it can determine the amount the taxpayer is able to pay. Individual taxpayers must complete Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and, if the taxpayer owns a business with employees, Form 433-B, Collection Information Statement for Businesses.
A fourth option is to apply for a delay of collection if the taxpayer is unable to pay any amount. If the client qualifies, the IRS places the taxpayer’s account into a “currently not collectible” status that the IRS will review from time to time to determine if the taxpayer’s financial conditions have improved.
A fifth option is to submit an offer in compromise, which allows some taxpayers to settle their bill for less than the amount they owe
Liens vs. Levies and Seizures
A tax relief attorney should be hired long before this point is reached for help with the IRS. A tax lien publicly notifies all creditors that the IRS has a lien against all of the taxpayer’s property, including property that the taxpayer may acquire after the IRS has filed the notice of federal tax lien. Once a lien is filed, it may appear on a taxpayer’s credit report and it may harm a taxpayer’s credit rating.
The IRS collects delinquent taxes through levy on any property or rights to property of the taxpayer on which there is a lien. The term “levy” includes the power of seizure by any means (Sec. 6331(b)). The IRS may levy on any property the taxpayer owns or on payments, subject to exemptions provided in Sec. 6334. Levied assets or payments may include wage garnishment, Social Security benefits, and retirement income. The IRS also can offset tax refunds, by applying to the tax balance owed all future federal and state tax refunds otherwise payable to the taxpayer.
Call Jeffrey R. Siegel, your Kansas City tax attorney at (913) 735-4829 for help resolving tax delinquencies.