Category: Taxpayer Representation

Note: This is a guest post written by an attorney that formerly worked in the tax resolution industry, and later went on to work with the US Attorney’s Office. He has asked to remain anonymous, but wanted to share some personal insights about the IRS Collections process.
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For those that don’t work much with the Collections Division of the Internal Revenue Service, there is a stigma attached to both the methods and people involved. On one side, the IRS is seen as bullying taxpayers, especially the “little old ladies” and the “working men.” On the other side, the taxpayers are seen as being inadequate business people and as “stealing” from the government. Is the IRS an evil organization created by bureaucrats to systematically take the wealth of it’s citizens? Are the individuals caught up in the system evildoers needing to brought to justice? Both statements are a little extreme.

In all reality, the Collections Division of the IRS does not care where the money goes. Sometimes, it does not even care if it gets it. It, like many administrative agencies, seems more caught up it’s own procedures. Anyone having worked with the IRS might wonder if they are on a fool’s errand, considering how many of the installment agreements entered into by the IRS default.

The Collections Division is concerned primarily about getting taxes that should have been paid, but were not (a.k.a. “the tax gap”). These can be personal income taxes, employment taxes, trust fund recovery penalties, corporate income taxes, etc… The majority of this collections is done in a civil (i.e. non-criminal) setting. Within this context, there are common dilemmas that rear their heads every day, especially with regards to employment (withholding and FICA) taxes.

Although there are many reasons for a business to fall behind on its employment taxes, a common scenario is as follows: Small business owner falls on hard times; bills must be paid, but there is not enough to go around. The IRS relies exclusively on voluntary compliance (at least at the outset), as do most creditors. However, the IRS probably has more debtors than any other creditor in the country. As such, they cannot detect and move fast enough to put the strong arm down on the taxpayers. Because there is only so much to go around for the taxpayer, they pay the bills that need immediate attention (i.e. payroll, rent, utilities) and the employment taxes go … Continue reading

An IRS Installment Agreement, or payment plan, is the primary means by which taxpayers with tax debts settle up with the government. A special provision in the law allows the IRS to accept payment plans without reviewing your financial information, which they are otherwise normally required to do. These simpler payment plans are called a Streamline Installment Agreement.

Normally, applying for an IRS payment plan is literally like applying for a home mortgage loan, and requires extensive prying into your personal finances. Historically, the IRS will simplify this procedure if you owe less than $25,000 and can make large enough payments to pay off the tax debt within 5 years (60 months).

The IRS has issued new regulations regarding Streamline Installment Agreements, due to the continued economic difficulties and the fact that their collections case burden is skyrocketing and they don’t have the personnel to manage so many tax debts.

The IRS will accept now a Streamline Installment Agreement for taxpayers that owe up to $50,000. In addition, they will give you up to 6 years to pay it all off. This effectively makes the vast majority of tax debtors eligible for the program, allowing the IRS to expend resources chasing after people that owe much larger sums of money, and lessening the headache and aggravation they cause to middle class families that have enough to worry about without the threat of the IRS seizing funds in bank accounts or garnishing wages.

Setting up an Installment Agreement under these criteria can be done over the phone or on the IRS web site. Of course, you may wish to consult with a licensed tax professional to determine if another option, such as Status 53 or an Offer in Compromise, may be better for you financially. Oftentimes, individuals and small businesses that qualify for a Streamline Installment Agreement with a small payment amount may also be eligible for these other programs. Status 53, also called “Currently Not Collectible” status, doesn’t require you to make any payments, but does require full financial disclosure. An Offer in Compromise also requires full financial information from you, but allows you to settle your entire tax liability for some fixed amount that is less than what you actually owe.

As with most things in life, make sure that you explore all your options, and that you thoroughly understand both your rights and your obligations under any tax resolution program you enter into. … Continue reading

Every year, the IRS rolls out new initiatives to make sure everybody is complying with the tax laws. While certain things, such as frivolous tax arguments, are always enforced, the IRS shuffles personnel around to enforce compliance with certain parts of the tax code based on the trends they identify. Five of those trends are discussed here.

1. Foreign accounts and assets. If you have money or assets overseas, the IRS wants to know about it. If you have more than $10,000 in a foreign bank account, you’re required to file an annual disclosure statement with the Treasury Department. In addition, the IRS is now requiring foreign banks to enter into information sharing agreements, or else have 30% of payments transferred to them from the U.S. withheld to pay potential tax bills. The failure to disclose your overseas assets can result in significant penalties, and potentially criminal prosecution.

2. Payroll taxes. The single biggest emphasis of enforcement within the employment tax arena has to do with taxpayers that pyramid their employment tax liabilities, meaning that they owe money, and continue to accrue new liabilities each quarter. The IRS is also heavily targeting the owners of S-corporations that don’t pay corporate officers a fair wage (and thus payroll taxes), but rather take nothing but distributions, which are not subject to payroll taxes.

3. Gift tax audits. Many people don’t realize that giving cash gifts to their friends and family can have tax consequences. Every person has a lifetime cumulative exemption from gift taxes, and there are also annual limits. The IRS has started to electronically examine property transfers based on public records in order to ferret out people that may owe gift taxes.

4. Automated Substitute for Return Program. Section 6020(b) of the Internal Revenue Code allows the IRS to file a tax return for you if you fail to do so. They prepare this Substitute for Return (SFR) based on information they have on file, such as W-2 and 1099 information sent to the IRS by your employer. A computerized system now prepares these returns, and the IRS has asked Congress for the past several sessions to make it a felony when you fail to file a tax return for three out of five straight years and the tax exceeds $50,000. Fortunately, this has never been passed into law, but it is a law that the IRS will likely continue asking for.

5. Schedule C … Continue reading