Liens and Levies

IRS Liens Can Demolish Your Good Credit and Borrowing Capacity!

By filing federal tax liens, the IRS can make your life miserable. Federal Tax Liens are public records that indicate you owe the IRS various taxes. They are filed with the County Clerk in the county from which you or your business operates. Because they are public records they will show up on your credit report. This often makes it difficult or impossible for a taxpayer to obtain any financing, even for an automobile or a home. In addition, Federal Tax Liens can tie up your personal property and real estate. Once a Federal Tax Lien is filed against your property, you cannot sell or transfer the property without having the lien removed so that you can transfer a clear title. Often taxpayers find themselves in a no-win situation where they have property against which they would like to borrow but, because of the Federal Tax Lien, they cannot use it as collateral to back up a loan.

Levies:

A levy is a legal seizure of your property to satisfy a tax debt. Levies are different from liens. A lien is a claim used as security for the tax debt, while a levy actually takes the property to satisfy the tax debt. If you do not pay your taxes (or make arrangements to settle your debt)

The IRS could seize and sell property that you hold (such as your car, boat, or house), or

The IRS could levy property that is yours but is held by someone else (such as your wages, retirement accounts, dividends, bank accounts, rental income, accounts receivables, the cash value of your life insurance, or commissions). The IRS will usually levy only when the following three conditions have occurred:

The IRS assessed the tax and sent you a Notice and Demand for Payment,

You neglected or refused to pay the tax, and

The IRS sent you a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) at least 30 days before the levy. They usually send this notice to your last known address by certified mail, return receipt requested, but they may give this notice to you in person, or leave it at your home or your usual place of business. Please note: If the IRS levies your state tax refund, they may send you a Notice of Levy on Your State Tax Refund - Notice of Your Right to Hearing after the levy.

Levying your wages, or your bank account:

A levy on your wages, salary, commissions, or other payments for personal services does not need to be served each time you are paid. Once the IRS serves a levy, the levy continues until your tax debt is paid in full or other arrangements are made to satisfy the debt, or the time period for collecting expires.

If the IRS places a levy on your bank account, the levy attaches deposits that have cleared and funds that are available for withdrawal when the levy is received, up to the amount of the levy. The bank must wait until 21 days after a levy is received before sending the money. The holding period allows you time to resolve any dispute about account ownership. After 21 days, the bank must send the money, plus, if applicable, any interest earned on that amount.

Payroll Taxes

Delinquent Payroll Taxes

One of the worst tax violations is the failure of an employer to remit payroll taxes it has withheld from its employees’ pay. Despite its gravity, it is also one of the most frequent tax problems we encounter.

Payroll Tax Delinquencies are Treated Harshly

The IRS is required by law to give employees the benefit of all taxes withheld by their employers whether or not such taxes were remitted to the government. In short, when an employer fails to turn over withheld taxes the IRS loses money.

Withheld Taxes are Held in Trust for the Government

The payroll taxes an employer holds back from an employee (the “Trust Fund”) never belong to the employer, but rather are held in a constructive trust for the federal government. Thus, every employer is a Trustee whose sole beneficiary is the United States. As a Trustee, the employer has a fiduciary duty to properly report and turn over all withheld taxes. If you don’t do it, it is considered by the feds to be theft of government funds.

The Trust Fund Penalty

The IRS is empowered to assess a penalty against individuals who are deemed responsible for the failure of the business to remit payroll taxes. This penalty is called the Trust Fund Penalty because it imposes a fine that is equal to the portion of the payroll taxes that was withheld from employees’ pay and held in trust for the government. The IRS often assesses the Trust Fund Penalty against people within the organization who were neither shareholders or officers.

The Trust Fund Penalty may be assessed against more than one individual.

Additional Note: Payroll taxes (Trust Fund) refer to the Social Security tax and the Medicare tax. Social Security taxes are designed to provide benefits for retired workers, the disabled, and the dependents of both. Medicare taxes are designed to provide medical benefits for certain individuals when they reach age 65.

Again, failing to properly file and pay payroll taxes is a serious matter. Not only can the IRS go after the company's assets but, in certain circumstances, it can also go after Owners, Officers, and certain employees. This means that if you, or someone else within your business, are found to be willfully responsible for the business's failure to pay payroll taxes you could be held personally liable for a portion of the tax up to and including very stiff fines and possible incarceration.

The IRS must first make an investigation and, assuming it makes an assessment against you or other employees of your company, it can then begin collection efforts aimed at your personal assets. This would include bank accounts, property, and other items of value. In some cases, the IRS may liquidate the company and sell its assets in order to satisfy the tax debt, meaning they can and will shut down your business to satisfy your tax obligation.

Unfiled Tax Returns

What Will Happen If You Don't File Your Past Due Return(s)

It's important to understand the ramifications of not filing a past due return and the steps that the IRS will take. There are many reasons why taxpayers fail to file required tax returns, but whatever the reason, not filing can be a very serious matter.

The IRS may construe your failure to file tax returns as tax evasion -- a criminal act punishable by a prison sentence for each year a return is not filed.

Needless to say, it's one thing to owe the IRS money but quite another to potentially lose your freedom for failure to file a tax return.

The IRS can file "SFR" (Substitute For Return) Tax Returns on your behalf but without your approval. A Substitute For Return is the IRS's version of an unfiled tax return. Because SFR returns are filed in the best interest of the government, the only deductions you'll see are standard deductions and one personal exemption. You will not get credit for deductions to which you may be entitled such as exemptions for your spouse and children, deductions for interest and taxes on your home, cost of any stock or real estate sales, business expenses, and more.

Notwithstanding any action by the IRS and no matter how late it may be, you have the right to file your original tax return. However, as you can see, such filings can bring great risk unless properly handled by Tax Network USA's team of experienced professionals.

What If I Owe More Than I Can Pay?

Even if a taxpayer doesn't have enough money to pay, returns should be filed to avoid further penalties for failure to file. The IRS will assist in finding a solution to the problem.

The IRS has streamlined its policies to offer alternative account resolutions if a taxpayer cannot pay in full with the return:

The IRS will help to set up an installment agreement when the situation warrants. Installment payments allow taxpayers to pay the tax debt over time. The IRS will consider whether an offer in compromise is an appropriate solution.

What If I Don't File Voluntarily?

The IRS is taking enforcement steps for those who repeatedly choose not to comply with the law. IRS employees will prepare returns when taxpayers do not file. The returns prepared by the IRS might not give credit for deductions and exemptions a taxpayer may be entitled to receive. Bills will be sent to those taxpayers for the tax due, plus penalties and interest.

People who repeatedly don't comply with the law are subject to additional enforcement measures.

How Can I Avoid Owing Money on Next Year's Return?

Many people don't file tax returns because they don't have enough money to pay the tax they owe. They find out after completing their return that their withholding or Estimated Tax payments do not equal their tax liability.

To help avoid this situation, the IRS can advise taxpayers how to ask an employer to withhold enough tax from their pay. For any income that is not subject to withholding, the IRS can provide information necessary to make quarterly payments to cover any amount to be owed.

Changes in financial circumstances could have an impact on taxes. For example, an increase in income, divorce, or selling an asset, may require adjustments to withholding or estimated payments.

By taking these steps, taxpayers will be better able to meet their tax obligations and avoid tax day surprises.

Will I Go to Jail?

A long-standing practice of the IRS has been not to recommend criminal prosecution of individuals for failure to file tax returns, provided they voluntarily file, or make arrangements to file, before being notified they are under criminal investigation. The taxpayer must make an honest effort to file a correct return and have income from legal sources. A letter from the IRS concerning taxes is not a notice that a taxpayer is under criminal investigation.

The IRS helps to get people back into the system as part of its long-term plan to improve voluntary tax compliance. The IRS wants to get people back into the system, not prosecute ordinary people who made a mistake. However, flagrant cases involving criminal violations of tax laws will continue to be investigated.

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You Have the Right to Tax Representation

If you have been contacted by the IRS or your state's Department of Taxation, or have received tax liens, levies or notices of IRS intention to do so, contact us at 888-466-4706 or fill out our online form without delay to discuss the details of your specific tax situation.