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Dealing with the Internal Revenue Service (IRS) can be a daunting and intimidating task for any person or business. The unfortunate reality is that the IRS has the power to completely disrupt an individual’s life or business operations.
However, taxpayers are not powerless. Individuals and businesses have rights when dealing with the IRS that permit taxpayers to explore different options in resolving their tax obligations to the IRS.
When collecting against balances for past tax years (be it income taxes or employment taxes), the IRS is required to abide by the Internal Revenue Code. Additionally, the IRS has an “Internal Revenue Manual,” which is available to the public, with instructions to its employees on how the IRS is required to handle different situations.
Within the Internal Revenue Code and the “Internal Revenue Manual,” taxpayers are provided a litany of rights and options to stop the IRS from enforced collection. However, the over-arching theme within the Internal Revenue Code and the “Internal Revenue Manual” is the pro-active approach the taxpayer must take to resolve the tax debt. The IRS will not do anything automatically on the taxpayer’s behalf. The taxpayer must contact the IRS by phone or letter to exercise his or her rights and options.
The largest mistake that delinquent taxpayers make when dealing with the IRS is burying their head in the sand and hoping the problem cures itself. This is the exact opposite approach that should be taken with the IRS. The IRS intensifies their collection efforts when they do not hear from a taxpayer after sending initial inquiries.
Ignore the IRS long enough and the IRS will pursue bank levies, wage garnishments, and liens. However, contact the IRS immediately and most taxpayers are surprised to learn the available options.
The strongest tool at the taxpayer’s disposal is the requirement in Internal Revenue Code § 6331, requiring the IRS to cease all levies after the taxpayer formally requests an installment agreement.
Although certain exceptions apply, generally, the IRS is required to review all credible requests by the taxpayer to resolve the outstanding obligations through an installment agreement. This means while reviewing the taxpayer’s request for an installment agreement, the IRS will not pursue bank levies or wage garnishments. Depending on the balance owed, the IRS may require that the taxpayer provide a financial statement to support the installment agreement request. The IRS will require that the taxpayer tighten his or her budget to the necessities in order to permit payment to the IRS. However, negotiation with the IRS does exist and the presence of an attorney, knowledgeable in the Internal Revenue Code and “Internal Revenue Manual,” can strengthen one’s ability to obtain an advantageous installment agreement.
Recognizing that not all taxpayers are in the position to repay their liability, the IRS can even place a taxpayer in uncollectible status. This is generally reserved for those individuals that are only making enough income to pay basic life necessities, however, one can only be placed in uncollectible status by contacting the IRS and making the request. Failing to contact the IRS and requesting assistance will surely lead to levies and garnishments which could stifle a taxpayer living paycheck to paycheck.
Lastly, options to reduce the balance owed through offers in compromise or penalty abatements are also possible with the IRS. These processes are complicated and beyond the scope of this column. Additionally, one is advised to be represented by counsel before undertaking these options.
When dealing with the IRS, it is important to 1) contact the IRS immediately, 2) evaluate your options, and 3) stop incurring new liabilities (as new liabilities will default any agreed upon plan with the IRS). The longer a taxpayer hides from the IRS, the more aggressive the IRS becomes in its pursuit. Approach the problem head-on and you may be surprised the rights you have when dealing with the IRS. These are just a few of the considerations when dealing with the IRS. Most importantly, it is critical to have a knowledgeable attorney from the beginning to assist in all phases.
–Keith R. Wood is an Associate at Calone & Harrel Law Group, LLP who concentrates his practice in Bankruptcy, Tax collection, and Corporate, Partnership and Limited Liability Company law matters. Mr. Wood may be reached at 209-952-4545 or [email protected]