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IRS Lien vs Levy

February 26, 2015 by admin

Steven A. Leahy
IRS Lien vs Levy

By Steven A Leahy

On the IRS Radio Hour I often talk about the way the IRS works. The most important aspect of how the IRS works goes directly to how the IRS can collect assessed taxes from taxpayers, outside of voluntary agreements, like installment agreements, offers-in-compromise, currently not collectible, and bankruptcy. When a taxpayer ignores, or otherwise fails to negotiate a work out with the IRS, the IRS may take some drastic actions. The most dramatic action is a levy. This article will clear up IRS Lien vs Levy.

Many taxpayers confuse a levy and a lien. A federal tax lien is the federal government’s legal claim against a taxpayer’s property when a taxpayer neglects or fails to pay a tax debt. The IRS files a public document, the Notice of Federal Tax Lien, with the county recorder to alert the taxpayer’s creditors that the federal government has a legal right to the taxpayer’s property. A lien does not result in seizure of any of the taxpayer’s property.

A federal levy, on the other hand, is a legal seizure of a taxpayer’s property to satisfy a tax debt. If a taxpayer fails to pay the assessed tax, or make satisfactory arrangements to settle the debt, the IRS may seize any type of asset, real or personal.

There is a three-pronged procedure in place the IRS must follow in order to justify a levy. First, after the IRS assesses a tax, they must send a Notice and Demand For Payment. Second, the taxpayer must neglect or refuse to pay the tax. Finally, the IRS must send the taxpayer a Final Notice of Intent to Levy and Notice of Your Right to A Hearing. The Taxpayer has 30 days from the date of that notice to request a Collection Due Process hearing with the Office of Appeals.

Once the IRS fulfills their obligations under the three-pronged procedure, they can seize any property the taxpayer is holding (including, cars, boats, houses), or any property someone else is holding (wages, retirement accounts, bank accounts, rental income, accounts receivables, cash value of life insurance or commissions).

In my practice I have seen levies against rental income – the revenue officer actually visited the taxpayer’s tenants each month to collect the rent before the taxpayer could collect; levies against insurance payments due a doctor – the IRS ordered all insurance carriers to send all payments to the IRS; levies on commissions – the IRS contacted the contract employer and levied, took, all commissions the taxpayer was due. A Taxpayer should never under-estimate the creativity of an IRS Revenue Officer looking to levy assets to collect on an IRS obligation.

The two most common levies involve bank accounts and wages; low hanging fruit. Remember, a bank must report any interest paid of at least $10.00 with form 1099-int. So, the IRS knows where most every taxpayer banks. Once a bank receives a Notice of Levy, the taxpayer’s account is frozen – the bank must hold any money in the account, up to the amount you owe, for twenty-one days. After twenty-one days the bank must send the money, plus interest, to the IRS. Any money deposited in the account after the date of levy, is NOT included in the levy. However, the IRS can issue more than one levy on the same account. I have seen accounts levied each week for months on end.

Finally, the levy most taxpayer’s fear is the wage levy. A wage levy is often referred to as a wage garnishment. The IRS issues a wage levy to the taxpayer’s employer, and the employer is obligated to send all net income, less exemptions, to the IRS CONTINUOUSLY. The more a taxpayer makes, the more the IRS will take. Generally, the exemptions are calculated by determining the standard deduction and the amount deductible for exemptions on an income tax return for the year the levy is served, divided by Fifty-two. The exempt income is designed to provide minimal sustenance – not enough to pay your expense. To do that, the taxpayer must work out an agreement with the IRS.

If you are facing IRS Collection Efforts, you should work with a local law firm that understands the IRS Collection procedures and will work to get you the best deal possible. You should give me a call – Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.

IRS Audits – What are they looking for?

February 26, 2015 by admin

Steven A. Leahy
IRS Audits – What are they looking for?

By Steven A Leahy

The IRS calls an audit an “Examination of Returns.” The IRS accepts most federal tax returns just as they are filed. Some returns, however, are selected for review. The IRS selects returns for audit by computerized screening, random sample, or by an income document matching program. An examination can take place in several ways. Some audits are handled exclusively by US Mail, in the taxpayer’s home or place of business, at an IRS office or at your representative’s office. The time, place, and manner of the audit are negotiable.

Here are nine “red flags” the IRS uses to select a return to audit:

1. Make a mistake on your tax return – Gross errors will bring immediate scrutiny to your return and cause the IRS to audit your return. Simple math errors, not signing a paper return, leaving off or incorrectly listing your social security number are common ways to invite IRS scrutiny.

2. Round off the entries on your tax form – Generally, life doesn’t happen in round numbers. If you use round numbers, it tells the IRS that the numbers may be fictitious, or at least not accurate.

3. File late, or not at all – When you file late, the return is not processed with the hoard of annual filers. Instead, your return will be processed by a person, looking at the details of your return.

4. Be a Tax Protester – Tax protesters don’t believe the IRS has legitimate authority to collect taxes and they thumb their nose at the IRS by filing returns that indicate zero tax owed (if a tax protester files a return at all). Tax protestors can count on the IRS assigning a revenue agent to review it.

5. Have unreported Foreign accounts – Foreign banks have been reporting American account holders to the IRS for some time now. So, even if you don’t report the foreign account, you can be assured that the foreign financial institution will.

6. Don’t report some income – Companies are to issue a 1099 for any payments over $600.00 or W-2s to employees. So, if you don’t report some income, the company that paid you will likely report the payment in a 1099 or W-2 and the IRS will have the paperwork to match against your return.

7. Claim large charitable contributions – This is an easy target for the IRS. The IRS can simply audit you by mail and ask for substantiation for all deductions.

8. Take a repeated loss on a home based business – If a business loses money for 3 out of 5 years, the IRS considers that activity to be a hobby, not a business. If it is a hobby, you can only deduct losses equal to or less than income. You can’t use the losses in a hobby to offset taxes from other income.

9. Use an unscrupulous tax preparer – When the IRS notices a specific tax preparer is preparing returns that generate large refunds the IRS is likely to audit ALL the taxpayers who used that tax preparer. So, be careful whom you hire.

Generally, the IRS has three years from the due date to audit a return. That explains why the IRS will usually conduct an audit for three consecutive years, rather than just one. There are exceptions to the three year rule. For example, if you underreport your income by more than twenty-five percent, the IRS has six years to audit. And, if a taxpayer files a fraudulent or false return, there isn’t a time limit on an audit.

So, if you are facing an IRS audit, or have already been audited, you should work with a local law firm that will work to get you through the audit process and collections in the best way possible. You should give me a call – Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.

Four Things You Need To Know If You Have Unfiled Tax Returns

February 18, 2015 by admin

Steven A. Leahy
IRS – Four Things You Need To Know If You Have Unfiled Tax Returns

By Steven A Leahy

Many of my IRS clients are “Nonfilers,” they have unfiled tax returns. Some of my clients have not filed for multiple years – some, for many prior years. Sometimes, they take action because they (or a friend) heard my radio show or commercial. Most, however, wait until the IRS sends a Notice of Intent to Levy, or worse, Notice of Levy to their employer or bank. If you have unfiled tax returns there are four things you need to know.

First, you need to know that not filing your tax returns is a crime, punishable by up to one year in prison for each year of unfiled tax return. Fortunately, the IRS doesn’t put a lot of taxpayers in jail for not filing tax returns. But, they do put some in jail. For example, Wesley Snipes was recently released after serving 3 years for failure to file. There is a statute of limitations for unfiled tax returns. The IRS will not be able to bring criminal charges after 6 years from the date the taxes are due. So, 2007 taxes that came due on April 15, 2008 are now beyond the statute, and the IRS can’t bring criminal action against you for unfiled tax returns 2007 and before. But, they still can collect any tax due.

Second, you should know that the IRS may complete your tax returns for you if you fail to file your tax return (it’s a penalty not a service). These are known as Substitute for Returns (SFR). When the IRS prepares your SFR, they will not include any deductions or exemptions. The result will be an inflated tax obligation. Penalties and interest are calculated based on the tax obligation. So, if the tax obligation is greatly inflated, so too will the penalties and interest. Don’t forget, the interest is calculated from the date the tax was due. So, the penalties and interest can add up to amount greater than the inflated tax obligation.

Third, the IRS will only allow you to recover any tax refund for 3 years. So, if you have any refund older than 3 years, the IRS will not refund OR credit your tax obligation for those years. For example, suppose a taxpayer hasn’t filed a return for years 2009 – 2014. Further, suppose, once the returns are complete, the taxpayer is due a refund for the years 2009 – 2011, but incurs an obligation for the most recent years 2012 – 2014. The refunds from the first three years will not be used to set off the tax obligations of the past three years. Those refunds are gone.

Finally, you need to know that, should the IRS levy your bank account or garnish your wages, it will be difficult to stop the levy before real damage is done. This is true because, generally, in order to stop a levy, the taxpayer must be in compliance. Compliance requires the taxpayer to have previous tax returns filed BEFORE the IRS will agree to stop taking your assets. If there are years of unfiled tax returns, it will take some time to get into compliance. Finding the records to prepare older returns can be a real problem.

There is some good news. Because the statute of limitations is six years, a taxpayer may not have to file all of their unfiled tax tax returns. In fact, it may be the worst thing you can do, because you may be creating a greater tax obligation then necessary. Remember, these are the older returns, so if a tax obligation is created, they will bring along a large penalty and interest burden as well.

More good news – if the IRS filed your tax returns for you (SFR) you can file the proper return to decrease you tax obligation. I have helped clients with more than $100,000.00 in tax obligations that disappeared when the corrected tax returns were filed and the SFR’s nullified.

So, if you have unfiled tax returns – Take action today! You should work with a local law firm. Call Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation. (312) 664-6649.

Three Tax Preparer Scams

February 4, 2015 by admin

Steven A. Leahy
Three Tax Preparer Scams

By Steven A Leahy

My last several posts addressed who should and shouldn’t prepare their own tax returns. Remember, for the majority of people, preparing your own return makes sense; it may save you money, allows you to maintain control and may increase your understanding of your financial situation. But preparing a return isn’t right for everyone.

In my office we have run into three common tax preparer scams that can raise red flags with the IRS. First, the most common: promises of large refunds. Second, the 1099 OID scam and finally, the ID theft scam.

The most popular tax preparation scam involves the tax preparer promising larger returns than other tax preparers. Many of these preparers charge a very high fee, or a percentage of the refund. Both of these fee structures should alert you that something is amiss. They achieve these high refunds by playing with your tax return numbers. They may include income that was never earned, claiming expenses you did not pay, or otherwise manipulating the tax return to qualify for earned income tax credits you are not qualified for.

The second scam involves filing false 1099 OID (Original Issue Discount) forms. The scam artist convinces the taxpayer that there is a secret fund held by the Treasury Account for an amount equal to the face amount of any debt they hold, including credit card and mortgage debt. To lend legitimacy to the scam, the scammer contends the government went bankrupt in 1933 and made all Americans chattel of the government’s creditors at birth, evidenced by their birth certificate. The scammer alleges that the government guarantees all your debts and the taxpayer need only apply through their tax return to access the hidden account.

By completing their tax returns and including 1099 OID for the full amount of all debt, including tax debt, sometimes amounting to hundreds of thousands of dollars. The real problem with this scam is – it works! The IRS sends the taxpayer a large refund check. The check tends to confirm the legitimacy of the scam. After much of the funds have been spent, the IRS comes looking to the taxpayer and the funds received from the fraudulent scheme.

Taxpayers will be on the hook for these first two scams, because they sign the return under penalty of perjury. These scams can lead to significant penalties and interest, and the possibility of criminal prosecution. So, before you sign a return, review your tax return, ask questions about entries you don’t understand – and NEVER sign a blank return. A reputable tax preparer will sign the tax return and provide you a copy.

Finally, let’s review identity theft and tax return preparation. There are two forms of identity theft to worry about: tax fraud through the use of identity theft and the tax return preparer using your personal information after preparing your tax return. Tax fraud through the use of identity theft tops the IRS’s list of top tax scams. This type of fraud occurs when someone uses a taxpayer’s personal information to fraudulently file a tax return and claim a refund.

The second type of identity theft is when your tax preparer uses your personal information to obtain credit in the taxpayer’s name, after the taxpayer willing provided the tax preparer with all the information they need to commit fraud. The IRS has more than 3,000 employees working on identity related cases.

The lesson here is to know your tax return preparer. If you are considering hiring a tax professional to complete your 2014 tax return, consider giving Opem Tax Resolutions and The Law Office of Steven A. Leahy, PC a call. We prepare old unfiled tax returns, as well as current returns. So, if you are a number of years behind in your filing, we can help get you in compliance with the IRS. Call (312) 664-6649 today and ask Bonnie to set up a time to talk me about your tax returns.

If you have a ongoing IRS problem – installment agreement, recent offer-in-compromise or currently not collectible status I recommend the IRS Protection Plan offered by Opem Tax Resolution and the Law Office of Steven A. Leahy, PC. This program anticipates the tax compliance requirements including, timely tax preparation, on-going IRS monitoring, resolution of IRS actions (cancellation of installment agreements or currently not collectible status and defaulting an offer in compromise). In addition, developing a relationship with a tax team will give you access to tax planning to avoid IRS problems in the future and minimize your tax burden.

IRS Currently Not Collectible

August 22, 2014 by admin

Steven A. Leahy
IRS Currently Not Collectible

By Steven A. Leahy

There are six things you can do if you owe the IRS money. First, you can simply write the IRS a check for the full amount. For many, that is simply not a realistic option. Often, if the tax obligation is not too significant, borrowing money from another source (friends, family, bank loan, credit cards, etc.) may be a less costly alternative than an installment agreement with the IRS. Second, you can enter into an Installment Agreement; pay the IRS over time. Third, you can obtain an Offer-in-Compromise: A lump sum settlement for less than the tax owed. Fourth, you can be declared Currently Not Collectible; pay the IRS nothing (for a period of time). Fifth, you can file for protection under the bankruptcy code; Chapter 7, Chapter 13 or Chapter 11. And the last option – you can do nothing, and let the IRS do what they will to you, your family and your assets.

This article addresses the fourth option – IRS Currently Not Collectible (CNC). The IRS lists a number of reasons to report an account CNC. The reasons include, inability to locate the taxpayer, expiration of the statutory recovery period (statute of limitations), death of an individual (where the IRS can’t collect from the estate), defunct companies without assets, or the taxpayer is out of the country or in a combat zone. The most common reason for CNC status is the existence of a taxpayer hardship.

The IRS may place a taxpayer in CNC status based on a hardship – when the IRS determines that the taxpayer can’t pay their tax obligation AND pay reasonable living expenses. The first requirement for a hardship CNC is compliance. In most cases, the taxpayer must have filed all tax returns, made all required estimated tax payments for the current year and made all required federal tax deposits for the current quarter if the taxpayer is a business owner with employees. The taxpayer must remain in compliance during consideration and, should a hardship CNC be found, thereafter.

In order to demonstrate a hardship, a financial analysis, with detailed financial information, must be completed to determine the taxpayer’s assets and equity, income and expenses. The investigation into the taxpayer’s financial condition begins by completing Form 433–A, Collection Information Statement for Wage Earners and Self-Employed Individuals or Form 433–B, Collection Information Statement for Businesses, and providing all the necessary documents to substantiate the numbers.

The level of scrutiny depends on the tax obligation – the greater the tax bill, the greater the scrutiny. For example, if the unpaid tax balance is large, the IRS will review the taxpayer’s credit report, motor vehicle records and real estate records to determine if there are any additional sources for collection, in addition to the 433 and supporting documents. Generally, an IRS manager must review the IRS Currently Not Collectible recommendations paperwork and approve granting the CNC status.

Collection actions stop once a taxpayer’s account is placed in IRS Currently Not Collectible, including bank levies, wage garnishments and collection letters. The problem with CNC is that interest and penalties continue to accrue even though IRS collection activity has been suspended. In addition, if the balance is greater than $10,000.00, the IRS may still issue a Notice of Federal Tax Lien against the taxpayer (although the taxpayer can still appeal that action).

The good part about CNC is that the Collection Statute Expiration Date (CSED) is not tolled while the taxpayer’s account in a hardship CNC status. It is possible for a taxpayer to continue in hardship CNC status until the CSED passes. Once the CSED passes, the IRS cannot collect on that IRS obligation. Hardship CNC cases, however, can be reactivated if it appears there is a change in the taxpayer’s ability to pay indicating collectibility. And, the IRS may ask the taxpayer to reestablish CNC hardship status periodically.

So, if you owe the IRS and are unable to pay the full tax obligation immediately, you may be eligible for your account to be placed in a Hardship CNC status. Before you do anything, you should give me a call. We can discuss your all your options. Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.

IRS Lien vs Levy

IRS Audits – What are they looking for?

Four Things You Need To Know If You Have Unfiled Tax Returns

Three Tax Preparer Scams

IRS Currently Not Collectible

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