Unfiled Past Due Tax Returns
Though non-filers can face financial penalties and up to a year in prison for each year a required tax return was not filed, the IRS commonly pursues administrative remedies by mailing non-filing notices requesting that the taxpayer file their return. If the taxpayer does not file after this notice, the IRS can prepare a Substitute for Return (SFR) and assess a tax. The tax debt can then lead to enforcement in various forms such as wage garnishments, bank levies and tax liens. Taxpayers with one or more years of unfiled returns can file quickly with the help of a tax professional to stop IRS/State collection action. This is the first step to bringing taxpayers back into compliance and getting into a collection alternative for unpaid tax debt such as an Offer in Compromise (OIC), Installment Agreement (IA) or Currently Not Collectible (CNC).
Delinquent Payroll Taxes
Employers are responsible for payroll taxes, also known as employment taxes. This includes the trust funds employers are supposed to deposit with the IRS that employers withhold from employee paychecks: income tax, social security tax and medicare tax. The employer has to match payment of social security and medicare taxes. In addition, employers have to pay Federal Unemployment Tax (FUTA). Different types of payroll taxes are also required to be deposited with State tax authorities such as California's Employment Development Department (EDD). Unpaid payroll taxes have become a priority with the US Department of Justice, IRS and State tax agencies that can lead to criminal investigations in the more serious cases.
Trust Fund Recovery Penalty
The Trust Fund Recovery Penalty (TFRP) is imposed for failure by businesses to hand over certain taxes to the tax authorities. The most common examples include the employee portion of payroll taxes and excise taxes. The penalty is among the largest imposed by the IRS at 100% of the trust fund portion of unpaid tax. Individuals responsible for the TFRP can include not only officers and directors of a company but also employees who are often unaware of the potential risk when carrying out their job duties. Taxpayers targeted by a Trust Fund Recovery Penalty (TFRP) investigation can benefit from a tax practitioner defending their position and may be able to prove that the taxpayer was not a responsible party.
Offer in Compromise Doubt as to Collectibility (OIC-DATC)
Taxpayers that owe a tax debt and cannot pay it in full can enter into collection alternative agreements with tax authorities. When the taxpayer lacks the funds to pay the tax debt before the collection statute expiration date (CSED), the time available to collect on the tax, debtors may be able to enter into an Offer in Compromise Doubt as to Collectibility (OIC-DATC) agreement to settle their tax for less than they owe. A Notice of Federal Tax Lien (NFTL) may be filed when an OIC agreement is accepted depending on the factors involved.
Offer in Compromise Doubt as to Liability (OIC-DATL)
In this scenario the taxpayer disputes that they owe the tax assessed and can file to have the liability removed.
Installment Agreement (IA)
Taxpayers that owe tax debt and cannot pay their balance in full can enter into a collection alternative known as an Installment Agreement (IA). Another term for it is a payment plan. Collection alternative means that the tax authority involved will not take enforcement action. Enforcement can be carried out through bank levies, wage garnishments, tax liens on property and asset seizures. Installment Agreements may be subject to the filing of a Notice of Federal Tax Lien (NFTL). There are different types of IA's so it is important to carefully consider how a NFTL will affect you if you own a business or property.
Currently Not Collectible (CNC)
Currently Not Collectible (CNC) is a collection alternative that prevents tax authorities from enforcement usually carried out by bank levies, wage garnishments and tax liens. CNC is a hardship status that is determined based on taxpayer assets, income and expenses. If the collection of tax would create an inability to meet basic necessary living expenses, CNC will be granted. The tax authorities can revisit the taxpayer's financial situation in the future to determine if they still qualify for CNC or whether to remove them from CNC status if their finances improve. A Notice of Federal Tax Lien (NFTL) may be filed against a taxpayer in CNC status to protect the interests of the government.
There are many penalties that can be imposed on taxpayers. Common penalties include failure to file, failure to pay, estimated tax penalties, fraud penalties and accuracy penalties. The IRS and other tax agencies may grant penalty relief for those that qualify.
Taxpayers with outstanding tax liabilities may be subject to a Notice of Federal Tax Lien (NFTL) being filed against them. This informs the public, including creditors, that the issuing tax agency has a claim to the taxpayer's property. There are different ways to deal with a NFTL and we can help you determine the best course of action.
Unpaid taxes can lead tax agencies to enforce a tax levy. A levy is a seize of income or assets that can be imposed upon bank accounts, financial accounts, social security income, vehicles, real estate, personal property, accounts receivable, state income tax refunds and other items. We can advise taxpayers about their options for obtaining a levy release. In some cases, levied property may be partially or fully retrieved.
Garnishments are a form of tax levy (see the previous description above). Two commonly garnished income streams are wages and social security income.
Innocent Spouse Relief
When a married couple files a married filing jointly (MFJ) tax return, they become jointly and severally liable for any tax due. If you believe that your spouse (or former spouse in the case of divorce) should be the only person responsible for an erroneous item (unreported income or an incorrect deduction, credit or basis) on a tax return or an underpayment of a tax liability, you may be eligible for Innocent Spouse Relief. Married couples that file separately (MFS) in a community property state like California may also be eligible for Innocent Spouse Relief. Taxpayers often request innocent spouse relief due to an audit, an underrporter notice or during the tax collection process.
Injured Spouse Relief
A taxpayer that files a married filing jointly (MFJ) tax return and had their portion of a refund applied to a past due debt that is the exclusive responsibility of their spouse can file to retrieve their allocated portion of the refund. Spousal past due debts include federal tax, state income tax, state unemployment compensation, child support, spousal support and federal nontax debt such as student debt.
Passport Revocation and Denial
Taxpayers with Seriously Delinquent Tax Debt can have their debt certified by the Internal Revenue Service (IRS) to the US State Department. Taxpayers can have their application for a US passport denied and current US passport holders may be have their passport revoked. US passport holders that have their tax debt certified as Seriously Delinquent Tax Debt while they are overseas may find that their passport will only allow them to return to the US. Their travel privileges to non-US countries will be frozen. A tax professional can assist with having the certification reversed and reinstating passport rights.