Good morning. I’m Sam Brotman with Brotman Law here to give you an overview of the IRS collection process for non-tax lawyers. I have a running joke with a lot of my family law attorney colleagues that I’m often the most popular person in their divorce cases. And the reason for that is because I’m solving a very, very complex issue that oftentimes the sides can’t agree on and most everybody hates their own lawyers. So, as a general frame of reference, what we do as tax people is solve really particularly nasty problems that most people just don’t want to deal with. But my goal here today is to give you an overview of the IRS collection process because it causes a lot of fear for people’s clients and to better inform you on how collections work within the IRS to dispel some of the myths and some of the preconceive stereotypes that you may have about how the IRS tends to operate. As part of the presentation, what I will be covering today is kind of a general overview on how to tax returns are filed and how balance dues occur within the IRS systems.
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Who is Afraid of the Big Bad Wolf? – About the IRS
So now I want to talk a little bit about the IRS itself. The IRS itself, what I commonly say about the IRS is, “Who is afraid of the big bad wolf?” It’s the IRS has mystique about them. They are viewed as this big albatross of a government agency with unlimited power and they have the ability to put people in jail or take their houses away or any number of really negative nasty connotations. This culture of fear surrounding the IRS has been perpetuated number one, by the tax resolution industry which tries to use fear marketing to target clients and then the other really by the IRS itself. In actuality, the IRS is a small organization that has very limited resources and relies on putting fear in the people to motivate them to action. The IRS is trying to solve the problem about $85 billion tax gap. And that tax gap is a result of people either not filing returns or not paying what they owe.
What Causes a Balance Due
One of the first things I want to talk about is what causes a balance due. Balance due is tax liability that is owed to the government. There are four basic ways that balance dues occur. The first is you file tax return showing a liability that’s owed to the government that is not paid. If a tax payer files a return, they owe $10,000. They don’t include the check with that. That will create a balance due within the IRS system. The second way that balance dues are formed is through the matching program that the IRS has. When the tax payer files a tax return not showing a tax liability but there are either errors or omissions on that tax return, then the IRS will make a correction. Oftentimes, the issue of the correction through which is called the CP2000 notice, tax payer will file a return.
Substitute for Returns (SFR)
The final way that balance dues are created is through what’s called substitute for return. When you have a case of a non-filer, if the taxpayer doesn’t file a return for a year and the IRS will see a way to income information for that taxpayer or any number of other third party data sources, then the IRS will create a return for the taxpayer. That’s what is known as substitute for return or SFR. If you’re calling the IRS and the IRS indicates the taxpayer has SFRs on file, that means the taxpayer didn’t file a return. Those SFRs can simply be corrected through a tax return and putting something on the IRS system with the SFR liability. Generally, the statute for any changes through examination is three years with some exceptions. There’s exceptions for fraud which can extend the statue up for six. And there’s also an exception for SFRs. Any time a taxpayer does not file a return, the IRS can technically go back and file a return on their behalf.
What Happens When You File a Return With a Balance Due
Now, I want to talk about what happens when you file a tax return with a balance due. You go to file your tax or you have your CPA file your taxes. These taxes gets transmitted to the IRS and they go to a service center. Regardless of whether you paper file or whether you file electronically, that information gets processed in that service center. Tax returns generally are processed on the spot. They take about four to six weeks to work their way through the IRS system. Once you file your tax returns, you can actually expect your balance due won’t appear for four to six weeks. That’s an important thing for non-tax counsel to be aware of because if your client files a return, they’re generally not going to hear from the IRS report for four to six weeks.
Automated Collection Systems
Now, I want to talk a little about automated collections systems. Automated Collection Systems is a network of campuses that the IRS maintains that enforce collection activity. It’s the first stage of collection so to speak. Because the IRS has limited resources and because the IRS has lots of people that owe them money, they rely on certain campuses in cities like Memphis or Brook Haven, New York; or Kansas City, Missouri; Cincinnati, Utah and a variety of places to enforce collections for the IRS. If you ever want to know what ACS is all about, just picture a big room with a bunch of people that have computers. They have phones and they do the dirty work of the IRS trying to enforce collections on its behalf. ACS call centers will receive calls, anybody who gets a levy or lien will call in the IRS and say, “Hey, you took my property.” The ACS agent will try to work with them on resolving the account. ACS agents in general as well are also the people who call taxpayers and try to track them down.
More about Automated Collections Systems
As a result of that, there are some things that you should note about ACS. Number one is that most of their collections agents do not handle the same case twice. Because they don’t handle the same case twice, you’re often relying on the ACS agent to take very detailed notes about the call, discuss time tables and actions. Unfortunately, sometimes they don’t keep the best notes. It’s really important as a practitioner to keep notes and records every time you all ACS so that you can best document your case, so that you have an understanding of what was said. That way, if there’s any dispute later, if the IRS levies your client or if there’s any other negative action taken, you’ve got the name of the ACS agent, you’ve got their ID number, you got the date and time of your call. And by having those pieces of information when dealing with their supervisor saying, “Hey, so and so told me that we weren’t going to levy and they went ahead and levied.”
Tips for Dealing with Automated Collection Systems Agents
Let me give you some tips on dealing with automated collection system agents. The first is you have to understand how the system works is ACS agents are in a bunch of call centers across the country. Because they’re in call centers, they can handle a high volume of calls from people all over the United States. The best strategy for dealing with ACS, to avoid sitting on hold for an hour, is to give a call early in the morning or late at night. In our office, we have East Coast phone numbers and we will actually call the East Coast before the West Coast opens so that we can get through. That’s a great tactic because when the East Coast opens up at eight o’clock, it’s five o’clock California time and the rest of the country is sleeping. Our chances of getting through to ACS are much greater. Consequently, if I call late at night, if I call at seven o’clock – ACS is open ‘til eight by the way – then I’m much more likely to get through because the rest of the country is sleeping, and/or their call centers have been shut down.That way I’m only be dealing with people on the West Coast particularly during peak season. To avoid increased call volumes, call ACS during off-peak hours. Secondly, because they are large and because they are multiple people, your experience with ACS largely depends on the individual agent.
What Happens when the IRS Cannot Collect on a Taxpayer
ACS will try to collect an account for a period of time. If ACS is unsuccessful in collecting the account, it generally does one of two things: Number one is ACS will refer the matter out to the field for further investigation. They will send it to a Revenue Officer, who I will explain in a minute. When ACS gets frustrated or when the balance reached a certain dollar amount, they’ll kick it out to a Revenue Officer to, perhaps, pursue some more localized tactics for collections. The other thing ACS can do is ACS can deem the account non-collectible. There’s two ways principally that ACS deems account non-collectible: Number one is if the taxpayer who writes financials showing they can’t pay the IRS any money, if they cash in and cash out every month, then there’s no money left over for the IRS after their basic living expenses and the IRS will put them into a non-collectible status.
Collection Action a Revenue Officer Can Take
Let’s talk a little bit briefly about IRS revenue officers’ specific collection actions. All collection agents within the IRS can either lien or levy. They can seize assets. They can garnish wages. But revenue officers have a couple of things that they can do that are particularly unique to their style or classes. The first thing I mentioned was field visits. IRS personnel can visit your client or they can investigate third-party sources. They can go knock on neighbor’s doors. They can knock on employer’s doors. They can track down former employer. If the taxpayer on a business, they can go after your customers. The IRS revenue officers have broad latitude in contacting third parties for information on tax payers. No, they do not have to provide you with notice before they make those calls. When dealing with a revenue officer, if you’ve got a client who is particularly concerned about their business or their privacy, it is important to make contact with that revenue officer and dissuade those face-to-face visits as soon as possible. The second thing that revenue officers tend to do is enforce things called IRS administrative summons. The IRS will issue a summons for records, oftentimes to banks or to taxpayers or to other parties requesting information or face-to-face interviews.