video-blog

IRS levies. A levy is a seizure of property or assets.

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IRS levies. A levy is a seizure of property or assets. Mostly what IRS levies are associated with is our bank levies. The IRS will come in and will levy a taxpayer’s account. Levy is different than liens. Liens do not immediately effect property in terms of seizing that property. A levy is a seizure. So, the IRS can levy bank accounts. They can levy accounts receivable. They can levy brokerage accounts or other financial assets. Levies are often a source of stress for taxpayer and when we get the majority of our levies clients, “Hey, the IRS wiped out my bank account.” Levies can be defeated with a number of things. The most important thing to defeat a levy is prevention. You want to make sure that you’re working with a revenue officer or with a CS to avoid any levies. When levies are issued it is important to fight them. You can fight them I numerous ways. The easiest way to fight a levy is to substantiate a documented hardship with the IRS.

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Interest and Penalty Abatements

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Interest and penalty abatements. One of the more commonly complaints that we get around our office is the amount of interest and penalties that are tapped on to liabilities. A taxpayer will call us up and say, “Hey, we owe $20,000 to the IRS but they charged another $20,000 in interest and penalties that we didn’t even know them. Is there anything that we can do about the interest and penalties?” The short answer is “yes,” particularly with respect to the penalties. IRS interest abatements are very difficult to get. The IRS fears interest as what they are entitled to because of a delinquent tax liability. The IRS interest rate usually is pretty low. It’s usually defined by the statutory interest rate. It’s usually between a 3% and 6%. So, it’s usually not that big of a killer. The killer is the penalty portion of it. The penalties are often substantial. They can raise anywhere from 10% to 75% and they can turn a small liability into a fairly substantial one really, really quickly. Penalty abatements are governed through Section 20 of the Internal Revenue Manual.

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Innocent Spouse Relief

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Innocent Spouse relief. Innocent spouse relief is a fairly hot topic of conversation particularly among family lawyers and those individuals who are going through separations because oftentimes these people feel that they wrongly injured by their spouse or significant other’s tax liability. Innocent spouse requires several things and I want to be clear about those from the onset. First of all, you must have some sort of understated tax in the return that you had no knowledge to. If your spouse runs a business and they understated their tax liability and you had no knowledge of it, then you could potentially be a candidate for a innocent spouse. You also have to show that when you sign the return you have no knowledge of the liability and do not benefit from it. That is a particularly tricky proposition because oftentimes if one spouse is cheating on their return or understating liability then the other spouse is receiving some indirect benefit of that whether it’s increased cash or to the household or some other financial gain. The IRS will not grant innocent spouse relief in those cases.

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Differences Between the Federal Tax System and the California State Tax System

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Briefly I want to talk to you about differences between the federal tax system and the state tax system. As I mentioned, due to limited resources state are usually more aggressive in their collection tactics and their examination tactics than the federal government and the principal reason for this is because taxation for the states is the principal source of revenue racing. A lot of times when there is a budget shortfall the state will lean on their self tax and the federal tax bureau will lean on the income tax to help mandate collections priorities and help raise revenues either through collecting past due liabilities or examining returns and finding new ones. In general, the states because of their limited resources will rely more on in voluntary collections actions than field representatives so there’s much greater reliance at the state level for collections processes that are instituted from a remote location so for example in California the main center of operation for the FTV which is the Franchise Tax for the State of California income tax bureau is in Sacramento. Most FTV actions are initiated from the Sacramento office whether they are levis, phone calls, contacts with tax payers, or any sort of collection actions. The states have limited resources at the local level.

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California State Specific Tax Issues

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So now I’d like to talk to you about some issues with regarding that the states have specifically. In California, we have a number of challenges in dealing with the state taxis that are either less of an issue or non-existent at federal level. The first as I’ve kind of touched down earlier is overside. There is usually less overside on cases than there is at the federal level. And I mean by that, is the auditor or the collection agent is given a lot more latitude in most cases to handle the cases as they see fit as long as it falls within the administrative guidelines. This particularly has an impact on the examinations process so a lot of the times the auditors are kind of given free rein to define the scope of what the audit is in sales tax or in particular they can do a really detail investigation and go through a number steps that you may not find in the federal process. As a result of this and as a result of the states having fewer resources, there is often times administrative delay when dealing with the state cases. For example, the time frame in California right now is if I were to represent a client in a sales tax audit and me and the auditor just agreed on the result and I filed and appeal, it would take anywhere from 8 to 12 months under the current structure to hear that appeal.

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Prohibited Collection Activities for State Collection Agents

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So, briefly I’d like to talk a little bit about what procedures are in bound and out bounds for state collection agents. For the most part, state collection agents are expected to be courteous, they are expected to expeditiously move their cases through the state collections procedures and they are expected to try and work with the tax payer to facilitate a resolution. In practice, some agents are more difficult to deal with than others. It is often times a lot harder to work with an agent who is on a state level because a lot of times there’s not that face to face contact that you have with the IRS or you get a state collection agent who is under external pressures to collect revenue or to enforce the collection action much more severely, that coupled with the fact again, there are very few tax payer rights, makes things a little bit more difficult to do it.

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