Taxes: Where Should I Start?
Taxes have an impact on virtually every business decision that we make. For instance, what are the tax ramifications of a certain deal? How can I find the best ways to minimize taxes? Taxes are a concern for everyone, whether it is paying them, preparing them, disputing and/or filing them. We all encounter some or all of the following taxes throughout our lives: income taxes, estate taxes, business taxes, property taxes, state taxes, gift taxes, etc. Tax law can become extremely complex, depending on the subject matter, and at times may not even provide a clear-cut answer. The breadth and depth of this subject matter makes it impossible to cover everything tax-related in any short memo such as this. With that said, I wanted to highlight some important aspects of the collections process with the Internal Revenue Service.
Let us assume that you file your individual income tax return and you are not able to pay all of the money due in a timely manner. The Internal Revenue Service will make attempts to bill you and, if payment is not forthcoming, then the Internal Revenue Service will begin the collection process. The Internal Revenue Service can attempt to collect income taxes for up to 10 years from the date they were assessed. However, the aforementioned collection process can be suspended if a taxpayer requests an Installment Agreement or Offer in Compromise from the Internal Revenue Service. If the request is rejected by the Internal Revenue Service, then the taxpayer can submit a request for an Appeal. There are time limits for both the Internal Revenue Service and the taxpayer during this period.
During the aforementioned period when a taxpayer fails to pay his or her first bill for taxes due, a lien is created by law and attached to that person’s property. Liens apply to property (such as a home, car or retirement account) and to any current and future rights that taxpayer has to property (such as an inheritance). The Internal Revenue Service will then file a Notice of Federal Tax Lien which provides notice to the public (i.e. creditors) that a lien exists and that the Internal Revenue Service has priority for that lien.
Within five business days of filing the notice of Notice of Federal Tax Lien, the IRS will send the delinquent taxpayer a “Notice of Your Right To Collection Due Process Hearing”. If the taxpayer accepts the aforementioned Due Process Hearing with the Office of Appeals, then the Office of Appeals will issue a determination as to whether the Notice of Federal Tax Lien should remain filed, or whether it should be withdrawn, released, discharged, or subordinated. If a taxpayer disagrees with the determination, he or she will have 30 days after it is made to seek a review in the U.S. Tax Court.
And the process can go on and on…. The prior paragraphs were not meant to put you to sleep! It was only meant to give you some insight into a small part of the process and to show how the rules must be followed diligently in order to avail yourself of all your rights. During this period of a tax dispute with the IRS, you have the right to appeal, request hearings, file documents such as requesting Installment Agreement or Offer in Compromise from the Internal Revenue Service (among other possible items). The strategy I suggest for any taxpayer depends on the amount of money involved, the client’s philosophy, and what makes the most cost efficient sense for the particular set of facts and circumstances. There is no “one size fits all” approach. However, it is my general belief that it makes the most economic sense to attempt to obtain resolution with the first tier of the IRS before you have to “go up the ladder” and it becomes an even more costly experience. When people do not “hit the nail on the head”, I have seen things get out of control.
This was only a small glimpse into the world of IRS collections, but it should give you some insight into the process. As I mentioned in the introduction, taxes are a part of everyday life and so it’s inevitable that you would have other questions and/or issues that might pertain to: paying taxes, preparing taxes, disputing taxes, filing taxes, income taxes, estate taxes, business taxes, property taxes, state taxes, gift taxes, etc. If so, I’m available for an introductory meeting to explore any tax concerns that you may have. Please feel free to contact me at your convenience.
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