Answer: Tax Compliance, Tax Compliance, Tax Compliance. My answer is a play on the slogan “location, location, location” which emphasizes the importance of location in real estate. Similar to the importance of location in real estate, there is nothing more important than tax compliance in resolving your back taxes.
Ask any IRS Revenue Officer or an employee in the automated collection system (ACS), and they will echo my sentiment. Whether you want to negotiate an installment agreement or settle your tax debt for less than what is owed through an offer in compromise, the first thing that must be accomplished is present and future tax compliance. Tax compliance means that you must timely file all of your tax returns and pay all of your future tax obligations.
Before any negotiation with the IRS can occur, a taxpayer, either business or individual, must file all of his/her tax returns and get current with tax obligations. That means, if you are self-employed, you must have remitted all estimated tax payments to apply for an IRS installment agreement or offer in compromise (“OIC”). If you your business has payroll, then you must have remitted all federal tax deposits and filed all tax returns (Form 941, 940 etc.) The failure to remain compliant will cause your installment agreement proposal or offer in compromise to be returned which may result in IRS bank levies, garnishments, seizures, etc.
If you successfully executed an IRS payment plan and fail to timely file and pay your taxes in the future, then you will breach the installment agreement. The IRS adds a boilerplate provision to all installment agreements that requires that the taxpayer maintain future compliance. The IRS then states that the failure to remain compliant will result in it taking enforcement which may include, but is not limited to, a bank account levy, placing a lien on assets, garnishing wages and social security, etc.
As part of the OIC contract, the IRS adds a boilerplate provision that calls for the timely filing and payment of taxes for five years following the acceptance date of an offer. The failure to stay compliant would result in the offer in compromise being in default and the IRS reinstating the original back tax liability plus interest and penalties. As a tax attorney, there is nothing more frustrating than negotiating a deal with the IRS and having your client call you for help with the same liability that the IRS forgave. I explain to my clients that a successful tax offer is like hitting the lottery and the failure to remain compliance is similar to blowing all of your money. If you are a business or individual that has successfully negotiated a back tax liability with the IRS, then you should meet periodically with your tax attorney to maintain checks on compliance.
If you are trying to negotiate an IRS tax lien being withdrawn, the IRS will also require compliance for the past three years. That means all tax returns, information returns, and timely estimated tax payments and federal tax deposits must have been made three years before making an application for a lien withdrawal under the IRS Fresh Start Initiative.
As a tax attorney whose practice focuses exclusively on IRS tax audits and tax collection, I can tell you that there is nothing more important in resolving or negotiating a tax settlement than tax compliance. While negotiating with the IRS, you must maintain a series of checks and balances to ensure that you do not accrue additional tax liabilities. At the Law Offices of Todd S. Unger, Esq. LLC, we can help you set up a system to ensure adequate tax compliance which is essential to the resolution of a back tax problem.Continue Reading...
Answer: If a business or individual is liable for back taxes and cannot pay after the IRS issues notice and demand for payment, then a lien in favor of the United States exists upon all property and rights to property belonging to the business or individual. This lien is referred to as the “secret lien” because it exits between the taxpayer and the IRS without the filing of any public documents.
To protect its interest against other creditors, the IRS will go to the county courthouse where the taxpayer resides or has property and will file a Notice of Federal Tax Lien (NFTL). After the Notice of Federal Tax Lien is filed, taxpayers have the right to appeal the NFTL during the 30-day period beginning with the mailing or delivery of the notification.
When the IRS files its tax lien in the county court, it can be devastating for people and businesses who must maintain good credit. In some cases, it can spell the end for a businesses that relies on financing or individuals who need good credit such as stock brokers, bankers, and people looking for jobs.
Notice, that I have not discussed the “taking” of property. While the Notice of Federal Tax Lien protects the government’s interest in taxes owed, it does not bring in money. The IRS levy is how the government collects back taxes. A tax levy, also known, as seizure, garnishment or bank levy, is the taking of your property to satisfy a tax debt. When the IRS levies, there is a transfer of ownership of your property to the IRS.
There are prerequisites that the IRS must follow before taking the taxpayer’s property. First, the IRS must issue notice and demand for the payment taxes owed. Second, the taxpayer must neglect or refuse to pay the tax within 10 days of the notice and demand. Finally, the IRS must provide written notification of the right to a hearing 30 days before the levy is made on the taxpayer’s property.
The key difference with the procedural requirements between an IRS lien and an IRS levy is that the IRS must provide the right to a hearing 30 days before levy action is taken whereas the taxpayer has the right to hearing after the IRS files a lien. Defending against an IRS lien can be difficult because once filed, the damage is done. The IRS’s perspective on a tax lien is that it must protect its interest against other creditors at the risk of the taxpayer’s career or business. Even though there are administrative remedies available to have the lien withdrawn, the key is to be proactive prior to the IRS filing the tax lien. The IRS’s policy is to file a lien when the taxpayer owes more than $10,000.00 in back taxes. There is no threshold amount for the IRS to levy against a taxpayer’s assets.
While both an IRS tax lien and an IRS levy are devastating, the key difference is the following: the tax lien is a security interest similar to a mortgage, whereas a levy is the taking of property similar to a foreclosure. The government protects itself against other creditors by filing a tax lien whereas the tax levy generates the proceeds against which the lien may secure.Continue Reading...
IRS employees are upset about upcoming unpaid furloughs caused by the US government sequester. The sequester requires that $600 million dollars be cut from the IRS budget this year. This cut forces the IRS to put its nearly 100,000 employees on up to seven days of unpaid leave. IRS employees are protesting around the country and the largest rally to date was held last week in New York.Continue Reading...
Philadelphia rapper Beanie Sigel, born Dwight Grant, was sentenced to two years in federal prison stemming from charges that he failed to file income tax returns. The rapper began serving his sentence on September 12, 2012.
Sigel was accused and convicted of failing to file tax returns from 2003 to 2005. He was reported to have earned over $2.2 million dollars from 1999 to 2005 and owed a total of $728,536 to the federal government. He was ordered to pay all back taxes and penalties and will endure a year of supervised release once his sentence is completed.Continue Reading...