Can a Tax Attorney Help with IRS Collections?

Many of us scramble to get our taxes done by the April 15 deadline for fear of the Internal Revenue Service. Vague fears of an IRS audit or worse keep most people on their toes about filing deadlines and tax payments.

But what really happens if you miss the deadline or can’t pay your income tax return?

The IRS collection process doesn’t begin immediately. Unless you owe many years’ worth of back taxes or there are other irregularities with your tax return, the IRS will not take immediate action. Instead, the IRS adds interest and penalties to the amount owed until you pay your tax debt in full.

At some point, the IRS collections department will send you a notice. The IRS has several options when it comes to collecting delinquent taxes. Which option they choose will determine whether you should contact a tax attorney or not.

If You Miss the Deadline

Most taxpayers know if they can’t make the April 15 deadline they can file for a six-month extension. As long as you file your taxes by October of the same year, you may have no further tax problems. Most people do not even need an accountant to file the extension for them. These forms are available online at the IRS website.

There are two types of penalties:

• Failure to pay 
• Failure to file

If you file the extension with or before you file your taxes, you won’t need to pay the failure to file penalty. If you file late without requesting an extension, you may receive a notice from the IRS notifying you of penalties and interest on your account. If you’re owed a refund, the IRS will take the penalties out of your refund amount.

The IRS Tax Collection Process

If you owe the IRS a large amount in taxes and cannot pay, it might be tempting to ignore it and hope it goes away. This is a bad idea.

Eventually, the IRS will notify you this has become a collection matter. You will receive a bill from the IRS, which means they have started the collection process. The longer you wait, the greater the penalties and interest that will accrue on your tax bill.

If you do not respond to your tax bill and don't contact the IRS to make payment arrangements, it will begin collections. The IRS can take several collection actions, including:

• Refund offset
• Wage garnishment
• Filing a notice of federal tax lien
• Serving a notice of levy

Under the Constitution and U.S. tax law, you have a right to due process. You can have an attorney represent you during the IRS collection efforts.

Refund Offset

If you fail to file one year and will receive a refund the next year, the IRS may take that refund to offset your past-due amount from the previous year.

The IRS also has the ability to levy your state income tax refunds, if any, to offset your federal tax debt.

Notice of Tax Lien

A lien is a legal judgment against property. A tax lien gives the IRS an interest in your property. As a creditor, the IRS has a claim on your property to the value of your past due taxes.

The lien may include your house, vehicle, bank account, and other titled property. You can’t sell or transfer any of this property until the IRS releases the lien.

If the property is jointly titled and only one owner has an IRS debt, you might qualify for “innocent spouse relief.” This is a form of debt relief that lets spouses request release from a tax debt acquired by the other spouse. To have a tax lien removed, you should contact a tax attorney.

Notice of Tax Levy or Wage Garnishment

If you have a large unpaid tax liability or continue to disregard IRS notices, the next step will be a Notice of Intent to Levy. A levy is a legal permission to seize the property mentioned in the lien. The most common type of property levy is a wage garnishment.

The IRS can take 25-50% of your disposable income. Disposable income is what remains after deducting your living expenses. They can sometimes take all of a 1099 contractor’s earnings. Garnishment may include bank accounts, Social Security benefits, pensions, and other income sources.

If a levy causes economic hardship, the IRS may release the levy before it has collected the full amount. You should contact a tax attorney immediately if a levy or garnishment creates economic pressure for you.

Proving economic hardship requires evidence that the garnishment prevents you from meeting your basic household expenses. An attorney can help you gather the necessary information before applying for a hardship waiver.

When You Need a Tax Attorney

You don’t need a tax attorney for all tax issues. However, if you receive any notices from the IRS regarding tax collections or tax audits, you should speak with an attorney right away.

• If you are late filing your taxes penalties and interest begin accruing immediately. Interest compounds daily, so the amount you owe increases rapidly.
• If you can’t pay in full, you can avoid penalties by requesting a payment plan. The IRS offers a monthly installment plan. Taxpayers can request a payment plan themselves on the IRS website. As long as you make regular payments, your account remains in good standing and the IRS will not pursue collections actions.
• If you can’t manage an installment agreement, your attorney can negotiate an offer in compromise (OIC). An OIC lets you settle your tax liability for less than the total amount. The IRS evaluates OICs on a case-by-case basis, and you must provide evidence of your income, expenses, and ability to pay.

If you need an OIC, you should have a tax attorney or other tax professional assist with the negotiations. They can tell you want documents you need to present to the IRS, such as paychecks, mortgage statements, and so on.

Tax Court

The U.S. Tax Court handles disputes between taxpayers and the IRS. If you have a tax dispute with the IRS, you have the right to present your case before a tax judge. You must request your right to a hearing within a certain time after the dispute arises. Tax attorneys recommend seeking assistance as soon as you think there may be an issue.

Get Legal Advice from a Tax Attorney

Tax lawyers know the tax code and how it applies to your situation. If you receive an IRS notice or have missed your filing deadline and need help applying for a payment plan or offer in compromise, you should talk to an accountant or tax attorney right away.

For other tax matters, such as a notice of audit, tax fraud, or other investigation, speak with your attorney as soon as possible.