Collection

Once tax has been assessed against you or your business, either as a result of an audit or as a result of the tax return filed by you, IRS has a legal right to collect any money that may be due. If you cannot pay the full amount due with the filing of the return, or shortly thereafter, IRS can take actions to collect the money without your cooperation.

These actions may include the following:

• Seizure and sale of property belonging to you or your business, including your home, your car, your business' machinery and equipment, etc.

• Filing of a lien which attaches to and encumbers any and all property belonging to you and/or your business.

• Levying on your bank accounts, accounts receivables, wages, or any other income, property, or rights to property you may have, presently and in the future.

• Assessing a portion of a business' payroll tax liability against you personally if you are an officer or a shareholder of a business.

• Recommending criminal prosecution to the U.S. Justice Department for failure to pay the tax.

The Internal Revenue Service is a very large and powerful organization which operates on a day-to-day basis under special rules. It can do administratively what other creditors must go to Court to accomplish.

For example, the IRS can levy on your bank account, garnishee your wages or seize your business' assets without judicial due process. Even in those rare cases when judicial review is required – such as when the IRS wishes to seize assets from the “private” area of a business, the judicial hearing is ex parte and does NOT entitle you to representation in Court!

IN THEORY

Of course, you have certain due process rights. The Constitution of the United States entitles you to due process, as well as equal protection of the law, regardless of personal circumstances, education or availability of expert counsel. But there often are real and serious differences between what you are theoretically entitled to and the practical reality of dealing with the IRS.

IN PRACTICE

Some of the practical realities are as follow:

1. The IRS is an enormously large organization. You may have trouble getting through on the telephone or in person because of the large volume of work it needs to deal with. Even if you get through to somebody, he or she may not want to deal with the issues you present – at least not all of them. In order to handle the huge amounts of documents and information it has to deal with every day, IRS has structurally organized itself into functional units that handle only certain types of work. If the issues you need to deal with cross these functional units you will often be shuffled back and forth between them, some of which would rather push the work off to someone else.
2. Initial handling of taxpayer problems is automated on a system designed for bulk processing at centralized computer centers. Your letters or telephone inquiries are often ignored, or given short shrift by many of the lower-level clerical workers employed there.
3. The experience and knowledgeability levels of IRS employees vary widely. The less knowledgeable or less experienced employees are often more difficult to deal with than their better trained counterparts. Every time you make a contact or an inquiry you are rolling the dice as to the type of employee you will have to deal with.
4. IRS employees are invariably overloaded with work and generally do not give any one case the attention it may deserve. The pressure is to get the money in, close the case, and go on to the next “problem taxpayer.”
5. Many IRS employees are under supervisory pressure to close cases quickly. This tends to reward aggressive action and punishes in-depth involvement.
6. The initial due process hearings are administered by IRS employees who, being part of the system, could not be considered totally impartial.
7. Most taxpayers are not aware of all the rights they may have in dealing with the IRS and are, therefore, at a distinct disadvantage in dealing with employees who deal with those issues every day. While many of them make an effort to be fair, the bottom line is that their first allegiance is to their employer – not the taxpayer.

Under these circumstances, due process is often given only lip service. With little exact knowledge if his rights and the complex IRS regulations, the taxpayer is usually in a poor position to fend for himself.

Of course, the passage of the  Internal Revenue Service Restructuring and Reform Act of 1998 was intended to address those and many other issues. In all fairness to the IRS, it has made a real effort to comply with the spirit and the letter of the law. Charles O. Rossotti, the IRS Commissioner at the time, as well as the commissioners thereafter, had all made it a cornerstone of their tenures to emphasize “customer service.” The results have been encouraging so far, but the jury is still out on any final conclusions. RRA98 added many new due process rights to the taxpayers, but it did not take away the basic powers of the IRS, including the lien, levy and seizure. It has not downsized the IRS, nor has it guaranteed adequate funding for it. Finally, it has not simplified the complex tax laws that IRS is charged with administering. Therefore, it remains to be seen how much of an inroad RRA98 will make into IRS' Corporate Culture.

A PRACTICAL ALTERNATIVE

If you have an IRS problem – or feel one is developing – it may be advisable to seek professional representation, even for what might seem to be a simple matter at the start. (IRS has a history of making simple matters more complex.) A knowledgeable attorney may be able to help you in many ways:

IRS employees make mistakes, take shortcuts and/or ignore their own procedures. An experienced tax attorney can protect your rights – keep the IRS honest!

An attorney can explore the various options available, including, but not limited to:

• Offer in Compromise
• Payment Agreement
• Abatement of Penalties and Interest
• Abatement of Taxes (through expiration of statute of limitations, etc.)
• Writing off the Obligation as “Uncollectable”
• Requesting Lien Discharges or Lien Releases
• Taking Your Case to the IRS' Appeal Office or to the US Tax/District Court
• Referring the Matter to the Problem Resolution Office or the Taxpayer Advocate

​Some IRS regulations are not clear-cut, and their interpretation is a matter of judgment or opinion. A skillful attorney will be able to marshal the facts in your case and perhaps negotiate more favorable terms. Offers in compromise and payment agreements are possible examples.

The tax attorney can develop a complete analysis of your entire financial situation – not just your IRS problem – and recommend a “game plan” based on your particular circumstances. Such a game plan – which can range from financial restructuring through liquidation bankruptcy – may save you thousands of dollars.