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FAQs Regarding Tax Problems

Welcome to the Nationwide Tax Solutions FAQ page. Here is where you can find the answer to most questions involving tax problems. We update the answers to reflect the most common questions we hear, and we hope you find them helpful and informative.

There are a variety of tax problems that come up that people don’t know how to deal with. I have to send what? Why do I owe this? What does that mean? On the bright side, you have found our FAQ page, so we hope your answer is here. Since we get so hear so many questions, we have divided them into categories.

1. Why does the IRS send notice of Intent to Levy?
Once a tax bill is generated the IRS will request that you pay your tax within a certain time period. After the time frame associated with your notice has expired the IRS will issue a notice of Intent to Levy. This is a warning that they are planning to take action against you in the near future. It could mean the IRS will take money from your bank account or instruct your employer to send your pay check directly to the IRS.

2. What is the difference between a Lien and a Levy?
A federal tax lien is public notice that an IRS debt exist. Therefore if real estate was sold the IRS would receive a portion of the proceeds. A Levy is more active, in this case the IRS takes money from 3rd parties. For example, your bank account can be frozen and your pay check can be taken under the IRS Levy program.

3. How can you help me with my bank levy?
Once the IRS places a levy on your bank account the bank holds the funds due to the IRS for 21 days. During this time period you have the opportunity to have the levy released. If a hardship exist such as a pending eviction the IRS will release the Bank Levy. Moreover if a business account was levied if the funds in the account were air marked for employees the levy will be released.

4. How do I get a wage garnishment removed?
The wage levy or garnishment is one of the many weapons the IRS uses to get your attention. In most cases the IRS is willing to remove the Levy. However, there are two steps that must be completed first. All missing tax returns, if any, must be filed before the IRS will agree to release a wage levy. The next step is to inform the IRS of your assets and monthly income minus expenses. After all tax return are current and your financial story is understood the IRS will release the levy and place you in a monthly payment plan or some other collection alternative.

5. Can the IRS levy my bank account after I set up a monthly payment plan?
Once a payment plan is established the IRS sometimes files a tax lien to protect their interest in case you stop making monthly payments. However, your bank account is off limits. In addition, your paycheck is also safe from IRS collections. Therefore if the IRS erroneously places a levy on your bank account or salary after a payment plan is set up under current law it must be removed once they are notified.

6. Can the IRS levy my workers compensation income?
The IRS has the power to levy must types of income except workers compensation. The IRS can levy social security income and pension income, but are not allowed to touch your workers compensation. Moreover, workers compensation income is not subject to taxation.

1. What is the difference between a Lien and a Levy?
A federal tax lien is public notice that an IRS debt exist. Therefore if real estate was sold the IRS would receive a portion of the proceeds. A Levy is more active, in this case the IRS takes money from 3rd parties. For example, your bank account can be frozen and your pay check can be taken under the IRS Levy program.
2. Once I set up an installment agreement can my liens be released?
In most cases establishing a monthly payment agreement does not force the IRS to release tax liens. However, the IRS has a new program where they will release liens once the installment plan is set up if you make payment via direct bank debit. After three consecutive payments are made the IRS will release your liens. In order to qualify for this program the total debt has to be below 25k.
3. Can the IRS take my house if I owe them money?
Yes they can, and if you ignore them they may consider forcing you to sell your home. The IRS takes second position behind your mortgage company. Therefore, if there is no equity in your home the IRS will not consider it an asset. Accordingly, they will leave your home alone.
4. I have a tax lien on my credit report, how can I remove it?
Once your tax debt is satisfied the IRS will release your tax lien(s). Sometime they need a little push to move the process along more rapidly. The IRS has a special lien unit set up to assist taxpayers with lien releases. However, it is your responsibility to follow up with the credit reporting agencies. In some cases a lien can be removed even if the full tax bill is not paid. Our office can help you in this regard.
5. Can a tax lien be removed if I still owe a balance to the IRS?
Yes in some cases the IRS is willing to remove your tax liens even if the balance is not fully paid. In order to qualify for this special program you total debt must be 25k or less. In addition, a direct bank debit must be established. After three consecutive payments are made the IRS will agree to release your federal tax lien.

1. What is an offer in compromise (OIC)?
The IRS offer in compromise is an arrangement in which the IRS agrees to reduce your total tax liability including interest and penalties. The IRS calculates your future income and adds your current assets to that number. If the calculated amount is less than your outstanding bill the IRS may agree to compromise your debt.
2. How do I qualify for an offer and compromise? The qualification is based on the number of factors.
First all required tax filings must be current. Second your current estimated tax or your withholding must be up to date. Third it would be impossible to pay your entire IRS debt via an installment agreement. Once these three hurdles are satisfied the IRS looks at your future monthly income and current assets to determine if you qualify for the offer in compromise program.
3. Why would the IRS reduce the taxes I owe in the offer in compromise program?
The IRS is very concerned about the tax gap. This gap represents billions of tax dollars that go uncollected each year. Once taxpayers fall into this non-payment, non-filing mode, they sometimes remain in this category for many years. In order to reduce the tax gap the IRS is willing to accept a smaller amount of the entire tax liability instead of possible receiving nothing. Moreover, one of the many requirements of the offer in compromise program is that taxpayers remain current on filing and paying their taxes for five years after the offer is accepted. Therefore collecting some tax and forcing taxpayers to remain current helps to reduce the tax gap.
4. Do I have to sell my house or car in order for an offer in compromise to work?
No you are not required to sell your assets in order for an offer in compromise to be successful. However, your assets play a major role in determining the amount of your offer. For example, if your home has equity in the amount of 20k than this amount will increase your offer by 20k. The key point to remember, you are not required to sell your home in order to complete the offer process. Equity in assets is important for calculation purposes not liquidation purposes.
5. I filed an offer in compromise but it was not accepted can your firm help?
Yes. We can help and if given the opportunity we will help. Most successful offers are accepted in the appeal process. This is where years of knowledge and know how will come to your aid. Please review our book “Make an Offer the IRS Can’t Refuse.”

1. Why should I hire a firm like yours to resolve my tax issues?
Based on our many years of experience we truly understand your pain in dealing with the IRS and equally importance we understand the IRS collection process. The secret to solving IRS problems is twofold – File all delinquent tax returns and remain current of this year’s tax obligation. We will handle the rest.
2. I owe a lot of money and I am scared. Can you really help?
We understand you fear. The first step in resolving IRS problems is to file all missing tax returns. By submitting your original returns the IRS balance may be eliminated. If after filing your tax return(s) there is still a balance due, you have three choices. Number one, enter into a monthly payment plan that you can afford. Number two, Request the IRS place your account in their non-payment category (no monthly payments required). Number three, settle your tax debt by submitting an offer in compromise.
3. How do I defend myself against the IRS?
There are several way to defend yourself against IRS collection efforts. Before the IRS is allowed to place a levy on your wages or bank account they must notify you by mail. This last notification is called “Final Notice of Intend To Levy”. Along with this notice is a form for you to request an appeal of the proposed action. Once you file a timely appeal the IRS cannot touch your bank account or paycheck. The appeals officer is outside of the collection process and will listen to your case with an eye on independence in most cases. If you and the appeals officer don’t see eye to eye then you have the option to take your case to tax court since you filed a timely appeal.
4. What is the IRS Fresh Start Program?
The Fresh Start Program is a great program to get taxpayers back on their feet. If your total IRS balance is 50k or less the IRS will allow you to enter a payment plan without disclosing your assets. In this program, if your balance is 25k or less the IRS will also remove federal tax liens before the lien is satisfied. The offer in compromise process has also improved under the fresh start program in that most taxpayers can offer less and still have their offers accepted. This is due to calculation adjustment impacting future income.

1. I have not filed a tax return for several years. Is the IRS looking for me to file?
The filing of your tax return is the first step toward ending your tax problem. The IRS maintains a record of your income in most cases. Therefore it is easy to pull together the income side of your tax return. The IRS also keeps a record of mortgage interest paid. Once the missing returns are submitted, then the IRS will consider various payment options.
2. What is a substitute for return (SFR)?
If you fail to file a tax return and ignore the IRS request to submit and return, the IRS will file a tax return for you. The IRS will not consider your expenses such as mortgage interest and contributions. This return generally results in a higher tax bill. However, you have the right to file your return and replace the inflated return prepared by the IRS.
3. I haven’t filed tax returns in over 10 years and I’m afraid to start filing again.
If you are required to file your tax returns you should do so as soon as possible. The IRS wants to get you back in the system so you can pay future taxes. Therefore they are open to working out various payment arrangements. It would be best to sit down with a CPA if you find yourself in this situation.
4. My tax return was audited and I really don’t know what to do?
The first thing you should do is contact a CPA that handles tax audits. Allow that person to contact the IRS on your behalf. The last thing you want is for the audit to expand to other sections of your tax return or expand to more tax years. IRS tax auditors are very skilled in pulling information form taxpayers. Therefore you need someone who understands the tax laws to work on your behalf.
5. Can the IRS audit my tax return forever?
Once you file your tax return the IRS generally has 3 years in which to audit that return. This three year period is extended to six years if the proposed audit change represents 50 percent of your overall income. However, if a fraudulent return is submitted then the IRS has until the end of time to audit your tax return. Sometimes during the audit process the IRS will request that taxpayers extend the audit period. Please note this is a request not a requirement.

1. Can my company set up a payment plan for back payroll taxes?
Yes, your company is allowed to establish and monthly payment plan for back payroll taxes. However, before the IRS agent agrees to receive installment payments she will confirm your company does not have the assets or the borrowing capability to satisfy the delinquent taxes. In addition, your company must remain current with its payroll deposits going forward once the agreement is set up.
2. I am out of work and receiving workers Compensation do I still have to pay the IRS?
If you find yourself out of work and receiving workers compensation payments you do not have to make monthly payments to the IRS. The IRS cannot levy your workers compensation and the income is excluded from taxation. However, its’ important to contact the IRS and request that your account be placed in uncollectible status.
3. I lost my job and still have a monthly payment with the IRS, What should I do?
If you lose your job while making monthly payments to the IRS and you a no longer able to maintain the agreement the IRS will place your account in the uncollected mode. We recommend that they be notified. Once the IRS understands that your job was lost the monthly agreement will be placed on hold. However, if you fail to contact the IRS they will levy your bank account and take your unemployment compensation.
4. I owe the IRS on a personal matter, can they take money from my business account?
If your business is separate legal entity such as a corporation or a limited liability company (LLC) than the IRS will not empty out your bank account. However, if your business is a sole proprietorship than the IRS is able to attack your bank accounts.
5. My business partner has a tax debt how will this impact our corporate bank account?
The bank account of your corporation should not be impacted by partner’s personal tax debt. The corporation is a separate legal entity. However, if there is a corporate tax debt such as payroll taxes the IRS can go after the signers on the corporate bank account. Therefore before becoming a signer on the corporate bank account be sure there all business taxes are paid.

1. Do I qualify for Innocent/Injured Spouse?
When a marriage couple files a joint tax return both spouses are responsible to insure that the tax liability is paid even if the tax bill is due to one spouses income being adjusted by the IRS or lack of withholding. The spouse who did the right thing in terms of paying the tax associated with her income may be exempted from the joint tax liability under the Innocent Spouse program. Certain conditions must be met such as awareness of the tax liability and the current marriage status.
2. I have a tax liability and I’m about to get married, will it affect my fiancé?
Your tax liability will not impact your spouse once you are married as long you file a separate tax return and keep separate bank accounts. Married couples have the option of filing together or filing a separate return. Once a joint return is submitted the IRS is allowed to levy the joint refund to satisfy an old debt form either party. The same rules apply to bank account. If you have a prior tax balance with the government and open a joint bank account with your new spouse the IRS can take your money. Keep it separate and keep it moving.
3. What happens if I die with tax a debt?
In most cases the IRS has a ten year time period in which to collect the back taxes that you may owe. If you were to pass away before this period is up the IRS will try to collect your back taxes from your estate. If your estate has no assets then the IRS will place your account in the uncollectible status mode until the legal time to collect has expired. Once you pass away the IRS does not get a new ten year period to collect the tax. The key to solving IRS problems is remaining current on today’s tax bill. The old taxes will go away after the ten year period.
4. If I file a tax return with my wife, will the IRS keep the refund because I owe back taxes?
Yes the IRS will keep your joint refund. Once a joint tax return is filed the IRS has the authority to levy future refunds until the balance is satisfied. In order to avoid this disaster, married separate returns should be summited. If a married separate return is filed, the IRS is not allowed to use one spouse’s refund to offset the other spouse tax liability.
5. Will the IRS levy my back account because my wife still has a tax debt?
No, as long as you and your spouse maintain separate bank accounts the IRS will not levy your bank account because of your wife’s outstanding tax bill. However, if there is a joint bank account established then the IRS has full access to your bank funds. It is so important to set up an installment plan so you can keep the IRS out of your bank account.

1. What does currently-not-collectible mean?
If at the end of the month your income is less than your expenses the IRS will classified your case as uncollectible. This means a monthly payment is not required. Before the IRS will grant this status they will confirm you do not have the assets or the borrowing capability to satisfy your tax debt.
2. How can I reduce the amount I owe?
One possible solution is to reduce your payroll exemptions so your employer will withhold more taxes from your paycheck. Review your itemized deductions to confirm you are claiming the proper amount of expenses. An often overlooked deduction is state income taxes payment made inside an installment plan.
3. How can I reduce the amount of income tax I pay each year?
Proper tax planning will reduce your tax liability. It is important to know your tax bracket for planning purposes. Understanding the tax rules regarding IRA distributions are also important.
4. I don’t have the all of the money to pay the IRS, what can I do?
If you are not able to pay the full balance you generally have three options. Option number one is a monthly installment plan. Option number two is to have the IRS place your case in the currently not collectible status. In plain English, you can’t afford to make monthly payments. If placed in this category they will leave you alone. Option three is to request that the IRS reduce your debt by submitting an offer in compromise.
5. Can I reduce the amount of interest and penalties from the IRS?
The IRS is willing to remove penalties if you have a good reason. A good is reason is called reasonable cause. If you have a great track record for filing and paying your taxes on time the IRS will abate your penalty just because you asked. If family matters and health issues prevented you from filing on time the IRS may remove your penalties. Interest abatement is a different story. The IRS will remove interest if they made a mistake in calculating your tax bill. The reasonable cause exception does not apply to interest. However, if you submit a successful offer in compromise the tax penalty and interest will be reduced.
6. I just set up a payment plan with the IRS, but the monthly amount is too much to handle, can I change the terms?
Many taxpayers set up monthly installment plans with a monthly amount that’s too much to handle. Should you find yourself in this situation it is possible to change the terms. Call the IRS and inform them that you will not continue with your payments. After your call you must allow your current agreement to default. The last step is to provide the IRS with your monthly income and expenses which explains why the monthly amount should be reduce.

1. Will the IRS take away the interest and penalties that they added to my balance?
The IRS will remove penalties if you have a good reason. Good reasons are called reasonable cause. For example, if your tax return was filed late because of your health or the health of a loved one. In some cases disruption of income or divorce may fit the reasonable cause definition. The interest is removed if the IRS made an error and they accept your offer in compromise.
2. Is there a statute of limitations on IRS problems?
Yes there is a time limitation on the IRS’s ability to collect outstanding tax debts. This time period is generally ten years. Once a tax assessment or bill is created the collection clock starts and runs for ten years in most cases. If you file for a collection appeal or submit an offer in compromise the collection clock stops. Filing for bankruptcy also gives the IRS more time to collect.
3. Does the interest and penalties on IRS problems ever stop?
Yes it does. The IRS has 10 years to collect on a given tax assessment. Once the time period has expires the IRS is not allowed to collect the tax. In addition, you may request that the IRS remove your penalties based on reasonable cause. For example, if your tax return was filed late because you were hospitalized the IRS will in most cases abate your penalties.

1. I received a certified letter from the IRS and I’m afraid to go pick it up.
It’s never a good feeling when you receive a certified letter from the IRS. However, if the IRS is still writing you that means there is still a chance to establish a solution. The IRS is informing you of their intent to take action. When the IRS stops writing you is when you should be very concerned. After the warning is issued then the IRS contacts your employer and bank. Therefore, pick up the letters and open them to avoid the next steps in the collection process.
2. An IRS officer left a business card in my mailbox, what do I say when I call?
A visit from an IRS Revenue Officer is a serious matter. This is a sign that it is time to hire a professional. Allow that person to advise you. Many of our clients have been contacted by a revenue officer. Each case is different. We find out the reason for the visit and ask for time to gather documents to present your case. The visit could be the result of a large tax balance or missing tax returns. Regardless of the reason for the visit we can help get you back on the right track.
3. I received a letter from an IRS revenue officer what does this mean?
Once your account is moved from the general collections area to a Revenue Officer your case will receive special attention. Revenue Officers are highly trained in IRS collections matters. They handle cases with large tax debts. These are the people who make house calls. Therefore if you find yourself the target of IRS enforcement with a Revenue Officer leading the charge seek professional help.
4. I received a Final Notice of Intent to Levy what does this mean?
The final notice is your last warning from the IRS before they take action against you. Under current law the IRS is required to inform you before they levy your bank account or paycheck. Including in this warning material is an opportunity to request a hearing to prevent the IRS from taking your bank account and or paycheck. Please note your appeal request must be timely and cover all tax years associated with your liability. If you are granted an appeal hearing you must be prepared to explain how your plan is better than a levy. In other words your documents should be organized and easy to follow. Accordingly, the IRS will be more likely to accept a different collection alternative such as an installment agreement instead of placing a levy on your accounts.

1. If I owe the IRS, can they take my pension?
Yes, the IRS has the authority to levy your monthly pension payments. If you have an outstanding balance with the IRS and fail to establish and payment arrangement they will continue the collection process. That process may lead the IRS to intercept your pension payments. Many people in the retirement years find it difficult to make ends meet and repay the IRS for back taxes. One possible solution is an offer in compromise. The IRS is more likely to accept an offer from taxpayers in retirement.
2. I’m applying for social security benefits and I owe the IRS. Will I still be able to collect my social security?
Under the current laws the IRS is allowed to levy social security benefits. If you have unpaid taxes and do not have an installment agreement the IRS can take 15 percent of your monthly social security benefits. In order to remove this 15 percent levy you must provide the IRS with your financial story. If you have no or very little assets, there is a good chance the IRS will remove the levy. The old saying “you can’t get water from a rock” applies here.
3. Can the IRS get access to my 401K if I have unpaid taxes?
Once you have unpaid taxes and have not established a payment plan the IRS can gain access to your 401k retirement account. The IRS also has the power to levy your social security benefits. Therefore, it is very important to address your tax debt before the IRS takes action. It is always a good idea to keep the lines of communication with the IRS open. Let’s face it, they have the power to get to your money.
4. I want to retire next year but owe the IRS will I be able to retire?
Yes if you are ready to retire and still have a balance with the IRS you can retire. The IRS will establish a payment plan based on your current retirement income not your income before retirement. Therefore, if you are making less money in your retirement years the IRS will receive less money in terms of your monthly payment. Moreover, it may be easier to qualify for an offer in compromise while in retirement. Don’t let an IRS balance stop you from retirement. Remember, they get what is left after your living expenses are paid.

If you look through each section and still have questions about your tax problem, we can help! Contact us at Nationwide Tax Solutions for professional help:

Email us: info@nwtaxsolutions.com

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