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October 3, 2011 by msquaredlaw

The Collection Period.

By law, the IRS has the authority to collect outstanding taxes for 10 years from the date your tax liability was assessed.  However, this 10-year collection period is suspended in certain circumstances such as when the IRS is considering a request for an installment agreement, an offer in compromise or for innocent spouse relief, or during the period you are exercising your rights to court review and appeal.  Additionally, the collection period will be suspended while you are residing outside the United States for a continuous period of six months or more.  The amount of time the suspension is in effect will be added to the 10-year collection period.  Thus, the IRS has at least 10 years to collect your outstanding tax liability.  Ten years or longer!

IRS Collection Tactics.

The IRS is the most powerful creditor you will ever encounter.  The IRS has broad powers at its disposal to collect taxes that are owed and not paid.

1.  Tax Refund Offset.

The IRS will apply future federal tax refunds that you are due to offset the amount you owe.  Any state income tax refunds you are owed may also be applied to your federal tax liability.

If you have overpaid your taxes for one tax period, but owe taxes for another, the law allows the IRS to apply your refund to reduce the unpaid tax.  However, if you are a non-liable spouse (what the IRS calls an “Injured Spouse”) and the IRS offsets a federal income tax refund belonging jointly to you and your liable spouse, you may request return of your share of the refund.

2.  Federal Tax Lien.

The federal tax lien is a legal claim to your property including property that you acquire after the lien arises and to all your rights to property (such as the accounts receivable of your business).  The federal tax lien arises automatically when you fail to pay the taxes you owe within ten days after the IRS sends you their first Notice of Tax Due and Demand for Payment.

However, the IRS may file a Notice of Federal Tax Lien in the public records. The Notice of Federal Tax Lien publicly notifies your creditors that the IRS has a claim against all your property, including property acquired after the Notice of Federal Tax Lien is filed. The filing of a Notice of Federal Tax Lien will appear on your credit report and will seriously harm your credit rating and affect your ability to get a loan, buy a house or a car, get a new credit card or sign a lease.

Once a lien arises, the IRS generally cannot release the lien until the taxes, penalties, interest, and recording fees are paid in full or until the IRS may no longer legally collect the tax (usually 10 years after the tax is assessed).

However, under certain circumstances the IRS may withdraw a Notice of Federal Tax Lien.  The IRS may withdraw a Notice if:

  • the Notice was filed while a bankruptcy automatic stay was in effect;
  • the Notice was filed too soon or not according to IRS procedures;
  • withdrawal will allow you to pay your taxes more quickly;
  • withdrawal is in your best interest, as determined by the National Taxpayer Advocate, and the best interest of the government.

A tax attorney can help you by making sure the IRS has met all legal requirements for filing its tax lien.   If defects are found, at a tax attorney can appeal the filing of the tax lien.  Additionally, a tax attorney may be able to get the IRS to subordinate its tax lien to another lender.   For instance, the IRS may subordinate its tax lien in order to allow you to refinance the mortgage on your house.  This may enable you to borrow money against your assets to satisfy all or part of the tax lien.

3.   Tax Levy.

The IRS also may use a levy to collect taxes.  A levy is a legal seizure of your property to satisfy a tax debt. The IRS may seize property such as your car, boat, or house for the purpose of selling the property to satisfy a tax debt.  The IRS may levy against assets such as wages, bank accounts, Social Security benefits, retirement accounts, rental income, accounts receivables or commissions.   (We will further discuss wage garnishments and asset seizures in a future blog post.)

There are various reasons why the IRS must or will release a levy or return levied property.  A tax attorney can review the facts of your individual case and determine whether one of these reasons exist.  A tax attorney may assist you in getting the IRS to release the tax levy by entering into an installment agreement or otherwise settle the taxes owed through an offer in compromise.  Additionally, there may exist other relief options available in your case such as innocent spouse or injured spouse relief.

The Point.

The point is that the IRS has a looooong time to collect taxes from you and many tactics at their disposal.  They will not stop chasing you.  Even leaving the country will not help.  They will ruin your credit and latch on to any money or property you currently own or may acquire in the future.   You need to face the problem head on and come to an agreement with the IRS in order to achieve peace of mind.

If you would like to consult with us regarding your options, please contact us.

Muiños & Morales


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