STOP I.R.S. COLLECTION

If you owe the I.R.S. taxes and can pay, then you should do so. If you owe the I.R.S. taxes and cannot afford to pay, there are things you can do to stop the I.R.S. from taking your wages, and/or assets. If the I.R.S. has already taken your wages and/or assets, you may be entitled to get them back if the taking prevents you from obtaining the necessities of life.

Although you can represent yourself, it is a huge mistake to do so. Once a revenue officer learns you represent yourself, you will likely be abused and taken advantage of since you will not know when the revenue officer's demands are illegal and/or improper. In nearly every instance, taxpayers do much better if they hire a competent tax litigation lawyer.

What Happens After The I.R.S. Assesses A Tax?

The I.R.S. cannot begin enforced collection activity unless it has first assessed a tax and has second followed certain procedures. Assessment means the same thing as charging you for a tax due. Assessment happens when you file your tax return. When you file your tax return and do not make full payment the I.R.S. will send you five collection notices in the following order (the fifth notice is most important).

1st A letter (in different forms) stating you owe tax;

2nd Five weeks later, form letter CP 501;

3rd Five weeks later, form letter CP 503, click here to see what letter CP 503 looks like;

4th Sometime later, form letter CP 504, click here to see what letter CP 504 looks like; and

5th Sometime later, form letter 1058, Notice of Intent To Levy, click here to see what a Notice of Intent To Levy looks like.

The first three letters have no legal or procedural significance. The fourth letter allows the I.R.S. to only take your state tax refunds. Each successive letter gets more and more aggressive in the language and threats used. The first four letters are designed to scare taxpayers into calling the I.R.S. which then threatens (often illegally and improperly) to do bad things unless payments are made.

The fifth letter is very important and has great legal and procedural significance - it is the Notice Of Intent To Levy. The I.R.S. must mail form letter 1058 - Notice Of Intent To Levy by certified mail or deliver it in person (it is almost always mailed by certified mail). If the taxpayer fails within 30 days from the date on this letter to elect a Collection Due Process Hearing, then the Revenue Service can seize wages, bank balances, and potentially other assets without further notice.
See the next section for a discussion of what a Collection Due Process Hearing is and what it means.
The Notice Of Intent To Levy And The Collection Due Process Hearing.

Taxpayers that owe taxes should be on the look out for the I.R.S.'s Notice Of Intent To Levy (letter 1058) which it mails by certified mail. ALWAYS ACCEPT OR GET ALL CERTIFIED MAILINGS FROM THE I.R.S. - otherwise you will end up suffering from enforced collection activity. In other words, you have nothing to gain from rejecting I.R.S. certified mail and everything to lose!

The I.R.S. Restructuring And Reform Act of 1998 that President Clinton signed into law on July 22, 1998 dramatically affects the I.R.S.'s ability to take your wages, bank account balances, and/or other assets. Effective January 18, 1999, the I.R.S. cannot take your wages, bank account balances, or any other asset unless it first (a) mails by certified mail a Notice Of Intent To Levy [letter form 1058], and (b) waits at least thirty days thereafter. If a taxpayer elects to have a Collection Due Process Hearing within thirty days from the date on the Notice Of Intent To Levy, the I.R.S. cannot take anything from a taxpayer until at least thirty days after a Collection Due Process Hearing ends. It usually takes about three to six months for a Collection Due Process Hearing to end - thus, if elected, a Collection Due Process Hearing gets you a lot of time to live free from the fear of enforced collection activity. There are a few exceptions to this rule - but they rarely apply.

To elect a Collection Due Process Hearing after the I.R.S. mails you a Notice Of Intent To Levy (letter 1058), Form 12153 is used. To get this form click here.

The sole issue to be decided at a Collection Due Process Hearing is whether or not enforced collection activity is the proper thing to do given the facts and circumstances of the case. At the Collection Due Process Hearing, taxpayers can attempt to resolve their collection case (ie. usually by filing an offer in compromise, by convincing the I.R.S. the account is temporarily uncollectible, or by agreeing to an installment agreement - all of which will stop future enforced collection activity).

If at the end of the Collection Due Process Hearing, the I.R.S. rules that enforced collection activity is proper, taxpayers have another thirty days free from enforced collection activity to sue the I.R.S. in U.S. District Court. In U.S. District Court, the taxpayer will be given the opportunity to argue why enforced collection activity is not proper. If this is done, there can be no enforced collection activity until the U.S. District Court case ends. If this election is made, the taxpayer will probably get another six months to one and a half years free from the fear of enforced collection before a U.S. District Court case would end.

If a taxpayer elects to have a Collection Due Process Hearing or sues in U.S. District Court, the time in which the I.R.S. can legally collect the taxes due (generally ten years from the date of assessment) is put on hold until either of these procedures ends.

What Can You Do To Stop The I.R.S. From Taking Your Wages And/Or Your Assets?

Generally, there are five ways a you can avoid enforced collection activity when you cannot fully pay: (1) getting your account put on temporarily uncollectible status, (2) filing an offer in compromise, (3) filing for bankruptcy, (4) filing an innocent spouse petition, and (5) getting an installment agreement. Each is discussed below.

Whenever a taxpayer asks for some sort of relief from the I.R.S., the I.R.S. will require the taxpayer to disclose its financial condition on form 433-A (for individuals) or 433-B (for businesses). Click here to get form 433-A, and click here to get form 433-B. Providing the I.R.S. a collection statement is a double edged sword - a collection statement must be provided to get relief, but if relief is denied, the I.R.S. has a road map to your assets. NEVER intentionally understate your income, NEVER intentionally overstate your expenses, or NEVER intentionally not disclose all your assets - to do so is criminal and may result in your case being referred to the I.R.S.'s criminal investigation division. ALWAYS truthfully and completely disclose your financial condition on either form. The I.R.S. investigates all collection information statements.

1. Getting Temporary Uncollectible Status.

If you simply cannot afford to pay any amount towards your tax liability, it may be possible to get the I.R.S. to put your account on "temporarily uncollectable status." The I.R.S. calls this "53ing" the account. To qualify, your assets and income must be inadequate to pay any amount towards your tax liability. If successful, the I.R.S. is basically admitting that if enforced collection activity were attempted, you would be entitled to hardship relief whereby any levy would have to be released. If the I.R.S. grants temporarily uncollectible status, you will generally get six months to a year free from the fear of enforced collection activity. You will have to report your income to the I.R.S. periodically.

2. Filing An Offer In Compromise.

The best way to settle your tax liabilities is through an offer in compromise (if you qualify). A successful offer in compromise will allow you to fully settle your tax liabilities for pennies on the dollar. Many types of taxes can be settled this way - including income taxes, payroll taxes, trust fund penalty, and estate taxes. A successful offer in compromise will result in the I.R.S. releasing its tax lien. Click the Offer In Compromise button on the top right for a thorough discussion of offers in compromise.

3. Filing Bankruptcy.

No matter what type of tax you owe, filing bankruptcy will stop enforced collection activity, at least temporarily. Sadly, payroll taxes or the trust fund penalty cannot be discharged at all.

Income taxes can be fully discharged in a Chapter Seven Bankruptcy when they are old enough. To have income taxes fully discharged, you must first have filed an income tax return, listed the income tax liabilities on your bankruptcy petition, and enough time must have passed between certain events and the time you file a Chapter Seven Bankruptcy petition. Generally, income tax liabilities can be fully discharged in a Chapter Seven Bankruptcy when the bankruptcy petition date is

(A) more than three years after the date your tax return was due, including extensions, if you timely filed your return and your return was not fraudulent;

(B) more than two years after the date of assessment if your return was filed late; and

(C) more than 240 days past the date of assessment.

Filing bankruptcy has other negative consequences, such as a negative credit report for ten years, eliminating certain future employment opportunities, negatively impacting professional licenses, etc. Often, it is better to first try an offer in compromise.

4. Filing An Innocent Spouse Request.

If you have not paid your tax liability that arose from a jointly filed income tax return, you may be able to get innocent spouse relief where you would not have to pay the full amount due. If taking into account all facts and circumstances, it would not be fair to hold the innocent spouse liable, innocent spouse relief will be granted.

Generally, you must meet the following "threshold" requirements

(a) you filed a joint return for year you seek innocent spouse relief;

(b) you seek innocent spouse relief no later than two years after the I.R.S. first notified you that it intends to collect the tax from you; and

(c) you have not transferred any assets to your spouse or ex-spouse as a fraudulent scheme to evade collection.

Assuming you meet these general requirements, here are some circumstances where the I.R.S. may grant innocent spouse relief:

(1) you are no longer married to, or are legally separated from, the spouse you filed the joint return with, or at no time during the last twelve months from the date of your innocent spouse request have you lived in the same household with your spouse or ex-spouse;

(2) at the time you filed the joint return, you had no reason to know the tax would not be paid; and

(3) you would suffer a hardship if innocent spouse relief were not granted.

If you file a request for innocent spouse relief, there will be no enforced collection activity while the request is being processed (currently it is taking over a year to process innocent spouse relief requests). The I.R.S. requires you to file form 8857 to request innocent spouse relief. Click here to get the form.

5. Getting An Installment Agreement.

An installment agreement is nothing more than your agreement to pay a certain amount each month. Unfortunately, interest and penalties continue to accrue. An installment agreement continues until either the tax liability is paid or until the ten year statute of limitations on collection ends. The monthly amount is negotiable.

If you get an installment agreement and sometime later you cannot pay the monthly amount due to changed circumstances, you may be entitled to having your account put on temporarily uncollectible status free from the fear of enforced collection activity.