What Can The IRS Do?

If you don’t pay your taxes or file your income tax returns, what can the IRS do?

For not filing your income tax return, Internal Revenue Code Section 6020(b) provides that:

(b) Execution of return by Secretary (1) Authority of Secretary to execute return If any person fails to make any return required by any internal revenue law or regulation made thereunder at the time prescribed therefor, or makes, willfully or otherwise, a false or fraudulent return, the Secretary shall make such return from his own knowledge and from such information as he can obtain through testimony or otherwise.

In other words, the IRS will prepare and file your tax return for you using the best available information it has. No tax deductions reported on a Schedule A are included in the IRS’s version of your tax return.

For non-payment of tax

What Can the IRS do if I Will Not File or Pay?

SELL YOUR PROPERTY

The IRS conducts several different types of property sales. For sales of seized property conducted under IRC sections 6335 and 6336 (applying to the sale of perishable goods) the following applies.

The IRS will post a public notice of a pending sale, usually in local newspapers. The original notice of sale will be delivered to you, or sent to you by certified mail.

After placing the notice, the IRS must wait at least ten days before conducting the sale, unless the property is perishable, and must be sold immediately.

Before the sale, a minimum bid price is computed. This bid is usually 80% or more of the forced sale value of the property, after subtracting any liens.

If you disagree with the Fair Market Value or forced sale value, you can appeal it; and ask that the price be computed again by either an IRS or private appraiser.

If the proceeds of the sale are less than the total of the tax bill and the expenses of levy and sale, you will still have to pay the unpaid tax.

If the proceeds of the sale are more than the total of the tax bill and the expenses of the levy and sale, the IRS will notify you about the surplus money and will tell you how to ask for a refund. However, if someone, such as a mortgagee or other lien holder, makes a claim that is superior to yours, the IRS will pay that claim before it refunds any money to you.

LEVY

A levy is a legal seizure of your property to satisfy a tax debt. Levies are different from liens. A lien is a claim used as security for the tax debt, while a levy actually takes the property to satisfy the tax debt.

If you do not pay your taxes (or make arrangements to settle your debt), the IRS may seize and sell any type of real or personal property that you own or have an interest in. For instance,

It could seize and sell property that you hold (such as your car, boat, or house), or
It could levy property that is yours but is held by someone else (such as your state tax refund, wages, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, the cash loan value of your life insurance, or commissions).

The IRS usually levies only after three requirements are met:

It assessed the tax and sent you a Notice and Demand for Payment;

You neglected or refused to pay the tax; and
It sent you a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) at least 30 days before the levy. It may give you this notice in person, leave it at your home or your usual place of business, or send it to your last known address. If it levies your state tax refund, you may receive a Notice of Levy on Your State Tax Refund, Notice of Your Right to Hearing after the levy.

You may ask an IRS manager to review your case, or you may request a Collection Due Process hearing with the Office of Appeals by filing a request for a Collection Due Process hearing with the IRS office listed on your notice. You must file your request within 30 days of the date on your notice.

Levying your wages, federal payments, state refunds, or your bank account.

If the IRS levies your wages, salary, or federal payments, the levy will end when:

The levy is released,

You pay your tax debt, or
The time expires for legally collecting the tax.

If the IRS levies your bank account, your bank must hold funds you have on deposit, up to the amount you owe, for 21 days. This holding period allows time to resolve any issues about account ownership. After 21 days, the bank must send the money plus interest, if it applies, to the IRS.

FEDERAL TAX LIENS

Liens give the IRS a legal claim to your property as security or payment for your tax debt. A Notice of Federal Tax Lien may be filed only after:

It assesses the liability;

It sends you a Notice and Demand for Payment – a bill that tells you how much you owe in taxes; and
You neglect or refuse to fully pay the debt within 10 days after we notify you about it.

Once these requirements are met, a lien is created for the amount of your tax debt. By filing notice of this lien, your creditors are publicly notified that we have a claim against all your property, including property you acquire after the lien is filed. This notice is used by courts to establish priority in certain situations, such as bankruptcy proceedings or sales of real estate.

The lien attaches to all your property (such as your house or car) and to all your rights to property (such as your accounts receivable, if you are a business).

Once a lien is filed, your credit rating may be harmed. You may not be able to get a loan to buy a house or a car, get a new credit card, or sign a lease. Therefore it is important that you work to resolve your tax liability as quickly as possible, before lien filing becomes necessary.

SUMMONS

The power to summons held by the IRS applies to “Taxpayer Records and Testimony”, specifically it applies to the “Taxpayer Records In Possession of Others” and to “Rights and Privileges of Person Summoned”

TRUST FUND RECOVER PENALTY (“100% PENALTY”)

For more information about the 100% penalty, see my other blog posts. To encourage prompt payment of withheld income and employment taxes, including social security taxes, railroad retirement taxes, or collected excise taxes, Congress passed a law that provides for the TFRP. These taxes are called trust fund taxes because you actually hold the employee’s money in trust until you make a federal tax deposit in that amount. The TFRP may apply to you if these unpaid trust fund taxes cannot be immediately collected from the business. The business does not have to have stopped operating in order for the TFRP to be assessed.

Call a tax attorney for help resolving these tax problems.