Archive for Back Taxes Owed
Basically the simple answer is file your tax forms with both the US Federal government and applicable state governments. Start by filing the previous 3 years of income tax returns ASAP.
It is possible the IRS may have already filed returns for you. Under Section 6020(b) of the Internal Revenue Code, the IRS may file a Substitute for Return when you do not file a return on your own. These types of returns are prepared at the highest tax rate. You may be eligible for a lower rate if you have dependents or itemized deductions to claim, are eligible for the Earned Income Tax Credit, etc.
The only way to get the maximum benefit is to file a return. To receive credit for your future Social Security benefits from self-employment income, you must ensure that income is filed with the IRS. You only have three years to file and claim a refund of overpaid withholding. If you are due refunds, filing the returns will close your case. Under current law, refunds more than three years old are lost and cannot be applied to other tax due. Penalties and
interest may apply if you owe taxes.
The failure to file penalty is a maximum of 25 percent of the tax due on each return. Penalties and interest can drastically exceed the tax due on returns more than three years old.
Paying your tax debt - Online Payment Agreements are available should you find that you owe. In addition, you can also make an Offer in Compromise. However, you should be aware that all legally required tax returns must be filed in order to be eligible for an OIC.
Note: Refunds less than three years old will be applied to any amounts still owed to the IRS and may be used to satisfy unpaid child support or past due federal debts, such as student loans
Collection of federal taxes starts with an assessment of tax due. The assessment serves two functions.
It is the government’s mechanism for keeping records and recording a liability.
The assessment, authorizing the government to collect, is equivalent to the final judgment that a general creditor must obtain to collect a debt.
The IRS makes assessments in a variety of ways and times depending on what prompts it. The Service makes summary or automatic assessments of tax when a taxpayer files a return showing a tax liability, or submits payment.I.R.C. §§ 6201(a)(1), 6213(b)(4). The taxpayer consents to the Service assessment of the amount shown on his return through his submission thereof. If there is a balance due after the making of an assessment, the Service will mail a notice to that effect. The Service also makes a summary assessment when it records most penalties, especially those calculated from the information voluntarily supplied on the tax return. I.R.C. § 6665. For example, if a taxpayer files a return two months late reflecting a balance due of $10,000 tax, the Service, without examining the return, can and will automatically assess the $10,000 and a late filing penalty, and send the taxpayer a notice requesting payment. This too will generate a balance due notice.
Deficiency assessments arise only after a lengthy process of administrative and judicial determination of a taxpayer’s correct liability that begins with the Service examining a tax return (or filing one on behalf of a delinquent taxpayer) and ends with a settlement between the parties or a decision of the court. I.R.C. § 6211 et seq. The process is marked by notices called 30-day letters or a 90-day Notice of Deficiency. As deficiencies are not self-determined, as the tax on a return is, the government may not assess, and therefore may not begin to collect, the amount asserted by the government until the matter is finalized.
In rare cases, the Service can also make termination or jeopardy assessments of any tax due if the government believes collection of the tax is in jeopardy (e.g., government believes the taxpayer is planning to flee the country).I.R.C. §§ 6851, 6861. When the government believes a jeopardy situation exists, Congress has given special permission for the Service to discard the normal pre-assessment and pre-collection procedural safeguards. Instead, the government may assess and collect tax in an expedited manner, and the taxpayer can only challenge the determination of the existence of a jeopardy situation (see I.R.C. § 7429) and of the underlying tax liability afterwards. I.R.C.§§ 6851(b), 6861(b).
Termination and jeopardy assessment rarely occur because the facts necessary to override the normal procedural safeguards prior to assessment are not normally present.
By law, the IRS has the authority to collect outstanding Federal taxes for 10 years from the date your tax liability was assessed. The 10-year collection period is suspended:
● while the IRS and the Ofice of Appeals consider a request for an installment agreement or an offer in compromise.
● from the date you request a CDP hearing until Appeals issues a CDP Notice of Determination or, if you seek review in the Tax Court, until the Tax Court’s decision becomes final, including appeals to a United States Court of Appeals.
● from the date you request innocent spouse relief until a final Notice of Determination is issued or, if you seek review in the Tax Court, the date the Tax Court decision becomes final and for 60 days thereafter. If, however, you appeal the Tax Court’s decision regarding your right to innocent spouse relief to a United States Court of Appeals, the collection period will begin to run 60 days after the filing of the appeal unless a bond is posted with the appeal.
● for tax periods included in a bankruptcy while the automatic stay is in effect, plus an additional six months.
● while you are residing outside the United States, if you are absent for a continuous period of at least six months. The amount of time the suspension is in effect will be added to the time remaining in the 10year period. For example, if the 10-year period is suspended for six months, the time left in the period we have to collect will increase by six months.
The IRS Restructuring and Reform Act of 1998 established the Collection Due Process or Equivalent Hearing (CDP), which is an appeal filed in response to the following collection actions: Notice of Federal Tax Lien Filing and Your Right to a Hearing under IRC Sec. 6320; Notice of Intent to Levy and Notice of Your Right to a Hearing; Notice of Jeopardy Levy and Right of Appeal; and Notice of Levy on Your State Tax Refund–Notice of Your Right to a Hearing. For each period of liability accrued by a taxpayer, the IRS is required to issue a series of notices providing instruction on how to pay the assessed balance, establish a repayment agreement to resolve the assessed balance, or contest the assessed balance if the taxpayer does not agree with the amount proposed. These notices are intimidating and will usually contain progressively more aggressive language regarding payment of any balance assessed. These notices culminate so to speak with the issuance of a Final Notice of Intent to Levy. This Final Notice of Intent to Levy, issued under IRM 220.127.116.11.1, notifies a taxpayer of his opportunity to file a CDP, request an equivalent hearing, or be subject to enforced collection action such as lien and levy against all period(s) of liability included in the notice. The IRS affords this same opportunity in response to the filing of a: Federal tax lien, Notice of Jeopardy Levy, or Notice of Levy on Your State Tax Refund. Many taxpayers respond to a Final Notice of Intent to Levy by filing a CDP, IRS FORM 12153. It is important to be practical, especially in dealing with collection and compliance issues, in determining when to file a CDP. Knowing the required time frame for filing a CDP and the correlating effects on your rights will not only provide protection from collection action but also maintain the ability to further pursue the disputed issue in Tax Court if needed. Any CDP not filed within the time frame specified by the IRS will result in an equivalent hearing instead of a CDP hearing. What is the difference? While the same issues can be addressed in CDP and equivalent hearings, a timely- filed CDP mandates that a taxpayer be given the opportunity to a hearing in advance of any collection action against the period(s) of liability included in the appeal; whereas, an equivalent hearing does not afford a taxpayer protection from collection action nor does it allow an opportunity to petition the Tax Court. In evaluating whether to file a CDP in response to a Final Notice of Intent to Levy consider the following:
- First, determine whether the issue can be resolved with the IRS locally and whether or not the issue requires urgent attention.
- Second, be aware that filing a CDP in response to a Final Notice of Intent to Levy for employment taxes subjects a taxpayer to future, immediate enforced collection through a Disqualified Employment Tax Levy (DETL). Under IRC Sec. 6330(h), the DETL allows the IRS to enforce collection immediately upon assessment of future employment tax accruals if a CDP has been filed within the prior two years. This is a newly-enacted collection tool that should be researched and fully understood for anyone filing a CDP regarding employment taxes.
- Third, consider collection statute expiration dates of the periods in question per IRM 5.1.19. Finally, and most importantly, ensure the validity of the CDP as the IRS has instituted an additional penalty under IRC Sec. 6702(b) for appeals based on a “specified frivolous position.” Once the CDP is received by the IRS it will be processed and assigned to an appeals or settlement officer for a hearing. Appeals officers, who are often CPAs and attorneys, will typically be trained in examination and deal mainly with income tax issues while settlement officers are trained primarily in collection and compliance issues.
- Fourth. Appeals and settlement officers will review the filed CDP and contact the taxpayer to schedule a hearing. At the hearing, the taxpayer is given an opportunity to present information regarding the period(s) of liability and/or collection alternatives other than lien, levy, or seizure. The assigned appeals or settlement officer will weigh the information presented in the hearing and any associated hazards of litigation before issuing a determination or making an additional information request from the taxpayer. If the taxpayer does not ultimately agree with the determination of the appeals or settlement officer, the required written determination from the IRS provides instruction on petitioning the Tax Court to pursue the issue further.