What Is IRS One Time Forgiveness and How Can It Impact You?

The IRS is never someone you want sitting opposite you at the negotiation table. But sadly, there are times when we don’t have a choice. Difficult financial circumstances, personal tragedies, or even simple clerical errors can lead to tax debt and unwanted calls. And when the IRS decides it’s time to turn up the heat, they can call for liens and levies on your property and wages and pressure you into a payment plan for your debts. However, the IRS isn’t ruthless. People can fall into tax debt without meaning to. Furthermore, the IRS has an informal bill of taxpayer rights that it adheres to. As part of its courtesies to the taxpayers of the USA, the IRS offers several different forms of tax debt forgiveness, one of which is referred to as the IRS one time forgiveness program.

 

Does the IRS Believe in Second Chances?

The IRS affords taxpayers some form of a second chance depending on the circumstances. However, it’s essential to understand that debt relief is not quite all-encompassing. If you do owe the IRS money – that is to say, if your debt is the result of a mistake on your tax returns or unannounced income – then your debt forgiveness will be limited to penalty abatement, especially if it is your first time being written up by the IRS. This means that the IRS may reduce your debt to the amount owed minus applied penalties for late or missing returns, especially if your circumstances support your delays, such as personal tragedy or financial distress.

On the other hand, the IRS may erase your tax debt if you can point out that you don’t owe money to the government, to begin with. While many IRS systems are automated, humans ultimately make final decisions. Data can be misinterpreted; mistakes can be made. Proving your innocence can wipe your tax debt, primarily if you work with a tax professional to go through the proper channels. Let’s explore the different circumstances under which the IRS might let you catch a break – and how to utilize them.

 

IRS One Time Forgiveness

There are no official IRS documents discussing the one time forgiveness program. Instead, it’s a concept gleaned from changes in the IRS’s policy regarding tax debts following the implementation of the Fresh Start Initiative. Furthermore, the IRS has offered First Time Abatement for tax debt penalties and tax return penalties since 2001. The First Time Abate function allows for administrative relief of the failure to file a correction and pay a fine.

Failure to deposit penalty provided the taxpayer has qualified for penalty abatement and has not received any penalties or has not had any problems with the IRS within at least the last three years (as per a manual look back through your records). Penalty abatement does not eliminate your tax debt. Instead, it stops additional penalties added onto your debt, which are often levied on a percentage basis, using your debt as principal. First Time Abatement is only available if you:

For more information on penalty relief, check out the IRS’s advice here.

 

The Fresh Start Initiative

The Fresh Start Initiative invokes several changes in how the IRS deals with tax debt and taxpayers. But, the Fresh Start Initiative reduces the qualifications and requirements associated with the offer in compromise, one of the options taxpayers have for lowering your overall tax debt. The Fresh Start Initiative was launched in 2008 and expanded in 2012. Among other things, the Fresh Start Initiative broadens the definition of allowable living expenses. It aims to help taxpayers struggling with tax debt on top of other joint debts, such as student loans.

 

Additional Tax Relief Options

Debt forgiveness is a big topic of discussion for taxpayers struggling to pay off their debt to the IRS. While the IRS will not eliminate your debt without cause, they do offer a few different ways to reduce what you owe. Eliminating your penalties can go a long way towards slashing your debt total. Further, making an offer in compromise can help you and the IRS settle on a realistic number that you can afford to work towards in the next few years.

Settling on a payment plan with the IRS can spare you further hardship and reduce your interest rate. Finally, contacting the IRS when experiencing financial difficulty can net you a temporary release on all collection efforts and give you time to rebuild your finances before tackling your debt. Let’s explore some of these options.

 

A Forgiving Revenue Service

When it comes to tax debt, you may have not just one but multiple different chances to reduce your debt and reach an amicable agreement with the IRS. But it’s important to understand your opportunities for abatement and debt reduction and how to approach them. At Rush Tax Resolution, we can help you deal with your debt the right way. No tricks, no shortcuts, no trouble with the IRS. There are many ways to deal with the taxman and save yourself a lot of unnecessary hardship. Contact us today for a free consultation.

How Much Should I Offer in Compromise to the IRS?

If you have tax debt, there are a few ways you can get back in good standing with the tax man, one of these being an offer in compromise. You may be asking yourself "how much should I offer in compromise to the IRS"? Here's what to know.

[lwptoc skipHeadingText="Share This:"]

Tax debt is frightening. A debt to the government isn’t easily forgotten, and the IRS can leverage a steep interest rate and multiple penalties to grow your debt over time. Thankfully, in many cases, taxpayer debt is relatively minor. One mistake on your return or one deduction you might have erroneously applied to your tax liability can lead to a surprise bill of a few hundred dollars.

But some mistakes and issues come with a much heftier price. Forgetting to pay your quarterly dues, or to miss a return for months on end can lead to a big bill. As can bad financial or tax advice, creating a bogus return that makes no sense, and forcing the IRS to completely scrap what you’ve sent in.

When coupled with unfortunate financial circumstances, a large tax debt can be financially and socially crippling. The IRS may resort to collection actions to coerce a payment plan, including placing all your property on a lien, or even enforcing a levy on your wages.

So, what happens if you just aren’t in a position to pay your debt? Can the IRS levy you indefinitely? Not if you talk them into a payment plan that might benefit both of you. That is where an offer in compromise comes into play.

 

Understanding an Offer in Compromise

An offer in compromise is a proposal the taxpayer themselves have to draft and send to the IRS (with the help of a tax professional, if you choose to avail of one’s services). The “compromise” in this case is that you agree into a monthly payment plan, but for a reduced total debt.

An offer in compromise is not a given, even for taxpayers who have fallen on hard times. But a well-crafted offer does raise your chances of the IRS taking the deal, which can mean dealing with a fraction of the debt originally pinned on you.

 

How an Offer in Compromise Works

The first prerequisite is eligibility. The IRS has a pre-qualifier tool that you can use to get a rough idea of whether an offer in compromise is a possibility for you. This tool can be helpful, but don’t rely on it. It isn’t a guarantee from the IRS itself that they would accept your offer, and there’s still a bit of paperwork to go through before the offer gets sent their way.

The basic eligibility requirement for an offer in compromise is financial proof that you cannot reasonably pay off your debt within the next few years. In theory, the offer in compromise exists so taxpayers who have been saddled with tax debt for years can at least pay off some of it before their debt expires. A win-win for both parties – the taxpayer gets back into good standing with the IRS, and the IRS sees some of the taxpayer’s tax liability covered.

Over the years, the requirement for an offer in compromise has dropped from “paid until tax debt expiration” to “paid within two to three years”. This means that if you cannot reasonably pay your debt in monthly installations over 24 to 36 months, you may be able to negotiate a reduced tax debt with the IRS.

Calculating what that reduced tax debt should look like is the next step towards an offer in compromise. The trick here is that the government is asking you to make a proposal. Don’t be fooled into thinking they’re generous in this case. The IRS can take months to deliberate your proposal, during which time your debt will continue to accrue penalties and interest. And if they reject it, it will take some more time before your next attempt is considered.

The IRS will comb through your finances, tax returns, and information reports from different agencies and financial institutions to determine your reasonable collection potential (RCP) before engaging with your offer in compromise. In other words, your RCP is the amount of money the IRS expects to see from you on a monthly basis. If your offer is under that RCP, it has a poor chance of being accepted.

 

When is an Offer in Compromise Valid?

Should you consider an offer in compromise? The answer depends on whether you think you can afford to pay your tax debt within the next few years, without making unreasonable cuts to the rest of your expenditures. The IRS obviously won’t consider an offer in compromise if you have multiple valuable assets to liquidate, a stable monthly income well above your basic cost of living, and very few dependents.

But if you are struggling to make ends meet, have no potential source of liquidity, and are living on the only asset you own, you may want to talk to a tax professional about considering a reasonable offer in compromise to cut down on the impact your tax debt will continue to have on your finances.

You don’t need to be broke to make an offer in compromise work. You just need to prove that you can’t be expected to pay your debt off in a short period of time.

 

Calculating Your Reasonable Collection Potential

The IRS will generally calculate your reasonable collection potential based on your net realizable equity and your expendable income.

Net realizable equity is what you have to your name if everything is sold at its quick sale value, i.e., the price you could get if you wanted to liquidate it fast, often calculated at 80 percent of current market value, minus any current liabilities against your assets, such as a mortgage or ongoing credit.

Expendable income is any money you earn after taxes – this means it does not take into consideration rent and food. The number of dependents you have may also impact your RCP.

In addition to assets and income, the IRS will also take into consideration any money held in your bank accounts as cash, minus one month’s worth of allowable expenses and $1,000 extra.

When calculating the value of any vehicles you own, the IRS allows for an additional deduction of your net equity per vehicle (one vehicle if you live alone, two if it’s a joint household).

You can put these numbers together yourself by taking your current earnings minus taxes and basic living costs, your current cash, the value of every asset you can sell and still live with a roof over your head, and then getting an estimate of how much you can set aside per month this way. If you can cover your entire debt within a year or two of monthly payments, it will be difficult to make the IRS accept a reduced tax debt.

But if it becomes clear that you’re in over your head, then taking note of whatever you can pay will give you a good idea of what your offer in compromise might look like.

 

Always Talk to a Professional

At any rate, it’s important to discuss the idea with a tax professional. Not only will they have a better idea of how to negotiate an offer in compromise with the IRS, but they may be able to help you realize a better deal depending on other circumstances in your life, and other ongoing costs and liabilities.

We at Rush Tax Resolution are at your disposal. Give us a call for a free consultation, and more information on potential offers in compromise.

IRS Payment Plans: How to Pay Back Tax Debt Over Time

Tax debt can cause significant stress, and dealing with it can be a very daunting process. Here's how to pay back tax debt with IRS payment plans.

[lwptoc skipHeadingText="Share This:"]

Tax debt is special in the most insidious way – it follows you everywhere, is almost impossible to get rid of, and can continue to grow at rates that would make most banks and financial institutions blush.

Dealing with your tax debt isn’t something you should ever put off until tomorrow, and it’s crucial to know that the sooner you commit to paying your debt, the less the IRS can do to coerce payment.

Now, we know that no one is ever stoked about seeing a notice from the IRS in their mailbox. But it’s important that you heed every single one, and pay attention to the dates. There is a system for how the IRS notifies and engages with taxpayers who are behind on their payments, and knowing when, how, and what you owe can help you get rid of your debt faster with IRS payment plans.

 

How Tax Debt Occurs

Maybe you made a mistake. Maybe the IRS made a mistake. At the end of the day, any time the IRS discovers that the information they received from banks and employers doesn’t match up, or if the return you filed yourself indicates that your estimated tax payments didn’t cover your entire tax liability for the year, they send in a bill for the overdue balance. It could be a few hundred dollars, or a debt of several thousand. The last thing you want to do is ignore that bill.

While the IRS automates most of the processes involved in catching and rectifying basic math errors and returns that don’t quite match up, there are still human auditors working behind their desks to process the information and make sense of the situation.

By getting in touch with a tax professional, you can work your way to an IRS agent and rectify the situation by explaining the missing numbers, or even pointing out that you did, in fact, qualify for that deduction.

If and when the IRS makes the mistake that costs you a tax debt, acting quickly and decisively can help you clear things up and get back on Uncle Sam’s good side.

But when the mistake was yours, or when an unfortunate set of circumstances led to missed deadlines and an unexpected tax debt, there are a few things you will have to know before you can set things straight.

 

Can I Pay Tax Debt Immediately?

Yes, provided you are up to date with your tax returns. One common source of unexpected tax debts is the missed return. Some people may have struggled with unemployment as a result of the current crisis – and they may have missed the chance to file their taxes, which is something many unemployed people must do as long as their gross income surpasses the IRS’s filing threshold.

Unfiled tax returns will flag the IRS and lead them to file a surrogate return for you, based on information returns provided by financial institutions and banks, as well as your previous tax returns. This leads to a debt and subsequent failure-to-file penalties, for five months or until your returns are sent in.

If you have a tax debt and aren’t up to date with your returns, you will not be able to negotiate an IRS payment plan to get your debt settled. If you’ve missed more than one return, it’s crucial to contact and speak to a tax professional. You may only need to send in returns for the last three to six years or recreate a return for every year you’ve missed since you’ve began missing returns, depending on your situation.

Once you’re in the clear with your basic paperwork, you can pay off your tax debt in a single payment via the IRS’s online portal. You can also write a check or payment directly to the IRS, with the instructions on the IRS’s webpage on payment plans.

If this was your first offense, and your circumstances allow it, you may be able to argue for penalty relief. This can significantly cut down on your total tax debt.

 

What If I Can’t Afford to Pay?

If your debt has accrued over time and grown into a substantial sum, then you might be better off trying to make multiple payments rather than a single payment.

There are two types of IRS payment plans for taxpayers unable to make a single direct transfer.

      1. The first is a short-term payment plan lasting no more than 180 days.
      2. The second is a monthly installment plan lasting longer than 180 days.

 

What If I Can’t Afford IRS Payment Plans?

You can end up paying the IRS for years, depending on what you can afford to pay per month, and the total size of your debt.

Before the Fresh Start Initiative lowered the bar for entry on alternative payment solutions, the IRS would require you to calculate whether you would be able to pay off your total debt through monthly payments before your debt expires before agreeing to reduce your total debt.

Nowadays, the IRS allows you to argue for an offer in compromise if you’re unable to pay off your debt within as few as two years.

However, making a compelling offer that the IRS will accept is still tricky, and it can take weeks for the IRS to deliberate your offer – while your debt continues to grow.

If you cannot afford to cover your debt through IRS payment plans or installment agreements, consider going through a tax professional to create an offer in compromise the IRS will accept.

 

What If I’m Completely Broke?

It is unethical to coerce someone to pay their tax debt if they are going through financial hardship. That is why the IRS offers taxpayers the option to declare themselves as currently not collectible. Doing so will temporarily halt all collection actions by the IRS, including liens and levies, until your financial situation improves.

 

What If I Refuse to Pay?

The IRS has multiple means of coercing payment and works with a select few debt collection companies to contact and talk to taxpayers about their debt.

Refusal to pay is technically illegal, but aside from the threat of a criminal charge, the IRS often uses government liens to pressure taxpayers by reducing their ability to seek financing or liquidate their assets without first satisfying their debt, and they can ultimately start levying accounts, assets, and even wages to cover a taxpayer’s tax liability.

 

Why You Need Professional Tax Help

You can’t get rid of tax debt by declaring bankruptcy, or by trying to hide for a decade. Getting it over with by negotiating and setting up IRS payment plans for the best possible deal is ultimately the quickest and most painless way to handle your tax debt.

However, working with the IRS can be confusing and difficult, and there are a lot of forms to fill and questions to answer on your way to total financial freedom from the IRS. Get in touch with us at Rush Tax Resolution for a free consultation, and to get a better grasp of your options.

How to Stop IRS Wage Garnishment: 5 Tips for Success

If you are in bad standing with the tax man, they may initiate garnishment. However, there are ways to stop IRS wage garnishment, here's what you should know.

[lwptoc numeration="none" skipHeadingText="Share This:"]

Wage garnishment is when a creditor takes a portion of your compensation and wages to pay off a debt. Rather than empty out a bank account or sell a property you own through a levy, wage garnishments are a gradual process that lasts until the debt is satisfied.

Just like other creditors, the government can garnish your wages for debts, such as a federal tax debt. In this case, the IRS itself makes a legal claim on your property (through a lien), then issues multiple warnings, before issuing a Final Notice of Intent to Levy.

The IRS will send a copy of Publication 1494 to your employer, to help them figure out how much of your income to exempt from garnishment. Your employer will ask you to fill out information your dependents and filing status, which you must return within three days. Otherwise, the amount exempt will be based on zero dependents.

 

Stopping IRS Wage Garnishment

There are a number of ways to stop IRS wage garnishment and get your garnishment released.

 

1. Pay Your Back Taxes

It’s easier said than done, of course, but it is also the simplest solution to ending IRS wage garnishment. You don’t have to pay your tax debt all at once. The IRS offers a short-term payment plan (within 180 days) as well as a long-term monthly installment plan (more than 180 days) through their website.

When you do decide to pay the IRS, be sure to go through their website to do so. They have information on how to either directly wire money to the IRS, send in checks, use a debit/credit card, or make payments through the Electronic Federal Tax Payment System. Avoid tax and tax payment related scams.

 

2. Negotiate an Offer in Compromise

Offers in compromise are often touted as a miracle solution against IRS tax debt, but it’s important to differentiate truth from hype. Yes, an offer in compromise can get you to drastically lower your original tax debt to a comparatively tiny value in some cases. But it is genuinely rare for the IRS to accept an offer in compromise.

With an offer in compromise, you are making the argument that even if you sell all non-essential assets and save up nearly every penny not spent on taxes, rent, and food, you still won’t be able to pay off the entire debt at a monthly rate before it expires (within ten years, plus tolling periods).

While the IRS has become a little more lax about accepting offers in compromise through its Fresh Start Initiative (you now only need to pay off your debt for about two years, rather than five), the basic spirit remains – partial tax debt forgiveness is not easy to come by. Your best bet for negotiating an offer in compromise, if it’s the only option you see as a way to cut off your IRS wage garnishment, is to talk to a tax professional. They’ll be able to analyze your situation and make an informed call.

 

3. Argue as Non-Collectible

A true last resort option is to convince the IRS that you are suffering financial hardship. One of the informal rules under the Taxpayer Bill of Rights is that the IRS must be courteous, and that includes not pressuring people to pay their debts when they are struggling to keep a roof over their head and put food on the table.

However, this does not make your debt go away. Neither does it eliminate penalties or interest rates. Your debt will continue to grow. But the IRS will not pressure you to pay it off until your financial situation has changed.

You don’t necessarily need to notify the IRS that your financial situation has changed. They will check up on your finances and tax reports periodically. But it is important to note that it is still likely in your best interest to pay off the debt as soon as you are financially able to, as it will otherwise just keep growing, and the IRS will soon begin garnishing your wages again.

Don’t forget to do your taxes even while non-collectible! The IRS can penalize you again and again for each missed tax return, and it won’t accept a payment plan from you until all your missing tax returns are turned in.

 

4. Appeal the IRS Wage Garnishment

This can be somewhat of a desperate measure, because it is not always applicable, and there is a strict time window on it. If it has been less than thirty (30) days since you received you Final Notice of Intent to Levy, you may be able to appeal the IRS’s decision to levy your wages.

To appeal the IRS wage garnishment, you must prove that there was a mistake made with the amount you owe, or that there was insufficient notice provided before your wages were levied. However, it’s also important to note that the IRS reserves the right to levy your property or wages immediately if your debt threatens to expire.

If you are interested in your options to appeal the IRS’s decision to levy your wages, it’s important to get in touch with a tax professional right away. An experienced professional will help ensure that your appeal is made the right way.

 

5. Always Consult a Tax Professional

Online advice can help you better understand and interpret the information the IRS is providing you, but it doesn’t beat a one-on-one professional consultation. Many professional tax services offer individualized consultations at a low rate, or for free.

If you want to get a better grasp on what’s going on and need to explore your options more thoroughly, a tailored response from a real tax law firm will be your best bet. Here at Rush Tax Resolution, we specialize in helping clients navigate the IRS wage garnishment and requirements, and rush you towards a tax debt-free life.

How Often Can the IRS Levy My Bank Account?

Bank levies can be a serious matter, especially if you receive multiple notices. You may be asking yourself "how often can the IRS levy my bank account?" This guide can help.

[lwptoc skipHeadingText="Share This:"]

The main question here is: how often can the IRS levy a bank account?

The short answer is that the IRS can issue as many levies as it takes to satisfy your current tax liability. The longer answer is that the exact process by which the IRS will levy your assets and accounts may depend on:

      1. The amount you owe
      2. How close your debt is to expiration
      3. Your willingness to cooperate with the IRS to resolve your debt

A tax debt with the federal government is a serious matter. Even bankruptcy doesn’t erase a federal tax debt, and depending on how large it is, it can be something you may have to pay off over several years. Tax debts also grow over time, with a penalty for failing to pay up to 25 percent over the first fifty months (0.5 percent per month), and a penalty for filing late returns (5 percent per month), as well as an interest rate that changes quarterly.

As your debt grows, so does the IRS’ interest of collecting on it. A minor debt – a few hundred dollars – might not be worth pursuing immediately. The IRS will give you time to get back to them and resolve the issue through a simple direct payment.

But the longer you wait, and the more money you owe, the greater the chances that the IRS will step up their collection actions against your tax account. It often begins with a tax lien on your property and assets, and culminates in a levy on your assets, wages, and accounts.

 

What is an IRS Bank Levy?

A IRS bank levy is a physical claim on an asset or fixed value of an account. When the IRS issues a bank levy, they are claiming the contents of your bank account to satisfy your tax debt. When this happens, the IRS asks the bank to freeze the account and hold it for up to 21 days before transferring the assets over to the IRS.

You can still add money to the account, and use that money. But anything in your levied account at the time of levy is essentially in limbo until you negotiate a payment plan with the IRS, or they claim it.

Most levies begin with an official notice. The IRS usually, but not always, is required to send you a Final Notice of Intent to Levy (CP504) in the mail, with 30 days time to respond before the levy begins. Levies only take place if the taxpayer ignores the IRS’s other collection actions and notices of due tax.

Whenever the IRS issues a levy on something like a bank account, they are doing so once. Does this mean they can’t levy your assets again? No, not quite. It just means they will have to begin the process of informing you and formalizing the second levy.

 

How Often Can the IRS Levy a Bank Account?

If the IRS decides to levy your account, and you continue to add money to it and use that money, the IRS is within its rights to issue another levy on whatever you’ve added to the account after the first one. The IRS can issue levies on properties and assets until:

There are exceptions to what the IRS can levy. For example, if you don’t have any savings or assets of your own, and only rent or live in the one property you own, the IRS can issue a demand to garnish your wages instead.

But if you don’t earn enough to qualify for wage garnishment, you may instead qualify as currently not collectible. Until further notice (until your financial situation improves), the IRS will not bother you. But your tax debt will continue to accrue interest.

 

How Can a Tax Levy Be Avoided?

If you are about to face a tax levy – i.e., you’ve received notice of your levy and want to keep your savings – your best bet is to contact a tax professional and get started on talking to the IRS.

If you received a bank account levy without notice, then it’s only because your debt was in jeopardy (close to expiration), or because the IRS is claiming your state tax refund. Likewise, if these aren’t the case, then you should contact an attorney and discuss potentially challenging the validity of the levy. The IRS must notify you of its intent to levy.

If your debt was resolved but the IRS’s levy still registered with your bank, leaving you with a processing fee for a levy you no longer owe, you may be reimbursed for said bank charges via Form 8546. If the IRS levied an account you fund but don’t use (i.e. it’s set up for an elderly relative or child, for example), you can use Form 668-A(C)DO (response to a Form 668-A Notice of Levy) to explain who owns the account.

Negotiating a payment plan not only keeps the IRS from issuing further levies, but it may lead to the resolution of any existing liens, as well as a reduction on the amount of interest accruing on your debt.

 

Other IRS Collection Methods

Liens are another common tool used by the IRS to pressure taxpayers into paying their debt. Unlike a levy, a lien is a legal claim on everything you own. The IRS won’t swoop in and take it all, but it does mean that if you liquidate any assets, the IRS is first in line to take the profits of your sale.

It also means that you cannot use any of your assets to secure a loan, as they effectively belong to the government until you resolve the lien. Another way of looking at is that a lien lets the IRS place itself at the top of your priority list of creditors.

Aside from levying your bank accounts, the IRS can also levy wages or assets, such as real estate or vehicles.

 

Entering a Payment Plan

If you want to avoid having the IRS empty out your bank account, your best bet is to call a pro and begin negotiations. A payment plan can help take a lot of heat off your back and keep you in good graces with the IRS – as long as you’re diligent about your payments. The IRS offers different payment methods, including a simple sum, multiple lump sums paid in 180 days or less (short-term plan), and a monthly installment plan lasting longer than 180 days.

Under most circumstances, you can setup and pay your dues via the Electronic Federal Tax Payment System, through a checking or savings account on the IRS’s Direct Pay page, or by check/money order.

When applying for a short-term or long-term payment plan, the IRS will double-check your qualifications based on how much you owe, and whether you’re up-to-date on your tax returns (you will have to continue filing them even if you owe the IRS money).

 

Approach a Tax Professional

Regardless of your circumstances, your best bet will usually involve discussing your options thoroughly with a tax professional. An attorney or qualified tax pro will help you navigate the IRS’s requirements to getting a levy lifted, and settling your debt.

IRS Notice of Deficiency: What to Do If You Receive CP3219A

Receiving an IRS notice is very stressful, so what should you do if you receive an IRS notice of deficiency CP3219A? Here's what to know.

[lwptoc numeration="decimalnested" title="TABLE OF CONTENTS:" titleFontSize="23px" itemsFontSize="16px" backgroundColor="#ffffff" borderColor="#8cafd3" titleColor="#666666" skipHeadingText="Share This:"]

Receiving letters or notices from the IRS is often a mixed bag. Sometimes it’s good news (like a tax refund), and sometimes it’s nothing (like informing you of a minor change in your return). But sometimes, just sometimes, it’s something that makes the little hairs on the back of your neck stand up for a bit – like being informed that you owe the government money and are short. This means that any refunds you had don’t cover the bill the IRS has written for you and that you have a due balance for the taxman. When the IRS wants to communicate this, it will do so through a notice of deficiency, or CP3219A letter.

What Is an IRS Notice of Deficiency?

The IRS notice of deficiency is a letter informing the reader that there has been a proposed change in their due taxes and that this change has led to increased due tax. The letter, also known as a CP3219A letter, will usually come after the IRS informs you of inconsistency in your tax information or tax return, such as a CP2000, which explains that the IRS’s information doesn’t match up with what you provided. It’s important to note the language here. The notice of deficiency sounds severe, but one of the first things the IRS will note is that it’s a proposed change. You do have some recourse here. Knowing this – and acting as soon as possible – is essential. Let’s go over the letter in some more detail.

Examining Your CP3219A Letter

First and foremost, the IRS sends a CP3219A when it wants to inform you of a proposed change to your taxes that would result in a bigger tax bill. The notice also informs you of your option to either supply additional information to refute the IRS’s findings or appeal the US tax court decision. Take note of the information the IRS provides, as per the section of the notice titled “Changes to your tax return.”

If you disagree with these changes and have the information needed to correct them, you can get together with a tax professional to create a formal response defending your position and providing the appropriate information. On the other hand, if you wish to amend your return and add income, credit, or expenses, you can do so through Form 1040-X, which is used to amend your return. Attached to the notice is Form 5564. Fill out and sign this form to agree to the proposed changes.

What to Do After Receiving an IRS Notice of Deficiency

What you do next depends on how accurate the IRS is with its assessment. If you do owe taxes, you will want to consider how you can best repay them. If the due balance is small, it might be enough to head over to the IRS’s official payment plans and look at your options for a direct transfer to the IRS, in a lump sum or overtime. But if the debt is more substantial, you may want to consider paying in installments or looking into other options.

If you have proof that you do not owe taxes, it’s still in your best interest to contact a tax attorney. You will want personal representation when discussing the potential for an appeal with the US Tax Court, not the Independent Office of Appeals. You have 90 days to petition a challenge with the US Tax Court if the IRS still hasn’t made a decision you agree with after receiving the information you have for them. Either way, you will also have to prepare any information you can to corroborate your claim that the IRS is wrong about its assessment, including receipts, transcripts, bank statements, etc.

Understanding the IRS Collection Process

While it’s not something you should worry about if you get your ducks in order quickly enough, the IRS has access to an arsenal of tools to pursue a debt. This collection process works through claiming priority over other creditors through a tax lien, to claiming your wages or assets in a tax levy. Acting on notices and as they come in – or getting in touch with a tax professional as soon as possible – will help you prevent further collection actions by the IRS and help you negotiate a reasonable payment plan with them.

Complying With the Notice

If you agree to the contents of the notice, then filing a Form 5564 means waiving your right to petition the IRS’s decision within the next 90 days. Regardless of whether you contact them, the IRS will follow up notice CP3219A with a bill for the additional tax you have incurred and any applicable penalties and interest.

Note that there are additional penalties for failing to pay promptly (5 percent per month, up to 25 percent over 5 months). There is no limit on interest. When you decide to create a payment plan for your tax debt, there may be a chance for you to get any penalties applied to your tax debt waived under certain circumstances. Consider talking to an attorney about whether or not you apply for penalty relief. Note that your options for payment include:

Considering an Appeal to IRS Notice of Deficiency

If you are considering an appeal and have exhausted any potential to work with the IRS, prepare all your relevant information beforehand and get a consultation with a tax attorney and tax litigation professional. You will be asked to file a petition with the US Tax Court, which means it will ultimately be up to a judge to review the evidence and make a decision. Here at Rush Tax Resolution, we get the clear answers you need to your tax debt and litigation questions. Give us a call today for a free consultation.