Dick Norton, EA, FATP - Frequently Asked Questions
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This is a newer section of my website. I will add more content as the need arises. The topics covered below represent the more common questions I receive from prospective clients. Check them out as I believe the information is valuable to better understand some common tax issuess that can arise.
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I have not filed
all of my returns.
What should I do? If you have tax returns that have not been filed, you should have a professional prepare your delinquent returns and file them as soon as possible. If you make an effort to get back into compliance before the IRS takes action to force compliance, then you will have less chance of having the IRS (or state tax agency) prepare a return for you that can result in a greater liability than who you really owe. Of even more concern, taxpayers may face potential criminal prosecution if the agency believes that the taxpayer's delinquency can be proven in court to be a willful failure to file! In most situations, you will be faced with owing a failure to file penalty (up to 25% of the balance of tax due per the return), a failure to pay penalty and interest - computed from the due date of the return. Of further concern, if your withholding and other credits exceed your liability for a non-filed year, you will forever lose that refund and credits if you do not file the return within three years of its due date!! If you need help in getting into filing compliance for your individual returns, please contact me at your earliest opportunity. |
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I filed my return, but I owe more tax than I
can pay now. Can I make payments? The IRS will almost always allow you the option of paying your tax liability in installments. To qualify for an installment agreement, you must have filed all of your returns (the IRS requires the last 6 years to be filed). You will pay a reasonable one-time fee for this installment agreement opportunity. Once you have been approved for an installment agreement, you must remain compliant until your liability has been paid in full. Please see the page on this site that discusses installment payments in depth. If the amount of tax you owe is far greater than you could ever pay with installments, you may qualify for another alternative solution - an Offer in Compromise (OIC). This program enables taxpayers who are in deep over their heads to settle their tax debt for less than its face value. There is a main menu option for this website that discusses OICs in detail. Please understand that there are strict rules and procedures that need to be followed in the IRS or a state tax agency to accept an OIC, so I always recommend that you retain a qualified representative to guide you in this process. |
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I just received a notice that my return has
been selected for examination. What now? First thing, do not panic. Most examinations are routine and result because your tax return did not quite match the "norm" for a taxpayer in your line of work and reporting approximately the same amount of income. It does not mean that there is anything wrong, but from the IRS perspective, the probability of you having made a mistake is worthy of checking out. The general rule is that you never - repeat, never - want to ignore this notice! In most all situations, the best advice is to cooperate with the IRS as much as possible. If you make the auditor or agent's task difficult because of your lack of cooperation, the employee will be far less agreeable to giving you the benefit of a doubt when deciding on what evidence or oral testimony to accept that you offer in support of questioned items. While you will have the ability to appeal any proposed deficiency resulting from the audit, that is a costly process that you should avoid if at all possible. If you are aware of a significant error or omission on your return (such as income you did not report), seek professional advice immediately! How you respond can dramatically affect the outcome of your audit. In very limited circumstances, you may even need to retain a tax attorney immediately if your error or omission could possibly be viewed as fraudulent with possible criminal prosecution.
There are four types of
audits - correspondence; office audit; Small Case/Self-employed (SBSE); and
Large and Mid-sized business (LMSB). * Office Audits begin with a letter that contains a pre-scheduled appointment for you to go to a local IRS office for a face-to-face meeting with a Tax Compliance Officer (TCO). The letter will include an Information Document Request that lists specific items you need to bring with you for review by the TCO. Examples could be your bank statements (the TCO will total the deposits and compare that with the income reported on your return), a log of your automobile mileage (if you are in business), specific invoices or receipts, and other documents. Usually if you bring everything requested to the first meeting, that is the ONLY meeting you will have with the TCO. Occasionally during the audit, the TCO may discover another area in the return that merits further review. In that case, you may be asked to come in again with more data, or to simply mail in copies of additional records. You NEVER mail in originals!!! At the conclusion of the audit, the TCO will give you a report listing the proposed changes to your return if there are items on your return he or she feels were erroneous. If you agree with the proposed changes, you sign the report. Otherwise, you have a short period of time to review the report in more depth and then you can either sign it or file an appeal. * SBSE Audits begin with a letter signed by an Internal Revenue Agent. These are often called "field audits" and are the most in-depth audits and typically take place at either the taxpayers business or residence, or if the taxpayer is represented by an Enrolled Agent, CPA or Attorney, at the representative's office. These are face-to-face examinations. The Revenue Agents who conduct these audits will provide an Inormation Document Request that informs you of the items to have available for the initial meeting. Often, these audits will require more than one meeting. If you operate a business but the audit is being conducted elsewhere (such as the representative's office), the Agent will often want to visit the place of business just to get an idea of the scope and nature of the business operation. At the conclusion of the audit, the Agent will provide a copy of his or her report. If changes are proposed to your return, you have the option of agreeing to those changes, or to appeal the proposed changes (all of them or just some). Appeals for these audits are more sophisticated and are usually prepared and submitted by professionals. * LMSB Audits are face-to-face examinations that usually involve a team of general Revenue Agents and specialist Revenue Agents who are experts in employment tax and computer sciences, for instance. Regardless of the type of audit, taxpayers should seriously consider seeking professional help. Saying the wrong thing to an IRS employee, or mailing in material without knowing what issues it could bring, may lead to either an erroneous proposed adjustment, or an expanded audit. Either of those scenarios could well exceed the cost for representation. With decades of inside and post-retirement experience with IRS audits, I am certainly worthy of consideration to represent you in this process. A brief conversation about the audit you are facing is without cost to you, so you have nothing to lose by e-mailing or calling me. |
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My bank account was just levied!
Help!
If the IRS levies on your bank account, your bank must hold the funds you have on deposit only on the particular day of the levy is received by the bank. The bank is required to remove whatever amount is available in your account that day (up to the amount you owe the IRS), and send it to the IRS in 21 days. This 21-day holding period allows you time to resolve any issues about account ownership of the bank account and also provides a period of time to negotiate with the IRS for a release. After the 21-day holding period, the bank must send the money plus interest earned on the seized amount to the IRS. A levy on your wages is far more serious! This is a continuous levy - meaning, the IRS will CONTINUE to take a substantial amount of your take-home pay until they have collected all that is due, or a "deal" is worked out for an alternative payment plan (installment agreement or offer-in-compromise most likely). Of further concern, many employers have personnel policies that can result in employee termination if their wages are subjected to a government levy. They just do not want the potential controversy with the IRS or State over what the levy attached in the way of wages/earnings. Regardless of the type of levy. you must act quickly! We strongly suggest that you secure the services of a tax professional to represent you before the IRS. The levy will released either by working with the IRS or State tax agency directly, or by paying the full amount of the tax debt. |
A federal or state tax lien is
different from a levy. A levy (a form of garnishment)
takes your property from you now such as money in a bank account, or
salary. A lien is a legal instrument that is used
as security for the tax debt. On the other hand, a levy is a legal action of
taking your property to satisfy the tax debt. A federal tax lien will give the
IRS the ability to seize real property (like your home or rental
property).
Liens establish the priority of the IRS and State against other creditors and attaches to all
your assets as a means to secure payment of your tax debt.
A tax lien is a negative record on your credit report which
in some casex will lower
your credit score. A tax lien often makes it difficult for a taxpayer to obtain
financing of an automobile or a home, get a new credit card, or sign a lease. A
tax lien is a public record that indicates you owe the IRS (or state agency)
for back taxes. Tax liens are
filed with the clerk in the county where you live, own property, or where your business
operates. Once a federal or state tax lien is filed against your property, it
will affect your ability to sell or transfer the property because of the
cloud on its title. You need to act as soon as possible!
CP 504 - Urgent!!
We Intend to Levy on Certain Assets. Please respond NOW.
Do not ignore this
notice. A CP 504 is usually issued before the Letter 11 or the
Letter 1058. You still have time to respond. However, if you ignore this notice
you will soon receive the final notice (one of the letters above).
if there is no action. The CP 504 warns you that collection action such as wage
garnishments, bank levies or tax liens and seizures of assets are next.
Letter 1085 -
30-Day Letter Proposed 6020(b) Assessment If you fail to
file a tax return voluntarily, the IRS has the authority under the Internal
Revenue Code to prepare a return on your behalf using information they have
received (such as copies of forms W-2, 1099, K-1, etc) and industry
standards for your job or business. You have just been given a 30-day
window to protest the IRS proposed assessment - which is most often a balance
due that is more than what you truly owe as the IRS will never include
deductions or credits for which you may be entitled. Get help quickly.
CP 92 - Notice of Levy upon Your
State Tax Refund If you have
ignored the previous letters (such as the CP503) or failed to do what you
promised, this letter informs you that a levy has been placed on your state tax
refund. Any refund due you will go to the IRS instead. It is very difficult to
get this levy removed until you have paid the amounts owed in full. However, if
you fail to act now to resolve your tax debt, the IRS can and will look for
other property to lien or liquid assets to levy.
CP 242 - Notice of
Levy upon Your State Tax Refund This letter
lets you know that the IRS can take your state tax refund. Any refund due you
will go to the IRS instead. It is very difficult to get this removed until you
have paid the amounts owed in full. However, if you fail to act now to resolve
your tax debt, the IRS can and will look for other property to lien or liquid
assets to levy.
CP 523 - IMF
Installment Agreement Default Notice If you don't
make a payment as promised or you incurred a NEW tax liability, this may cause
your installment agreement to default. This letter is putting you on notice that
the IRS intends to terminate your agreement in 30 days. You have the right to
file a Collection Appeal Request (CAP) to ask for an appeal, if you do not
agree.
CP 2000 - Proposed Adjustment This is one of
the most common letters issued by the IRS. When returns are filed, they
are computer matched against the IRS database that contains copies of W-2s,
1099s, K-1s and other information documents. If the computer identifies
one or more items (like an interest income or dividend payment you received)
that was not included in your return, the IRS will recompute your tax liability
and notify you of their plans to change your return as filed. You
are provided a computation of the proposed adjustment to your tax return based
upon this information. If you agree, you sign and return the agreement forms. If
you do not agree, you can submit a request for appeal/protest to the
office/individual that sent you the letter. You have a limited time
period within which to file the request. If you had your return prepared
by a professional, be sure to contact them immediately for assistance and to
verify that the item or items the IRS identified were not already included in
the return. If you prepared the return yourself and you do not understand
what the IRS is proposing, get help quickly. The information presented is only of a general
nature, may omit many details and special rules, is current only as of its
published date, and accordingly cannot be regarded as legal or tax advice.
Please contact our office for more information on this subject and how it
pertains to your specific tax or financial situation. Updated 5/6/24
I just received a notice of Federal Tax
Lien. What is this?
A Notice of Federal Tax Lien may be
filed after
* the IRS has assessed the liability;
* the IRS has sent you a Notice for Demand of Payment (a bill that tells you how
much taxes you owe; and
* you neglect or refuse to fully pay the tax debt within 10 days after the IRS
notifies you.
The IRS will issue a Release of the Notice of Federal Tax Lien:
* within 30 days after you satisfy the taxes due (including interest and other
additions) by paying the debt or by having it adjusted;
* or immediately upon payment with cash or the equivalent of cash, or
*within 30 days after the IRS accepts a ban, guaranteeing payment of the debt,
or
* a mortgage is given to the IRS against property that is worth twice the amount
of your tax liability, or
*usually 10 years after a tax is assessed, a lien releases automatically, if the
IRS has not filed the Notice of Federal Tax Lien again.
When a lien is filed, you will receive a written notice of its filing
that provides a limited time in which you may appeal, asking that it be
withdrawn. Your first step is to quickly contact the responsible IRS
Collection manager to review your case and to withdraw the lien. If you are
unsuccessful, that you may file a written request for a
Collection Due Process hearing with the IRS' Office of Appeals. Remember that you must file your Appeals request by the
date shown on your notice.
What are
the most common IRS Notices that I could receive?