Imagine owing a tax debt so burdensome that you can’t see yourself ever being able to pay it. Wouldn’t it be nice if there was some way to write off some of your tax debt? Believe it or not, there’s something called an offer in compromise that allows taxpayers with back taxes to settle their tax debts with the IRS for less than the full amount. While not a magic reset button, the offer in compromise serves as a helpful tool for getting out from under the IRS’ thumb.
If the IRS believes a taxpayer owes a tax debt, the IRS will begin a series of steps to collect the unpaid taxes. The process will begin with notifying the taxpayer and working with them to get the taxes paid. However, if the taxpayer ignores the request or refuses to pay, the IRS has two very powerful tools for collecting the taxes, both of which are the subject of this blog post.
Tax Liens and Levies: What Are They?
A lien and levy are two different things. A tax lien is a security interest the IRS attaches to all of a taxpayer’s property in order to protect the ability to recover the tax debt. Not only does the tax lien attach to all of the taxpayer’s property at the time the lien is imposed, but also to any future property acquired by the taxpayer.
A tax levy is the actual taking of property, where property is seized by the IRS in order to help pay for an outstanding tax debt. Unlike a tax lien, a tax levy allows the IRS to not just “claim” property, but actually take it. This can be done in several ways, such as wage garnishment, withdrawal of money from the taxpayer’s bank account and the seizure and sale of physical assets. Despite its power, as long as the required tax procedures are followed, the IRS does not have to go to court to get a tax levy.
How Does a Tax Lien or Levy Occur?
A tax lien will usually be preceded by two steps. First, the IRS will notify the taxpayer of the unpaid tax debt. Second, the taxpayer will fail to fully pay the tax debt. When a tax lien is placed on property, it ordinarily will not come as a surprise to the taxpayer.
A tax levy will usually occur only after a tax lien has been placed on a taxpayer’s property. Once the lien is imposed and the taxpayer still has not paid the tax debt, the IRS will send several notices warning of a tax levy and provide an opportunity for the taxpayer to contest the tax levy at a hearing. If the tax debt is not paid, the IRS will issue the levy.
How Can a Tax Lien or Levy Be Removed?
A tax lien can be removed or dealt with in several ways:
- Payment of the outstanding tax debt.
- Obtain a Certificate of Discharge.
- Subordinate the IRS lien such that other creditors will have a higher priority. This can make getting a loan much easier since it allows non-IRS creditors to gain access to property to secure a debt.
- Obtain a Lien Notice Withdrawal.
A tax levy can be removed when the taxpayer does any of the following:
- Pays the outstanding debt.
- Demonstrates extreme financial hardship imposed by the levy.
- Shows that the levy’s release will make it easier for the taxpayer to pay his or her taxes.
- Enters into an Installment Agreement with the IRS which requires the IRS to remove the levy.
- Shows that the property levied upon is worth more than the tax debt and the levy’s release will not jeopardize the IRS’ ability to collect the unpaid taxes.
This blog is just a basic overview of the tax lien and levy process. Should a taxpayer have a tax lien or levy imposed, or receive notice of a potential tax lien or levy, it is highly advisable to seek professional help, such as the services of a tax attorney.
While the use of scams to defraud people of their money is an unfortunate constant in our society, the means of employing a confidence trick has evolved with the times. One of many scams that exists today involves a con artist pretending to be an employee of the IRS and telephoning his or her victim, tricking them into sending the con artist money. We briefly described this scam in an earlier blog post, but in this blog post, we will explore the IRS telephone scam in more detail.
Details of the IRS Telephone Scam
The actual scam specifics can vary, but the main idea is to scare or intimidate a victim into sending the caller money on the basis that the victim supposedly owes the IRS an unpaid tax debt. If the victim doesn’t immediately pay, the victim is threatened with arrest, deportation, property seizure and/or a lawsuit.
Apparently this scam works, with over $23 million paid out by thousands of victims since October of 2013. And those that don’t fall for the con get dangerously close to doing so. Here are some of the ways the telephone scam can appear legitimate:
- The caller will identify him or herself as an IRS or US Treasury official. They will provide a name and may even provide a badge number.
- During the call, the caller will play a white noise recording in the background in order to mimic the sound of a call center.
- When the call is received, the victim’s caller ID will appear to show that the call is originating from the IRS.
- If arrest is threatened, but the victim doesn’t agree to send immediate payment, a follow up call may be made from someone claiming to be from law enforcement. The victim’s caller ID will often appear to show that the call is originating from the local police department.
- The telephone call may be preceded by an official-looking e-mail or letter claiming the recipient owes the IRS money.
- The caller may have some basic personal information about the victim, such as the last four digits of his or her social security number.
- The victim is sometimes provided with a real IRS mailing address in order to send certain paperwork.
Signs the Call Is a Scam
Luckily, there are many signs that the call is not legitimate. Some of these characteristics include:
- The caller demands immediate payment. The IRS will not expect payment without first providing an opportunity for the taxpayer to contest the amount owed.
- The call will be the first time the victim is made aware of money they allegedly owe. The IRS will always make first contact by mail.
- The victim is asked to provide a specific payment method such as a prepaid debit card or a money transfer. The IRS will provide multiple methods of paying any money owed.
- The caller asks for credit card information over the telephone. The IRS will never ask for payment information over the telephone.
- The victim is threatened with arrest if they don’t pay.
What You Can Do
If you have received one of these types of calls, the safest thing you can do is hang up. You can also report the call to the Tax Inspector General for Tax Administration or the Federal Trade Commission.
The dreaded tax audit – one of the few events in life that annoy or scare Americans more than actually having to pay their taxes. Even though the chances of getting audited are less than 1% for most Americans, the following advice can assist in tax planning and help protect taxpayers from being a tax audit victim. Continue reading “Don’t Be a Tax Audit Victim!”
Government spending constantly goes up, no matter what politicians promise.
With so many government programs, pork barrel spending and earmarks, it’s no wonder this country’s debt continues to rise. And exactly how does the government pay for all this? With taxes, whether creating new ones or increasing the rate of existing ones. The following blog discusses some of the strategies available that can help keep the government out of your wallet! Continue reading “Watch Your Wallets!”
Nobody likes paying taxes, but everyone likes being able to reduce the taxes they have to pay. There are several ways you can get a few tax breaks, whether it’s a tax deduction, tax credit or tax exemption. Even if you already utilize a few, you may still be asking yourself if you’re taking full advantage of what’s available. When you prepare your tax return, are there any tax breaks or secrets that you might be missing? The following article will discuss a few tax breaks available to almost anyone that you could be missing out on. Continue reading “ALERT: Tax Breaks for the Average Person”
Unlike the past few tax seasons, you have a few extra days to file your taxes in 2016. This is because 2016 is a leap year and Emancipation Day, a recognized Washington, D.C. holiday, is on Friday, April 15th. In addition to having until April 18th to file your taxes, the following tips can provide additional help in wrapping up your 2016 tax season.
The Premium Tax Credit is a refundable tax credit designed to assist eligible people with moderate incomes afford health insurance purchased through the Health Insurance Marketplace. In California the agency is known as “Covered California.”
The Internal Revenue Service has again issued an urgent warning about telephone scams that continue to claim victims. The pattern seems to be that the thieves make unsolicited phone calls, claiming to be from the IRS and demanding immediate payment of taxes by credit card or wire transfer. The Treasury Inspector General for Tax Administration has received 90,000 complaints about these scams. He estimates that thieves have stolen an estimated $5 million in these scams.
Continue reading “Tax Scams”
“Forbes” magazine recently published an informative (and somewhat humorous) article about tax myths widely held by many. We hear these false beliefs every day from tax clients. They deserve repeating. (Thanks, “Forbes”.)