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"There is nothing sinister in arranging one's affairs as to keep taxes as low as possible...for nobody owes any public duty to pay more than the law demands."
--Judge Learned Hand
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IRS Problems
IRS Notices
Liens
Levies and Seizures
Employment Taxes and the Trust Fund Recovery Penalty (TFRP)
IRS Notices
Don't panic when a letter from the IRS arrives. You can handle many tax notices easily.
Each year, the IRS sends out millions of notices. Most of these let taxpayers know of common filing mistakes that mean a change in a tax bill. Others request additional information about a return. The notice normally covers a specific issue and offers equally specific instructions on what the IRS wants from you to settle the matter.
Commonly issued tax notices. Each IRS notice is identified by its CP number, found in the upper right corner of the first page of the correspondence. Each also has a title in large, bold print near the center of page one. Here are the most common tax notices and why they are issued:
CP 12 Math Error – Overpayment of $1 or more
CP 14 Balance Due, No Math Error (individual return)
CP 49 Overpaid Tax Applied to Other Taxes You Owe
CP 161 No Math Error, Balance Due (business return)
CP 501 Reminder Notice - Balance Due
CP 503 Urgent Notice - Balance Due
CP 504 Notice of Intent to Levy - this is serious - last notice required before a Federal Tax Lien is filed
CP 515 First Notice - Return Delinquency
CP 518 Final Notice of Overdue Tax Return
CP 523 Notice of Default on Installment Agreement
CP 2000 Notice of Proposed Adjustment for Underpayment or Overpayment
Letter 1058 Notice of Intent to Levy and Right Of Hearing - this is serious - enforcement action has started
If your notice isn't listed above, you can call the IRS toll-free at 800-829-1040 for information or phone Tax Savvy for help.
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“Our Tax Code is so complicated, we've made it nearly impossible for even the Internal Revenue Service to understand"
--Treasury Secretary Paul O'Neill
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The comments accompany a proposal that O’Neill had to simplify the tax code. O’Neill noted that “the burden is too great.
"Estimates of how much taxpayers spend complying with the tax code range from $70 billion to $125 billion a year, and include literally millions of hours.
"Consider the senior citizens who have some modest retirement savings. Right now, they are prohibited from using the simplest tax forms and are forced instead to use much more complicated forms and wade through much more complicated instructions.”
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Check your information. The first thing to do when you get a tax letter is to pull out the tax return in question and compare your copy with the IRS notice. You may find that you added when you meant to subtract, transposed a number or put an entry on the wrong line. If you agree with the change the IRS proposes to your tax account, no reply is necessary unless a payment is due. If you owe additional tax, follow the notice instructions about where to send the payment.
When you disagree. If you believe the IRS is wrong, let the IRS know as soon as possible. Call the number on the notice or send the tax agency a written explanation for the suspected discrepancy. If you write, feel free to include any documents and information you want the IRS to consider (a copy of your tax return, canceled checks or any other records) along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left hand corner of the notice. It generally takes the IRS at least 30 days to get back to you.
Sometimes, the IRS will send a second letter or notice requesting more information or responding to your questions about the original notice. Again, stay calm. Follow up letters aren't unusual either, just part of the tax resolution process the IRS uses. Simply follow the new instructions or answer the additional questions.
Need help. If your communication with the IRS about a notice doesn't end to your satisfaction, you still have options. The Taxpayer Advocate (toll-free at 877-777-4778) may be able to help or call Tax Savvy (972-442-5226) for assistance.
Act immediately. Remember, the key to dealing with any IRS notice is prompt action on your part. If the IRS change to your tax bill is correct, your immediate response to the notice will ensure that you will only owe additional tax and not added penalties and interest. If the IRS is wrong, you definitely want to get the facts corrected as soon as possible to prevent any future tax problems. Be sure to keep copies of all IRS correspondence with your tax records.
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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 the IRS:
- Assess the liability;
- 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 the IRS notifies 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 the IRS has 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).
Caution! 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. Contact Tax Savvy (972-442-5226) to see if we can help you avoid the lien. Communication with the IRS is critical.
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Levies and Seizures
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,
- The IRS could seize and sell property that you hold (such as your car, boat, or house), or
- The IRS could levy property that is yours but is held by someone else (such as your wages, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, the cash loan value of your life insurance, or commissions).
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Employment Taxes and the Trust Fund Recovery Penalty (TFRP)
Most employers must withhold, deposit, report, and pay employment taxes on wages paid to their employees and must file Form 941, Employer’s Quarterly Federal Tax Return. For employment tax purposes, wages are defined as all pay to an employee for services performed. It includes salaries, vacation allowances, bonuses, commissions, and fringe benefits. Failure to pay the money withheld from your employees pay is serious.
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The information you obtain at this site is not, nor is it intended to be, tax advice. You should consult a licensed tax professional for individual advice regarding your own situation.