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.

Gulf Coast Tax Attorney Says BP Oil Spill Payments for Lost Wages are Taxable

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A significant number of individuals in New Orleans and other parts of Southern Louisiana and Mississippi have received payments for lost wages as a result of the Deepwater Horizon BP Oil Spill.  It seems established that the payments will be taxable as income.  However, very different tax consequences are possible depending on whether the individual is an employee or is self employed.  For self employed individuals, the IRS takes the position that the payment should be included in gross income, which would make the BP payment subject to the self employment tax.

See Gulf Oil Spill: Questions and Answers, Updated: June 25, 2010, at http://www.irs.gov/pub/irs-pdf/p4873a.pdf.

However, for employees, the IRS excludes the payment from the definition of wages, reasoning that the payments are not wages under the “social security tax and Medicare tax because it is not an actual payment for employment.”  Id.  The result is that self employed individuals will have a higher employment tax obligation than their employee counterparts.  Why the different treatment by the IRS is not clear, but the result under the IRS guidance does appear equitable.  Please note that the tax court has held that certain business interruption payments are not self employment income, and because the BP payments seem similar to business interruption payments, authority may exist for self employed individuals to treat the BP Payment as non-self employment income.  If this issue is analyzed and properly reported under the guidance of a qualified tax professional, self employed individuals could take this position on their 1040, contrary to the IRS guidance.

For a general discussion of the Oil Spill tax issues, See: Tax Issues and the Gulf of Mexico Oil Spill, at http://www.nationalaglawcenter.org/assets/crs/R41323.pdf.

If you need immediate assistance, please call us at (504) 302-4949.  We Can defend you during an IRS audit. Be protected and do not give in because you are afraid. Let our experienced IRS lawyers defend you.

IRS Attorney New Orleans Says Don’t Get Bullied

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IRS attorney New Orleans Paul Grego says do not let the Internal Revenue Service bully you during a tax audit.  One of the worse mistakes a tax peer can make during an audit is to just simply give up their hard earned money and pay the fines without first speaking to an IRS attorney in New Orleans.  In many cases, if you “go it alone” without a tax attorney, you may expose yourself to criminal prosecution.

If you need immediate assistance, please call us at 504-302-4949.  We Can defend you during an IRS audit. Be protected and do not give in because you are afraid. Let our experienced IRS lawyers defend you.

IRS Wage Garnishment

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Generally speaking an IRS wage garnishment, or deduction of money from a taxpayer’s paycheck, should come as little surprise. The IRS has a series of notices they send taxpayers, each with a more serious tone than the previous one. The wage garnishment is one of the IRS’s more aggressive forms of tax collection and should be taken very seriously. You must understand how wage garnishments work in order to protect your livelihood and that of your family.

How Does the IRS Take a Portion of Your Paycheck?

If you have ignored the repeated warnings of the IRS in the form of letters and notices, then the IRS may contact your employer and order them take part of every paycheck and send that money to the IRS. Should your employer refuse to do so, they can be held responsible for any amount which was not levied therefore it’s a safe bet to assume your employer will comply with the orders from the IRS. The IRS is legally allowed to take a portion of your regular wages, any bonuses you might be entitled to, and in some cases even money from your retirement plan.

Typically the IRS will take 25% or more of your pay without a thought as to how—or if—you will pay your bills and feed your family. The wage levy will endure until a sufficient amount of your monthly paychecks have been seized to fulfill your tax obligation along with any assessed interest and penalties. Remember that it is entirely likely that the IRS will take greater amounts of your paycheck than they will if you cooperate with them and set up a payment plan or other alternate form of payment. Tax garnishments are costly to the IRS however they find them an extremely effective scare tactic and will not hesitate to implement this tactic if the taxpayer refuses to pay.

How to Get Your IRS Wage Garnishment Released

Of course the most obvious way to have the wage garnishment released is to pay the IRS in full, including any interest and penalties. Unfortunately most people who are in this situation simply don’t have the funds to pay the IRS in full. You could consider a loan from friends or family, the sale of an asset or even refinancing your home in order to pay the IRS the money owed them. You could also file for an offer in compromise with the IRS which is essentially your offer to make alternative arrangements.

Many times this will allow taxpayers to settle their taxes for only a fraction of what is owed, however it can be extremely difficult to reach such a settlement with the IRS. Filing for an offer in compromise is a complex matter, and if you are considering pursuing this option you should definitely consult an experienced tax attorney to assist you. The IRS would be more likely to agree to a payment plan which would allow you to pay your back taxes in the form of a monthly installment plan over a period of three years. So long as you continue to make your regular, agreed-upon payments, your wage garnishment will be suspended and you will be back in relative good standing with the IRS.

Claiming Financial Hardship

If you can prove that the wage garnishment against you by the IRS is causing you severe financial hardship, the IRS will be obligated to temporarily stop collection actions until your financial standing has improved. In other words, if the IRS wage garnishment leaves you unable to pay normal living expenses, then they will not be able to implement the garnishment. You must prove this fact, however, as they will hardly take your word for it. You will have to file specific paperwork and provide financial records in order to prove to the IRS that you don’t have sufficient income for a wage garnishment. Some people who have found themselves under an IRS wage garnishment either change jobs or simply quit. If you change jobs it will likely take the IRS a few months to catch up to your new job and start garnishment proceedings again. You could also file for bankruptcy, which automatically stops wage garnishment, however this is a major step and should only be used as a last resort. If you are under threat of IRS wage garnishment don’t wait—consult with a knowledgeable tax attorney immediately to discuss your options.


2011 Reporting for 2010 Roth Rollovers and Conversions

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The IRS has released guidance on “2011 Reporting for 2010 Roth Rollovers and Conversions.” See http://www.irs.gov/retirement/article/0,,id=251832,00.html. While amounts transferred into Roth accounts are subject to income tax, these conversions are not subject to the 10% penalty tax for early withdrawals from qualified retirement plans. Unless elected otherwise, taxpayers converting Roth IRAs in 2010, “must report half of the taxable amount of these 2010 rollovers and conversions on your 2011 income tax return” and the other half in 2012.

As additional resources, see:

Publication 590, Individual Retirement Arrangements (IRAs)

Retirement Plans FAQs: IRAs

Topic 413 – Rollovers from Retirement Plans

Notice 2009-75, Rollovers from Employer Plans to Roth IRAs

Notice 2010-84, Guidance on In-Plan Roth Rollovers

Standard Mileage For Taxi Cab Owners

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For the 2011 tax year, taxi cab owners (non fleet owners) may now use the standard mileage deduction on schedule C. The IRS in Rev. Proc. 2010-51 and Notice 2010-88 revised the definition of cars for hire, and included them in the vehicle types that would qualify as eligible for the standard mileage deduction. Please note that listed property, under IRC Section 274, and Reg. Section. 1.274-5T require that the taxpayer be able to substantiate the business use of the taxi by keeping adequate records documenting the business and the miles driven. Please consult your tax professional on the adequacy of your mileage records.

What to Do About an IRS Tax Lien

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Receiving notice of an IRS tax lien can strike fear in the hearts of almost anyone. If you have received notice of an IRS tax lien it’s important that you fully understand the lien process including the types of property the lien attaches to, the consequences of a tax lien, how long the lien can be attached, and the priority of the tax lien. You will also want to know what circumstances will prompt the IRS to remove the tax lien. Any time a taxpayer neglects to pay taxes owed to the IRS, a federal lien may be filed against real and personal property of the taxpayer. Bank accounts, as personal property, are often subjected to federal tax liens however difficulties can arise when the accounts are jointly held by the taxpayer and any other person. Generally speaking, if you have back taxes which remain unpaid and have ignored or failed to cooperate with IRS demands to make such payments, you will likely be slapped with an IRS tax lien.

How Does a Tax Lien Work?

The IRS will send you, the taxpayer, a letter detailing the amount unpaid along with late payment penalties and interest. If this first letter is ignored, a series of four more letters with serious titles (CP-501, CP-503, CP-504 and LT11 or L1058) will follow. Each letter will be more and more threatening, and the final one will note the IRS intention to place a lien on your property. Should you continue to ignore these notices, a Notice of Federal Tax Lien will be filed which prevents you from selling or borrowing against any assets you currently own. If you’ve received a Notice of Federal Tax Lien you can be assured that the lien has already been filed and made a public record.

What Does a Tax Lien Mean for Me?

Should you have an IRS tax lien placed against your assets you will likely be financially crippled for a significant period of time. You will be unable to receive credit in order to buy a car or home, and will have to rely on others for any financing needs. You will not be able to hold any assets in your name, and all your creditors, including your mortgage company will be notified. The IRS will keep a tax lien against you for as long as they legally can—typically ten years—or until you have paid your IRS bill. The IRS have made themselves the highest priority creditor, so selling your house or car would only mean the IRS would snatch any proceeds from the sale. Should you do nothing about the tax lien the IRS can begin seizing your assets, selling them at a public or private sale. Even after the tax lien is released you may find your ability to borrow, seek employment or rent a home still significantly hampered.

Getting Rid of Your IRS Tax Lien

The primary way to rid yourself of an IRS tax lien is to pay your tax debt in full at which time the IRS will release the lien within 30 days. Some taxpayers may qualify for subordination which does not remove the lien but allows other creditors to move ahead of the IRS, making getting a loan or mortgage somewhat easier. The IRS may offer you payment options in order to allow you settle your tax debt over time, and it is always a good idea to speak to an experienced tax attorney to discuss your options. Your attorney will be able to discuss the difference between a tax lien which secures the government’s interest in your property as opposed to a tax levy which actually gives the IRS the right to seize your property in order to pay your tax debt. Don’t wait until your IRS issues become serious—speak with an attorney to get the best legal advice before you take any action.


IRS Revised Form 941

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Continuing the implementation of the payroll tax relief enacted by the Middle Class Tax Relief and Job Creation Act of 2012, the IRS has announced the release of a revised Form 941 payroll tax return. Employees do not need to take any action to benefit from the payroll tax relief, and the lower tax rate “will have no effect on workers’ future Social Security benefits.” Self employed workers will also benefit from the new law with a similar reduction “in the social security portion of the self-employment tax from 12.4 percent to 10.4 percent.”

The revised Form 941 is available on the IRS website. See IR-2012-27.

The Most Common IRS Notices—and How to Respond to Them

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Most people who receive IRS notices or letters in the mail experience a sense of fear or panic before they’ve even opened the notice. While it’s true that the notice you receive may sound formal and even harsh, generally speaking you can settle most issues with a calm head and a few simple steps. So, take a deep breath and read through the notice carefully, making a note of the number of the form and the bottom line as to what the IRS wants from you. The IRS tends to be very systematic and generally speaking they make few mistakes, but occasionally people do receive notices in error so it’s essential that you approach the situation with a clear head. Once you have determined if the letter is correct, you can either do your own research and map a plan of action in response or you can contact a knowledgeable tax attorney who can make the situation seem much less frightening. Some examples of some of the more common IRS notices–along with an explanation of why you may have received your notice—are below.

  1. CP-11 IRS Notice—If you receive a CP-11 notice from the IRS it means there were changes made to a tax return by the IRS which caused you to owe money. The form should clearly show which changes in your return resulted in taxes being owed and should explain how and why the changes were made. If you made a calculation error, then the notice should indicate “math error.” There will be a three-digit code which is assigned to each change which was made on your return. Your notice should also explain what you need to do if you agree with the changes and what you need to do if you disagree with the changes made to your filed form.
  2. CP-88 IRS Notice—This notice from the IRS is to let you know they are holding on to your tax refund rather than sending it to you. Of course this type of notice will cause you dismay, particularly if you were counting on your refund to pay bills. Generally the notice will inform you that you are not entitled to a refund because you neglected to file the proper tax forms in the prior year. You will not be able to receive your refund until you’ve filed all the necessary returns.
  3. CP 90/ CP 297/ CP 297A/ LT 11 or L 1058—Any of these notices are very serious and you should take them seriously. If you receive a CP 90 notice this means the IRS is letting you know they intend to take a portion of federal payments which you normally receive. This could be in the form of salary, Social Security benefits or retirement benefits. A CP-90 or CP 297 notice means the IRS intends to levy your properties, bank accounts, vehicle, business assets or wages. Should you ignore these initial notices of intent to levy, you will receive a CP 501 which is your first reminder letter. A CP-503 is your second reminder letter, and a CP 504 is last notice of money owed and at this point in the procedure a Federal Tax Lien may be placed against you if you are unwise enough to ignore this particular notice. If you do ignore a CP 504 then you will receive an LT 11 or L 1058 which is a formal letter sent after you have ignored all prior notices giving you 30 days to make the situation right or risk having your bank accounts levied.
  4. CP 523 IRS Notice—This is a notice that you have not paid your installment agreement as promised, for whatever reason. If a CP 523 is sent to you this means the IRS is giving you notice that they intend to revoke your agreement due to your failure to pay.

While receipt of any of these notices can surely ruin your day, there are legal channels to deal with them. If you have further questions you should consult a tax attorney who can more fully explain your rights to you.