Q: I just received an Audit notice from the IRS. How do I prepare
A: Contact an Enrolled Agent (EA), accountant or tax attorney, qualified to “stand before the IRS” to represent you; bring all the documentation relevant to the tax item(s) in question ONLY, so that the evidence needed to support your tax case is available; organize the papers according to the tax items in question, and make copies of them; bring relevant worksheets to show how the tax figures in question were calculated; do not volunteer tax information not requested by the IRS; at the end of the IRS tax audit, the IRS agent will cite any problems with the tax return; after the IRS agent informally advises you of any tax adjustments needed on the tax return a formal report is filed; if you owe money on one tax issue and the IRS owes money on another tax issue, the two tax amounts can be netted. In a small number of tax cases, the IRS tax audit results in a tax refund for the taxpayer; if the IRS agent’s tax decision is unsatisfactory, you can appeal to the IRS agent’s supervisor, the Appeals Division of the IRS, and if necessary, the U.S. Tax Court.
Q: How can I avoid an audit?
A: File a complete and accurate tax return; double check your math; make sure you have used the correct IRS tax forms and IRS tax schedules; if you think the IRS may question a large tax deduction or tax credit, attach an explanation to your tax return when you file it.
Q: I need to mail in my tax return. What is the address?
A: The IRS’ website (www.irs.gov ) lists the several cities with IRS offices. Listed also are the addresses and other information about each office.
Q: What happens to your credit history if you have an outstanding debt to the IRS? Is the debt reported to Credit Reporting Agencies in all cases or only if you are in default?
A: Your debt to the IRS will be reported to the credit bureaus only if a tax lien has been filed in the county in which you live or where you have real estate.
Currently Not Collectible
Q: I am in a Currently Not Collectible status with the IRS. Why am I still receiving notices from the IRS?
A: Taxpayers who are put into the Currently Not Collectible status receive a “reminder” notice (it’s a Statutory Requirement for the IRS) once a year. If your income increases significantly, they will inquire if you are able to pay. If you are able to pay them, they will set up an Installment Agreement. Otherwise, as long as you stay in the status you are in now and your income doesn’t rise significantly, you can ignore the reminder notice. You will continue to get this notice one a year as long as you remain in the Currently Not Collectible status.
Q: I owe the IRS and wouldn’t mind paying what I owe, but they want money out of my disability check. I barely have anything left for the rest of the month as it is. I have written and given them the information several times, but they sent me another letter telling me they still want the monthly payment. What can I do?
A: It appears that you qualify for Currently Not Collectible status. This status with the IRS allows taxpayers to make no monthly payments to their delinquent tax debt due to minimal income to provide for themselves and their family.
Q: I gambled at a casino and received my W2-G forms and paid all state taxes on the winnings up front. I did not pay any of the federal taxes. What do I do now?
A: Gambling losses can be deducted on your tax return up to the amount of your gambling winnings but cannot exceed the amount of your winnings. Also, you will have to be able to prove the amount of your losses. So it is crucial that you keep accurate records such as receipts, tickets, statements or other records that show the amount of both your winnings and losses.
Q: I am about to inherit approximately $100,000. Are there taxes due upon the receipt of these funds?
A: In general, property received by gift or inheritance is not included in gross income.
Q: What amount of money can I give as a gift without being taxed for it?
A: If you are single, the first $12,000 given to one individual in a tax year is not a taxable gift. If you are married, you and your spouse can consent to gift splitting, thereby qualifying up to $24,000 per individual recipient.
Q: How do I get copies of my tax return?
A: If you need an actual copy of your tax return, you will need to complete Form 4506 and mail it, along with a check or money order for $57 per tax year, to the IRS. If a computer print or transcript of your tax return is all you need you can call the IRS at 800-829-1040.
Q: I received a Form 1099-C. What does this mean and what do I do with it?
A: The 1099-C you received is a “forgiven debt” or “cancellation of debt.” This needs to be reported as income on your tax return, but it is subject to some conditions, which are too numerous to name here.
Q: I received a CP 503 and I need to know if I have 10 business days to respond or 10 calendar days to respond? The letter does not specify. It just says 10 days. And do Saturdays count or is it just Monday through Friday?
A: The IRS is referring to 10 calendar days.
Q: I received a CP 504. I owe $2,400 in taxes. If I reply with a check for $600-800 and a letter explaining I will pay the balance by a certain time will they accept this or will they still look to put a levy on me?
A: It is likely if you pay part of the balance owed and agree to pay the rest in a reasonable amount of time the IRS will accept that. However, the final decision is always up to the IRS.
Levies, Liens and Garnishments
Q: If I had a garnishment applied to my wages but got it released, will I get the money that was taken through the garnishment back?
A: Unfortunately, the answer is no. The IRS will not give back the money they have already collected.
Q: The IRS has garnished my paycheck. What can I do?
A: Depending upon your individual circumstances, you may qualify for an Offer in Compromise, arrange for an Installment Agreement, or have your account placed in “Currently Not Collectible” status. Any of these arrangements may stop the garnishment. However, the final decision is still up to the IRS.
Q: The IRS has levied my bank account. What can I do?
A: If the IRS levies your bank account, your bank must hold funds you have on deposit ONLY on the particular day the levy is received by the bank. The bank is required to remove whatever amount is available in your account that day (up to the amount you owe the IRS) and send it to the IRS in 21 days. This 21-day holding period allows time to resolve any issues about account ownership of the bank account and also provides a period of time to negotiate with the IRS for a release. After 21 days, the bank must send the money plus interest, earned on the seized amount to the IRS. So you must act quickly.
Q: The IRS has filed a lien against me. How do I get rid of it?
A: The IRS will release a Federal Tax Lien when it is fully satisfied. They will do this 30 days after full payment or immediately if paid in cash or the equivalent of cash. They will also release a lien upon the posting of a cash bond or upon giving the IRS a mortgage on real property whose fair market value is twice the value of the tax debt. Both the mortgage and the bond must stipulate payment terms over an agreed upon time frame.
Q: Is there a statute of limitations on tax liens?
A: Go to your local courthouse and get a copy of the lien. Look from left to right in the columns of the lien. In the next to last column, reading left to right, at the top will say “Last date for refiling.” If the date in that column has passed, your tax lien has expired by reason of the statute of limitations running out. When you get the copy of the lien and the date has passed, you should send a copy of the lien to the three major credit reporting agencies and tell them to mark their files accordingly and that the lien has been satisfied. On the back of the lien, there is a code section that tells you that it is a self-releasing document.
Q: If I have back taxes in Currently Not Collectible status, and I am receiving Social Security benefits, can they garnish my disability, even if it will cause financial hardship?
A: While you are in a Currently Not Collectible status, the IRS will not pursue collection activity. However, if that status does change, unfortunately, Social Security disability benefits are not tax exempt, which means the IRS can levy those benefits, up to 15 percent. Work related disability, however, is tax exempt.
Offer in Compromise
Q: I can’t pay the IRS what I owe. What can I do?
A: The IRS Program called Offer in Compromise (OIC) is an agreement between the taxpayer and the government that settles a tax liability (including all penalties and interest) for payment of less than the full amount owed. When the IRS accepts your Offer and you pay it, then all federal tax liens are removed. You must remain compliant by filing and paying your tax returns for the next five consecutive years, or the liability will be re-assessed and all penalties and interest will be assessed as well. If you do comply, though, you will get your life back.
The IRS will generally accept an OIC when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential. An OIC is a legitimate alternative to declaring a case currently not collectible or to a “protracted installment agreement.” The IRS goal of an OIC is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to government.
Q: I am in a Currently Not Collectible status with the IRS. After completing my tax return, I should be receiving a refund. Will I get this refund, or will the IRS keep it?
A: The IRS will apply the refund to the balance still owed.
Q: I owe taxes for 2005. I have agreed on an installment plan. Will my refund be sent to me or applied to the back taxes?
A: The IRS will apply the refund to the balance still owed.
Q: Where is my refund?
A: The IRS has two ways of tracking your refund. You can go to the “Where’s My Refund” portion of the http://www.irs.gov website, or you can call the Refund Hotline at 800-829-1954. In order to track your refund in either of these ways, you do need to know the whole dollar amount of your refund. You will also need your Social Security Number and filing status.
Q: I owe a student loan. I lost my job last year due to health problems, and I am now collecting unemployment. Last year, the IRS kept my federal refund. This year, they are also keeping it. I am going through a rough time right now, and I was counting on the refund to catch up on my bills. Is there anything I can do to get at least something back?
A: If the IRS is keeping your federal refund, that means your student loan is in default. Unfortunately, once the IRS has taken that refund, there is no way of getting any of it back. In order to prevent the IRS from taking your refund next year as well, you will need to get your student loan out of default.
Q: I have defaulted on my student loan and need help. A collection agency is about to do a wage garnishment I cannot afford. What can I do?
A: Unfortunately, loan holders of defaulted Student Loans have the authorization from the Department of Education to process an administrative wage garnishment up to 15 percent. Prior to garnishment, you can set up an approved payment arrangement. An attempt to lift an established garnishment can be requested by filling out a “Request for Hearing” application and submitting the completed form to the Loan Holder.
Q: I am scared to death. I haven’t filed my tax returns in years and worry that I will have to sell my house to pay the taxes and penalties. What can I do?
A: Regardless of your reason for not filing, you should file your tax return as soon as possible. If you cannot pay all of the tax due on your return, you may be able to arrange payments, or qualify for an Offer in Compromise, or Currently Not Collectible status, depending on your situation.
Failure to file your return on or before the due date may result in penalties and interest. However, if you filed on time but did not pay in full, you will be subject only to the failure to pay penalty. Interest is charged on taxes not paid by the due date, even if you have an extension of time to file. Interest is also charged on penalties.
Q: I just recently divorced. I filed previous years married filing jointly. I need to know what to file this year.
A: You will have to file “single” assuming that you were divorced on Dec. 31.
Q: How far does the IRS go back to make you file tax returns or seek back taxes for?
A: The statutory requirement says that you have to file every year you owe taxes. However, the IRS Commissioner’s policy states if you’re out of the system, you are encouraged to file the current year’s tax returns and the previous five years. You will then be considered “compliant” in your tax filings, unless they observe badges of fraud. In that case, they would seek management approval to file for previous years.
Q: If I do not file taxes, how will IRS find me?
A: The IRS will be able to discover your delinquency from internal documents that may have been provided, by law, from employers, contractors, mortgage holders, etc., and information that may appear on returns filed in prior years (for instance, income or dividend income). The IRS will eventually discover your delinquency, and by then, the penalties and interest will be extremely high and added to whatever other liability you may have with the federal government.
Q: I am engaged to be married. I have about $12,000 of back tax debt that I have made payment arrangements with the IRS for. I have also adjusted my withholdings to prevent future underpayment issues. When I get married, will my wife’s refunds be used to pay my tax debts even if I am currently making monthly payments pursuant to an agreement with the IRS?
A: If you file separately, as long as you honor your agreement with IRS, the debt will be between you and the IRS. If you file a joint return with your future wife, even though you have an installment agreement already in place, the refund will be offset to the delinquency that you owe now. Your wife could file for Innocent Spouse or Injured Spouse, but it would be much easier to file separate returns.