IRS Collection Practices Archives

Non-Filers and Refunds – You will be Sorry

Lots of Non-Filers are not out to rip off the IRS. They figure they have a refund, so the due date is not important to them. After all, the penalties for late filing are all based on the amount owed to the IRS. Late filing turns into a habit and many times that delay turns into years.

Here is the catch. You only have three years from the due date of the return to file and claim your refund. Once the three years are up, too bad. I know of cases where this has happened to the tune of tens of thousands of dollars. Many times, somebody will have a big year and find out they owe, but it is too late to use the prior year’s refunds to offset that liability.

Unless your intention is to make a voluntary contribution to the US Treasury, file the return. The IRS does not have the power to fix this, once the three years are gone.

Substitute for Return Basics

The IRS cannot assess a tax on you without a filed return. This puts them in a difficult spot. If the taxpayer does not file a return, what can they do to get a balance due on their books? The answer is the “Substitute for Return”. Basically, they file one for the taxpayer using the information on hand as to what the income was likely to be. This is where all those 1099s and W-2s come into play. Once the IRS computers have officially filed a Substitute for Return, tax due notices can start.

Here are a few things to understand about the Substitute for Return:

- The IRS is not out to minimize your taxes. They will file the return using single or married filing separate along with the standard deduction. No credits, no additional deductions.
- You can still file your return voluntarily and correct any errors in the tax accessed.
- You are not required to file any additional returns if say the IRS calculations of the tax were lower than your own calculations.
- The big disadvantage to not filing and letting the IRS do the work is that taxes due from an assessment from a Substitute for Return are never dischargeable in bankruptcy.
- Finally, the IRS only files a Substitute for Return when they think there are taxes due. Non-filers who have a refund due will eventually lose that claim once the 3 years have run out.

Haven’t filed forever! How many years to catch up?

The IRS currently has identified some 7 million potential non-filer cases. Getting caught up with them before they lower the ax is something that a lot of these people would like to do. But how do you go about that?

Do you have to go back to the beginning of time if you haven’t filed in decades? The answer is No. IRS Policy Statement 5-133 defines ‘Compliance’ as having the last 6 years of tax returns filed. File the last 6 years and the IRS will let you come in from the cold.

Compliance is an important issue for the IRS. They do not want to make a deal with someone who is compounding his or her tax problems. No payment plan, no Offer-in-Compromise, no relief from collection activities if your current returns are not being filed and your current year taxes are not being paid.

If you or someone you know has received a Notice of Intent to Levy or some other federal or state tax issue, please feel free to contact me at either (352) 317-5692 or email jim@taxrepgainesville.com.

Are Crypto Currencies Safe from the IRS

I represent taxpayers in Gainesville and the state of Florida who has tax issues with the IRS.

IRS Levies

At this point in time, I don’t see how the IRS could levy a cryptocurrency account. The owner has the key codes. Absent these codes, it’s not likely the IRS could break the encryption. But there is a much bigger danger to crypto owners.

The Real Danger

That danger is JAIL TIME. Signing a tax return means you understand that the information is to the best of your knowledge under the penalty of perjury. The first question on the form 1040 for the last few years has been “did you receive, sell, exchange, or otherwise dispose of any financial interest in a virtual currency?” Answer no when you have one of these accounts makes it an easy referral for criminal prosecution when the IRS later determines that you do have such an account.

How it Works

The IRS successfully summoned the records of Coinbase for 2013-2015. The summons was upheld in court. Subsequently, the IRS has been negotiating with other virtual currency companies to gather more information about their users.

Here is the kicker to keep in mind. You sign a form 1040 in the current year and deny that you have any virtual currency. Three years later the IRS is finally able to crack the management of the company that provides you with access to your account. They feed the new data into their computers and then do a search for unreported transactions along with the negative answer on question number 1. Outcomes your name and the computer’s guess at the underreported tax. There is no statute of limitations on fraud. Worse, your defense attorney has next to nothing to work with other than some lame excuse about forgetfulness.

How Big a Risk?

Think this unlikely? The 2021 New England Tax Representation Conference included IRS statistics. Criminal referrals are up over 80% and most of that is related to the Coinbase summons. The idea that in the world of connected data servers that your information cannot be obtained by some government entity forever and ever is a pipe dream.

If you or someone you know has received a Notice of Intent to Levy or some other federal or state tax issue, please feel free to contact me at either (352) 317-5692 or email jim@taxrepgainesville.com.

Three Ways to Deal with IRS Debt

You owe the IRS a lot of money. What can you do to get your life back on track? Basically, it comes down one of three options:

Convince the IRS that you are not in a position to pay
Make a deal to make monthly payments over a period of time
Make an Offer-in-Compromise in that the IRS will take some smaller amount and write off the debt balance.

Figuring out which of these three doors is the best option for you depends on your situation as defined by an IRS formula called the Reasonable Collection Potential or RCP. The RCP takes your monthly income and offsets that with “allowable” expenses to determine your disposable income (i.e., what you could pay the IRS monthly). This is the base line amount for negotiations with the IRS.

If your RCP is zero, then the IRS will check a box on your file as “Uncollectable” and go away for 18 to 24 months. They will revisit the case every couple of years until the Statute of Limitations expires at which time, they will write-off the balance.

If your RCP is a positive number, all is not lost. You can to some extent arrange your financial affairs so as to minimize the RCP calculation. Making these payments regularly usually means that the IRS will leave you alone until the Statute of Limitations date gets close. If a final check of your records does not show anything stupid like the purchase of Leer Jet, then they will likely write-off the balance.

Finally, there is the Offer-in-Compromise that is so famously shown on TV as “I only paid pennies on the dollar”. Frankly, that is hooey. Why would the organization with the most collection powers in the world just let someone go? The answer is that they don’t. Fully 80% of Offers are rejected by the IRS. The 20% that are accepted only happen because the taxpayer was able to demonstrate that this was the best deal that the IRS could expect to make.

There is a fourth option that makes sense in some cases – filing bankruptcy. The rules are a little complicated and you need to consider this with an experienced attorney who specializes in bankruptcy.

There are ways to navigate out of this mess. It takes a considerable amount of work to evaluate which is the best route to take.

“I Avoid IRS Hassles By Not Filing!”

Non-filers — folks who habitually decline to file Federal tax returns— fall into two broad categories:

Those who have significant income withheld by an employer, and figure they don’t have to file because the IRS will probably owe them.
Those that hope to fly under the radar for their entire lives.

The first group is actually kind of common. After all, maybe they will get around to getting caught up next month or next year. No big hurry, the IRS owes them. Right?

Wrong: The IRS seems to ignore them. In actuality, IRS computers have compiled all the W-2s and 1099s and calculated that the government is getting a free loan! But it can get even better for the Government! The statute of limitations will run 3 years after the due date of the return and the taxpayers will no longer be able to claim their refund.

Yea, free money for the government.

What about the second group, those guys that are flying so low that nary a ping hits the IRS monitors? If you live in a lean-to in the wilderness as a hunter-gather all your life, that will work. But for the rest of us, forget it. The IRS is getting better every year at searching through public databases looking for information on people making money and then checking their database of returns filed. It’s just not hard to see this software continuing to improve its ability to crawl through websites and matching information found with returns filed.

Bottom line – Getting by as a non-filer for your entire life is just not likely to work. Filing returns can be stressful for some, but it doesn’t hold a candle to the problems of dealing with IRS Collections people knocking on your door.

Make Hay During IRS Pay Vacation

In response to the coronavirus pandemic, the IRS announced March 25 it was suspending most collection efforts including the requirement to make monthly payments on installment plans (You’ll need to contact your bank to suspend the payments through July. A phone call should do it). Further, no automated levies and liens will be initiated until July 15. The IRS will also stop telling the State Department to suspend delinquent taxpayers’ passports.

This post is for those of us who have been paying (or plan to pay) our IRS tax debts, and coronavirus has messed-up our finances. So, should we just chill — take the payment vacation, and watch Netflix?

(If you can’t pay or chip away at your tax debt in the foreseeable future, read about how to obtain uncollectable status.)

If You Must, Defer Your Payments

So. If you are truly strapped, with no light in sight yet, taking the payment vacation may be the lifeline you need to put food on the table! Just remember that the debt hasn’t gone away, it’s just dozing and July 15 is right around the (ahem) coroner. So, be ready to start paying again, AND, act now to renegotiate your payment amount or cut your tax debt.

Act During IRS Pause to Renegotiate Payment Plan or Prepare a Pay-Less Compromise Offer

If you have a large or unresolved tax debt or run a business affected by the nationwide shutdown, you must get cracking on a recovery plan. One opportunity is to renegotiate your IRS Payment Plan. After all — if your business is hurting, even future cash flow may not support your current payment plan. You’ll have to submit a new Form 433-a to document your Post-COVID-19 financial reality.

Learn Your Reasonable Collection Potential

IRS uses Form 433 to gather future-income data from delinquent taxpayers. The data is used in a formula that yields a Reasonable Collection Potential (RCP) —a future-earnings dollar value the tax agency expects it can collect.

As a tax representative, I employ the same RCP formula with proprietary software so my clients can know in advance what the IRS expects to collect, based on the latest form 433 data. This can help you, as noted above, to establish or renegotiate a payment plan; or if feasible, to save major money by offering to settle your IRS tax debt for less than you owe.

IRs Accepts 40% of Compromise Offers

IRS calls such gambits ‘Offers-in-Compromise’ (OIC) and in 2018 rejected 60% of these offers. The key to landing in the 40% of accepted OICs is an offer close to your RCP. There are other factors, including timing. Which brings us back to the value of filling out or updating your form 433 and determining your RCP now.

Wait, It gets even better!

Tweak Your Reasonable Collection Potential

Now, while you have the time, during this pause in IRS collections activity, you can actually Change (Lower) Your IRS Collection Potential, to save even more money by taking certain steps. My linked article has more details.

Have a Pending Compromise Offer? Modify It, As Needed, by July 15

Do you have a pending Offer-in-Compromise? You now have until July 15^th to modify the offer and document changes the coronavirus shutdown is having on your business. Also, any payments that were due with the offer are suspended until July 15.

If you or someone you know needs help with an IRS or state tax issue, please feel free to contact me at either (352) 317-5692 or via email.

How IRS Levies Work

I represent taxpayers in Gainesville and the state of Florida who have tax issues with the IRS.

The IRS Tax Levy is the method used to actually seize a taxpayer’s assets in order to collect on a tax debt. These levies happen when the taxpayer ignores the IRS about the debt, or there is a breakdown in the negotiations between the two parties. The Levy is the IRS’s hammer and they know how to use it.

The process is straight forward and happens after the IRS has sent various notices trying to collect on the debt. The process itself is as follows:

The IRS issues a Notice of Intent to Levy – you have 30 days to respond and either request a Collection Due Process hearing or negotiate some other deal such as a Payment Plan.
The IRS will next issues a Notice of Levy to any third party who is holding the taxpayer’s assets such as banks, IRA trustees, employers and customers in the case of contractors.
Banks will hold the money in your account at the time of levy for 21 days before sending it to the IRS. This means that it still might be possible to work out a deal and get the levy released before the money is sent to the IRS.
Employers will receive a “Continuing Levy” for wages and commissions which stays in place until it is released by the IRS. This type of levy is designed to hurt and drive the taxpayer back to the bargaining table.

What should you do if you have a received a Notice of Intent to Levy?

The time for inaction is over. You need to contact the IRS and make some sort of arrangement with the IRS or request the Collection Due Process hearing. Hiring an attorney, CPA, or enrolled agent who specialize in these procedures is probably your best plan of action.

Yes Dad, IRS CAN Levy Pensions

A common belief is that pensions, IRAs, and 401Ks are safe from all creditors. When it comes to the IRS—don’t kid yourself. The IRS CAN levy pensions. While it can’t force you to liquidate such accounts, it can levy any proceeds from them. Here are three ways to shelter your retirement funds:

Go with a Payment Plan

The easiest (proactive) way to protect your pension, IRA, or 401K when you the IRS is to sign up for an IRS installment agreement so the IRS does not issue the levy in the first place. This is what most people do, and the long-term monthly bite may not be too painful— but it’s not the only option.

Negotiate with the IRS

A more attractive, more complex alternative is to make an Offer-in-Compromise (OIC) to clear your tax debt for less than you owe. Despite what you may have heard, the IRS does not ‘nonchalantly’ clear tax debts for ‘just pennies on the dollar’ but the agency will accept an offer that represents their best bet to collect from you, based on a formula that takes into account your current assets and future earnings potential.

Lump-Sum Out for Fixed Income Retirees

Retired people living on a fixed income typically have little chance of ever paying off their tax debts in full. The IRS is often willing to take a smaller lump sum payment in these cases in order to get the debt off the books.

If you or someone you know has received a Notice of Intent to Levy or has some other federal or Florida state tax issue, please feel free to contact me at either (352) 317-5692 or email jim@taxrepgainesville.com.