Category Archives: Tax Debt Help

What is IRS Uncollectible Status?

A number of tax resolution companies are playing up the advantages of the IRS Currently Uncollectible Status (CNC), also known as Status 53. Now, there is no doubt that achieving Uncollectible Status can be very beneficial as a temporary tax resolution, but it’s best to know all the facts before you try to achieve this status.

The first thing you should be aware of is that CNC does not mean that your tax debt disappears. Worse, any penalties and interest will continue to accrue on the debt. So, while you may be temporarily delaying the debt, it’s getting larger. Therefore, if you find yourself with more money in the future, you could find yourself paying the IRS plenty. Oh, and the IRS will check on you every year or so to assess whether you’re still eligible for CNC, or whether you need to pay off your tax debt.

Another thing you should be aware of is that CNC only pertains to the existing debt. It certainly does not mean that the IRS is going to fail to collect on any new taxes owed. Quite the contrary, you need to stay current and compliant with your tax returns and payments.

Now, while it’s not all good news, Uncollectible Status can be very beneficial to certain taxpayers. Of course, this is no use if you don’t qualify. As you would expect, the IRS is going to require detailed financial information to satisfy itself that you’re unable to pay your taxes and that you’re not better suited for a different resolution program, such as a payment plan (or installment agreement). The IRS will look at your income, assets, and expenses. For the latter, you cannot just claim any expenses you want – the IRS has National Standards for allowable expenses that they’ll take into account. This does not mean that your CNC request will be denied if your expenses are higher than the national standards, but you’ll need to provide a very good reason, including plenty of documentation.

If you believe you should be on the CNC program, you can do so yourself by completing IRS Form 433F, where you provide information on your income and expenses. However, before going down this route, it’s always a good idea to speak to a tax debt professional, to find out whether this is your best option.

The IRS and Identity Protection

The IRS is again urging taxpayers to do their utmost to protect their identity from theft. The IRS recently updated their Identity Protection
page to reflect the latest advice. Especially during tax season, identity theft is an increasing problem that is proving difficult to combat.

According to the US Treasury Department, there were 1.2 million cases of tax identity theft in 2012. This is up from 48,000 back in 2008. The Department believes that this activity could cost the USA approximately $21 billion dollars over the next five years.

The identity theft problem is compounded by the increased use of electronic filing, which makes identity theft easier for criminals – all they need is your name and Tax ID number; they can make up the rest. In fact, the scheme is so enticing that it has drawn the attention of organized crime gangs. In fact, a recent Florida case had a mailman shot dead so that an identity theft gang could steal his master key.

It is impossible to completely protect yourself from identity theft, but there are steps you can take that will help:

  • The IRS will not contact you electronically requesting personal or financial information – no emails, no texts, no tweets, etc. So, if you receive something like this, do not click on links or provide any information. In fact, don’t ever provide sensitive information unless you’re absolutely sure who you’re dealing with.
  • It’s best not to carry around your Social Security Card or any documents containing your SSN. However, if you did and, for example, your wallet is stolen, you may be at risk. In this situation you should contact the IRS immediately and provide them with proof of your identity, together with a completed IRS Form 14039, Identity Theft Affidavit. Other ways in which you might notice you’re at risk are if the IRS reports multiple returns filed in your name, you notice reported income from an unknown employer, or you spot unusual activity on your credit report.
  • Do your best to protect your personal information. This might include using strong passwords on sensitive documents, protecting your electronic systems through firewalls and anti-virus software, moving sensitive information to media (e.g. CDs) that can be locked in a safe, and so on.

The IRS has, and is, working on methods to combat identity theft, but it’s a tough battle. In the meantime, you should do whatever you can to ensure that you don’t end up as the next victim.

What if you ignore the IRS Final Notice of Intent to Levy?

The IRS Final Notice of Intent to Levy is an official document that federal tax authorities issue in order to give you a warning that they are going to start enforced collection activity of your past due liability. This letter is usually sent via certified mail and requires your immediate attention, even if you believe that you do not owe money to the IRS.

The IRS gives you 30 days from the day when the Final Notice was issued to respond to it. If you do not owe any money to the IRS, you still need to call the number listed on this notice and discuss the matter with the IRS representative. If you have a debt, but believe that the amount listed on the Final Notice is incorrect, you can file an appeal request using the enclosed form 12153, Request for a Collection Due Process or Equivalent Hearing. You can also file this request if you wish to resolve your liability with the IRS, but need a little bit more time than 30 days to be able to do that.

If you ignored the Final Notice of Intent to Levy and missed the 30 days period to exercise your appeal rights, the IRS can start enforced collections. This may include bank levies, wage garnishment, levies of Accounts Receivable, and seizure of property. An IRS bank levy is usually a one-day event. In other words, when the Notice of Levy is received by your bank, the bank has to freeze the money you had in your account on that day and send this amount to the IRS. This does not apply to the money you receive any time after the levy. So, if you ignored the Final Notice of Intent to Levy, be aware that you might lose money from your bank accounts.

While it is possible to minimize the damage made to your financial situation by the IRS bank levy, the Levy on Wages, or the IRS Wage Garnishment, is not an easy thing to avoid. If the IRS sends a Levy on Wages notice to your employer, your next paycheck will be significantly lower than you expect. This will continue until your IRS debt is paid in full, or until you set up a repayment option with federal taxing authorities. In some cases it is possible to release a Wage Garnishment, but this is a complex issue and is best done with the help of a tax debt professional.

If you did not respond to the IRS Final Notice of Intent to Levy on time and became a victim of enforced collections, the best thing to do is to arrange an alternative repayment option with the IRS. It can be done by either contacting the department that issued this notice, or by filing form 12153 – Request for a Collection Due Process or Equivalent Hearing mentioned above. Although filing this form after the 30 days period does not stop collection actions, it still gives you the right for an Equivalent Hearing, which you can use to discuss your problem with the IRS Appeals Officer and negotiate a manageable payment plan. If you cannot afford to make any payments to the IRS for your past due taxes, you might be placed on Currently Non Collectible Status.

Introduction to Penalty Abatement

We all know that Inland Revenue Service (IRS) penalties can be quite severe. If you check out the IRS Penalty handbook, it says that “civil tax penalties exist for the purpose of encouraging voluntary compliance.” In other words, the penalties are put in place to try to ensure that you don’t even think about not paying your taxes on time.

Exactly the same approach applies to the interest that can be charged on past due amounts. Interest is purposely set extremely high to encourage people to meet their tax obligations. Ignore it at your peril, as penalties and interest can soon end up doubling, or more, the amount that you owe.

Depending on the exact circumstances, it is possible to avoid paying the penalties, and even the interest. However, you should be aware that these are not common occurrences. As far as the IRS is concerned, you owed the money and you didn’t pay it, so they do not have any problem penalizing you.

If you do decide that you’d like to try to abate the penalty, you should be aware of the circumstances in which the IRS may agree. First of all, the IRS will look into your history. If this failure to pay taxes on time is your first offense, then they’re likely to be much more lenient with you than they would with somebody who regularly fails to meet their tax obligations. If you fall into the latter category, you will need to have an extremely good reason for it.

Secondly, as is the case whenever you are in trouble with the IRS, make sure you are current with filing and tax payments from this point forwards. For example, if your tax penalty was from two years ago, but you’ve filed and paid taxes in the years since, you are more likely to be able to persuade the IRS to be lenient with you.

Now comes the hard part – convincing the IRS that your failure to comply was “due to reasonable cause, not due to willful neglect.” Essentially, this is saying that the reason for you non-compliance was beyond your control. Apologizing because you simply forgot, or didn’t have the money to pay, is not going to help you progress very far.

On the other hand, if there was a death or serious illness of the taxpayer or the taxpayer’s immediate family, this might be considered a good reason. Similarly, natural disasters (fire, flood, or earthquake) might also be considered acceptable – the IRS does have a heart, as shown by its leniency in stretching deadlines for victims of Hurricane Sandy. If the IRS gives you incorrect advice, either written or oral, this would also be acceptable, but good luck in trying to prove the latter.

You should also be aware that the IRS will only consider one request for penalty abatement, so you need to make sure you get it right, first time. This is one of the areas where tax resolution companies excel. For example, while 20/20 Tax Resolution certainly is not going to suggest that you make up stories to try to avoid penalties, the tax experts will help you to frame your reason in such a way that it stands the best possible chance of being accepted by the IRS.