A Tax lien is a security interest that the government has in any real or personal property that the taxpayer owns. So what does that mean? In reality if you owe an obligation to the IRS or to the state, then a lien is the government’s way of protecting its interest in case you were to liquidate any property. So let’s take a house because that is the example that we run into most commonly for taxes. If you own a house and if the house has equity and the government puts a lien against it then when you go to sell that house the government is going to take its share of what you owe before you get any proceeds. So a lien is just simply protecting the government’s interest saying “hey we’re the IRS, we’re the state of California, we have a right to the equity in this property prior to it being sold.” So what a lien does those two things: number one it protects the government’s interest and number two liens are a matter of public record so when a lien shows up, it has the tendency to either damage the taxpayer’s credit or it could be discoverable.
Key Takeaways
A Tax lien is a security interest that the government has in any real or personal property that the taxpayer owns. So what does that mean.
So anybody who’s applying for a government job or anything with security clearance or anything like that will have an issue with the lien.
So what serious means is serious usually means liabilities of $50,000 or more that have gone unresolved.
The biggest problem with this is number one, nobody likes to be inconvenienced by having somebody revoke your passport.
So for anybody with a liability, we strongly encourage you to get in compliance so that your passport is not addressed.
So recently the government passed a program and the program states that if you have seriously delinquent tax debt and if you don’t have a resolution in place or otherwise in compliance, then the IRS can report you to the State Department and the State Department can essentially revoke your passport. So what serious means is serious usually means liabilities of $50,000 or more that have gone unresolved. The biggest problem with this is number one, nobody likes to be inconvenienced by having somebody revoke your passport. So for anybody with a liability, we strongly encourage you to get in compliance so that your passport is not addressed. But the bigger problem is with people who live overseas. So expats who live in various countries, if their passport gets revoked, then technically they can get deported and they can either be held indefinitely or for an extended period of time and/or pay huge fines and/or other things. So for people who live overseas, this is a huge problem. You want to make sure that you’re in tax compliance, you want to make sure that you’re taking active steps to resolve your tax issues because if you don’t, there is the risk that you will get reported to the State Department and your passport will get revoked and then you won’t be able to travel overseas.
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That’s a good question. So the government evaluates offers in compromises based on what a taxpayers reasonable collection potential is. Remember an offer in compromise is an agreement between the taxpayer and the government to forgive a past tax liability in exchange for future compliance. The government isn’t likely to forget about the liability. The government wants to make sure that the offer it’s getting from the taxpayer is fair to the government, so the government uses a formula called reasonable collection potential to determine that formula. The way reasonable collection potential works is the government looks at the taxpayer’s current situation, it projects a period of time between the state and federal government. They do it slightly differently but the question essentially is okay John’s taxpayer is submitting an offer in compromise: how much could we reasonably collect from John over the next five years and is that amount equal or lower than what John is offering? So you see how it works. They’re taking a five-year period, they’re saying how much can we get out of this guy and that amount is equal to or less than the amount of the offer. Then the government is inclined to take the offer so reasonable collection potential breaks down like this.
Key Takeaways
That’s a good question. So the government evaluates offers in compromises based on what a taxpayers reasonable collection potential is.
A reasonable collection potential, RCP is equal to the quick sale value of any assets that the taxpayer has plus income minus expenses over that period of time.
So there’s three main types of offers in compromise at the federal level. There’s doubt as to collectability, there’s doubt as to liability and there’s effective tax administration. So let’s start with doubt as to collectability. It is the traditional offer or compromise that you may have heard of to settle your tax liability for pennies on the dollar and much like the name suggests, the reason that you’re submitting an offer of compromise is the doubt that the government will ever be able to collect that liability over the next X amount of years. So from a government’s perspective, the government has a lot of people that owe money. It’s not interested in going after a lost cause, so the government would rather cut its losses, settle the account, get you in compliance and move forward. So that’s essentially what the ask is and a doubt as to collectability offer in compromise. In a doubt as to liability offer in compromise you’re debating whether or not you actually owe the liability and you’re making a settlement offer to the government based on the fact that you don’t owe this liability and the risk to the government if they don’t take your doubt as to liability is that they won’t collect anything or will collect less than
Key Takeaways
So there’s three main types of offers in compromise at the federal level. There’s doubt as to collectability, there’s doubt as to liability and there’s effective tax administration. So let’s start with doubt as to collectability.
the offer. An effective tax administration offer in compromise is asking the government to forgive a tax liability for a reason that doesn’t fall within doubt as to liability but it is generally a good idea.
So, the IRS appeals process is actually reasonably friendly to taxpayers and let me explain why. First of all the function of Appeals technically is to be an independent body of the IRS away from examinations and collections. The sole function of appeals is to resolve disputes between the taxpayers and the government and to do so in a mutually beneficial way. The most common time we run into appeals is usually with respect to when we’re filing a Tax Court petition and trying to work things out. Most of our audits that we do at the firm we will file a tax court petition for and then we’ll try and negotiate with appeals. The benefit of dealing with Appeals is most of the Appeals officers are either former collection agents or they’re formal auditors so they understand what you’re talking about. You’re dealing with professional people who know the same playing field as you and that are a representative that we can communicate with on a high level and get a lot done. Number two is with Appeals you’re dealing with a very high volume of cases, so Appeals is trying to screen cases out prior to litigation. Because it’s trying to resolve disputes, it has a lot more flexibility. They’re dealing with so many cases that if, for example, you’re taking an audit into appeals, appeals isn’t going to go through bank statements. They’re not going to go through receipts but appeals will take a look at the presentation of information and they will make an objective decision independently of the author.
Key Takeaways
So, the IRS appeals process is actually reasonably friendly to taxpayers and let me explain why. First of all the function of Appeals technically is to be an independent body of the IRS away from examinations and collections.
The way the appeals process works is it’s kind of like an informal mediation. The auditor isn’t there if the collection agent isn’t there but it’s you and the appeals officer.
So the first thing to do when you haven’t filed taxes is you need to get your taxes filed. If you can arrive at how much you owe the government, you can begin fixing the problem. So the first thing you need to do is establish your filing compliance: how many years haven’t you filed, what information do you need to get it filed and then get your returns filed. So in some cases we’ve had situations honestly where clients don’t remember what years they have and have not filed for, so the appropriate solution in those cases is to call the IRS and to do what we refer to as an analysis. An analysis is a comprehensive review of your account to determine what returns you filed, what returns you haven’t filed, what returns the government has filed for you and any other pieces of information that you would need in order to get in to compliance. Like what information does
Key Takeaways
So the first thing to do when you haven’t filed taxes is you need to get your taxes filed. If you can arrive at how much you owe the government, you can begin fixing the problem.
the government have on record for you. In doing the analysis you’re going to start to create a roadmap of everything you need to do to get in filing compliance now.
So IRS revenue officers are notoriously difficult to deal with.
So number one, IRS revenue officers only get involved in cases that the IRS feels are particularly serious.
How do you negotiate with a revenue officer? So IRS revenue officers are notoriously difficult to deal with. So number one, IRS revenue officers only get involved in cases that the IRS feels are particularly serious. For individual liabilities, usually that has to be a quarter million dollars or more. For payroll tax liabilities, the amount can be much smaller. If the business is continuing to accrue payroll tax liabilities, revenue officers will step in much sooner.
Revenue officers are not like other collection agents. Usually what happens with collections is collections is centralized into what’s called ACS, which is automated collection systems. There’s one in San Diego and it’s like a big, big call center and agents work out of there and are initiating collections and taking collection actions and getting taxpayers on installment agreements and so on and so forth.
A revenue officer is a local collection agent. They’re assigned to a particular region in San Diego, they’re across the street from us, and the revenue officers are charged with locating taxpayers, locating assets, and getting as much money as they can and satisfaction of those assets. So revenue officers are usually very senior. They’re usually trained. Some of them have accounting backgrounds, and they’re particularly good for finding taxpayers, locating their assets, and taking those from taxpayers.
Now, there are a variety of revenue officers. Some are revenue officers that work criminal cases, some are revenue officers that were principal in the businesses or who work with difficult assets to collect and so on and so forth. But when you’re dealing with a revenue officer, always know that you’re going to deal with somebody who has a very superior knowledge base when it comes to collections. This is what they do. They have 40, 50, sometimes more cases, and they’re dealing with collections issues all all day, every day. We’re just dealing with delinquent taxpayers over and over and over again. So not only do they understand a lot about tax, but they understand a lot about how this process goes. They’ve usually dealt with a variety of representatives and a variety of taxpayers, so they’re very knowledgeable.
So the trick to negotiating with a revenue officer is understanding what result you want to get at the beginning, so you start with the goal. Understanding, let’s say I have a client who wants to pay $500 a month on their IRS liability. I know that I’m working towards that end goal with the revenue officer. The first thing you do in a revenue officer case is contact the revenue officer and tell them that you can agree, you think you can agree to a solution and tell them what the solution is. You want to get a number in their mind and say look I know you have to work your case, I know you have to do your investigation, I know we have to go through the steps but here’s what my clients looking to pay. Five hundred dollars a month, I’ll get you everything to make your determination, so on and so forth. So right there what you’re doing is you’re setting a target. You’re setting an expectation with the revenue officer.
The second thing you do is you gather all the things the revenue officer is going to request. Revenue officer may send you a short list, and it’s a laundry list, but in working towards the financials and in developing your financial statement, you know what your target is. When you do the income minus expense analysis, you know you need to get it to about $500. And if it doesn’t work at $500, you’re going to have to figure out how to get it there. Taxpayer’s circumstances change all the time, but you at least have a target.
Hopefully at that point you’re producing financials and other information that’s consistent with the taxpayer having an ability to pay $500 a month. And then if you do that, and you show deference to the Revenue Officer, and you work through the motions, that’s the end goal. And so essentially what you’re trying to do when you present all the financial information is to gift wrap the Revenue Officers case form. You’ve stated that you’re trying to pay $500. You’ve given them consistent financials that show a $500 ability to pay. They’re well organized, they’re well presented, and you say, look, I know you got 50 cases, let me just go ahead and take care of this one for you. And so by putting together this package and negotiating with the revenue officers, it’s not going to work 100 % of the time, because Revenue officers are still people. You get good revenue officers, you get bad revenue officers, but you’ll have more success than not by taking this negotiation tactic. Because what you’re doing is you’re creating a goal, and then you’re leading the Revenue Officer along in satisfaction of the goal. The Revenue Officer goes off course, you show them more information and we get them back to that $500 a month payment.
And then if negotiations totally fail with the Revenue Officer, you want to exit in the best way possible. You can go to Appeals to negotiate an installment agreement or another collection’s resolution. You can submit an offer and compromise. You can talk to the revenue officer’s manager. But the goal is you’re trying to maintain a good and fluid relationship with them. You’re trying to get on their good side. You’re trying to make their life as easy as possible. And that will lead to the biggest avenue of success when you’re dealing with revenue officers.
Have a Tax Question or Notice?
If you’re dealing with an IRS audit, collection action, California state tax matter, or any other tax issue, we can review your situation in a free 15-minute call.
Okay so with IRS collections, here’s the thing to keep in mind. IRS collections is really about what’s the best end result for the client. How much can the client afford to pay? How much does the client want to pay? And what is the IRS going to come back with based on those inputs. So the easy thing about collections is you know exactly the direction it’s going to go. With collections for example, you know how they’re going to do financial analysis, you know the way that they’re going to look at certain items of income, you know the way they’re going to look at certain business expenses, so it’s very easy to understand. It’s very easy to take your client’s circumstances or take your own circumstances and to go through and audit your financials and line them up on a financial statement and say this is what the auditor’s going to look at. So anybody can really fill out a financial statement. There are some traps on that financial statement, there’s probably some information you don’t want to give out but at least you’ve got a baseline for where your financials are and where they might need to be in order to hit your desired results. The best thing that you have in the course of an IRS collections case is time, especially for the ability to control some of the inputs on your bank statements. So for example when we’re negotiating an IRS collection resolution and we have a period of time that passes, we will instruct
Key Takeaways
Okay so with IRS collections, here’s the thing to keep in mind. IRS collections is really about what’s the best end result for the client. How much can the client afford to pay? How much does the client want to pay.
the client to limit the amount of fun that they’re having over three months. Why do we limit the amount of fun.
So IRS appeals is supposed to be an independent body that is neutral and that’s designed to resolve disputes with the IRS prior to going to tax collections. In reality Appeals is staffed with a bunch of former auditors and a bunch of former collection agents however we’ve had a lot of positive experiences in the course of Appeals in this firm so I like dealing with appeals. I find the appeals process is generally fair and impartial and generally yields a pretty good result depending on the circumstances. Now the good news with appeals is that the auditor is not involved in the process at all. The auditor has taken
Key Takeaways
So IRS appeals is supposed to be an independent body that is neutral and that’s designed to resolve disputes with the IRS prior to going to tax collections.
the time to prepare and submit an audit report which gets forwarded to appeals, but you have the opportunity before the case gets to the appeals officer’s desk.
So if you owe money at the end of an IRS audit it’s like owing liability on your taxes. You can pay the liability, you could work out a payment plan or you can go into collections and work out a resolution. Generally speaking what happens is the auditor will close the audit. That bill will be an issue and if you don’t appeal that bill, you’ll go directly into collections. The best thing to do is to speak with the auditor and see if you can negotiate a straight handoff to collections. It’s not possible in all cases particularly where the liability is small but if you discuss things with the auditor they may be able to shortcut the process into collections and allow you to work out a resolution of the liability. This also tends to happen in cases where they’re a large audit. The auditor will pass you off to a revenue officer and you’ll start working with that revenue officer immediately to try and collect the liability but in either case if you owe money, don’t worry there’s a lot of things that you can do on the IRS side to mitigate that liability and to work out terms that you can potentially deal with.
Key Takeaways
Topic: What Happens If I Owe Money at the End of an IRS Audit?
So if you owe money at the end of an IRS audit it’s like owing liability on your taxes.
You can pay the liability, you could work out a payment plan or you can go into collections and work out a resolution.
Dealing with an IRS Audit?
Every audit has a scope — and what you produce in response sets the direction of the examination. Whether you’re just opening an audit notice or already in correspondence, a brief review can clarify where you are and what your options are.
