Stephen J. Dunn at Forbes has written a short article that caught my eye about “Dealing with IRS Collection Action“.
His article provides some “big picture” and makes the following suggestions that I agree with:
1. Always Open Mail From the IRS
Mr. Dunn makes the point that correspondence from the IRS has a purpose. Failing to open is usually the first step toward a bad outcome. A good example of this is when a taxpayer fails to open a letter called a “Final Notice of Intent to Levy”.
The IRS is required to send this letter to the taxpayer before it can levy a paycheck or freeze an account. If the taxpayer opens this letter instead of dropping it a box, he or she would have seen an opportunity to file a collection due process appeal. This appeal would have bought the taxpayer more time to get finances in order and avoid enforced collection by the IRS.
Another letter that is consistently left unopened is the IRS letter indicating an Audit or the completion of a substitute tax return. Failure to open those letters and respond often end up in the creation of thousands of dollars of incorrectly assessed debt.
No matter how scary the letter looks, open it. Share it with an experienced tax resolution attorney who will be able to advise you and then commit to do something about it.
Otherwise it usually gets worse.
There is one thing that people often ask a Mesa tax lawyer, and that is how to prevent a levy or a collection generally by the IRS when they know they owe, and they know the IRS is on the way.
2. Convince the IRS to Hold Collection Activity
The IRS doesn't have to stop levy activity just because you ask it to. Read more about when it has to stop collection activity here – “IRS Levy – 13 Common Situations When the IRS Can't or Won't Levy your Assets or Garnish your Paycheck“.
If the IRS hasn't started to levy an account or garnish a paycheck, the IRS collection personnel will often agree to hold collections activity for a few weeks to give your attorney time to: review your finances, the history of the account, which returns need to be filed, statute of limitations periods, bankruptcy dates and to determine which legal option may be the best to propose.
If this step isn't taken i.e. if at least some time isn't obtained to determine the issues above, you will face a difficult situation: IRS Levy and no time to figure out how best to deal with it.
3. Investigate – Analysis can be everything
We need to know a number of facts in order to determine the legal option or options that make the most sense to pursue. In order to do this, we look at IRS account transcripts to help determine:
Statute of Limitations on Collection Bankruptcy Discharge Dates Which returns need to be completed Which ones need to be challenged Incorrect Income Reporting by 3rd parties Incorrect Debt Calculation by the IRS Whether penalties have been correctly assessed
We also look at our client's income, budget, and asset history to help calculate whether an offer in compromise may make sense and what changes can be made to help it work.
We find that many people skip the analysis step and don't apply the law to their set of facts. They end up in a payment plan that doesn't work or filing an offer in compromise that isn't going to happen.
4. Propose a Solution to the IRS that will work
The solution may be one or more of the following:
Offering to settle for less than what is owed – IRS Offer in Compromise Negotiating a payment plan based on actual income and expenses Negotiating a streamlined plan Creating tax returns that are missing Creating tax returns and using them to challenge the IRS debt incorrectly created by its tax return Bankruptcy Penalty Abatement Innocent Spouse Negotiation
Until you know the history of the case, the income, budget, asset situation and the law, you won't necessarily know what the best option or group of options will make the most sense.
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