PART VI: Enforced Tax Collection (Problems 21-29)
Virtually all of the horror stories we hear about the IRS grow from enforced tax collection. Enforced tax collection involves the IRS's power of lien, levy and seizure. These potent weapons allow the agency to take virtually all of the property one owns in order to satisfy the outstanding debt. With that kind of power, there is little doubt its exercise leads to abuse.
For example, one IRS report showed that as many as 25 percent of the assessments on the books were attributed to duplication or administrative error. One General Accounting Office report showed that the IRS's data processing systems are so bad the agency is routinely pursuing collection from citizens who already paid their taxes. An internal audit conducted in 1998 concluded that the agency violated federal law by imposing production quotas on tax collectors. Still another internal audit showed that collectors routinely violated the Taxpayers' Bill of Rights Act as well as the IRS's own rules and procedures while carrying out the collection process. Given the fact that the agency possesses awesome collection weapons, it is intolerable that such problems exist even after all the so-called IRS reform.
- Problem 21 The IRS is threatening a wage or bank levy
- Problem 22 I cannot afford an installment payment
- Problem 23 The IRS has a wage or bank levy in effect
- Problem 24 The IRS filed a tax lien causing credit problems
- Problem 25 I cannot get the IRS to recognize my letters and it continues to push ahead for enforced collection
- Problem 26 I have not filed tax returns for years
- Problem 27 My husband left me with a tax debt that I do not owe and cannot afford to pay
- Problem 28 My IRS debt just keeps growing
- Problem 29 I cannot afford a tax professional to help with my tax problem
It is difficult or impossible to pay necessary living expenses.
File a Request for a Collection Due Process Hearing. In the request, explain that you need an installment agreement, uncollectible status or some other collection alternative. Collection of delinquent tax begins with a series of notices asking for payment. If payment is not made, the IRS eventually mails a final notice, notice of intent to levy, IRS Letter 1058. This notice provides thirty days to pay, after which time the IRS may begin enforcement action. It explains that you have the right to file a Request for Collection Due Process Hearing within that thirty-day period. Use 12153 to submit the request.
But you should never wait for the final notice to take action. Ask for an installment agreement as soon as you receive the first notice. However, if you are facing a final notice, the Request for Collection Due Process Hearing is the way to head off the attack. If the request is filed on time, the IRS cannot take any collection action until after you've had your hearing. The hearing is held by the Appeals Office. The appeal also gives you the right to challenge any collection action on any appropriate ground, including challenging the underlying tax debt.
Write a letter in response to the initial collection notice to the service center that issued it. Explain that you do not have the money to be able to pay in full and ask for an installment agreement. If you cannot afford to make a payment, ask for uncollectible status. Include Form 9465, Installment Agreement Request, with your letter. Please review Problem 5. Your letter should also explain that a wage or bank levy will cause serious economic hardship by making it impossible to pay your living expenses. Include a short worksheet showing your net take-home pay and monthly living expenses. Send the letter via certified mail and get it off immediately.
If you do not hear a favorable word from the service center within a brief period of time, say two weeks, contact your local Taxpayer Advocate. Use the steps outlined in Part I of this Problem Solver to make contact with the TA. Your goal is to get an installment agreement or uncollectible status established based upon your ability (or lack of ability) to pay. Once the installment agreement or uncollectible status is in place, the IRS cannot pursue levy or seizure of assets, including wages and bank accounts. For the full details on the process of negotiating the installment agreement or uncollectible status, please see chapters five and eleven of How to Get Tax Amnesty. The Collection Due Process hearing procedures are discuss in more detail in Taxpayers' Defense Manual.
- My income and expenses are such that I have no money left at the end of the month.
Forcing an installment payment will cause serious hardship.
Obtain uncollectible status. When you cannot make a payment, either because you are unemployed or because your monthly expenses meet or exceed your income, you have the right to be considered "uncollectible." When a case is classified as uncollectible, the account is frozen and the IRS makes no effort to enforce collection. At the same time, it does not require any monthly installment payment. Uncollectible status does not mean the account is written off, nor does it mean the penalties and interest stop running. It means only that the IRS does not undertake collection.
To obtain uncollectible status, write a letter to the service center handling the account. Explain that you cannot make a payment because you do not have any money left after paying monthly bills. In your letter, provide a simple worksheet showing monthly take-home pay and necessary living expenses. The reader should be able to see that you have nothing left after paying bills. Often, the IRS asks for a financial statement before it formalizes uncollectible status. The statement is provided on Form 433-A. Chapter eleven of How to Get Tax Amnesty walks you through the entire process of negotiating uncollectible status.
Uncollectible status is a temporary fix. It allows you to get back on your feet without the pressure of enforced collection. Furthermore, it puts you into position to use one or more of the amnesty programs.
It is impossible to pay living expenses.
Immediately contact the Taxpayer Advocate. Write a letter giving the name and address of the person levied, i.e., your bank or employer, and explain that the levy is causing serious economic hardship. Explain that you are not able to pay living expenses if the levy is not lifted. Include with your letter a copy of the wage or bank levy if you have one. Also provide a detailed analysis of your income and expenses so that the TA can see that the levy is causing a hardship. The best way to this is with IRS Form 433-A.
Ask the TA to immediately issue a release of levy and that it be faxed to your bank or employer. As soon as the bank or employer receives the release of levy, it must disregard the levy notice and resume paying your wages or allowing access to your bank account as usual. Chapter six of How to Get Tax Amnesty has detailed discussion and examples of how to write this letter and how to deal with the IRS to obtain a quick release of wage and bank levies.
It is impossible to borrow money, sell your home or otherwise maneuver to pay the tax bill.
Make a request for lien subordination. The most effective way to deal with tax liens standing in the way of a re-finance or some other maneuver to satisfy the debt is through a little known procedure called the lien subordination. In the subordination process, the IRS agrees to release its lien or place it behind another creditor, such as a bank, in exchange for cash equal to the value of the lien. Thus, if you owe the IRS $10,000 and have $50,000 equity in your home, the lien subordination procedure allows you to get the money from the bank even though there is a tax lien filed against the property.
You can also challenge liens through a Collection Due Process appeal. When the IRS issues a lien, it must notify you with Letter 3172. You then have thirty days from the date of that letter in which to file a Collection Due Process appeal. Use Form 12153 to file the appeal.
This is just one of many strategies available to deal with tax liens. In chapter six of How to Get Tax Amnesty, I describe a total of seven ways to deal with liens which the IRS will likely never tell you about. In addition, our Forms Kit and Resource Guide contains the IRS Publications that discuss lien removal procedures.
You never had a chance to present your case for installment agreement, uncollectible status or other proposed solution to the outstanding debt and your time to file a Collection Due Process appeal request has passed. .
File a collection appeal. While a request for a Collection Due Process appeal must be filed within 30 days of receiving the final notice (Letter 1058) or thirty days of receiving the notice of lien filing (Letter 3172), a collection appeal request can be filed within one year of receiving either letter. Use Form 9423, Collection Appeal Request, to instigate a collection appeal. File it with the manager of the collection officer working your case or to the Chief of the Collection function in your local area if there is no individual assigned to your case.
Your appeal case is then assigned to the Appeals Office for review. At the conference, you have the right to present evidence to show either that the underlying tax assessment is in error or the collection actions are improper or otherwise not suited to the facts of the case. The Appeals Office has the duty to show that the IRS followed all necessary administrative rules in carrying out the collection action. You have the right to propose any applicable solution to the problem of the delinquent tax.
In chapter seven of How to Get Tax Amnesty, I show you the details of the collection appeal process, including the manner of completing Form 9423.
Your non-filing pattern continues, making matters worse every year.
Use the "non-filer" program. At present, there over twelve million Americans who have stopped filing tax returns, many of them because they did not have the money to pay one year, then failed to file. That one year turned into many as they fell into a pattern of non-filing caused by the fear of being found out. They desperately want to get back into the system and stop looking over their shoulder but do not know how.
Since 1992, the IRS operates the so-called "non-filer" program specifically pointed at this situation. It offers a carrot and stick approach to the problem. If you properly step forward and correct the non-filing, the IRS agrees not to prosecute the potential legal violation. However, if it finds you before you find it, it makes no promises.
We have used the non-filer program with great success. Using the techniques in chapter eight of How to Get Tax Amnesty, citizens have closed the door on their filing delinquencies, gotten off the tax debt treadmill and put the problem of delinquent returns behind them forever. This is like getting out of jail. Once you achieve these goals, you are again free to live a normal life, not worrying about the next trip to the mail box or shuddering at every knock on the door.
The IRS enforces collection against you, not your spouse.
File an application for innocent spouse relief.
Each year, countless women are left stranded with tax debts attributable to their husbands. When the marriage breaks up, the IRS chases the easiest target. Too often, that happens to be the wife who is struggling to provide for the children while the husband runs from his responsibilities.
The IRS Restructuring act of 1998 added provisions to the tax code that can extricate a person from this situation. They are referred to as the "innocent spouse" provisions and they apply in three separate circumstances. The first is where the tax debt is due to an error in the return, such as unreported income or bogus deductions, attributable to the husband which the wife did not know or had no reason to know about. When you can show that you did not enjoy the financial benefit of the unpaid tax, you can be relieved of the tax debt.
The second condition is when you are divorced or living apart for at least the past twelve months. Under this scenario, you have up to two years in which to make an election to be treated as a separate taxpayer. That is to say, you can switch your filing status from married filing jointly to married filing separately. That way, you are taxed only on your income, not your husband's. The election makes your husband solely liable for his own tax debt and you do not need his consent to change the filing status.
The third condition is a kind of "catch-all." It allows for innocent spouse relief when neither of the above two conditions apply, but where it is "inequitable" (that is to say, "unfair") to hold the wife liable for the debt. In this situation, general financial and life circumstances bear upon whether it is fair to hold the wife responsible for the unpaid taxes.
An innocent spouse claim is made on Form 8857. My book, Taxpayers Defense Manual, shows you how to argue and prove an innocent spouse claim. It is now easier than ever to win an innocent spouse claim and be relieved of the tax debt your husband created.
You fear that you will "take the debt to your grave"
Apply for Tax Amnesty. There are millions of citizens facing this disaster right now. At present, there are more than twenty million individuals who owe taxes to the IRS, much of which can never be paid. One General Accounting Office study of the situation reported that as little as 23 percent of the debts on the IRS's books are collectible. In addition, there are more than twelve million people who have stopped filing tax returns entirely. Many of these people are on what I call the tax debt treadmill, where they take one step forward and two steps back in the quest for tax debt relief. These people need to know there is help available.
The IRS has programs that allow a person to reduce or eliminate a debt he cannot pay. And while the agency does little to publicize them, they have been tremendously successful for people who otherwise have no way out. The premise of the book How to Get Tax Amnesty is that these programs provide forgiveness--a fresh start for those covered up with tax debt.
One program to accomplish this is what I call the cents-on-the-dollar program; what the IRS calls the "Offer in Compromise." As both titles imply, the program allows one to make a settlement for less than what is owed. Suppose, for example, you owe the IRS $25,000. Suppose further that your maximum ability to pay is $5,000. You could expect to settle your case for twenty cents on the dollar. And while that may sound incredible, the national average settlement ranges between ten to twenty cents on the dollar and people using my book How to Get Tax Amnesty as a guide, regularly settle for five to ten cents on the dollar. Recently, we settled a $170,000 tax debt for just $5,000--less than three cents on the dollar.
Another program for achieving forgiveness of tax debts is to use the federal bankruptcy laws. Perhaps the best-kept legal secret in the United States is the fact that federal income taxes are dischargeable in bankruptcy. However, it seems that there is not one lawyer or accountant in a thousand who knows it. In addition, the IRS regularly provides misinformation and disinformation about the right to discharge taxes in bankruptcy. However, in the years since How to Get Tax Amnesty was released, we have discharged countless millions of dollars in tax debts through bankruptcy and this tool has enabled countless others to negotiate a reasonable offer in compromise settlement.
In sum, there is no reason to spend another day fretting about delinquent tax debts that continue to grow. Instead, go on the offensive. Use one or more of the amnesty programs to reduce or eliminate your debt. Free yourself and your family from the bondage of ever-growing tax debt. Enable yourself to become productive once again. Put yourself in the position of building a future for your family instead of being in debt to the IRS. The tools are available and have been proven effective many times in cases just like yours.
After reading How to Get Tax Amnesty you will see just exactly what your options are and how to carry them out. But if you need further guidance on which amnesty program is best for you and the strategy you should follow, consider utilizing our Tax Solutions Network. This service allows us to review all the facts of your case and provide specific direction on how best to settle your debt.
You continue to struggle with no help, placing yourself at the mercy of the IRS.
Use our Tax Solutions Network.
Our inexpensive self-help materials are proven effective, but some people need additional, more personal guidance, even though they incur additional fees. Our Tax Solutions Network is the perfect solution for those in need of personal, definitive guidance to solve their problem. The TSN is designed to apply our vast experience to your individual situation and present you with a clear and simple step-by-step guide for solving your problem. By using the TSN, you obtain reliable information to help you through your IRS problem for a small fraction of what you might think it would cost. The TSN answers critical questions about how you should proceed. If you believe you need experienced help in find a solution to your problem, do not hesitate to utilize our Tax Solutions Network.