What can the IRS do if an income tax return is not filed or payment is not made on time? The IRS can take any of the following actions:
- Enforced Collection Actions
- Federal Tax Lien
- Sell Your Property
- Federal Payment Levy Program
- Trust Fund Recovery Penalty (TFRP)
- Enforced Collection Actions
If taxes are not paid and the IRS has not been notified of a reason, the law requires that enforcement action be taken, this may include any of the following:
- Notice of Levy
- Trust Fund Recovery Penalty
For more information please click here: http://www.irs.gov/irm/part25/irm_25-005-005.html#d0e66
What is a federal tax lien?
A federal tax lien is the government's legal claim against your property when you neglect or fail to pay a tax debt. The lien protects the government's interest in all your property, including real estate, personal property and financial assets. A federal tax lien exists after the IRS:
- Puts your balance due on the books (assesses your liability);
- Sends you a bill that explains how much you owe (Notice and Demand for Payment); and
- Neglect or refuse to fully pay the debt in time.
How to get rid of a lien?
The best way to get rid of the lien would be to pay your tax liability in full. In this case the IRS will release the lien within 30 days after payment in full. If you cannot pay your tax debt in full then the following options may be available:
- Discharge of property
- Withdrawl – there are two options:
One option may allow withdrawl of your Notice of Federal Tax Lien after the lien's release. General eligibility includes:
Your tax liability has been satisfied and your lien has been released; and also:
- You are in compliance for the past three years in filing - all individual returns, business returns, and information returns;
- You are current on your estimated tax payments and federal tax deposits, as applicable.
The other option may allow withdrawal of your Notice of Federal Tax Lien if you have entered in or converted your regular installment agreement to a Direct Debit installment agreement. General eligibility includes:
- You are a qualifying taxpayer (i.e. individuals, businesses with income tax liability only, and out of business entities with any type of tax debt)
- You owe $25,000 or less (If you owe more than $25,000, you may pay down the balance to $25,000 prior to requesting withdrawal of the Notice of Federal Tax Lien)
- Your Direct Debit Installment Agreement must full pay the amount you owe within 60 months or before the Collection Statute expires, whichever is earlier
- You are in full compliance with other filing and payment requirements
- You have made three consecutive direct debit payments
- You can't have defaulted on your current, or any previous, Direct Debit Installment agreement.
The Effects Of A Lien
- Assets — A lien attaches to all of your assets (such as property, securities, vehicles) and to future assets acquired during the duration of the lien.
- Credit — Once the IRS files a Notice of Federal Tax Lien, it may limit your ability to get credit.
- Business ;— The lien attaches to all business property and to all rights to business property, including accounts receivable.
- Bankruptcy — If you file for bankruptcy, your tax debt, lien, and Notice of Federal Tax Lien may continue after the bankruptcy.
A levy is a legal seizure of property owned by the taxpayer to satisfy a tax debt. Levies differ from liens – a lien is a claim used as security
for a tax debt, while a levy actually takes the property to satisfy the debt.
What can the IRS Levy?
The IRS can levy any of the following:
- Property held by taxpayer such as a car, boat or house
- Property belonging to taxpayer held by a third party such as wages, retirement accounts, investment accounts, accounts receivable etc.
Generally, the IRS will levy when these requirements are met:
- Tax has been assessed and a Notice and Demand for Payment has been sent to taxpayer
- Taxpayer has not paid tax or has refused to pay the tax
- A Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) was sent at least 30 days before the levy.
The levy may be released if the taxpayer can proof that it is causing an immediate economic hardship.
The IRS conducts several different types of property sales. For sales of seized property conducted under IRC sections 6335 and 6336 the following applies.
We will post a public notice of a pending sale, usually in local newspapers or flyers. We will deliver the original notice of sale to you, or send it to you by certified mail.
After placing the notice, we must wait at least ten days before conducting the sale, unless the property is perishable, and must be sold immediately.
Before the sale, we will compute a minimum bid price. This bid is usually 80% or more of the forced sale value of the property, after subtracting any liens.
If you disagree with the Fair Market Value or forced sale value, you can appeal it; and ask that the price be computed again by either an IRS or private appraiser.
You may also ask that we sell the seized property within 60 days. For information about how to do so, call the IRS employee who made the seizure. We will grant your request, unless it is in the government's best interest to keep the property. We will send you a letter telling you of our decision about your request. After the sale, we first use the proceeds to pay the expenses of the levy and sale. Then we use any remaining amount to pay the tax bill.
- If the proceeds of the sale are less than the total of the tax bill and the expenses of levy and sale, you will still have to pay the unpaid tax.
- If the proceeds of the sale are more than the total of the tax bill and the expenses of the levy and sale, we will notify you about the surplus money and will tell you how to ask for a refund. However, if someone, such as a mortgagee or other lien holder, makes a claim that is superior to yours, we will pay that claim before we refund any money to you.
In July 2000, the IRS, in conjunction with the Department of the Treasury, Bureau of Fiscal Service (BFS), started the Federal Payment Levy Program (FPLP) which is authorized by Internal Revenue Code Section 6331 (h), as prescribed by the Taxpayer Relief Act of 1997 Section 1024. Through this program, we can collect your overdue taxes through a continuous levy on certain federal payments disbursed by BFS. The following is a list of federal payments that can be levied through the FPLP:
- Federal employee retirement annuities,
- Federal payments made to you as a contractor/vendor doing business with the government (including Defense contracts),
- Federal employee travel advances or reimbursements,
- Certain Social Security benefits paid to you,
- Some federal salaries,
- Medicare provider and supplier payments.
- Railroad Retirement Board benefits paid to you.
In the future, the program will expand to include additional federal employee salaries and other types of federal payments.
Federal payments to a delinquent taxpayer will not be included in the program in certain circumstances. These circumstances include, when you are in bankruptcy, have applied for relief as an innocent or injured spouse, made alternative arrangements to pay, or the IRS has determined you are in a hardship situation.
The trust fund recovery penalty is for payment of withheld income and employment taxes, these taxes are called trust fund taxes because they belong
to another taxpayer in most cases the employee.
Who can be responsible for the TFRP?
The TFRP may be assessed against any person who:
- Is responsible for collecting or paying withheld income and employment taxes, or for paying collected excise taxes, and
- Willfully fails to collect or pay them.
A responsible person is a person or group of people who has the duty to perform and the power to direct the collecting, accounting, and paying of trust fund taxes. This person may be:
- An officer or an employee of a corporation,
- A member or employee of a partnership,
- A corporate director or shareholder,
- A member of a board of trustees of a nonprofit organization,
- Another person with authority and control over funds to direct their disbursement,
- Another corporation or third party payer,
- Payroll Service Providers (PSP) or responsible parties within a PSP
- Professional Employer Organizations (PEO) or responsible parties within a PEO, or
- Responsible parties within the common law employer (client of PSP/PEO).
For willfulness to exist, the responsible person:
- Must have been, or should have been, aware of the outstanding taxes and
- Either intentionally disregarded the law or was plainly indifferent to its requirements (no evil intent or bad motive is required).
Using available funds to pay other creditors when the business is unable to pay the employment taxes is an indication of willfulness.
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