IRS Collections

Beat the Clock: Address Tax Problems Early

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One of the most common problems that I see in my practice is a failure of taxpayers to properly address their tax problems in a timely manner. Many taxpayers feel wait for the problem to grow to a point where serious action must be taken in order to be resolved where the problem could have rather been addressed by simple preventative action at the beginning of the problem. Specifically, this happens often in the arena of collections problems and where taxpayers owe a sum of money to the IRS. While I do want to remind taxpayers that it is never too late to properly resolve a tax issue, I did want to discuss some of the added benefits to solving your tax problems early.

Key Takeaways

  • One of the most common problems that I see in my practice is a failure of taxpayers to properly address their tax problems in a timely manner.
  • One of the biggest advantages of solving tax problems before they start is the ability of taxpayers to significantly reduce the amount of penalties and interest that they may owe to the IRS.
  • Too often, I counsel clients who have made their tax problems way worst than necessary by letting them fester. Clients either leave stacks of unopened mail just sitting there or fail to pick up certified letters when they become due.

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IRS Transcripts – Part Two – W&I and Return Transcripts

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IRS Transcripts – Wage and Income Transcripts

These types of IRS transcripts are a record of all of the wage and income data provided to the IRS by 3rd party providers including your employer, banks, financial institutions, brokerage houses, other government agencies, corporations, casinos, and a few others. All W2s, W2-Gs, 1099s, 1098s, 5498s, K1s, and other records of income on file for your social security number will be listed. Wage and income transcripts are most beneficial when preparing past returns because they are a quick and easy listing of income that you may have earned for that tax year. However, wage and income IRS transcripts should be checked for potential errors and compared with the information that you have in your records. 3rd parties can and frequently do make mistakes. Also, equally important, is to check your wage and income transcript for instances of identity theft. Wage and income transcripts are also an excellent provide insight into what information the IRS has on file for you. Although hopefully you will be able to prevent adverse collection activity before it occurs after reading this book, wage and income transcripts can give some idea of what they may come after (and how quickly they will be able to find it) if collection activity does occur.

Key Takeaways

  • It is also important to note that wage and income IRS transcripts are not always complete for the current year, as the IRS is still receiving and processing information from 3rd parties.
  • Return transcripts are itemized line by line records of your individual income tax return (Form 1040, 1040a, 1040ez) as it was filed and processed by the IRS. When the IRS receives a tax return, it breaks it down into bits of data that it can more easily use.

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IRS Transcripts – Part One – IRS Account Transcripts

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To assist taxpayers and practitioners, the IRS will provide taxpayers with transcripts of the information that the IRS has on file. There are three main types of IRS transcripts that taxpayers should be aware of before checking their account. These are IRS account transcripts, IRS return transcripts, and IRS wage and income transcripts.

Key Takeaways

  • To assist taxpayers and practitioners, the IRS will provide taxpayers with transcripts of the information that the IRS has on file. There are three main types of IRS transcripts that taxpayers should be aware of before checking their account.
  • The most important transcript for checking activity on your account for any given year.
  • IRS account transcripts should be reviewed thoroughly to ensure that all information is correct on your account. The first thing that you should check for is to make sure that your return appears on this transcript as being filed.

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What if I Cannot Pay an IRS Balance Due?

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In the tax world, to quote Benjamin Franklin, an ounce of prevention is worth a pound of cure. Almost all taxpayers can engage in some level of tax planning to their benefit prior to a return being filed. As a practitioner, I like to perform a mid-year check with my clients to review their current tax situations and to make sure they are on track with where we have identified they need to be. Although particularly helpful with self-employed individuals and those with small businesses, to ensure that they are making proper tax deposits, it can also be helpful for W2 employees who want to adjust their withholdings during the course of the year. In addition, I would recommend checking in with a tax professional to understand the tax consequences of any major life events. Getting married, having a child, changing jobs, getting a raise, buying a house, moving, caring for another individual, and a variety of other changes can all impact your future tax situation. It is always better to be able to be aware that you may have a balance due at the earliest possible juncture in order to try and minimize your liability.

Key Takeaways

  • In the tax world, to quote Benjamin Franklin, an ounce of prevention is worth a pound of cure. Almost all taxpayers can engage in some level of tax planning to their benefit prior to a return being filed.
  • If tax planning cannot mitigate the liability, usually it is best to file the return as soon as you can.
  • Although filing a return may put the IRS on notice of the liability sooner, filing the return has two principal advantages.

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IRS Allowable Living Expenses – Part One

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Although a favorite saying of IRS revenue officers is that “The IRS is not a bank” and the Service does take collection of taxes owed seriously, the IRS is prevented from collecting assets that a person needs to survive and meet their basic living requirements. The IRS calls these “Allowable Living Expenses” and they are excluded from the calculation that collection agents use to determine a taxpayer’s reasonable collection potential. Keep in mind that regardless of the size of the liability, whether one thousand or one million dollars, the IRS will always allow the taxpayer to keep enough cash to pay for their allowable living expenses.

Key Takeaways

  • Although a favorite saying of IRS revenue officers is that “The IRS is not a bank” and the Service does take collection of taxes owed seriously, the IRS is prevented from collecting assets that a person needs to survive and meet their basic living requirements.
  • So what does the IRS consider allowable living expenses? The IRS has developed a test called the necessary expense test to determine whether or not it will allow an expense to be included.
  • 3. Other Conditional Expenses – expenses, which may not meet the necessary expense test, but may be allowable based on the circumstances of an individual case.

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How to Deal With an IRS Bank Levy – Part One

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When you owe a balance due to the IRS and fail to resolve that balance in a timely manner through one of the approved resolution methods, the IRS takes increasing stern action to try and force compliance on your part. One of these avenues is though an IRS bank levy. An IRS levy is defined as “a legal seizure of your property to satisfy a tax debt.”[1] In the case of an IRS bank levy, the IRS takes money from your checking or savings account in order to satisfy your outstanding tax liability. Although the IRS is required to send notice of its intent to levy under statute, it usually does not tell you when it plans to seize money out of your checking account. Sometimes this puts taxpayers in a precarious position because they count on funds being in these accounts that are no longer available due to the IRS levy.

Key Takeaways

  • When you owe a balance due to the IRS and fail to resolve that balance in a timely manner through one of the approved resolution methods, the IRS takes increasing stern action to try and force compliance on your part.
  • The IRS bank levy process is initiated by a notice sent from the IRS to the bank that is holding your assets.

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