Dealing with Tax Debt and Employment Tax Problems

“Failure to pay employment taxes is stealing from the employees of the business…”

— IRS

Yes, we’re very familiar with this story, having gone through it ourselves. We knew when we did it and were still aware as we watched the stack of IRS notices pile up. News Flash, Mr. IRS agent, we felt like shit, but it was all we could do at the time. It can only be described as drowning, and we were grabbing at anything to stay above water.

Tax amnesty, although not rule, are the occasional exception. The way it works is simple, for a specified limited time, taxpayers can pay a predefined amount in exchange for forgiveness of a tax debt, including interest and penalties. These are offered without any criminal prosecution. However, harsher penalties for those who qualify but don’t take the amnesty, often accompany the amnesty legislation.

Although bills have been proposed, there are currently no federal tax amnesty programs. The last one was in 2009, under President Bush. The program granted almost 15,000 taxpayers amnesty. The need for federal tax amnesty is apparent, so says many tax experts and legislators. When someone has a tax debt but can’t possibly pay it, the penalties and interesting can quickly drive the total debt due. By offering federal amnesty, these debts could be relieved and save years of costs trying to collect them.

Offshore Voluntary Disclosure Program

The IRS began an open-ended offshore voluntary disclosure program (OVDP) in January 2012 on the heels of strong interest in the 2011 and 2009 programs. The IRS may end the 2012 program at any time in the future. The IRS is offering people with undisclosed income from offshore accounts another opportunity to get current with their tax returns. The 2012 OVDP has a higher penalty rate than the previous program but offers clear benefits to encourage taxpayers to disclose foreign accounts now rather than risk detection by the IRS and possible criminal prosecution.

State Amnesties

States within the United States have and still often do offer amnesty programs. The state of Louisiana, for example, brought in $450 million from its 2009 tax amnesty program, three times more than what was expected, according to Governor Jindal.

In 2010, Pennsylvania held a tax amnesty, during which state tax collectors waived 100 percent of penalties and half of the interest for tax delinquents who came forward.

Kentucky, Maine, Rhode Island and Texas all offered tax amnesties of one sort or another in 2012.

Although highly unlikely, ultimately, yes they can.

Today’s IRS is a kinder, gentler government organization. The Taxpayers’ Bill of Rights discourages the practice and leans more towards working out a deal, assuming you owe back taxes.Also, the negative publicity of such a thing helps no one.

The other side of that, however, is vacation, rental properties or that swanky cabin retreat in the mountains. If you owe considerable taxes (over $5,000 but realistically more like $250,000) and haven’t been playing nicely with the IRS, this may be a move that they cold consider. However, your primary residence is probably safe.

Fear not, the tax collectors (agents) don’t have the authority to seize your property. This requires a court order, which with the help of tax advocate service, can be contested in court.

The bottom line is, if you throw IRS correspondences in the trash and/or fail to return phone calls, or broke the law by lying about your income or assets, the IRS could go after your house as a last resort. Even then, there is still hope by fessing up, getting a tax advocate and work on a solution, the IRS will most likely back off.

If you find yourself in this sort of hot water, grow a pair and call them. Or, if you have the resources, hire an attorney to call on your behalf.

The IRS Isn’t in the Real Estate Business

Section 6331 of the Internal Revenue Code syas the IRS can “levy upon all property and rights to property” of a taxpayer who owes back Federal tax. The IRS can levy upon assets that are in the possession of the taxpayer, called a seizure. Again, they most likely wont. It may of little help for those owe a monster debt but the IRS can’t take a home if the tax debt is less than $5,000 under the code.

The biggest problem for the IRS to take your home is that they must apply to a neutral magistrate for permission to move forward on a property seizure. This requirement by code limits their power to act unilaterally in these situations.

The IRS prefers and is governed by code to take your bank accounts and retirement without the need for permission from a court. The IRS does not want your personal home, they are only after money. Again, if you work with them, they won’t take your house.

Transfering Property to Someone Else

Although this occurs to many big owers, selling, giving or otherwise transferring ownership of your house ot property to someone else must occur some time before the tax levy property seizure. And even then, if the IRS can prove this was your motive, they can still sieze your real estate assets.

Be very careful here. Beyond the IRS taking the property anyway, you may be liable criminally if you illegally hid assets or lied about when and why property was sold or given away. If you didn’t transfer assets to someone else before getting into hot water with the IRS, now is not the time to think about it.

An IRS lien can remain in place for up to 10 years, meaning you face a decade of bad credit and financial instability. You’re unable to do anything involving credit when you have an IRS lien: buy a house, get a new credit card, or even sign a lease. But there are ways you can get your IRS lien lifted. Read on to learn how.

Removing Your IRS Lien with a Lump Sum Payment

The fastest and most effective way of removing an IRS lien is to make a lump sum payment on your entire tax debt. The purpose of an IRS lien is for the government to guarantee repayment of your tax debt, so a lump sum payment will get them off your back quickly and for good. If you’re unable to afford a lump sum payment on your own, it’s often recommended that you borrow money from friends and family who (hopefully) won’t charge you penalties and interest like the IRS does.

You can also get a loan from the bank to pay off your IRS tax debt, though you’ll first have to make your case to the government to lift your IRS lien to be able to get the loan (remember that an IRS lien negatively affects your credit). This shouldn’t be difficult to do, as your getting a bank loan will, in turn, help the IRS get their money faster. Plus, as an upside for you, the interest on bank loans are always less than the interest on IRS back tax debt.

Removing Your IRS Lien with an Installment Agreement

In February 2011, the IRS announced changes to its IRS lien policies, including making an IRS lien removal possible for qualifying taxpayers who meet eligibility requirements. Previously, an IRS lien would stay in place until your entire tax debt was paid off, even if you had entered into an Installment Agreement. Now, if you’re an individual with Form 1040 tax debt, a business with income tax liability only, or an out-of-business entity with any type of tax debt, you can get your IRS lien removed after entering into a Direct Debit Installment Agreement if you meet the following requirements:

• You owe $25,000 or less. If you owe more than $25,000, you can pay your debt down to $25,000, then request an IRS lien removal.
• Your Direct Debit Installment Agreement will pay your tax debt in full within 60 months or before the Statute of Limitations expires, whichever is first.
• You are in full compliance in every other way with the IRS.
• You have made 3 consecutive direct debit payments.
• You have not previously received a lien removal for the same tax debt unless it was for an improper filing of the IRS lien.
• You have not defaulted on your current, or any previous, Direct Debit Installment Agreement.

Removing Your IRS Lien with an Offer in Compromise

If you meet the requirements to settle your IRS back tax debt with an Offer in Compromise, you’re in a better position than ever. Not only will you be able to settle your back taxes for less than you actually owe, but your IRS lien will be automatically removed once your Offer in Compromise application is accepted and your offered amount is paid in full.

Are you in danger of an IRS lien? You must take action now before your IRS lien results in tax levies and asset seizures. Contact the IRS immediately and find a tax preparer professional to help sift through the paperwork.

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