Tax Collection Representation
We routinely help clients devise delinquent tax liability strategies with the main goal of resolving a tax dispute with authorities. For example, you will receive a bill from the IRS if you do not pay your taxes in full. This bill initiates a collection process, which only ends when you pay in full, the government agrees to another settlement, or the taxing agency can no longer legally collect the tax (e.g. the statute of limitations has run). In addition to the tax bill, various penalties and interest will accrue.
Enforced collection activity can include, but is not limited to, Tax Lien, Wage or Bank Levies, Account Receivable Levy, Property Seizure and Offsetting of a Refund, the government going to your customers and ordering them not to pay you (and pay them instead), and more. These levies can have a devastating effect on most taxpayers. Loss of wages, seizure of bank or investment holdings, liquidation of retirement savings and seizure of cars or houses and other non-cash assets for sale at auction are all possible.
Due Process Hearing
Ultimately, the government has the right to seize your assets to satisfy any tax liabilities. For example, the IRS can place tax liens against and/or seize or sell your real property and levy your bank accounts. The IRS can also seize your earnings to satisfy your or your spouse’s tax liability. Some individuals are then unable to satisfy their rent/mortgage and/or automobile payments and/or purchase groceries.
Before the IRS can do any of the above, the taxpayer must be offered the opportunity to request a Collection Due Process hearing before the IRS Office of Appeals. Taxpayers can make an appeal to the United States Tax Court if the IRS has abused its discretion.
A Collection Due Process hearing is available before the IRS Office of Appeals if a taxpayer receives the following notices:
- Final Notice - Notice of Intent to Levy and Notice of Your Right To a Hearing
- Notice of Jeopardy Levy and Right of Appeal
- Notice Of Levy On Your State Tax Refund - Notice To A Hearing
The request for a hearing must be made within thirty days (30) of the date of the notice. Otherwise, the IRS can then proceed with an “enforced collection” action. If a taxpayer timely requests a “Collection Due Process Hearing,” “enforced collection” actions by the IRS will stop (pending the CDP hearing and/or during the Tax Court proceeding(s)).
During the hearing, a taxpayer can raise the following issues:
- Any appropriate spousal defenses, such as a claim for innocent spouse relief
- Challenges to the appropriateness of a filing of a Notice of Federal Tax Lien/Levy
- Offers of collection alternatives
- Challenges to the existence of the liability specified on the notice, if qualified
After the IRS Office of Appeals has considered the case, they will issue a “Notice of Determination” setting forth the decision of the Office of Appeals and advising the taxpayer of their right to seek judicial review within thirty days of the date of the notice. The taxpayer may file an action within the thirty-day period in the United States Tax Court if an abuse of discretion case can be made.
Following are three successful resolutions handled by Moskowitz LLP*:
*Example 1: The IRS assessed a married couple a federal tax liability of $132,142 resulting from an audit of their tax returns. The IRS filed a tax lien on the couple's home for the amount assessed and sent them a Notice of Intent to Levy for the balance due. The couple hired us, and we filed a timely request for a Collection Due Process hearing, along with a petition contesting the liability in the United States Tax Court. Through extensive negotiations, we convinced the IRS to adjust the couple's federal tax liability from $132,142 to $0.
*Example 2: The IRS audited a couple's tax return and assessed a federal tax liability of $139,163. The IRS sent the couple a Notice of Intent to Levy for the assessed liability. The couple hired us, and we filed a timely request for a Collection Due Process hearing in response to the levy notice, and ultimately filed a petition contesting the liability in the United States Tax Court. Through extensive negotiations, we convinced the IRS to adjust the couple's federal tax liability from $139,163 to $42,888.
*Example 3: We first negotiated a deferral or hold on collections giving our clients time to attempt to obtain alternative financing to pay off the liabilities. When financing was denied, and after that deferral expired, we entered negotiations with the California taxing authority – FTB - for an Offer in Compromise (“OIC”). The FTB settled the liability for a lump sum payment of $50,000, which represents a reduction of total liability by $183,000.
*Disclaimer - The results of the cases portrayed in the above examples were dependent on the facts of those cases, and the results of those cases will differ if based on different facts. As such, depending on the facts and circumstances of your case, your results may vary. No guarantees, predictions, or actions should be inferred from these actual cases. In addition, no representations are made that these actual cases are typical.
OIC & Installment Payment Agreements
In certain cases, the filing of a Collection Due Process Hearing allows us to negotiate an OIC or an Installment Payment Agreement and raise certain defenses regarding the IRS assessment against you. At the conclusion of the Due Process hearing, the IRS will issue their findings in a letter entitled "Notice of Determination." Our office can file a petition with the United States Tax Court to review the Collection Due Process hearing if we believe the IRS abused its discretion.
If your matter is still not resolved, or you still have a tax debt you cannot afford to pay and missed your opportunity for a Collection Due Process hearing, or dispute the amount owed, then it may be possible to resolve your outstanding tax liabilities through an OIC.
An OIC is an agreement, between the taxpayer and the IRS or state taxing agency, to settle assessed liabilities for less than full payment. The IRS permits Offers in Compromise to be filed under these circumstances:
- Doubt as to Liability (You don’t owe the tax because of a legal reason)
- Doubt as to Collectibility (You don’t have the income or assets to pay)
- The OIC would promote effective tax administration (it would be “unfair” for you to pay)
The most frequent OIC submitted to the IRS is under “Doubt of Collectibility.” Under this program, the taxpayer must demonstrate that they have insufficient assets to satisfy the tax debt and/or their income is within the IRS' prescribed guidelines.
We believe that a taxpayer considering an OIC needs experienced attorney advice and representation. The OIC application process generally requires the taxpayer to submit a substantial amount of financial information and documentation under penalties of perjury. An OIC including false information can result in a referral for criminal investigation, which can result in a felony criminal conviction. To that end, the documents may be discoverable for use in other types of proceedings, civil and family law cases, or other government investigations. Further, an OIC may be detrimental to your overall goal. For instance, it could extend Statutes of Limitations on Collections, subject you to probation requirements, and/or may necessitate other unwanted stipulations.
After the IRS agrees to process the OIC, the next step is to reach a settlement with the OIC evaluation agent. This typically requires submission and re-submission of additional documentation, persuasive arguments to your favor, and intense negotiations. A rejected OIC can be successfully appealed. We strive to negotiate the best acceptable agreement for your interests.
If you do not qualify for, or the IRS rejects, an OIC, then your next best option may be an Installment Payment Agreement, which allows you to make monthly payments to the taxing agencies to satisfy your tax liabilities. The monthly payment is determined by a number of factors, including but not limited to, your outstanding liability or what the government believes you can pay. As a general rule, enforced collection actions will cease while you are in Installment Payment Agreement status.
Federal Law generally has a ten-year statute of limitations, from the date of assessment to collect the taxes, with certain possible modifications and/or circumstances that can extend this period. Entering into an Installment Payment Agreement with the IRS right before the statute of limitations runs sometimes prevents the IRS from collecting a taxpayer's entire tax debt before the liability has been paid in full. Our law firm reviews IRS records to properly advise clients on how to potentially use the statute of limitations to their advantage.
Our experienced attorneys may be able to negotiate a Hardship Deferral when clients do not qualify for an OIC and cannot afford to make minimal monthly payments under an Installment Payment Agreement. No payments are required, and all enforced collection activity will cease, once a Hardship Deferral is negotiated. The taxing agency may periodically review the taxpayer's financial picture. In some cases, the amounts owed to the IRS will "expire" once the statute of limitations on collections runs.
When we represent you in collections matters, we:
- Get to know you and, when applicable, the officers and owners of your company to provide the most comprehensive representation
- Help to determine the most advantageous procedural route - settlement, conference, administrative hearing, OIC or litigation
- Guide the controversy through the administrative appeals and/or litigation when issues are not resolved via audit
Moskowitz LLP maintains the highest level of professional standards, encourages continuing education and researches Tax Controversy/Dispute trends.
- Update: September 2011 - IRS collection news:
- Fresh Start Programs:
- Streamlined OIC: Expanded to allow taxpayers with annual incomes up to $100,000 to participate. In addition, participants must have tax liability of less than $50,000, doubling the current limit of $25,000 or less. Hardship procedure for $150 filing fee.
- Streamlined IPAs for Small Businesses: Small businesses with $25k or less in unpaid taxes (an increase from $10k limitation) with 24 months to pay total amount owed. This is available for small businesses that file either as individual or business. For unpaid balance greater than $25K, businesses qualify if they pay down the balance to $25k or less. Need to enroll in Direct Debit Installment Agreement to participate.
- Tax Lien Thresholds & Withdrawals:
- Increased threshold for withdrawing lien from $5k to $10k.
- If taxpayers enter into a Direct Debit Installment Agreement (DDIA) and taxpayers have unpaid assessments of $25,000 or less, the IRS will now allow lien withdrawals under several scenarios:
- Lien withdrawals for taxpayers entering into a Direct Debit Installment Agreement.
- The IRS will withdraw a lien if a taxpayer on a regular Installment Agreement converts to a Direct Debit Installment Agreement.
- The IRS will also withdraw liens on existing Direct Debit Installment agreements upon taxpayer request.
- iii. Liens will be withdrawn after a probationary period demonstrating that direct debit payments will be honored.
- Experimental “Field” Collection Program: The IRS is attempting a program for collections similar to that of a field exam (i.e., knocking on taxpayer’s doors and filling out financial forms for them then getting taxpayers to sign it then and there).