FREQUENTLY ASKED QUESTIONS

What is the IRS statute of limitations for collections?

The IRS has 10 years from the date of a tax assessment to collect the tax from the taxpayer for the tax year in question. This is called the Collection Statute.

When Does the Collection Statute Start to Run?
The statute starts on the day an IRS assessment is made.

Generally, the dates of assessment are:

  • Filed tax returns – The date you mailed the tax return plus six weeks.
  • Audit Adjustments (agreed) – The date you signed the auditor's report plus three weeks.
  • Audit Adjustments (unagreed) – The date the appeals process and the tax court process (if any) is completed and the tax court judge has issued his or her ruling.

The Collection Statute can be extended by one or more of the following acts or situations:

  • The filing of a bankruptcy petition – The statute is extended for the duration of the bankruptcy proceedings.
  • The filing of an Offer in Compromise – The statute is extended for the duration of the Offer or one year, whichever is greater.
  • The signing of a waiver extending the statute – The statute is extended to the date indicated in the signed waiver. Never sign a statute extension without first consulting your tax advisor.
  • The taxpayer is out of IRS jurisdiction – The statute is extended for the duration that the taxpayer was out of IRS jurisdiction.

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Am I allowed to receive a tax refund if I am currently in an installment agreement?

No. As a condition of your installment agreement, any refund due to you in a future year will be applied against the amount that you owe.

  • The IRS will automatically apply the refund to the taxes owed.
  • You must continue making your installment agreement payments as scheduled and in full because your refund is not applied toward your regular payment, and therefore any payments due under the installment agreement must still be made in full.
  • Regardless of whether you are participating in an installment agreement or payment plan with the IRS, you may not get all of your refund if you owe certain past-due amounts, such as federal tax, state tax, a student loan, or child support.

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Is there any type of special assistance available through the IRS?

Yes. The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should.

The service is free, confidential, tailored to meet your needs, and available for businesses as well as individuals. There is at least one local taxpayer advocate in each state, the District of Columbia, and Puerto Rico. Because advocates are part of the IRS, they know the tax system and how to navigate it.

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What kind of interest and penalties will I be charged for filing and paying my taxes late?

Interest is compounded daily and charged on any unpaid tax from the due date of the return (without regard to any extension of time to file) until the date of payment.

  • The interest rate is the federal short-term rate plus 3 percent. The federal short-term rate is determined every three months.
  • For current interest rates, go to News Release and Fact Sheet Archive and find the most recent Internal Revenue release entitled Quarterly Interest Rates.

In addition, if you didn't pay on time, you'll generally have to pay a late payment penalty.

  • The late payment penalty is one-half of one percent of the tax (0.5%) owed for each month, or portion thereof, that the tax remains unpaid after the due date, not exceeding 25 percent.
  • You will not have to pay the penalty if you can show reasonable cause for the failure.
  • The one-half of one percent rate increases to one percent if the tax remains unpaid after several bills have been sent to you and the IRS issues a notice of intent to levy.
  • Currently, if you filed a timely return and are paying your tax via an installment agreement, the penalty is one-quarter of one percent for each month, or portion thereof, that the installment agreement is in effect.

If you did not file on time and owe tax, you may owe an additional penalty for failure to file unless you can show reasonable cause.

  • The combined penalty is 5 percent (4.5% late filing, 0.5% late payment) for each month, or portion thereof, that your return was late, up to 25%.
  • The late filing penalty applies to the net amount due, which is the tax shown on your return and any additional tax found to be due, as reduced by any credits for withholding and estimated tax payments.
  • After five months, if you still have not paid, the 0.5% failure-to-pay penalty continues to run, up to 25%, until the tax is paid.
  • The total penalty for failure to file and pay can be 47.5% (22.5% late filing, 25% late payment) of the tax owed.
  • If your return was over 60 days late, the minimum failure-to-file penalty is the smaller of $135 ($100 for returns required to be filed before January 1, 2009) or 100% of the tax required to be shown on the return.

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Can the IRS seize my home?

Yes. In order for this to happen, however, the seizure must be approved by the IRS District Director and a Federal Magistrate. The IRS hates this kind of publicity and will do almost anything to avoid bad press. But let's say, for example, that you own two homes or a rental property and owe a substantial tax debt. Well, in that scenario you can be reasonably assured that your second home and/or your rental property would be seized to satisfy your tax debt.

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How far back can the IRS go to audit my return?

Generally, the IRS can include returns filed within the last three years in an audit. Additional years can be added if a substantial error is identified. Generally, if a substantial error is identified, the IRS will not go back more than the last six years.

The IRS tries to audit tax returns as soon as possible after they are filed. Accordingly, most audits will be of returns filed within the last two years.

If an audit is for an older year, you may be requested to extend the statute of limitations for assessment of your tax return. The statute of limitations limits the time allowed the IRS to assess additional tax. The statute of limitations is generally three years after a return is due or was filed, whichever is later. There is also a statute of limitations for making refunds.

If the audit is not resolved and the statute of limitations date is nearing, you may be asked to extend the statute of limitations date. This will allow you additional time to provide further documentation to support your position, request an appeal if you do not agree with the audit results, or to claim a tax refund or credit. It also allows the IRS time to complete the audit and provides time to process the audit results.

You do not have to agree to extend the statute of limitations date, and should not do so without first contacting your tax advisor. However, if you do not agree, the examiner will be forced to make a determination based upon the information they currently have. Therefore, the examiner may not be able to consider additional adjustments, such as expenses, that could lower the amount of tax due.

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What is a bank levy?

An IRS bank levy is when the IRS sends a letter to your bank either by mail or electronically notifying them that they are to seize a taxpayer's bank account. The bank is instructed to freeze all funds that are in the account and to forward the funds to the IRS.

The IRS will usually levy only after each of these three requirements are met:

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They assessed the tax and sent you a Notice and Demand for Payment

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You neglected or refused to pay the tax

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They 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 may give you this notice in person, leave it at your home or your usual place of business, or send it to your last known address by certified or registered mail, return receipt requested. Please note: If the IRS levies your state tax refund, you may receive a Notice of Levy on Your State Tax Refund, Notice of Your Right to Hearing after the levy.

Altough we highly advise that you do not contact the IRS after a bank levy has been issued, if you desire to handle this very serious matter on your own, we can only assume that you have had previous training in the art of negotiating with the federal government. If this is not the case, then you should contact us at (855) TAX-MUSL so that we can fight to get your levy released as soon as possible. Some of the issues that we may discuss with the IRS on your behalf include the following:

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You paid all you owed before they sent the levy notice

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They assessed the tax and sent the levy notice when you were in bankruptcy, and subject to the automatic stay during bankruptcy

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They made a procedural error in an assessment

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The time to collect the tax (called the statute of limitations) expired before they sent the levy notice

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You did not have an opportunity to dispute the assessed liability

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You wish to discuss the collection options

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You wish to make a spousal defense

Banks are required to follow the instructions of the IRS and the IRS imposes serious penalties on banks that disregard the IRS's instructions. The IRS commonly uses bank levies as a means of collecting back taxes.

Levies are normally sent to banks but the IRS can also seize funds from any other institution that holds funds belonging to the taxpayer. For example, the IRS can seize money in utility deposits, escrow company deposits, investment companies, and many other sources.

As you can imagine, IRS bank levies can make it difficult for you to live a normal life and can even destroy your financial wherewithal. Bank levies most often occur as the result of taxpayers' procrastination in dealing with their tax issue.

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What is an IRS Notice of Intent to Levy – Cp 90 and Cp 297?

So you have received a Notice of Intent to Levy. What does this mean for you?

The IRS sends either a CP 90 or a CP 297 to inform the recipient that the IRS (or state, if it is a coming from a state taxing authority) intends to levy assets. The recipient of a Notice of Intent to Levy has had a balance due on their account, and a notice has been sent to the Last Known Address of the taxpayer.

The government can even levy property that is yours but is held by someone else.

Assets susceptible to levy include:

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Wages

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Retirement Accounts

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Bank Accounts

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Rental Income

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Accounts Receivable

What a CP 90 looks like:

Final Notice

Notice Of Intent To Levy And Notice Of Your Right To A Hearing

Please Respond Immediately

We previously asked you to pay the federal tax shown on the next page, but we haven't received your payment. This letter is your notice of our intent to levy under Internal Revenue Code (IRC) Section 6331 and your right to appeal under IRC Section 6330.

We may also file a Notice of Federal Tax Lien at any time to protect the government's interest. A lien is a public notice to your creditors that the government has a right to your current assets, including any assets you acquire after we file the lien.

If you don't pay the amount you owe, make alternative arrangements to pay, or request an appeals hearing within 30 days from the date of this letter, we may take your property, or rights to property. Property includes real estate, automobiles, business assets, bank accounts, wages, commissions, social security benefits, and other income. We've enclosed Publication 594, which has more information about our collection process; Publication 1660, which explains your appeal rights; and Form 12153, which you can use to request a Collection Due Process hearing with our Appeals Office.

To prevent collection action, please send your full payment today.

  • Make your check or money order payable to United States Treasury.
  • Write your Social Security Number on your payment.
  • Send your payment and the attached payment stub to us in the enclosed envelope. The amount you owe is shown on the next page.

If you have recently paid this tax or you can't pay it, call us immediately at the above telephone number and let us know.

The assessed balance may include tax, penalties, and interest you still owe. It also includes any credits and payments we've received since we sent our last notice to you. Penalty and interest charges continue to accrue until you pay the total amount in full. We detail these charges, known as Statutory Additions, on the following pages.

Enclosures:
Copy of this notice
Pub 594, IRS Collection Process
Pub 1660, Collection Appeal Rights
Form 12153, Request for a Collection Due Process Hearing
Envelope

If you do not pay your taxes (or make arrangements to settle your debt):

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

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The government can levy property that is yours but is held by someone else (such as your wages, social security income, retirement accounts, dividends, bank accounts, rental income, accounts receivables, the cash value of your life insurance, or commissions).

The IRS will usually levy only after each of these three requirements are met:

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They assessed the tax and sent you a Notice and Demand for Payment

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You neglected or refused to pay the tax

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They 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 may give you this notice in person, leave it at your home or your usual place of business, or send it to your last known address by certified or registered mail, return receipt requested. Please note: If the IRS levies your state tax refund, you may receive a Notice of Levy on Your State Tax Refund, Notice of Your Right to Hearing after the levy.

If a levy is placed on your bank account, the levy attaches to funds that have cleared and are available for withdrawal. 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, or get professional advice about your situation.

After 21 days, the bank must send the money, plus, if applicable, any interest earned on that amount. To cease enforced collection, the taxpayer must work with the taxing authority, by presenting a reasonable resolution and working toward fixing the tax problem.

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What is the difference between a Special Agent, Revenue Agent, and Revenue Officer?

* Special Agents (S.A.'s) work for the Criminal Investigation Division of the IRS. They are federal law enforcement officers and they collect evidence and conduct interviews with taxpayers and witnesses involved in criminal tax cases such as tax evasion, fraudulent tax returns, large failure-to-file cases, money laundering, and the submission of false documents or statements to the IRS under the penalties of perjury.

Most really good S.A.'s are former Revenue Agents and have years of experience in interviewing taxpayers and collecting enough evidence to warrant a referral to the Department of Justice for a criminal prosecution. If you are contacted by an S.A., you are going to be a witness against someone else, or you are the target of a criminal investigation. If you are the target, the S.A. will begin the conversation by reading your 5th Amendment Rights. Please note: You will never be interviewed by just one S.A. They always travel in pairs. One S.A. will lead the interrogation; the other will be the witness and provide protection for the lead S.A.

If you are the target, you should terminate the meeting, take the agent's card, and indicate that you will have your representative contact him in a few days. Do not discuss any tax or financial matters with an S.A. CAUTION: Most criminal cases are made during the first 20 minutes of conversation with the taxpayer.

* Revenue Agents (R.A.'s) are the shining stars of the Internal Revenue Service, so to speak. They hold many positions because they are substantially more qualified than all other IRS employees. They primarily work for the Examination Division and conduct audits on all types of businesses including corporations, partnerships, trusts, and estates. R.A.'s have a degree in accounting and are highly trained in all aspects of auditing, tax law, research, and report writing. Most Revenue Agents stay 5 to 6 years and then move on to the private sector where they easily earn salaries exceeding six figures.

Revenue Agents are true professionals and stand by their work. Their reports are thoroughly researched and provide taxpayers with a complete explanation of their adjustments along with work papers and exhibits.

* IRS revenue officers are highly skilled employees of the IRS collection division. Revenue officers have more training than regular IRS collection employees. Sometimes this can be a benefit, as they will typically follow protocol. However, it also means that they have an advantage over taxpayers - a situation that usually results in the revenue officer gaining the upper hand.

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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 fine and imprisonment 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 a Substitute For Return (SFR) on your behalf but without your approval. A Substitute For Return is the IRS's version of an unfiled tax return. Because SFR's are filed in the best interest of the government, the only deductions you'll be granted are standard deductions and one personal exemption. You will not get credit for deductions to which you may otherwise 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 Muscle'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 filed 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 also 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 will likely not give credit for deductions and exemptions that a taxpayer may otherwise be entitled to receive. Bills will be sent to those taxpayers for the tax due, including penalties and interest.

People who repeatedly fail to 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 on 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 of 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 to resist criminal prosecution of individuals for failure to file tax returns - provided they voluntarily file or make arrangements to file - before sending out notice that 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.

As part of its long-term plan to improve voluntary tax compliance, the IRS aims 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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