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video-blog

What Causes a Balance Due

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One of the first things I want to talk about is what causes a balance due. Balance due is tax liability that is owed to the government. There are four basic ways that balance dues occur. The first is you file tax return showing a liability that’s owed to the government that is not paid. If a tax payer files a return, they owe $10,000. They don’t include the check with that. That will create a balance due within the IRS system. The second way that balance dues are formed is through the matching program that the IRS has. When the tax payer files a tax return not showing a tax liability but there are either errors or omissions on that tax return, then the IRS will make a correction. Oftentimes, the issue of the correction through which is called the CP2000 notice, tax payer will file a return.

Key Takeaways

  • One of the first things I want to talk about is what causes a balance due. Balance due is tax liability that is owed to the government. There are four basic ways that balance dues occur.
  • They’ll get a nice letter in the mail saying, “Hey, we noticed you left off some income. You didn’t report the 1099 that you had. You stated a credit that we don’t believe you’re entitled to.” Any number of things can cause a CP2000.

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Substitute for Returns (SFR)

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The final way that balance dues are created is through what’s called substitute for return. When you have a case of a non-filer, if the taxpayer doesn’t file a return for a year and the IRS will see a way to income information for that taxpayer or any number of other third party data sources, then the IRS will create a return for the taxpayer. That’s what is known as substitute for return or SFR. If you’re calling the IRS and the IRS indicates the taxpayer has SFRs on file, that means the taxpayer didn’t file a return. Those SFRs can simply be corrected through a tax return and putting something on the IRS system with the SFR liability. Generally, the statute for any changes through examination is three years with some exceptions. There’s exceptions for fraud which can extend the statue up for six. And there’s also an exception for SFRs. Any time a taxpayer does not file a return, the IRS can technically go back and file a return on their behalf.

Key Takeaways

  • The final way that balance dues are created is through what’s called substitute for return.
  • In reality, the IRS is governed on SFRs to IRM 412.1.3. 412.1.3 says that as general policy consideration, the IRS will usually limit SFR filings for the past six years. There’s a couple of factors that play into whether the IRS will file an SFR or not.
  • And she’s been the beneficiary of the trust for since about mid-80’s and she has failed to file her returns for since the mid-80’s going forward.

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Overview of IRS Examination Process – Three Types of Audits

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Briefly I want to cover just a brief overview of the IRS examination process since it is one of the principle ways that balance dues are created. With respect to audits as I mentioned earlier, there are three types of audits. There are correspondence audits, there are office audits and there are what we call field audits. With the diminished IRS resources, the IRS is spending more and more correspondence on fairly simple issues. And even issues in the past that required some documentation like the IRS is challenging a taxpayer’s auto expense. Those audits are being handled more and more by correspondence.

Key Takeaways

  • Briefly I want to cover just a brief overview of the IRS examination process since it is one of the principle ways that balance dues are created. With respect to audits as I mentioned earlier, there are three types of audits.
  • The taxpayer will get a letter in the mail. The letter says, “Hi. We’re the IRS. We would like to challenge some of the information on your return.
  • The difference between an office audit and a correspondence audit is office audit generally involve issues that are fairly technical. They’re headed by a tax compliance officer versus a “revenue agent” or auditor.

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What Happens When You File a Return With a Balance Due

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Now, I want to talk about what happens when you file a tax return with a balance due. You go to file your tax or you have your CPA file your taxes. These taxes gets transmitted to the IRS and they go to a service center. Regardless of whether you paper file or whether you file electronically, that information gets processed in that service center. Tax returns generally are processed on the spot. They take about four to six weeks to work their way through the IRS system. Once you file your tax returns, you can actually expect your balance due won’t appear for four to six weeks. That’s an important thing for non-tax counsel to be aware of because if your client files a return, they’re generally not going to hear from the IRS report for four to six weeks.

Key Takeaways

  • Now, I want to talk about what happens when you file a tax return with a balance due. You go to file your tax or you have your CPA file your taxes. These taxes gets transmitted to the IRS and they go to a service center.
  • You’ve got a little bit of grace period if they filed on October 15th and say, “Oh my goodness. I owe $20,000 liability.” You’re going to have about four to six weeks to adequately address the problem before you get correspondence from the IRS.

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Automated Collection Systems

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Key Takeaways

  • Now, I want to talk a little about automated collections systems.
  • Automated Collection Systems is a network of campuses that the IRS maintains that enforce collection activity.
  • It’s the first stage of collection so to speak.


Now, I want to talk a little about automated collections systems. Automated Collection Systems is a network of campuses that the IRS maintains that enforce collection activity. It’s the first stage of collection so to speak. Because the IRS has limited resources and because the IRS has lots of people that owe them money, they rely on certain campuses in cities like Memphis or Brook Haven, New York; or Kansas City, Missouri; Cincinnati, Utah and a variety of places to enforce collections for the IRS. If you ever want to know what ACS is all about, just picture a big room with a bunch of people that have computers. They have phones and they do the dirty work of the IRS trying to enforce collections on its behalf. ACS call centers will receive calls, anybody who gets a levy or lien will call in the IRS and say, “Hey, you took my property.” The ACS agent will try to work with them on resolving the account. ACS agents in general as well are also the people who call taxpayers and try to track them down.

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More about Automated Collections Systems

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As a result of that, there are some things that you should note about ACS. Number one is that most of their collections agents do not handle the same case twice. Because they don’t handle the same case twice, you’re often relying on the ACS agent to take very detailed notes about the call, discuss time tables and actions. Unfortunately, sometimes they don’t keep the best notes. It’s really important as a practitioner to keep notes and records every time you all ACS so that you can best document your case, so that you have an understanding of what was said. That way, if there’s any dispute later, if the IRS levies your client or if there’s any other negative action taken, you’ve got the name of the ACS agent, you’ve got their ID number, you got the date and time of your call. And by having those pieces of information when dealing with their supervisor saying, “Hey, so and so told me that we weren’t going to levy and they went ahead and levied.”

Key Takeaways

  • As a result of that, there are some things that you should note about ACS. Number one is that most of their collections agents do not handle the same case twice.
  • Then, you’ve got a record that you can go back to the IRS and have them pull tape and resolve the issue. ACS agents, in addition to handling taxpayer compliance, they can also issue liens. They can issue levies. They can refer cases out to the field.

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Tips for Dealing with Automated Collection Systems Agents

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Let me give you some tips on dealing with automated collection system agents. The first is you have to understand how the system works is ACS agents are in a bunch of call centers across the country. Because they’re in call centers, they can handle a high volume of calls from people all over the United States. The best strategy for dealing with ACS, to avoid sitting on hold for an hour, is to give a call early in the morning or late at night. In our office, we have East Coast phone numbers and we will actually call the East Coast before the West Coast opens so that we can get through. That’s a great tactic because when the East Coast opens up at eight o’clock, it’s five o’clock California time and the rest of the country is sleeping. Our chances of getting through to ACS are much greater. Consequently, if I call late at night, if I call at seven o’clock – ACS is open ‘til eight by the way – then I’m much more likely to get through because the rest of the country is sleeping, and/or their call centers have been shut down.That way I’m only be dealing with people on the West Coast particularly during peak season. To avoid increased call volumes, call ACS during off-peak hours. Secondly, because they are large and because they are multiple people, your experience with ACS largely depends on the individual agent.

Key Takeaways

  • Let me give you some tips on dealing with automated collection system agents. The first is you have to understand how the system works is ACS agents are in a bunch of call centers across the country.
  • Sometimes you get people who are really nice. I enjoyed talking with the people in Memphis about barbeque and how great the blues music is down there. Occasionally you get people – and I won’t name any cities or name any names – that are pretty surly.

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What Happens when the IRS Cannot Collect on a Taxpayer

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ACS will try to collect an account for a period of time. If ACS is unsuccessful in collecting the account, it generally does one of two things: Number one is ACS will refer the matter out to the field for further investigation. They will send it to a Revenue Officer, who I will explain in a minute. When ACS gets frustrated or when the balance reached a certain dollar amount, they’ll kick it out to a Revenue Officer to, perhaps, pursue some more localized tactics for collections. The other thing ACS can do is ACS can deem the account non-collectible. There’s two ways principally that ACS deems account non-collectible: Number one is if the taxpayer who writes financials showing they can’t pay the IRS any money, if they cash in and cash out every month, then there’s no money left over for the IRS after their basic living expenses and the IRS will put them into a non-collectible status.

Key Takeaways

  • ACS will try to collect an account for a period of time. If ACS is unsuccessful in collecting the account, it generally does one of two things: Number one is ACS will refer the matter out to the field for further investigation.
  • The second way that ACS will assign account as non-collectible is if they can’t find the taxpayer.

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Revenue Officers

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Now I’d like to talk a little bit about Revenue Officers. A revenue officer is a local IRS agent. One of the local field officers in the IRS, there has quite a few across the country. We have two here in San Diego. A revenue officer is an individual collection agent. Most offices have anywhere between 10 and 50 revenue agents. Some have more. Some of the bigger IRS offices in California. Or some of the other ones who have more agents. Some will have less. An IRS revenue officer is a specially-trained collection agent. We’ve pull the IRS’s job description for revenue agents: They conduct face-to-face interviews with taxpayers. They analyze financial information. They collect moneys. They seize assets and property. They try to resolve tax issues. They garnish bank accounts and they educate taxpayers as to their filing and paying obligations. Those are the principal jobs of a revenue officer. As a practical manner, a revenue officer is assigned about 40 collection cases and gives each one of those cases special attention. Special attention when it comes to the IRS is not a good thing. Revenue officers – by their job description – are mandated to try and make personal field contact with the taxpayers.

Key Takeaways

  • Now I’d like to talk a little bit about Revenue Officers. A revenue officer is a local IRS agent. One of the local field officers in the IRS, there has quite a few across the country. We have two here in San Diego.
  • They’re the ones that go around knocking on people’s doors, going to their jobs leaving cards or otherwise, coming around and scaring people.

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Brotman Law Featured in Inc. Magazine - Fastest Growing Law Firm in California