It’s that time of year. Taxpayers across the country are preparing returns only to learn that they owe taxes they cannot pay. What’s the consequence of owing the Internal Revenue Service (IRS) unpaid taxes? That’s a question that is difficult to answer since every case depends on the facts and circumstances of the specific situation. However, what owing taxes does mean is that the taxpayer is likely to encounter the IRS Collection Division.
The Collection Division is responsible for collecting taxes that have not already been paid or placed on a voluntary resolution program. Unfortunately, there is quite a bit of misinformation regarding cases assigned for collection by the IRS. Regardless of your circumstances here are a few of the most common myths of IRS collection cases:
- You’re not responsible for mail you never get: Many taxpayers believe, mistakenly, that if they don’t let the IRS know their most current address they are not responsible for collection letters the IRS is sending. Nothing could be further from the truth. Generally, the IRS’ requirement for service by mail is the taxpayer’s last known address. Therefore, if the taxpayer has not notified the IRS of an address change the taxpayer will actually be the one to suffer by being in the dark. This issue can end up costing a taxpayer valuable collection appeal rights.
- The IRS will settle for “pennies on the dollar”: The IRS does have a settlement program called the Offer in Compromise (OIC). Interestingly, offers happen probably more often than many tax professionals think, but a lot less than taxpayers have come to believe. The IRS’ own numbers over the past two years show an Offer in Compromise acceptance rate of roughly 40%. Still, the key to a successful offer is the pre-qualification process. There are many nuances to an Offer in Compromise case and as a result, there is no substitute for experience when it comes to presenting a viable, realistic offer.
- The IRS can collect against you for a lifetime: Sometimes dealing with IRS Collections for more than a day can feel like a lifetime. Especially, if you’re on hold. In fact, the rules concerning how long the IRS can pursue unpaid taxes are quite clear. Generally speaking the IRS’ statute of limitations for collection is ten years from the date a liability is assessed.
- The IRS will take your home: In actuality, the IRS is not going to take your home. That’s not to say that the IRS can’t take it… only that the IRS doesn’t do it. Seizures (which can include home, car, boat, etc.) themselves are fairly rare for the IRS. In the past two fiscal years, the IRS has reported fewer than 500 total seizures. And because policy statement and stricter rules make seizing a primary residence more difficult it becomes increasingly difficult to face that proposition.
- At least the IRS can’t get to your retirement accounts: Unfortunately, the IRS can get to retirement accounts. There are very few assets exempt from the reach of an IRS levy. They are outlined specifically in the Internal Revenue Code and include (here), but are not limited to, Workmen’s Compensation, Unemployment Benefits and minimum exemptions for salaries and wages. What one won’t find exempted by rule are 401k accounts, stock accounts or Social Security benefits.
Of course, dealing with IRS Collections is a nuanced process that should not be taken for granted. But, dispelling the myths above should help bring more clarity to what one may face when dealing with IRS Collections.