Your tax information is confidential data, and the federal government is required to keep it confidential – which means that if you intend to work with a tax professional, you need to fill out a specific form to allow them to review that information before they can act on your behalf or represent you legally. That form is Form 8821, Tax Information Authorization.

Understanding Form 8821

The tax information authorization form is explicitly not a power of attorney. With a tax information authorization, a tax professional can receive your tax information. The form also requires you to specify the type of tax data you intend to share and the year in which it was filed. Form 8821 is also used to revoke previously filed Forms 8821. Furthermore, Form 8821 comes with a neat little failsafe. Section 6103(c) allows you to hold the recipient of the form responsible for any misuse or unauthorized redisclosure of your information without your permission.

Form 2848 vs. Form 8821

IRS Form 8821 allows you to share specific tax information with a tax professional of your choice. In addition to tax attorneys and CPAs, Form 8821 may also be granted to other persons, corporations, firms, organizations, or partnerships. It is not limited to tax or legal professionals – for example. You may need to file a Form 8821 when you want a lender to review your tax information before authorizing a mortgage. Form 2848, on the other hand, grants a power of attorney to the agent listed within.

A power of attorney is a legal document that names someone as your representative. A general power of attorney can be used to authorize someone to travel to another state and administrate the sale of your home, for example, if you do not have the time to do so yourself. In other cases, you can name an agent in a power of attorney to represent your financial or healthcare interests if you are incapacitated so that task does not fall upon your closest kin. However, an IRS-issued power of attorney is specifically used to name a personal representative for tax matters.

Similar to an extraordinary power of attorney, an IRS-issued power of attorney through Form 2848 is usually necessary whenever you intend to avail the services of a tax attorney for an appeal against the IRS’s collection actions or to stand by your side and represent you during a face-to-face audit. Form 2848, Power of Attorney and Declaration of Representative, generally allows a legal professional to act in your best interest and initiate a discussion with the IRS. After filing Form 2848 and waiting for the IRS to process the document thoroughly, your chosen tax professional can begin:

• Receiving and processing tax information in your stead.
• Sign agreements with the IRS regarding matters and specific tax returns listed or detailed in your Form 2848.
• Sign requests for an extension on any deadlines pertinent to the tax liabilities or tax returns listed or detailed in your Form 2848.
• Sign a tax return (within specific circumstances, e.g., you are unavailable due to being abroad when the return must be filed, or have been incapacitated by illness, etc.).
• Represent you in an audit.

While Form 2848 allows a tax professional to conduct various tax-related services and represent you personally, it does not absolve you of your tax debt nor move the liability onto the chosen person. The IRS will still hold you responsible for resolving your tax debt, although you can use professional tax help. This is also meant to protect you, the taxpayer.

An agent listed through a Form 2848 power of attorney does not have the right to pay your tax liability. However, they also do not have the right to cash in your tax refunds or collect your tax credits. Furthermore, there are other limits automatically imposed upon agents with Form 2848. For example, an agent named in Form 2848 cannot name another substitute agent without your explicit authorization.

What Is an Authorized Agent?

Authorized professionals – those allowed to represent clients before the IRS – include tax attorneys, CPAs, and enrolled agents. In theory, anyone can negotiate with the IRS on behalf of someone else through the power of Form 2848. But your ability to arrange for your spouse or friend through an IRS-issued power of attorney is limited if you are not an authorized agent.

All other individuals granted limited powers of attorney through Form 2848 cannot represent other taxpayers in court or negotiate with the IRS for penalty waivers or payment agreements. The most they can do is represent a taxpayer before the IRS’s customer service personnel. Suppose you cannot afford a lawyer or CPA of your own. In that case, the IRS does allow law students to represent you through a low-income taxpayer clinic or student tax clinic program under special authorization through the IRS’s Taxpayer Advocate Service.

Filing either a Form 2848 or a Form 8821 is simple enough – the trick lies in the details. In addition to providing your basic taxpayer identification information, you will need to specify exactly what documents you wish to share (for Form 8821) or what privileges to grant your agent for what purpose (for Form 2848). For example, if you are filling out a Form 2848 due to an unresolved tax debt on your most recent income tax return and need a legal representative to work alongside you, you will want to describe:

• The matter at hand (your income tax debt).
• The tax form number (Form 1040 in the case of an Individual Income Tax Return).
• The same year or period (if it was last year’s income tax return, 2021).

As with Form 8821, the easiest way to revoke Form 2848 is to refile the form with the word “REVOKED” written across all pages.

When Do You Need Professional Tax Help?

The IRS provides much helpful information to taxpayers, from audits to collection actions, penalties, and the different payment methods the IRS accepts. However, there will always be situations where professional representation is essential – or cases where having a professional tax look at your tax information can give you much clearer and more actionable advice on dealing with the IRS.

Whether it might be an impending audit, a crushing tax debt, or your eligibility for a unique payment plan, a tax professional can help guide you through the processes involved, represent you in court, and get you back on the IRS’s good side. Understanding the irs notice of deficiency explained can be crucial for navigating your tax situation. This notification typically outlines the IRS's findings and any discrepancies in your tax returns, so it's important to address it promptly. A knowledgeable advisor can help you interpret this notice and formulate an appropriate response to protect your interests.

The IRS can seize property if need be. However, the process behind seizing property is lengthy, and the seizure itself is usually a last resort. If the IRS finds that a taxpayer is unwilling to cooperate or cannot fulfill their obligation to address their tax debt to the government, the IRS may issue a levy on their tax account. A levy is a legal and physical claim of property or value – the IRS can take the contents of a bank account, part of your paycheck, and yes, the IRS can take your car or house. When an IRS seize property is issued, it does so for one simple reason: to sell it. What the IRS wants is money to recoup your tax debt. It will not wait for a reasonable buyer or haggle for a good down payment.

When the IRS claims the property, it sells it at its minimum bid price, according to its fair market value determination, to engender a quick sale. You will be given time to respond to the levy and the claim itself. You can also answer and challenge the IRS's determination of your property's value. Once a public notice is sent out, you have ten days to stop the sale of your property before the IRS goes through with it. You must hurry to stop your claimed property from being sold. The IRS will only consider a seizure release if you prove your commitment to repay your tax debt. While you rarely need to pay off your entire debt before the IRS will consider letting go of the seized property, it is a bit more complicated than sending a single monthly installment.

When Does the IRS Seize Property?

A physical levy is often the IRS's final resort for tackling taxpayer debt, aside from threatening a criminal charge for tax evasion. Suppose you have ignored the IRS's requests to pay your debt. In that case, they will escalate their collection actions from a simple lien (a legal claim, superseding other creditors and forcing you to acknowledge the government as your debtor) to a levy on your monies and property. In some cases, the IRS will accelerate the process towards a levy if:

• You owe a substantial amount.
• Your debt has gone unnoticed for quite some time, and the IRS is running out of time to collect.
• There is a worry that you might be trying to leave the country (the IRS can lock down your travel documents).

The process for seizing property does not occur overnight. When the IRS issues a notice of intent to levy, for example, you have up to 30 days to respond before the agency takes action. After the IRS seizes your property, you have more time before the agency determines your home's quick sale value. Once the IRS has given a public notice about the potential sale of your property, you have another ten days before buyer bids are accepted. The IRS cannot claim your primary residence if you owe less than $5,000 back taxes.

Additionally, the IRS needs approval from a federal district judge. You are within your rights to dispute the seizure and any other step along the collection process through the collection due process hearing, the IRS appeals process, and the US Tax Court. Your chances of winning an appeal depend on your position. If you do owe the debt, were given ample time to respond, and did not contact the IRS to explain your situation at any point, you will have a more challenging time appealing against the agency. Always consult a legal professional before you consider an appeal.

Does the IRS Claim Property Often?

No, actually. It is pretty rare for the IRS to claim the property. The IRS can empty out bank accounts and coerce payment by withholding a portion of your paycheck through your employer. The IRS may also seize assets – but it will rarely seize real estate.  However, that doesn't mean it cannot happen. The IRS has claimed people's homes in the past and sold them on the market. The IRS claims investment properties and vacation homes more often than primary residences.

By and large, it does not intend to make you homeless, and as a taxpayer, you can argue that you have the right to avoid becoming financially destitute due to the IRS's collection process. In addition to vehicles, assets, homes, and even paychecks, the IRS can claim payments from clients and tenants and dip into your retirement fund. What is off-limits? Not much, honestly. If you own livestock, the IRS lets you keep them. Furthermore, the IRS will not claim your tools-of-the-trade – so a tailor gets to keep his Singer, for example. A few other things the IRS cannot claim include:

• Furniture and household items.
• Worker's compensation.
• Unemployment benefits.
• A minimum exemption for income.
• Court-ordered child support.

What Happens to IRS Seize Property?

The IRS does not sit on your property for very long. If you have received a notice of intent to levy, you need to act fast to reverse the seizure. Once the property is sold, there isn't anything you can do to unsell it. The money earned through the sale will be used to recoup the IRS's losses from the seizure, and the remainder will go towards your debt. Anything left over (if the value of your property outstrips your debt) is sent back to you.

Can I Prevent an IRS Levy?

By entering a payment agreement with the IRS, you can prevent a levy after receiving your final notice. However, you cannot prevent a levy through any old payment agreement. Some agreements allow you to prevent a levy and even reverse asset seizure.  Most IRS payment plans are voluntary. You fill out a form that determines your monthly installment payment for the next six years, and you have the option of paying more to reduce the length of the agreement. Afterward, you deposit the money every month until your debt is paid. Under an agreement, the IRS may limit or stop its collection actions. Understanding how the IRS levies bank accounts is crucial for anyone facing tax issues. When the IRS issues a levy, it can access funds directly from your bank, which emphasizes the importance of timely communication and negotiation with the agency. Being proactive can help you maintain control over your finances and avoid the shock of unexpected deductions from your accounts.

If you want the IRS to stop a levy, you must go the extra step to guarantee your payment. That usually means filling out Form 433-F, Collection Information Statement, to clear up your financial status and provide the IRS with ample information to prove that you will not default on your payments, as well as a direct debit agreement, which allows the IRS to claim your monthly contribution from a designated account. Alternatively, you can arrange to have the monthly installment taken out of your paycheck.

What If I Cannot Pay My Tax Debt?

Installment agreements must be initiated online (if your debt totals under $25,000) or via Form 9465, Installment Agreement Request. An installment agreement request can determine if you can afford to pay your debt within a reasonable time frame (72 months). If you cannot, you may be able to negotiate a partial payment plan or an offer in compromise through the services of a tax professional. When the IRS intends to claim your property, your top priority should be getting in touch with them and seeking legal representation. You can reverse the seizure and save your property if you act swiftly.

 No one likes being in debt – and being in debt to the government is a particularly precarious situation. Nevertheless, whether through extenuating circumstances or simple math mistakes, it is estimated that collectively, American taxpayers owe over $110 billion in back taxes, spread among millions of taxpayers. This is where Form 9465: Installment Agreement Request can come in handy.

The IRS typically does not stand idly by while it is owed money and will make it clear that you owe a debt through written notices. The IRS will first notify you about their recent tax assessment declaring your debt, and then again when it aims to begin implementing collection actions against your account. These collection actions start with a federal tax lien on all your property.

This lien hinders you from seeking financing or liquidating assets without addressing your tax debt by superseding all other creditors – culminating in a physical claim of your help and property through a tax levy. There are ways to stop the IRS from trying to force collection, even if you can’t pay your tax debt off in a single cheque. Your best bet is a payment plan, usually an installment agreement.

What Is Form 9465: Installment Agreement Request?

An installment agreement is an agreement made with the IRS that allows you to pay off your debt in a series of monthly payments over more than 180 days, rather than a single lump sum or several lump sum payments within six months. Installment agreements differ in length depending on the severity and size of your debt. In addition, your financial status and the age of your debt can play a factor too. Tax debt is only collectible for about ten years from the tax assessment date, plus tolling periods. This period means the IRS will be more eager to collect on your debt the closer you get to the ten-year mark – and more lenient about the amount you can pay. Understanding the irs streamlined installment agreement benefits can make a significant difference in how you manage your payments. By taking advantage of these benefits, you can set up a plan that aligns better with your financial situation, potentially reducing your monthly financial burden. Additionally, knowing the options available under these agreements can empower you to negotiate and select a plan that fits your needs.

Short-Term Payment Plan vs. Installment Agreement

IRS tax debt can be paid off in three ways – immediately, through several structured payments within six months, or in monthly installments over the next few years. The first two are self-explanatory; however, it is the installment agreements where things can get complicated. Depending on how you intend to make your payments, the IRS may have different requirements for you.

For example, you can automatically stream your debt payments if you want to wire the money each year through an automated agreement and your debt is below a specific limit. This limit is a streamlined installment agreement, only available to taxpayers with an obligation below $50,000. If you’d make those payments yourself, or if your debt is too high, however, you may need to file a Form 433-F, collection information statement, and your agreement form to give the IRS a solid overview of the details of your financial health.

If you owe less than $10,000, you may be able to qualify for a guaranteed installment agreement. This payment plan allows you to rule out the possibility of a federal tax lien, as long as you do not default on your payments. Furthermore, if your tax debt is $50,000 or less, you can simplify the application process and file for an installment agreement online, which requires a much lower setup fee.

For debts above $50,000, however, Form 9465 becomes mandatory. This debt type is an Installment Agreement Request that you must print out and mail back to the IRS alongside all your relevant information. Form 9465 determines what you’ll be paying each month. You can reduce what is owed each month by including an initial payment alongside Form 9465, which will be subtracted from your total debt.

Filing Form 9465: Installment Agreement Request

The first three sections of Form 9465 are specific personal details, including your name, address, and contact information. From section 5 onwards, the form lets you calculate your monthly payments by taking your initial amount owed, subtracting the price you intend to make alongside the document (if any), and dividing it by 72 months. Then, you can volunteer your maximum monthly payment based on your current financial confidence. If you can pay more than your total debt divided by 72 months, your installment agreement will run for less than six years.

If you cannot match the suggested monthly installment payment amount, you must fill out a Collection Information Statement. This statement determines whether you are eligible for a partial payment plan or an offer in compromise. If you can match or exceed the suggested monthly payments and your debt is below $50,000, you may opt to make payments via direct debit by providing your bank account details. You can also opt to make payments via payroll deduction. If you do not wish to make automated payments, you must fill out a Collection Information Statement.

What If You Can’t Pay at All?

If you cannot pay off your debt within 72 months, the IRS will work with you to determine a reasonable payment goal. Depending on your financial situation, you may be able to opt for a partial payment plan, an offer in compromise, or elect to be currently not collectible until your finances improve. Only choose the latter if you cannot spare anything in the months to come, and every cent you make needs to go towards keeping yourself or your family off the streets. While the IRS will no longer force collection actions while you are not collectible, your debt will continue to grow. Making payments as soon as possible is your best bet toward becoming debt-free.

Where to Get Form 9465: Installment Agreement Request

If you aren’t sure how to proceed, it may be in your best interest to speak with a tax professional personally. Navigating the rules and requirements of the IRS can be a pain, and before you make a mistake, it’s better to have someone navigate you through the filing process of Form 9465: Installment Agreement Request. It’s crucial to consider seeing a tax professional if you are in a financial situation wherein an offer of compromise might make the most sense.

While they are designed to offer leeway to taxpayers going through a tough time, offers in compromise remain a relatively unpopular choice within the IRS unless their hand is forced. The IRS does not want to agree to take less money. However, a convincing offer may be your best shot to finally put your debt behind you – without forcing the IRS to resort to any other collection actions. At Rush Tax Resolution, we can help you figure out the best way to approach your payment plan with the IRS and minimize your time in debt.

Receiving mail from the IRS is seldom a pleasant experience, excepting the occasional tax refund. It’s even less enjoyable when the message comes with a bill, or worse. While the IRS faces a significant tax gap each year, they mobilize its resources to close that gap, including issuing tax liens and levies to encourage or coerce repayment. The IRS may begin levying your wages when it finds no alternative to recoup your tax liability. This is called wage garnishment.

What Is Wage Garnishment?

Wage garnishment occurs when a creditor moves to claim a portion of your paycheck from your employer for an unpaid debt. In the case of the IRS, the government is garnishing your wages for outstanding tax debt. However, the IRS does not just start garnishing your wages out of the blue.

When Does the IRS Garnish Wages?

There is a process in place before wage garnishment can begin, beginning with the tax assessment. If you send in a tax return and the IRS figures that you owe more than you’ve paid thus far, or if you’ve accrued an unpaid penalty, the IRS will send you a notice of your due taxes and outstanding tax liability, with the order to pay your debt immediately. The longer you wait, the more your debt grows through failure to pay penalties and accrued interest.

At this point, the IRS may wait for your debt to reach a specific limit before filing a Notice of a Federal Tax Lien. The government may turn to levies and garnishment if the lien does not apply enough pressure. Failure to contact them and negotiate a payment plan or pay off your debt may lead to a Final Notice of Intent to Levy. This is often the last step before the IRS thinks about wage garnishment.

At this point, the IRS will mail Publication 1494 to your employer, instructing them on exempting a certain amount of wages from the levy. Your employer will require you to fill out the information about your filing status and dependents, which you have three days to provide. Otherwise, your employer will only be able to deduct the standard amount from the wage levy. The lower your income and the more dependents you have, the higher the chance that the IRS cannot levy your wages, to begin with. Otherwise, a minimum exemption is calculated, and the rest is skimmed off to pay your debt incrementally. Your debt will continue to accrue interest in the process.

At every step throughout this process, you as a taxpayer have the right to a collection due process hearing to appeal your situation. However, you need solid evidence to suggest that the IRS is wrong or that you genuinely do not owe that initial tax debt. Do not consider filing for an appeal without first consulting a tax attorney. If an appeal is off the table, your next steps are limited. Once the IRS provides you with your final notice, you have 30 days from the date the notice was issued before your wages are garnished.

Wage Garnishment vs. IRS Levies

There are generally three levies: wage levies, asset levies, and bank levies. This means the IRS can either wipe out a bank account, claim an asset such as a vehicle, piece of real estate, or other personal property, or claim a portion of every paycheck you earn. Wage levies are continuous. In the case of a bank levy or an asset levy, the IRS takes one target asset or seizes one account and empties it before issuing a notice of another levy.

Once the debt is satisfied, the remainder is sent back to you. If the IRS seizes an asset, such as a vehicle or a piece of land, it will liquidate that asset at its quick salve value rather than peak market price. This speeds up the process and increases the likelihood of finding a buyer at relatively short notice. When the IRS seizes your wages or claims money from your bank account, there isn’t much you can do to reverse that.

However, when the IRS claims the property, there is a grace period wherein you can try to resolve your debt or stop the garnishment before the IRS liquidates your assets. Certain assets are effectively exempt from seizure – for example, the IRS isn’t going to claim the only roof above your head or the only car you own to get to and from work unless you have taken an incredibly standoffish position.

In general, the IRS claims to work with taxpayers – and if the IRS is purposefully driving you towards financial ruin, you can contact a tax attorney to help you argue financial hardship. Regardless of whether your wages are being seized or the IRS is having your cars claimed, it would be best if you acted the moment you receive that final notice.

Stopping Wage Garnishment

There are three ways to stop a wage garnishment:

1. Pay off your debt.
2. Enter into a payment agreement and make significant contributions towards eliminating your debt.
3. File as currently not collectible.

While limited, these are ultimately your best options. Bankruptcy is another, but bankruptcy does not always wipe out tax debts. It may be better for you to try and claim financial hardship to work your way out of trouble without taking the hit to your credit that bankruptcy lands. 

What If I Can’t Pay?

The IRS accepts multiple payment plans, each with its prerequisite pros and cons. You don’t have to tackle your entire tax debt in a single payment. However, most IRS payment plans can be broken down into short-term payment plans (less than six months) and long-term payment plans (more than six months). The limit for an IRS payment plan is usually either five years or the end of your debt’s statute of limitations, whichever comes first.

Based on this and your total debt, you can work out your monthly payments to the IRS (including interest) and keep the IRS from continuing to garnish your wages or claim your property. The IRS may also rescind the federal tax lien on your property if you make at least three consecutive payments with no prior history of defaulting, offenses, or penalties in the last three years. However, what if you can’t pay? There are still other options.

Offers in Compromise

The IRS will periodically check in to determine whether your finances have improved enough to warrant a payment plan before resuming collection actions, such as liens and levies. If you are under financial distress, then you may be able to argue that your tax account is currently not collectible. Under these circumstances, the IRS will stop hounding you, but your tax debt will continue to grow.

But if you still have some wiggle room financially, you may be able to file for an offer in compromise. An offer in compromise requires you to file a Form 656, alongside Form 433-A, a unique Collection Information Statement laying your finances bare. You must formulate the offer yourself (with the help of an attorney). Your request will be rejected if it does not match the IRS’s reasonable collection potential calculated from your financial details.

A tax professional’s help can minimize the chances of rejection. Wage garnishment can be difficult to stop. If you are about to be levied by the government, get professional tax help. While the IRS offers ample time to negotiate, it might not always be enough. Understanding how to negotiate with the IRS can be crucial in resolving your tax issues effectively. Knowing the right strategies can lead to more favorable terms and potentially lower payments. Additionally, being prepared with documentation and a clear plan can significantly enhance your chances of success during negotiations.

When most people are asked to take picture of an IRS audit, they likely think about a federal agent coming to knock on their door with a suitcase full of the necessary paperwork, and not an ounce of humor. The encounter is typically followed by a series of cutting questions about the financial details of your business and personal life, and an invasive look into every receipt, balance sheet, and bank statement they have ever filed. Receiving an IRS audit letter can be an intimidating situation.

In truth, very, very, very few Americans will ever face the prospect of an IRS audit. And even fewer people will ever need to be face-to-face with an IRS employee to complete the audit. The vast majority of IRS audits are mail audits – meaning the entire process is conducted and concluded over hard copy correspondence, sending documents and requests for information back and forth over a few weeks or months. 

However, just because you likely won’t need to look into the eyes of your auditor doesn’t mean the process isn’t one you should be adequately prepared for. As rare as IRS audits are, the IRS intends to conduct them thoroughly and may request documents you haven’t had to dig up for a few years. If you’ve received 2an IRS audit letter or notice informing you of an impending IRS correspondence audit, it helps to know what you’re in for. 

What Does an IRS Audit Letter Look Like? 

For the taxpayer, the IRS audit begins with a notice of audit via mail. Not all correspondence sent by the IRS is a notice of audit – the IRS may also contact you to inform you of your eligibility for a tax credit, for example, or to notify you that there was a math mistake on your tax return and that it had been rectified and the difference taken out of your credit/refund. The IRS will only send you a notice of audit when they don’t have all the information and need clarification before making a judgment on your tax account. irs audit process explained for taxpayers includes understanding the different types of audits and the documentation you may need to provide. It's important to stay organized and keep records of your financial documents, as this can simplify the audit process. Additionally, being aware of your rights during an audit can empower you to address any concerns effectively.

If, for example, you have a suspicious or unusual detail in your tax return – such as a deduction that most people in your line of work and your region do not qualify for – then the IRS’s first move will be to issue a notice of audit alongside a request for additional information about specific items on your return, detailing what those items are. An IRS audit letter does not automatically spell trouble. If you provide them with the necessary information, the IRS may decide that your return is legitimate and make no changes. If they find that you made a mistake, they may make a change and charge the missed tax. If you made a mistake in your favor, the IRS might even issue you a refund for the money you overpaid. 

IRS audits can take weeks or even longer. The IRS has no interest in rushing through the process as quickly as possible – they have a total of three years to make a judgment on your return from the moment it’s sent in. This is called the assessment statute of limitations. The average IRS audit generally takes no more than 26 months, give or take. This is the timeline the IRS presents its agents to incentivize faster audit resolutions. 

An exact timeline depends entirely on the circumstances of the audit – the simpler the mistake or details of the concern, the faster it’ll be over. If you overpaid, for example, the IRS has a greater interest in resolving an audit as quickly as possible because the IRS pays interest to taxpayers when it owes a refund due to overpayment. More severe or egregious audits may take time to build, and the IRS might wait longer to engage you and may request more documents. 

IRS Mail Audits vs. Office Audits

Most audits are conducted via mail (mail or correspondence audit). The IRS will detail precisely what they need from you and make their judgment based on the information you provide. Because you’re sending confidential financial information to a government agency, it is in your best interest to be as thorough and forthright as possible. Trying to withhold or lie will worsen things and extend the process needlessly. 

There are multiple ways to appeal a decision by the IRS before an ultimate decision is made. If you disagree with the judgment the IRS makes, you have a chance to appeal. In this case, it is strongly recommended that you talk to a tax professional first. If the IRS requests that you meet face-to-face (office or field audit), you may also want to speak with an attorney for personal representation. Dealing with an IRS audit can be stressful, and you want to ensure that you remain as calm and collected as possible.

A legal professional with tax expertise will be your best bet at navigating the minefield of IRS audits and coming to a swift and equitable resolution. Look for a tax attorney, a CPA, or an enrolled agent.  Whether your audit is in-person or over the mail, if you have specific questions about how to best handle the IRS in your situation, it is always a good idea to consult a tax professional. 

What Will the IRS Be Looking For? 

The IRS has several game plans for different situations, industries, and circumstances. Their official IRS audit technique guides may give you a better idea of what to expect when the IRS launches an audit. Note that the IRS usually wants you to keep any records relevant to your tax return for at least three years before you throw them out. When launching an audit, the IRS may ask for: 

• Receipts
• Bills
• Canceled checks
• Divorce settlements
• Tax advice
• Loan agreements
• Financial logs/diaries
• Ticket stubs (business trips, etc.)
• Medical records
• Employment documents
• Theft/loss of documents
• And more. 

When Do You Need to Worry About an IRS Audit Letter? 

Only about one percent of taxpaying Americans earning between $1 and $1,000,000 a year will be contacted for an IRS audit. The reasons can vary greatly, but most IRS audits are identified automatically through computer-generated comparisons tracking trends in incoming tax returns and comparing tax returns with existing individual and information returns to discover potential red flags. When a red flag is identified, a human tax auditor reviews the case before conducting an official investigation. 

The exception is an audit launched in coordination with a fraud investigation. The IRS may audit the account thoroughly if a taxpayer’s account is tangentially linked yet not necessarily involved with a potential criminal case.  If you have been selected for a correspondence audit, stay calm and take deep breaths. A tax professional can help you work through the step-by-step process of meeting the IRS’ demands and minimizing your chances of a negative outcome.

Dealing with debt is never easy, but it can become more complex when your creditor is the US government. The IRS is well-known for deploying multiple collection actions to try and coerce payment. The collections enforce payments down to wage garnishment and property levies. Wherein the IRS claims a portion of every paycheck until your debt is paid or claims and sells any non-exempt assets or property under your possession. But that's where a tax lien release can be of value.

Acting is key to avoiding these collection actions. The more you owe, the more likely the IRS is to act on your tax account – usually starting with a notice of federal tax lien.

What is a Federal Tax Lien?

A lien is a legal claim on everything you own. When a creditor files for a lien, they effectively secure their debt by limiting their ability to seek financing or liquidate assets without first satisfying their debt.

Because the IRS represents the government's interests, its lien supersedes the claim of any other creditor. This means that a federal tax lien can affect your ability to pay off any other debts you might have and hinder your ability to seek financial help without first addressing your tax problems.

Liens are not a direct claim on any of your possessions or property. But they are a vital step in that direction. Ignoring a lien can quickly translate into a levy.

In the not-so-distant past, any notice of federal tax lien also served as a warning sign to credit reporting agencies that you were in trouble with the IRS. The consequences of a tax lien on your credit score were roughly equal to filing for bankruptcy and lasted about as long. This is because federal tax liens are not just sent to you but filed as a matter of public record.

However, in 2018, the US's three major credit reporting agencies officially ended the incorporation of federal tax liens in credit reports. They retroactively removed a federal tax lien's effect on countless accounts.

The official explanation was the IRS issued too many liens to people with good credit and no tax debt. The issue was a lack of communication between the IRS and these credit reporting agencies. In addition, because liens are a matter of public record, they were being reported. Still, it was easy to make a mistake when linking an IRS judgment to the respective taxpayer.

But that doesn't mean federal tax liens have lost their teeth. A tax lien still means the government becomes your priority creditor, which can severely limit your ability to seek financing or deal with other debts without contacting the IRS.

Liens vs. Levies

Liens and levies are the two most powerful tools the IRS can utilize to coerce payment – its two most effective collection actions. Whereas liens represent the government's legal claim, a levy is a physical claim. Through a levy, the IRS can claim the contents of a bank account, claim investment properties, claim vehicles, or issue wage levies until your debt is satisfied.

Not all taxpayers can be subject to levies. The IRS must ensure that its collection actions are not leading to financial distress. Even if your income is high enough to support yourself and your dependents, the IRS is limited to claiming about 15 percent of your weekly earnings through different types of wage garnishment, depending on the number of dependents you back, your filing status, and other factors. Note that federal levies and state levies are separate, just like federal taxes and state taxes. There are several different state-specific lien and levy rules. However, the application of liens is for everyone – including taxpayers who are currently not collectible or have low income.

Tax Lien Release

There is generally only one way to release a federal tax lien – pay off your tax debt. The IRS will release your lien within 30 days after your debt has been fully satisfied. If your lien is not cleared by the end of the 30 days, you can contact the IRS and request a release through Form 13794, Request for Release, or Partial Release of Notice of Federal Tax Lien.

To reiterate, you might not necessarily have to satisfy the entirety of your tax debt to issue a federal tax lien removal. The IRS requires that you either: explore various federal tax lien removal strategies that can help ease your financial burden. These strategies may include negotiating a payment plan, submitting an offer in compromise, or demonstrating that the lien is causing undue hardship. Each option has its own requirements and procedures, so it's crucial to understand which one may be the best fit for your situation.

• Satisfy your tax liability;
• Enter into an installment agreement, agree to automated withdrawals, and make at least three successful and consecutive payments to the IRS; or
• Reach a point where your tax debt is no longer legally enforceable (the tax debt has expired).

If your tax debt is not something you can pay off in a few months, entering into an installment agreement with the IRS and agreeing to automated withdrawals may lead to your lien being released prematurely. The IRS can immediately reinstate your lien if you default on any of your payments, and they will not remove it again until you have satisfied your tax liability.

Withdrawal of Notice of Federal Tax Lien

Once a lien is released, the IRS can withdraw the notice of federal tax lien from the public record. Lien releases will generally take some time, and the IRS will not remove any information after releasing your lien.

While credit reporting agencies no longer check for federal tax liens when calculating credit scores, a tax lien remains a matter of public record. The public record might affect your ability to seek financing for a home or business capital, or it may come up if potential investors do due diligence on your finances. The withdrawal of a notice of federal tax lien can help make the consequences of your tax lien disappear.

Subordination and Discharge

While liens and levies are severe issues for any taxpayer, the IRS is not inflexible. You may have the option of seeking a lien subordination or a lien discharge to help pay off your taxes.

A lien subordination allows you to choose a creditor to supersede the IRS. This will enable you to pay off a vital debt while your account is under a tax lien. A lien discharge removes the IRS claim from a single item.

In general, the IRS will offer lien subordination or lien discharges if they ultimately serve to help the IRS collect its money faster. This is part of the IRS Fresh Start Program benefits, which aim to assist taxpayers in resolving their debts more effectively. By utilizing these options, individuals can regain control of their financial situations while ensuring the IRS achieves its collection goals. Additionally, the program may provide alternative payment plans that ease the burden on struggling taxpayers.

When it comes to tax debt, time is of the essence. Your tax debt continues to grow while you're paying it off, and doing nothing can make it grow faster. Let us help you tackle your tax problems and minimize your tax debt at Rush Tax Resolutions.