Notice of Deficiency

Posted on by katemley

I.R.C. section 6213

The United States Tax Court in Jeffrey D. Gregory v. Comm’r, Docket No. 1090-16L, filed November 20, 2018, held that a “reprint” of a notice of deficiency is evidence of the creation of the notice before assessment, even though the reprint was prepared more than two years after the alleged mailing of the original notice and omitted or misstated information that would have appeared on any notice actually mailed. Further, the Court ruled, that the omission from a notice of deficiency of the last day to timely file a petition for re-determination does not invalidate the notice. This case was before the Tax Court for review of a determination by IRS Appeals Office to sustain the filing of a notice of Federal Tax Lien for unpaid income tax liabilities. The Petitioner conceded all aspects of the case except the validity of the notice of deficiency issued by the IRS. The IRS asserted that they issued the petitioner a notice of deficiency for the relevant tax period but admitted there was no copy of the original notice that could be reproduced. The Court ultimately ruled that it did not see why the reprints couldn’t serve as evidence that the IRS prepared the notice of deficiency, even if they were not deemed duplicates. The Court inferred from the inclusion in the IRS database of the information about the taxpayer on the reprint that it had created the notice of deficiency in accordance with its “customary practice.” As for the lack of a date to file the Petition in Tax Court, the reprint would not reflect that information as the IRS had explained this information is entered by hand when the original is issued.

Trust Fund Recover Penalty

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I.R.C. section 6672

This is a hard fought case on a narrow issue that ultimately went in favor of the IRS. The Tax Court in Scott T. Blackburn v. Comm’r, 150 T.C. No. 9, filed April 9, 2018, was asked to review the verification of compliance rule of I.R.C. section 6751(b), as required by sections 6330(c)(1) and (3)(A). The Appeals officer must “obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met.” Sec. 6330(c)(1). The Petitioner did not argue or contest the liability issue relating to assessment of the Trust Fund Recovery Penalty against him. The Revenue Officer in this instance has recommended assessment and said assessment was approved by the Revenue Officer’s manager using Form 4183. The name of the manager was listed on the form, but no signature was present. The taxpayer argued that in creating section 6751(b), Congress could not have meant to require a meaningless, supervisory “rubber stamped” signature. Petitioner asked the IRS many times to provide some evidence that the supervisor’s review was meaningful. Petitioner relies on the Internal Revenue Manual to suggest an argument that the signature of a supervisor in support of a penalty is not in itself a sufficient showing to comply with section 6751(b). The Court indicated that caselaw review applying these code sections has only required the officer to review the administrative steps taken before assessment of the underlying liability. To impose the requirement of a substantive review on the officer would allow the taxpayer to avoid the limitations of pursuing the underlying liability in a review under section 6330 and apply a level of detail in the verification process that has never been previously required, the Court explained.

Increased collection activity against federal employees’ Thrift Savings Plans (TSP)

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The National Taxpayer Advocate has reported in its Fiscal Year 2016 Objectives report to Congress that a proposal by the IRS to expand collection efforts against retirement plans of federal employees “infringes on taxpayers’ rights to a fair and just tax system.” Federal employees have the ability to participate in the Thrift Savings Plan (TSP), which is similar to a private sector 401(k) plan in that employee savings are tax deferred and qualify for some level of employer, (in this case the federal government), matching.

Taxpayers, including federal government employees, who owe taxes are subject to IRS levy on their property and rights to property.  This power extends to retirement accounts, including the TSP.  However, given the importance of retirement savings to an individual’s welfare during old age, the IRS has historically regarded a levy on retirement funds as a special case that requires additional scrutiny and a manager’s approval. 

Essentially, before a field Revenue Officer can levy a retirement benefit, the agent would determine what property is available to levy – both retirement and non-retirement, determine if the taxpayer has acted in a flagrant manner, and finally determine if the retirement funds are required for necessary living expenses. There are distinct problems with these factors, but that has been partially mitigated by other requirements prior to issuance of the levy.  The field Revenue Officer must either secure the signature of the Area Director of Field collections, or secure a manager’s approval.

In order to obtain a collection manager’s approval in this instance, the field Revenue Officer is required to draft a detailed memo that sets out a summary of all information provided to the agent by the taxpayer, whether the taxpayer has exhibited any flagrant behavior, and more importantly, other collection alternatives that have been considered and rejected.  In other words, the retirement account falls into a secondary level of collection after the field Revenue Officer reviews other property or income to levy. 

Recent activity at the IRS has created a pilot program to levy TSP accounts.  Most importantly, and of greatest concern, this program will be administered by ACS employees.  ACS is the Automated Collection System unit.  When a taxpayer’s account is in ACS, it is not assigned to a single employee for collection, rather, there are various employees in functions and units that work on similar matters.  These employees do not receive the same level of financial analysis training as a field Revenue Officer. 

In addition to the reduced training received by ACS employees, the pilot program calls for ACS employees to document any information that a retirement is impending and that the taxpayer will be relying on funds from the TSP for necessary living expenses.  This lacks any analysis regarding other property the taxpayer may have that would be available to collect from, or if the taxpayer acted in a flagrant manner, all requirements of a field Revenue Officer. 

Finally, the pilot program requires managerial approval prior to levy on retirement accounts – but that is a requirement of many collection actions by ACS employees – hardly elevating these situation to a special case status.  What is not referenced is the required memo to the manager detailing information provided by the taxpayer and collection alternatives considered and rejected before proposing levy to the retirement account – all requirements of the field Revenue Officer.

In summary, the IRS is targeting one type of retirement account, the TSP, for increased collection activity, over all others. ACS does not have the ability to levy any other retirement accounts at this time.  The National Taxpayer Advocate believes that this pilot program undermines both taxpayer rights and retirement security policy.  As such, the National Taxpayer Advocate is going to continue to push the IRS to abandon the Thrift Savings Plan levy pilot program  If the IRS adopts the program, the National Taxpayer Advocate is prepared to accept all TSP levy cases coming from ACS.  Taxpayers should take advantage of this opportunity to protect their retirement income.  Additionally, where possible, taxpayers should seek assistance from the Appeals division in order to entertain collection alternatives through Appeals’ Collection Due Process hearing procedures.  Feel free to contact Caraker Law Firm, P.C. with any questions you may have. 

IRS institutes Early Interaction Initiative for Employment Tax matters

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IRS institutes Early Interaction Initiative for Employment Tax matters

  It is expected that the IRS will be instituting swifter action against employers that are falling behind on their Federal Tax Deposits (FTD’s) for employment taxes.  Those taxpayers who have had interaction with a field Revenue Officer are likely hearing from those Revenue Officers more quickly if they fall behind on their required deposits.  However, the IRS announced in December 2015 that it is instituting efforts to identify employers who appear to be falling behind on their tax payments – apparently even before their employment tax return is being filed. 

            The IRS has indicated that their identification efforts will result in letters, automated phone messages, and other communications which could include a visit from a field Revenue Officer.  The IRS has indicated that this effort will reduce the likelihood of the problem becoming uncontrollable.  Many taxpayers simply do not realize how steep the penalties can be for failure to properly make tax deposits, pay employment taxes timely, or failure to file timely returns.  Further, it is unlikely that most taxpayers understand the personal liability that can be assessed from unpaid employment taxes.  A liability that is not dischargeable in bankruptcy.

            While the education efforts are beneficial, certainly there is an enforcement aspect of this activity by the IRS.  The IRS readily admits that two-thirds of federal taxes are collected through the payroll tax system.  With a reduced budget, this activity makes good sense for the IRS.  However, it is most likely going to be most burdensome for small businesses. 

            No doubt early action is best.  If you know you have been falling behind on your payroll tax obligations and need assistance planning before you hear from the taxing authorities, feel free to call. 

Court Affects Payments from Conservation Reserve Program

Posted on by katemley

8th Circuit Ruling Affects Characterization of Payments from Conservation Reserve Program:

The US Court of Appeals for the 8th Circuit recently handed down a decision in Morehouse v. C.I.R, (8th Cir. Oct. 10, 2014), which decided whether or not payments received under the Department of Agriculture’s Conservation Reserve Program (CRP) should be included as income from self-employment on a taxpayer’s return.

In this case, the taxpayer inherited 1223 acres of land in 1994, located on three different properties in South Dakota (503 acres in Grant County, 320 acres in Roberts County, and 400 acres in Day County). All of the land was tillable cropland with exception of a gravel pit on the Grant County property and 129 acres on the Roberts County property that the taxpayer’s father placed under the CRP program. The taxpayer never farmed any of the land.

In 1997, the taxpayer enrolled the remaining acreage of the Roberts County property and the tillable land in Grant County in the CRP program. The primary purpose of the CRP program is to reduce soil erosion and improve soil conditions on highly erodible cropland by limiting the taxpayer’s use of the property. Therefore, by enrolling in the program, the taxpayer entered into a contractual obligation with the Commodity Credit Corporation (CCC) requiring him to implement conservation plans for the properties in the program. These plans required the taxpayer to establish and maintain certain types of grass or vegetative cover on the land and engage in periodic weed and pest control. As compensation for implementing the conservation plans, the taxpayer was reimbursed for a portion of his costs and was paid an “annual rental payment.”

In both 2006 and 2007, the taxpayer received CRP payments of $37,872. The taxpayer included the CRP payments on his return in both years as a rental payment received from real estate. As a result, on October 14, 2010 the IRS sent the taxpayer a notice of deficiency stating that the CRP payments should have been reported as self-employment income on a Schedule F, Profit or Loss from Farming. The taxpayer petitioned the Tax Court for review of this determination, claiming that the CRP payments were rentals from real estate under 26 U.S.C. §1402(a)(1), and therefore should be excluded from his net earnings from self-employment. However, the Tax Court sustained the service’s conclusion that the CRP payments constituted self-employment income reasoning that because the payments were proceeds from the taxpayer’s own use of the land they did not constitute rental payments.

On appeal, the primary issue centered on whether or not CRP payments should be categorized as “net earnings from self-employment.” In deciding this question, the Appeals Court first looked at types of payments that would generally be classified as self-employment income. The Court explained that self-employment income consists of the gross income derived from the taxpayer’s trade or business. Or in other words, the trade or business must give rise to the income before it can be included as self-employment income.

Contrary to the Tax Court’s opinion, the Appeals Court found that the CRP payments did not derive from the taxpayer’s activities on the land because the only reason the taxpayer engaged in any activities such as tilling and seeding on the land was because it was required by the CRP contracts. The Appeals Court further determined that because the contracts reserved a right of entry for the government onto the CRP property for purposes of inspection, that the government was “using” the land as much as if not more than the taxpayer. Therefore, the CRP payments were given to the taxpayer in consideration for this right to use and occupy the taxpayer’s property.

Next the Court looked at how similar payments to taxpayers have been categorized in the past. In doing so, the Court looked to Rev. Ruling 60-32, 1960-1 C.B. 23 (1960) concerning the CRP’s predecessor, the Soil Bank Act. In this ruling the IRS concluded that soil bank payments to people who did not operate or materially participate in a farming operation were to be viewed as rental income, not self-employment income. However, the ruling further stated that soil bank payments made to farmers were self-employment income.  Although this precedent was not controlling, the Court decided that given the significant overlap in the CRP and Soil Bank programs, and because it reflects a longstanding and reasonable interpretation of the Agency’s regulations, the revenue ruling was persuasive. Therefore, the Court decided to follow the Soil Bank Program distinction between payments to farmers and non-farmers in concluding that CRP payments to the taxpayer in this case were rental income because he was not engaged in farming operations. Looking forward it appears that at least in the 8th Circuit, taxpayers who receive payments from the CRP program will be able to include the income as rental income rather than self-employment income on their tax return, if they are not operating farming activities on the land.

If you have any questions about how this ruling might affect the characterization of your CRP payments, please feel free to contact our office.

Final Regulations Issued for Use of Truncated Taxpayer Identification Numbers

Posted on by katemley

New IRS Regulations Aim to Fight Identity Theft Through Use of Truncated Taxpayer Identification Numbers

This week, in an effort to safeguard taxpayers from identity theft, the IRS issued its final regulations regarding the use of Truncated Tax Identification Numbers or (TTINs). The final regulations, published on July 15, are amendments to the Income Tax Regulations and Procedure and Administration Regulations, which allow the tax filer to truncate a payee’s identification number on certain documents. The Service states that the amendments are specifically targeted at reducing the risk of identity theft, which can stem from the use of an employee’s entire identification number on documents.

A “Truncated” identification number simply takes an existing nine-digit identification number and replaces the first five numbers with either asterisks or “X”s so that only the last four digits remain. (i.e. A tax identification number of 99-9999999 would become XX-XXX9999). Because a TTIN is merely a method of masking taxpayer identification numbers that already exist, use of a TTIN does not require the Service to issue any new identification numbers or expend any funds for the taxpayer to be able to use a TTIN. The new regulations allow for TTIN to be used for a taxpayer’s social security number (SSN), IRS individual taxpayer identification number (ITIN), IRS adoption taxpayer identification number (ATIN), or employer identification number (EIN) on payee statements and certain other documents.

Before issuing their final regulations, the IRS ran a pilot program, which allowed certain qualified filers to truncate an individual’s payee identification number on a paper payee statements for Forms 1098, 1099, and 5498. This program ran from 2009 to 2010. In 2011 the IRS extended the pilot program for two more years and modified it by removing Form 1098-C from the list of eligible documents.

In January of 2013, the US Treasury and the IRS issued proposed regulations, in response to the growing threat of identity theft and associated tax fraud. The proposed regulations largely mirrored the pilot program, with TTINs permitted on electronic payee statements in addition to paper statements.

The final regulations became effective on July 15, 2014 and permit the use of TTINs “on any federal tax-related payee statement or other document required to be furnished to another person….” TTINs may not be used (1) on any return or statement filed with, or furnished to, the IRS, (2) where prohibited by statute, regulation, or other guidance by the IRS, or (3) where a SSN, ITIN, ATIN, or EIN is specifically required. Further a TTIN cannot be used by an individual to truncate their own identification number on any statement or other document that they give to another person. This includes an employer’s EIN on a W-2 or Wage and Tax Statement that they might give to an employee, and also an individual’s identification number on either a W-9 or Request for Taxpayer Number and Certification. 

If you have questions about the use of TTINs, please contact our office.

Professional Assistance With Long-Term Tax Delinquencies Can Be Key To A Turn Around

Posted on by katemley

If you have experienced a continuing struggle with handling your ongoing employment and income tax filings and payments, you may be facing the stark reality that managing these obligations is getting more and more difficult.  Some businesses have operated off the premise that the federal and state government will perpetually respond to their tax problems in a certain way.  That response by the government, through a series of notices, delayed responses, and payment plans, is changing faster than ever.  This is especially true at the state level.  Businesses should not make what was once predictability of tax collections by the government a part of how they manage their ongoing business expenses.

While the government may not upgrade their technologies as quickly as the private sector, the actions being taken are making a difference in closing the Tax Gap. This is true at the federal level and even more so at the State level.  As Bloomberg Business Week reports, states are taking much more aggressive action to capture lost sources of tax revenue.  States are using better resources of data collection along with other enforcement tools to prevent businesses, large and small, from operating in a non-compliant tax status.

From a business perspective, the stark reality is that there are some businesses on the fringe of existence that may simply be forced to cease operations as the tax collection activity described here intensifies.  It’s my opinion that this is not necessary.  Rather, if these businesses spend less time juggling some of these obligations and direct their time towards the expertise they have related to their primary business function, their likelihood of success is much greater.  We have seen the most success for clients who have long-term tax delinquencies when that client acquires proper legal and accounting assistance.  For a long-term problem, a long term solution is necessary. 

Certified Public Accountants and other tax return specialists can provide a level of service that is invaluable to any business.  Assistance from a tax lawyer can be an important tool which allows for a delinquent taxpayer to create a long term plan for tax debt resolution which is then executed upon by the taxpayer, its accountant and lawyer.  Most clients find that the support of professionals that can readily provide expert guidance on stressful tax matters are invaluable.  The relief provided to the business owner typically gives them the breathing room they finally need from a stressful situation to focus on the reason they entered their business to begin with.  It is highly rewarding for the tax lawyer and accounting professional to observe this process.  No business operation will ultimately succeed with the passion of its owners for the services or products it provides. 

As a tax lawyer I have observed that the combination of a Certified Public Accountant or other tax return professional with the guidance of a tax lawyer is a highly beneficial combination for a delinquent business taxpayer.  The reality is that the Certified Public Accountant or tax return professional likely has all the expertise to resolve these issues, but due to the reality of the tax season, that person lacks the time to provide the level of assistance demanded from a Revenue Officer or other collection agent.  Without the obligations of providing return preparation services for clients, I have found the ongoing demands of dealing with delinquent tax matters for clients to be manageable. 

Ideally, the long term is a viable business with a plan to manage ongoing tax obligations while addressing delinquencies in a manner that does not effectively shut down the business.  Once that plan is in place, the taxpayer’s Certified Public Accountant or return preparation professional can provide services to manage current tax filing and payment obligations.  Should the government return for review of the client’s ability to address the tax delinquencies, the tax lawyer can return to representation to assist with that issue. 

As a business owner with a long term delinquency a critical perspective to have when acquiring professional assistance is that there is no “quick fix.”  A multi-year problem will likely take many months, if not years, to resolve.  But it can, and does, happen.  Feel free to contact us to discuss these issues if you have them.

Income Tax Consequences of Terminating a Whole Life Insurance Policy

Posted on by katemley

The United States Tax Court just handed down a decision in Black v. Commissioner of Internal Revenue, T.C. Memo 2014-27, that explains what the income tax consequences are when this situation occurs.  In the opinion, the taxpayer had been the owner of a whole life insurance policy for over twenty years.  The policy had both cash value and loan features.  The policy allowed the taxpayer to borrow up to the cash value of the policy.  Loans from the policy would accrue interest and if the policy holder did not pay the interest then it would be capitalized as part of the overall debt against the policy.

The taxpayer had the right to surrender the policy at any time and receive a distribution of the cash value less any outstanding debt, which could include capitalized interest.  If the loans against the policy exceeded the cash value, the policy would terminate.  In this case, the taxpayer invested $86,663 in the life insurance policy, his total premiums paid for the policy.  Prior to the termination the total the taxpayer had borrowed from the policy was $103,548, however with capitalized interest over time the total debt on the policy was $196,230. The policy proceeds retired the policy debt at termination.

The taxpayers in this case were issued a 1099-R showing a gross distribution of $196,230 and a taxable amount of $109,567.  The non-taxable difference of $86,663 was the taxpayers’ investment in the policy – premiums paid. None of the information was included on the taxpayers’ return.  The taxpayers eventually amended their return and included as income the amount of $16,885 which represented the difference between the loan principal amount borrowed of $103,548 and the amount of premiums paid of $86,663.  Ultimately, the IRS disagreed with the taxpayers’ representation of the tax consequences of the life insurance policy termination.

The primary issue in the case then centered around whether or not the capitalized interest from the outstanding policy loans should be included in income. The Court explained that the money borrowed from the policy was a true loan with the policy used as collateral.  There were no income tax consequences on distribution of loan proceeds from the insurance company to the taxpayers.  Further, the Court explained that this is true of any loan as the taxpayers’ were obligated to re-pay the insurance company the debt owed.

The Court explained that when a policy is terminated then the loan is treated as if the proceeds were paid out to the taxpayers and the taxpayers then retired the outstanding loan by paying it back to the insurance company. The Internal Revenue Code provides that proceeds paid from an insurance company, when not part of an annuity, are generally taxable income for payments in excess of the total investment.  The insurance policy at issue treated the capitalized interest as principal on the loan. Therefore, when the policy is terminated, the loan, including capitalized interest, is charged against the proceeds and the remainder is income. This outcome makes sense or else the return on investment inside of the policy would never be taxed.

The taxpayers ended up with a large tax bill and a tough pill to swallow.  Ultimately, the result is logical in the context of capturing deferred income tax consequences.  Clearly, it would have been beneficial for the taxpayers to have consulted with counsel prior to preparing their tax return in order to avoid an unwelcome tax bill, penalties and interest.

Should you have transactions that you are unsure of when it comes to their income tax consequences, feel free to contact our office.  If you find yourself in receipt of an adjustment to your tax return based on exam action that you disagree with, or an assessment has been made and you have simply decided you were incorrect in your analysis, call us, we can help.

Why do I have to owe over $10,000 to get help with my IRS tax debt?

Posted on by katemley

Everyone has seen on television, or heard on the radio, advertisments for assistance with owing the IRS back taxes.  Turn on the TV late at night to watch reruns of your favorite show and you’re bound to see at least one. But they all have that caveat, saying that you must owe the IRS over $10,000 for them to help you, but why?

The fact of the matter is that you don’t need to owe a certain amount to have representation to assist with your tax debt – at least not from our firm.  If you listen to the television or radio you would think that there is no way to help someone who owes less than this amount.  Most of the businesses that advertise in this way are looking to submit a settlement proposal, known as an Offer in Compromise, to the IRS on your behalf.  This may or may not be possible, but generally that is the only service these businesses provide.  What they know is that due to the manner in which the IRS settles debt, it is nearly impossible to settle a small tax debt.  However, here are several situations that our office sees frequently where taxpayers have a small tax debt, but still need help sorting through their options to come into compliance:

  • Sometimes a client may owe the government a small amount, but has unfiled returns and is preparing to file bankruptcy to discharge health care debt or other obligations.  The bankruptcy code requires the taxpayer to file their last three returns in order to qualify for the bankruptcy.  After filing, the client anticipates owing more.  Perhaps that is a small amount or a large amount.  Regardless, this client needs help with those taxes because they will not be discharged in the bankruptcy.
  • A client may owe a small amount based on a return filed by the government – known as a Substitute for Return (SFR).  However, the client will owe much more later when a proper return is filed.  This can happen when a client is self-employed and receives a few 1099’s that comprise a small amount of the taxpayer’s overall revenue.  Once the return is properly completed, there may be a different picture.
  • Sometimes a client owes tax debt that their spouse created and it is simply unfair for them to be held responsible for the debt.  That client may want to be relieved from the obligation – no matter how small – through the Innocent Spouse Relief process.  Alternatively, a spouse may be harmed because his or her refund was offset to their spouses tax debt.  In this instance, this client may need assistance filing an Injured Spouse claim.
  • A client may have a few thousand dollar tax debt created by automated Exam at the IRS, but if the client merely pays it or sets up a payment agreement to resolve the balance, the taxpayer may be setting himself or herself up for problems with future tax return positions.  If your expense or other deduction is valid and the IRS disallowed it, it may be worth fighting to substantiate it so you do not create a record showing you agreed with the claim or deduction being disallowed.  Therefore, your representative could make arguments to assist in your exam and protect your position for later.
  • Some clients owe less than $10,000 and are interested in relieving themselves from the burdens of a tax lien.  It is now possible to establish a Direct Debit Installment Agreement and apply for a withdrawal of the tax lien.  There are specific procedures for this doing this must be met to qualify, but it is possible.  As a matter of fact, it is now possible to accomplish this if you owe up to $25,000.
  • A client may owe a small tax debt which was originally much larger and triggered the filing of a tax lien.  Though the debt is paid down, it is preventing the sale of a piece of real estate because there is not enough equity to retire the tax debt at closing.  These clients need assistance with a request to Discharge Property from Federal Tax Lien.  This will clear title to the property and allow for the closing, even though the entire tax debt is not being paid off in full.
  • Some of our clients only owe a couple of thousand dollars, but have many years of unfiled tax returns and anticipate owing much more.  A settlement proposal, Offer in Compromise, may be appropriate.  However, it is impossible to know if that is the case until the taxpayer knows the total owed and a financial analysis is performed which includes a review of income, expenses and equity in assets.
  • A client may need assistance when a wage levy is in place, but the balance on their total tax debt is not larger than $10,000.   In those instance, it is very likely that the taxpayer can be moved to a voluntary payment agreement if all returns are filed.  Even if all returns are not filed, substantiation to the IRS of income and expenses could likely result in a partial levy release to relieve the client of some, or all of the wage levy.
  • If any of the above is similar to your situation, or you have some other tax problem, we will be happy to help you, regardless of the size of your debt.  Just give us a call.

Under an IRS levy and think there is nothing you can do about it?

Posted on by katemley

Unfortunately, this feeling of hopelessness is an all too common feeling of clients in this situation.  This blog intends to provide educational articles about tax topics, rather than playing on emotions as many firms do in the tax controversy area.  The reality is that these issues are emotional.  Unfortunately, an emotional issue can trigger irrational decisions.  One irrational decision is buying into the promise of a solicitor that your tax problems are easily resolved because you “qualify” for a settlement.  The fact is that everyone can “qualify” for a settlement.  That’s the wrong analysis to start with.  And, when a firm is approached with a levy situation, it is premature to analyze whether or not a client qualifies for a settlement.

At the time a taxpayer is under levy, the proper analysis is whether or not the taxpayer can get immediate relief of some sort from the levy.  If the levy is affecting the taxpayer’s wages, then the taxpayer’s representative should work through a detailed and documented financial analysis to determine if there is an opportunity for either immediate relief from the entire levy or partial levy relief.  If a taxpayer substantiates that the levy creates economic hardship, then relief may be possible.

Sometimes clients under levy have not prepared all of their tax returns and as such, believe that there is no way to remove the levy until their tax returns are filed.  This simply is not true.  While it may or may not be possible to acquire full relief, an analysis of income and expenses utilizing IRS standards will allow for the taxpayer to obtain at least partial relief to pay for many expenses.  These expenses can include basic necessities such as food, clothing, medicines and health insurance premiums.  Payments for housing and utilities will be allowed up to a maximum amount based on county of residence and household size.  Additional expenses such as car payments and vehicle operational expenses, like gas and insurance, will also be allowed up to a standardized amount.

After seeking partial levy relief, it is then appropriate to file tax returns as soon as possible.  Once the taxpayer has filed all outstanding tax returns, the IRS then makes available a variety of options that are not available when a taxpayer has failed to file all returns.  At that point, the representative can assist the taxpayer with an analysis of their income, expenses and equity in assets to determine if the taxpayer is a good candidate for an installment agreement, a partial payment installment agreement, an Offer in Compromise (settlement), or currently not collectible status.  It is ALWAYS best to go through this analysis as there are opportunities to come into compliance with the tax laws, move yourself out from under the enforcement action, such as a wage levy, and still address the old tax debt.  Many would be surprised to learn that the IRS does work with taxpayers to resolve many issues in a way that isn’t nearly as traumatic as believed.

Obviously, the best case scenario is to take action before a levy is in place, however, once that occurs, there is always something that can be done to make the situation more bearable.  We encourage you to contact our firm if you have any questions or concerns about these matters.