Offer in Compromise

Posted on by katemley

I.R.C. Section 7122

The United States Tax Court in Swanberg v. Comm’r of Internal Revenue handed down an opinion on August 25, 2020, as docket No. 10266-19L, in which it ruled that the IRS had properly included taxpayer’s Veterans Affairs benefit and excluded his life insurance premium in calculating an ability to pay for Offer in Compromise purposes. This matter was started in a Collection Due Process hearing filed as a result of the issuance of a Final Notice of Intent to Levy. The taxpayer submitted a collection information statement reflecting monthly income of $6,352 and expenses of $6,854. On review, the Settlement Officer noted that the taxpayer’s bank statements reflected a disability benefit from the VA. The Officer increased his income by the amount of this benefit. Further, she disallowed a $600 per month expense for whole life insurance. The Taxpayer argued that his VA benefit should not be included since it was not taxable. The Court ruled that the Settlement Officer had abided by the provisions of the Internal Revenue Manual (IRM) regarding these issues. The IRM provides that all household income will be used to determine taxpayer’s ability to pay. Income is included even if not subjected to taxation. Furthermore, the IRM supports disallowance of the whole life insurance expense. No abuse of discretion was found by the Court. 

Just filed a tax return and have a balance due you can’t pay?

Posted on by katemley

You have many opportunities to deal with this situation – but the most important thing to remember is that taking action sooner is better than waiting.  Your timely response can provide you with an opportunity to review your financial situation and determine if it is best to use other resources to retire your tax debt.  Tax liens are not filed right away and as such, it may be in your best interest to borrow against the equity in your real estate.  Once a tax lien is filed, which happens in many cases, your likelihood of getting a loan is greatly reduced.

 Should you not have the ability to borrow money to pay off the tax debt, the time immediately after filing your return is the best time to analyze your financial situation to determine what options you have.  Once the IRS begins to send you notices, they will ultimately issue a Final Notice of Intent to Levy and then they have the right to seize assets and levy income.

 If a professional is assisting you with your financial analysis, they are working to put together a Collection Information Statement.  This document will allow the person assisting you to determine if you are a candidate to submit a settlement proposal to the IRS – known as an Offer in Compromise.  Nobody can tell you that you are a good candidate for a settlement unless they complete a full financial analysis and know how much you owe in taxes, interest and penalties.

 The Collection Information Statement is not only utilized to determine if you are a candidate for an Offer in Compromise settlement, but this document is also used to determine what you can pay on an Installment Agreement, a Partial Payment Installment Agreement, or if you are a candidate for the Currently Not Collectible Status.

 An Installment Agreement is an agreement to full pay your outstanding balance plus interest and penalties over a period of time.  There are instances where you do not have to disclose all of your financials in order to set up an Installment Agreement.  This is typically based on the amount you owe the IRS and the amount of time remaining for the IRS to collect the debt – the statute of limitations on collections.

 A Partial Payment Installment Agreement is an agreement where you will pay the IRS a monthly payment, but that payment amount would not pay off the entire debt before the IRS statute of limitations to collect runs out.  Because there is a possibility that the IRS will not collect all of the tax liability from you, they reserve the right to review your financial situation every couple of years.

 In addition to the above, many taxpayers qualify for placement in Currently Not Collectible status.  This status is given when you substantiate to the IRS through financial disclosure on a Collection Information Statement that you do not have any equity in assets, nor do you have the ability to make a monthly payment.  When placed in this status your debt continues to grow from accrual of interest and penalties.  The IRS will review your financial situation from time to time to determine if you can begin paying something toward the tax debt.

 Given the fact that the IRS has the power to levy your wages or seize assets if they issue a Final Notice of Intent to Levy, it is important to be aware of the status of collections of your tax debt.  When the Final Notice of Intent to Levy is issued, the taxpayer has the right to have the matter reviewed by Appeals Division of the IRS.  This review is independent of the Collection Division and the reviewing officer has the ability to establish one of the plans above.  Sometimes this is advantageous as the taxpayer’s matter is assigned to a single caseworker rather than a service center where the taxpayer has less of an opportunity to work directly with an IRS employee.

 As can be seen from the above, there are many options to deal with your tax obligations.  The situation can only get better by dealing with it sooner.  If you have tax liabilities you can’t pay, please contact us.  We would be happy to provide you with guidance to determine how best to proceed.

Have You Received an IRS Notice of Intent to Levy?

Posted on by katemley

Unfortunately, this question is more confusing than you would think. The reality is that once a taxpayer owes the federal government, a series of notices will be sent to the taxpayer by the IRS demanding payment and referencing the federal government’s ability to levy, or seize the taxpayer’s assets. While the taxpayer is always encouraged to pay his or her indebtedness to the U.S. government, the risk of enforcement action through levy of assets may only happen if certain statutory requirements are met – even though many IRS notices mention that the government may seize or levy assets.

The Internal Revenue Code authorizes the IRS to levy or seize assets in order to satisfy delinquent taxes. While there is no need for the government to file a lawsuit in order to proceed with such a seizure, it must abide by proper statutory guidelines. The IRS must send a Final Notice of Intent to Levy and Notice of Your Right to a Hearing at least 30 days prior to actual seizure of assets. The IRS may levy your State tax refund prior to issuing a final notice, but must provide you with a right to a hearing, after. The final notice may be left at your home or business, provided to you in person, or sent to your last known address by certified or registered mail, return receipt requested.

Given the importance of your hearing rights explained below, if the IRS has created a debt for you a few years ago, or you failed to file returns for a period of time after a return with a balance due was filed, then you need to make sure the IRS has your proper address. This can be done by filing Form 8822 – Change of Address. The IRS is most likely to send a Final Notice of Intent to Levy and Notice of Your Right to a Hearing to the address on your last filed tax return. If you have moved since this return was filed and your mail forwarding notice has expired, you will miss your right to a hearing. Remember, the IRS may have current income source information for you – such as W-2 or 1099 information. So, making sure the government has your proper address makes sure you are properly advised of your rights and provides you with an opportunity to address your debt before the IRS enforces collection action through a wage or bank levy, for example.

A Final Notice of Intent to Levy is only issued one time per tax period. Once issued, a 30 day clock starts. Every taxpayer has the opportunity during this window of time to request a Collection Due Process hearing. That hearing is held by the Appeals Division of the IRS, an  independent division from the Collections Division. When a taxpayer requests a hearing after receiving a final notice, Appeals will make sure that all proper statutory requirements were followed by the Collections Division. Further, and maybe most important, the Appeals Division can entertain collection alternatives at this hearing. This means that you can work with Appeals to set up an installment agreement, a partial payment installment agreement, place your account in currently not collectible status, or work with the taxpayer to process an Offer in Compromise. This is a very important taxpayer right and no taxpayer should miss this opportunity to bring their matters into compliance and eliminate the uncertainty that having a delinquent tax matter creates. Please contact our office if you have any questions about these matters.