The Methods Used by the IRS to Collect Unpaid Taxes

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Under federal and state laws, taxpayers are charged with meeting specific tax obligations. Taxpayers must file their returns in a timely fashion, enclose the precise payments and ensure the accuracy of the returns even if they were not the actual preparer. Even if you pay a tax preparer to do your taxes, ultimately you are still the person accountable for the data in your tax return. Should you find you have any outstanding taxes due, it’s important that you pay them quickly or at least as fast as you possibly can. Should you be unable to pay your taxes in a timely manner penalties and interest will continue to accrue, making your debt grow to truly alarming proportions. The penalties can be anywhere from 25% all the way to 500% depending on the kind of taxes you owe, therefore take past due taxes very seriously.

If you neglect to take care of your tax bill, you could receive any number of letters from the Internal Revenue Service. You might receive a relatively harmless letter of inquiry, an invoice for the taxes you owe, or a much more serious intent to levy. You must not simply put a letter from the IRS to the side thinking you will deal with it later.  You will need to pay the total due, appeal the bill or set up an agreement with the IRS where you pay in installments, but whatever course of action you choose, you must do it immediately. What you don’t want is for the collection division of the IRS to contact you, because this means it will make your situation much more difficult to resolve.

Actions the IRS May Take

The IRS has wide latitude in the methods they may use to collect your delinquent taxes. The collection division of the IRS can file a lien on any real or personal property even when the taxpayer has properly made arrangements to make monthly payments and is up-to-date on those payments. While this seems unbelievable remember that when a lien is filed your credit score could take a serious hit, and generally speaking you cannot sell or transfer the property with the lien attached until the amount you owe is paid in full. Further, liens which are filed at the local county courthouse become public record, meaning anyone can find out you’ve had an IRS lien filed in your name. If you live in a small community this could be potentially harmful to your reputation or ability to gain employment. Should a lien be filed it will remain on your credit report potentially for the next decade.

Seizure of Business Assets

The IRS has the power to issue a tax warrant which can effectively cause you to cease operation of your business and sell off all your business and personal property including any vehicles used for the business, business assets, inventory and equipment. The funds from the sale of these assets will be utilized as payment toward your tax debt. The IRS is obligated to notify you of the total amount you owe a minimum of ten days prior to seizing your property and they may not liquidate your seized assets for at least ten days. Of course any expenses relating to the seizure such as personnel expenses, towing, locksmith services, storage facilities, and even advertising   costs will be added to your bill.

Levies of Your Salary or Your Bank Account

Any compensation you receive from your workplace can potentially be levied including your regular wages, any bonuses you are entitled to and commissions should you work on commission. Once the IRS has issued a wage garnishment your employer is obligated to deduct a specific amount from your wages each payday. An additional fee of $55 may be added to your delinquent tax amount and is called a warrant fee. The IRS may also levy your bank accounts requiring your bank to send any funds you have deposited there to them up to the total amount you owe plus penalties and interest. If you have an outstanding balance with the IRS take it very seriously and contact a skilled attorney to help you sort it out.

Dealing With Unpaid Payroll Taxes

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One of the most serious tax violations involves the failure of an employer to send in payroll taxes which have been withheld from employee pay. Despite the seriousness of the issue this is also one of the most common tax problems. The IRS must give employees the benefit of all taxes which were withheld by employers no matter whether those taxes were actually paid into the government program. The payroll taxes held back are meant to go into a trust fund for the federal government and never, ever belong to the employer therefore every single employer who withholds payroll taxes from his employee’s paychecks is a trustee for the U.S. government in a sense. Should an employer fail to turn over all monies withheld, it is considered by the federal government to be theft of governmental money.

The Installment Plan Just for Business Taxpayers

Employers who have inadvertently gotten behind in their deposits for payroll taxes can count on the fact that the IRS will pursue them aggressively fearing the business owner might go out of business or will keep using the funds as their own. In fact, failing to pay payroll taxes is akin to being involved in a pyramid scheme. Businesses who can honestly say they have taken steps to correct the problem, can show how they plan to keep up with the tax deposits and can show they are turning a good enough profit to stay current while making regular payments on the unpaid balance may qualify for a monthly payment plan.

Penalties Assessed

Should you fail to pay your payroll taxes as you should have the IRS can assess a severe penalty against you which is equal to the payroll taxes you neglected to pay. This penalty can be assessed against more than one person in the business and can be assessed against those who were neither shareholders nor officers. In some instances of willful non-payment or misappropriation of payroll tax funds, the person involved may end up with criminal charges against them in addition to fines and penalties.

How Do Such Problems Arise?

In some cases a business is simply short on cash and rather than failing to pay the rent or the suppliers, the owner can rationalize that the IRS moves slowly and it will likely be some time before they catch up with the failure to pay. Hopefully by that time they will have enough money to pay the back payroll taxes. Although this sounds good in theory it is truly a recipe for disaster. The payroll problems keep growing steadily with penalties and interest adding up at an alarming rate. By the time the IRS agents actually show up, they are likely threatening to close the doors of the business. Other times incompetent or flat out dishonest employees may neglect to pay the payroll taxes, keeping the money for themselves and hiding the fact from their boss.

Getting the Help You Need

If you were a victim of a dishonest employee, if you meant to pay the payroll taxes but simply didn’t have the money, or even if you can plead ignorance and say you were unaware you were supposed to send in the money, you need a competent, experienced attorney to help dig you out of the IRS hole you are in. A competent tax attorney can negotiate a settlement with the IRS to reduce your penalties and may be able to prevent the IRS from closing your business. A knowledgeable tax attorney may also be able to stop the IRS from holding you personally liable in the event a dishonest employee failed to remit the payroll taxes. While the IRS has considerable power, you still have rights so work with your attorney to ensure your payroll tax issues are resolved.