What is an IRS Audit Reconsideration?

What is an IRS audit reconsideration request?

The IRS audit reconsideration request is a written submission that you can make to ask the IRS to reconsider its prior audit findings.

Does the IRS have to consider my audit reconsideration request?

Generally, no. The IRS is not obligated to consider your request. As a practical matter, the IRS will usually review the request.

What information does the IRS consider for an audit reconsideration?

The IRS will consider just about any information you submit. It will focus on new information or information it previously did not have, as this is one of the requirements for submitting the audit reconsideration request.

Can I appeal the audit reconsideration request findings?

If the IRS reached a decision, yes, you can usually appeal it. The IRS treats these the same as it does an appeal from a regular audit.

What is an IRS Lien?

What is an IRS lien?

The IRS lien is a claim against your property.  It is much like a mortgage or title loan on a car.  Like the mortgage company or bank, the IRS lien gives the IRS priority to take your property.  

Does an IRS lien mean the IRS can take my property?

No.  An IRS lien is not self-executing.  The IRS has to take some separate action to collect unpaid taxes.  This may involve an IRS levy, which describes the act of taking property.  The lien is just the filing.  The levy is the action to collect.  

What is an IRS lien notice?

Our tax laws provide the IRS with a lien against your property beginning on the date your taxes were due and unpaid.  This lien does not have to be filed anywhere to be valid.  Eventually, the IRS will likely file a notice of the IRS lien in the public records.  This IRS lien notice is filed in the public records to help ensure that the IRS has a higher priority over your assets than your other creditors.  The idea is that your creditors could search the public records and discover the IRS lien notice and, given this ability, the IRS is entitled to priority over those creditors.  

Where does the IRS file its lien notice?

The IRS will usually file its lien notice with the county clerk in the county in which you reside (for states that have adopted the Uniform Federal Tax Lien Registration Act).  It may also file it with the Secretary of State in the state in which you reside.  It may also file it in other counties or states in which you own property. 

Do I have a right to a hearing before the IRS files a lien notice?

Generally, no.  You have a right to request a hearing once the lien notice is filed.  The hearing is referred to as a Collection Due Process Hearing.  

Will an IRS lien affect my credit score?

Yes.  Once the lien notice is filed, chances are good that it will show up on your credit report and it will impact your credit score.  The IRS lien notice will be removed from your credit file after a number of years.  This usually happens when the IRS lien notice expires, which usually happens the later of the time the tax is paid or 10 years from the original due date.  

Can I get the IRS to remove its lien notice?

Possibly.  There are procedures to ask the IRS to remove its lien notice.  

What is an IRS Levy?

What is an IRS levy?

The term “levy” refers to the IRS’s power to take or seize your property.  The levy usually consists of a notice to a third party to turn over your property.  The IRS bank levy is an example.  The IRS wage levy is another example.  It can also include the IRS physically taking your property. 

Does the IRS have to get a court order to levy property?

Generally, no.  The IRS does not have to get a court order to levy or take your property.  Our tax laws allow the IRS to take your property without a court order.  

What if my bank or employer does not comply with an IRS levy?

Our tax laws impose liability on third parties who fail to comply with the IRS levy.  This can include making the third party liable for the value of the property that is not turned over plus a 50% penalty.  

What property does the IRS levy apply to?

The IRS levy applies to property held by the third party on the date the levy is received.  For example, if your bank receives an IRS levy, the bank is required to turn over the amount in your bank account as of that date.  

Can the IRS levy on my Social Security payments?

The IRS levy applies to property held by the third party on the date the levy is received.  For example, if your bank receives an IRS levy, the bank is required to turn over the amount in your bank account as of that date.  

What property does the IRS levy apply to?

The IRS levy applies to property held by the third party on the date the levy is received.  For example, if your bank receives an IRS levy, the bank is required to turn over the amount in your bank account as of that date.  

Can the IRS levy on my Social Security payments?

Generally, yes, the IRS can levy on Social Security payments. 

Can the IRS levy my retirement account? 

Generally, yes, the IRS can levy retirement accounts.  There are administrative rules that apply, however. 

Does the Texas homestead rule prevent the IRS from taking my house?

No, the IRS’s collection powers are not limited by the Texas homestead exemption rules.

Is there some minimum amount of income or assets that are exempt from the IRS levy?

Yes, our tax laws provide certain exemptions.  These exemptions are very minimal, but they can help ensure that you have some assets and income.  

Does the IRS have to give me notice before issuing a levy?

Generally, yes.  The IRS has to provide you with notice before it issues a levy.  This notice allows you to file an appeal in most cases. 

What is an Offer in Compromise?

What is an offer in compromise?

The offer in compromise is the term that describes the IRS’s program for evaluating offers to settle unpaid tax balances.

Why does the IRS settle unpaid taxes?

The IRS’s policy goal for the offer-in-compromise program is to collect what is potentially collectible at the earliest possible time and at the lowest cost to the IRS. It is also intended to provide taxpayers with a fresh start toward voluntary compliance.

What are the basis for settling a tax debt with an offer?

There are three different types of offers. The offer based on doubt as to collectibility is the most common. As the name implies, this offer is based on the idea that you cannot fully pay the tax liability before the collection statute expires.

The doubt as to liability offer is also common. This offer allows you to challenge the amount of the tax before the IRS collects it. It is used when there is an error on your return or by the IRS in computing the amount of tax due. These offers can be accepted even if the taxpayer can fully pay the liability.

The effective tax administration offer is less common. This offer can be submitted based on special circumstances, such as hardship. The IRS is instructed to accept these offers if doing so would promote effective tax administration. They can be accepted even if the taxpayer can fully pay the liability.

How do I submit an offer in compromise?

The offer in compromise is submitted to the IRS on Form 656. The form itself is accompanied by supporting paperwork. Importantly, if there are special circumstances, the paperwork needs to include a detailed explanation. Ideally, the paperwork and explanation will comply with the most current IRS guidance and court cases.

How does the IRS review the offer in compromise?

The IRS applies its guidelines in reviewing any offer you submit. This is set out in the IRS’s Internal Revenue Manual, published guidance, and court cases.

The IRS Office of Chief Counsel, the IRS’s attorneys, have to review and comment on any offer for a balance in excess of $50,000.

What else do I need to know about the offer in compromise?

The offer in compromise prevents the IRS from levying on your assets while the offer is being considered by the IRS. This is true if the IRS takes two months or even a year or more to review your offer.

The offer in compromise stops the running of the collection statute. If your offer is accepted, the terms of the program require that you keep current and not have additional tax problems for five years. Tax problems during this time could void your settlement.

It should also be noted that there is generally no ability to litigate the IRS’s decision to reject your offer.

What Do I Need to Know About IRS Installment Agreements?

Does the IRS allow taxpayers to pay tax debts over time?

Generally, yes, the IRS allows taxpayers to pay tax debts over time. The IRS has several different programs involving installment agreements.

Why would I enter into an installment agreement rather than just sending in voluntary payments?

There are a number of reasons to enter into installment agreements rather than making voluntary payments to the IRS. This can include peace of mind knowing that the IRS will not pursue enforced collection actions. The IRS generally cannot levy on your property while an installment agreement is in place.

It may also include avoiding the IRS taking your tax refund.

It may also help to reduce the accrual of penalties and interest. The failure to pay penalty is reduced to 0.2% per month rather than the normal 0.5%.

What are the most common IRS installment agreement programs?

The most limited type of installment agreement is the statutory or guaranteed agreement. This agreement is for smaller balances that will be paid in full in three years. The balance is $10,000 of tax (not including penalties and interest).

The streamlined agreement is a step up from the statutory or guaranteed agreement. With the streamlined agreement, the tax balance has to be $50,000 or less. The full amount of the tax balance has to be paid off in 72 months.

The IRS can also enter into negotiated agreements. These agreements are based on your ability to pay or reasonable collection potential, using the IRS’s terms. The partial pay installment agreement is an example. The partial pay installment agreement provides for monthly payments that when added up, will not satisfy the amount of the unpaid tax debt. These agreements are referred to as partial pay installment agreements as the collection statute for the taxes will generally expire without the full balance having been paid.

Will the IRS agree to a payment plan based on some other interval than a calendar month?

Generally, no. The IRS requires monthly payments.

What if I have a payment plan with the IRS and I miss one or more payments?

The IRS may reflect the missed payment as a default. It may then send you a notice of default and terminate your installment agreement. You can usually head this off by calling the IRS and asking for additional time to pay. The IRS will often reinstate installment agreements after default for a small fee.

What is Currently Not Collectible Status?

What is currently not collectible status?

Currently not collectible status is a policy by the IRS to not collect taxes.  The IRS policy says that the IRS can suspend collection activity if there is no reasonable prospect for collections.  The IRS applies its collection rules in making this determination.  

Does currently not collectible status mean my taxes are forgiven?

No, currently not collectible status does not mean your taxes are forgiven.  It simply means that the IRS is agreeing to temporarily suspend collection activity. 

Does currently not collectible status suspend the accrual of penalties and interest?

No, currently not collectible status does not suspend the accrual of penalties or interest.  Penalties and interest will continue to accrue.

Will the IRS continue collections at some point?

Maybe.  The IRS computer system will match your income as reported by you and by third parties to see if your financial circumstances have changed.  It may also periodically review or change your currently not collectible status.  With that said, there are instances where the IRS never changes the status or attempts to collect the taxes. 

Can I Discharge My Taxes in Bankruptcy?

Does filing bankruptcy halt IRS collections?

Yes, the filing of a bankruptcy petition triggers the “automatic stay.” The automatic stay bars IRS collections actions. It does not bar criminal proceedings or IRS audits, appeals, or civil tax litigation.

Can the bankruptcy court redetermine my tax liability?

Yes, the bankruptcy courts are authorized to hear challenges to tax liabilities. They can do this in addition to deciding whether the tax debt can be discharged.

Are corporate and business taxes eligible for discharge in bankruptcy?

Generally, no. Only individual taxes are eligible for discharge in bankruptcy.

What are the requirements to discharge taxes in bankruptcy?

To be discharged in bankruptcy, generally, the tax has to be (1) for a tax where the tax return was already filed and on file with the IRS for at least two years and (2) for a tax with the due date for the return is greater than 3 years of the date the bankruptcy petition is filed. The tax cannot be attributable to a fraudulent return.

Are trust fund recovery penalties dischargeable?

No, trust fund penalties are not dischargeable in bankruptcy.

How do I know if my tax debt was actually discharged in bankruptcy?

The bankruptcy court has to specifically determine that the tax debt was discharged. Absent this determination, the IRS may argue that the bankruptcy court did not actually discharge the tax debt.

What happens to the IRS lien after a bankruptcy?

The bankruptcy discharge relieves you of liability for the discharged taxes. The IRS lien survives the bankruptcy. If you keep your exempt property after bankruptcy, the IRS lien will still attach to it. The idea is that your exempt property is not part of the bankruptcy estate and, therefore, any change caused by the bankruptcy laws does not apply to that property.