If you are one of the less than one percent of people who receive an IRS audit letter, don’t panic. More than likely, your tax return was flagged because of one of these common IRS audit triggers. For most mail audits, the IRS asks you to explain or verify something simple on your return, including - Unreported income, Filing Status, Dependents, Itemized Deductions, or Eligibility for credits.
Assuming that you were totally honest when filling out your tax return, your audit can likely be handled with relative ease. However, if you were intentionally dishonest in your filings, you could end up in hot water!
Technically, not paying your past-due taxes is considered a misdemeanor. You can be fined up to $25,000 for each tax year you’re delinquent, and you could be sent to prison for up to a year, according to Cornell Law School’s Legal Information Institute. But this is unlikely, as the IRS would rather collect their money than send you to the pokey.
If you know you owe it money, you might be surprised at its willingness to work with you if you come forward. You can only dodge the IRS for so long.
Most consumer creditors have no authority to take your tax refund because of unpaid debts. There are, however, exceptions to this rule. The IRS can redirect your federal tax refund to someone else in certain instances, and owing back taxes to your state is one of them. If you owe state taxes, your state can take all of your federal tax refunds until you're caught up. State tax agencies can take your refund through the Treasury Offset Program (TOP).
An employer is required to withhold federal income and payroll taxes from its employees’ wages and pay them to the IRS. Withheld payroll taxes are called trust fund taxes because the employer holds the employees’ money (federal income taxes and the employee portion of Federal Insurance Contributions Act (FICA) taxes) in trust until a federal tax deposit of that amount is made (Slodov, 436 U.S. 238 (1978)).
Sec. 6672(a) provides that “any person required to collect, truthfully account for, and pay over any tax imposed by” the Internal Revenue Code who willfully fails to do so, will, “in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax … not collected … and paid over.” The term “any person” is important because Sec. 6672(a) allows the IRS to pierce the corporate veil and proceed against any person who is responsible for the corporation’s failure to pay over trust fund taxes, thereby making that person personally liable for the employer’s unpaid payroll taxes (White, 372 F.2d 513 (Ct. Cl. 1967)). Therefore, the penalty can be imposed on any responsible person, regardless of the form of business entity.
If you’re in debt to the IRS, Uncle Sam can slap a tax lien on your home. A federal tax lien can make it difficult for you to sell your house, refinance the mortgage or get credit until the debt is paid.
A lien also attaches to other assets, including your money, vehicles and any other property you own. If you’re a business owner, those assets may be included in the lien, too. And filing for bankruptcy will not clear a federal tax lien. The lien may continue after bankruptcy.
Anyone past due on their federal taxes is subject to a tax lien. The IRS will assess your liability and then file a Notice of Federal Tax Lien, which alerts creditors that the IRS has a legal right to your home. You will receive that notice, too.
People work extremely hard for their money. Whether you go to college or enter the workforce immediately after high school, it takes years to get on your feet and amass any semblance of savings. Rent or mortgages cost money, food on the table costs money, and necessities like heating, water, and healthcare all cost money.
You’ve worked far too long and hard to lose it all to the Internal Revenue Service (IRS). When you fall behind on taxes, they can take what they deem appropriate from your wages, savings, retirement accounts, and even assets like vehicles.
What should you do when the IRS is about to freeze or freezes your bank accounts? The first step is to understand your rights and then get help on your side.
If you’ve worked your entire life to save money for your retirement, it can pose a serious issue if you receive a notice of delinquent federal taxes from the IRS. It may feel unfair and worrisome for both yourself and your family. You may wonder how it is possible for the IRS to take such action in the first place.
Even though retirement accounts are often sheltered from creditors under federal and state law, this protection ceases to exist when the creditor is the Internal Revenue Service.
The IRS can and will garnish your assets to ensure payment on your debt. They will initially attempt to seize a variety of different assets, but If no other options exist they will levy your 401k for payment.
If the IRS seizes your house or other property, the IRS will sell your interest in the property and apply the proceeds (after the costs of the sale) to your tax debt. Prior to selling your property, the IRS will calculate a minimum bid price. The IRS will also provide you with a copy of the calculation and give you an opportunity to challenge the fair market value determination. The IRS will then provide you with the notice of sale and announce the pending sale to the public, usually through local newspapers or flyers posted in public places. After giving public notice, the IRS will generally wait at least 10 days before selling your property. Money from the sale pays for the cost of seizing and selling the property and, finally, your tax debt. If there’s money left over from the sale after paying off your tax debt, the IRS will tell you how to get a refund.
