Federal Tax Liens

If you owe the IRS more than $10,000 they can legally file a tax lien against you. A Federal Tax Lien is a public record that notifies all other creditors that you owe money to the government. Because it is public record, it also notifies everyone else who may happen to take a look at the public record databases — family, friends, and an army of tax companies that are going to solicit your business.

Beyond a mere annoyance, a Federal Tax Lien can destroy your credit score, prevent you from purchasing or refinancing your house, and even cause you to lose your job or a security clearance.

Luckily, you do have options for dealing with a Federal Tax Lien:

Certificate of Discharge

A Certificate of Discharge is used to “discharge” specific pieces of property from an IRS tax lien. It does not remove the lien itself, it just removes property from the hold of the lien.

A Certificate of Discharge is used when you want to sell a piece of property and you have a tax lien. For example, if you want to sell your house we can negotaite a Certificate of Discharge so that your buyer can purchase the house without worrying that the Tax Lien is going to interfere with the sale.

Certificate of Subordination

A Certificate of Subordination is used to subordinate the IRS’ lien position behind another secured creditor for a specific piece of property only. It does not remove the lien, it simply allows another creditor to move in front of the IRS on that one piece of property.

A Certificate of Subordination is used when you want to refinance a piece of property and you have a tax lien. Subordination means that the IRS is going to give the new lender priority over the tax lien. Let me explain.

All secured creditors have a priority based upon when they became a creditor. For example, if you own your home you might have a first and second mortgage. Your first mortgage has first priority, and your second mortgage has second priority. That means that if you ever sell your home, your first mortgage will generally be paid first.

When the IRS files a tax lien against you, they too become a secured creditor. They basically move into line behind the mortgage companies, so now they are third in line to get paid if you sell that house.

The problem is that if you want to refinance your house, but you are only going to be paying off the first and second mortgage, that would move the IRS from third position into first position because the two mortgage companies that were in front of the line are now paid off.

This is a problem for the new lender who is refinancing you, because the IRS would now be first and the new lender would be second in line behind them. They obviously don’t want to lend you money unless they are in the first position to get paid.

A subordination simply means that the IRS will agree to let the new lender move ahead of them in line.

Withdrawal of Federal Tax Lien

A Withdrawal of Federal Tax Lien is the only way to actually remove the lien altogether. The first two options dealt with specific pieces of property, while a Withdrawal will remove the lien from everything.

A Withdrawal of Federal Tax Lien is a fairly rare occurrence. Once the IRS has established themselves as a secured creditor, they are hesitant to give that up.

In general, in order for the IRS to agree to the Withdrawal of a Lien you must show that withdrawing the lien will increase the IRS’ ability to collect the debt. For example, if you can prove to the IRS that you are going to lose your job because of the Tax Lien they may withdraw it to ensure that you can continue earning money to pay them with.

It must be stressed that you must prove this to the IRS. It cannot be a situation where it “might” happen or “could” happen. Preferably, there needs to be a written policy or letter from your employer saying that it will definitely happen.

The IRS also released new rules in 2011 that say the IRS will Withdraw a lien for anyone who owes $25,000 or less and gets on a payment plan with the IRS. The IRS will require that these payments be automatically debited from your bank account, rather than you mailing in a check, and once you have made three payments via direct debit you are eligible to apply for a Withdrawal.

Innocent Spouse Relief

Innocent Spouse Relief is an IRS program that is designed to relieve one spouse of liability from a jointly filed return.

If the IRS approves a request for innocent spouse relief, the joint liability will be removed from your social security number except to the extent that you would have owed tax on your own income. You will not be liable for your spouse (or ex-spouse)’s fair share of the debt.

You have only two years from the date that the IRS began to try and collect the debt from you to file a claim for innocent spouse relief. That deadline is a little vague. Most commonly the IRS interprets the mailing of IRS Notice CP504 “Urgent We Intend to Levy Assets” collection notice as the time when the clock starts running.

If you are unfairly being held liable for your spouse’s tax debt, you should call me and go through our Free Consultation. I will review the specifics of your case and let you know if you have an opportunity for Innocent Spouse Relief.

IRS Penalty Abatement Penalty Forgiveness

The IRS charges outrageously high penalty rates on debts that are owed to them. Then they charge you interest on both the principal and penalties. The combined effect of this is that your debt can quickly double or triple from what you originally owed them. Here’s some of the penalties that they charge:

Late Filing Penalty: The IRS charges 5% of what you owe them per month if you file the tax return late. This penalty maxes out at 25% (after 5 months late, the penalty is at the maximum).
Late Payment Penalty: The IRS charges 0.5% of what you owe them per month for not paying your debt on time. This penalty maxes out at 25% as well (after 50 months, the penalty is at the maximum).

Additionally, individuals may also get hit with one-time estimated tax penalties and businesses can get hit with federal tax deposit penalties. Both of these can add even more penalties to your IRS debt, and make it grow even quicker.

The IRS also charges interest on the debt. Their interest rate changes each quarter, but in 2011 they are charging a 4% interest rate, compounded daily.

What Can You Do About It?

The law says that the IRS can grant an abatement of penalties, or penalty relief, under certain circumstances. The most common way of achieving this is by proving to them that you had “reasonable cause” for not filing or paying on time.

Reasonable cause means that something happened that cause you to fall behind on your taxes that wasn’t your fault, or was unanticipated, or unavoidable.

Examples of reasonable cause include:

Medical Issues, Illness, or Death
Natural disasters and other Acts of God
Fire, Theft, or other “Casualty”
Financial Difficulties

These are just examples.

Anything that meets the Reasonable Cause criteria can potentially be used as an argument for penalty abatement (forgiveness). As your Tax Attorney, my job is to present your argument in a way that convinces the IRS that your circumstances qualify as a reasonable cause and an abatement is called for.

Even if you think that your story doesn’t qualify as reasonable cause, we should still discuss it to see if we can make an argument. The worse the IRS can say to our request is “no”.

Levies and Garnishments

If you have had your paycheck garnished by the IRS, or have had your bank account or other assets levied (seized), you need a Tax Attorney more than ever (and fast!).

When a client hires me and is facing one of these issues, their case will receive priority treatment and become my sole focus until the IRS Levy or Garnishment is released and your file is completely stabilized.

I can always release a levy or garnishment, without filing bankruptcy — it’s usually just a question of how quickly I can get it done. In most cases I will have your IRS levy released within a couple of days.

How Do You Release an IRS Levy or IRS Garnishment?

To put it simply, you make other arrangements with the IRS. You either get set up on a payment plan or get your account placed into currently not collectible status.

Filing an Offer in Compromise will prevent any new levies or garnishments from being issued, but it will not automatically release any garnishments or levies that are already in place. If you qualify for an Offer in Compromise, the best strategy is usually to get collections to place your account into currently not collectible to get the levy or garnishment released and then file an Offer in Compromise.

Of course, requesting a payment plan, getting placed into currently not collectible status, or filing an Offer in Compromise all require that you have filed all of your tax returns.

If you have any unfiled or missing tax returns, I will need to prepare and file those before we have any hope of getting your levy or garnishment released. That will be my #1 priority, and I can prepare those returns for you fast!

Currently Not Collectible Status

If you cannot afford to make monthly payments to the IRS, I can negotiate to have your accounts placed into “currently not collectible” status.

Currently not collectible status means that the IRS acknowledges that you are currently experiencing a financial hardship, and they are going to move you out of collections into a “hardship” status until things improve.

How Long Will I Remain In CNC Status?

By law, you are guaranteed to remain in currently not collectible status for at least one year. After one year has passed, the IRS computer systems will begin monitoring your annual tax return filings.

Once you file a tax return that reports an increase in income beyond what you were making when you were first placed into currently not collectible status, the computer will move you back into collections.

Once this happens, we will need to call Collections and make new arrangements. It is possible that we can call Collections and get you placed right back into Currently Not Collectible if you are still unable to make monthly payments to them.

If your income generally stays the same, it is possible to stay in this status forever, at least until the statute of limitations expires. Once that happens your debt is forgiven, and you are free to move on with your life.

How Do I Negotiate to Be Placed Into This Status?

The process is generally the same as negotiating a payment plan — think of this as negotiating a payment plan for $0 per month.

There are some additional steps that the IRS will generally make you take. For example, if you have equity in your home they may require that you prove that you cannot get a home loan to access that equity. If you have money in a retirement account, they may make you prove that you cannot access the money.

Is This a Long Term Strategy?

Generally, I consider being placed in CNC status as a temporary fix. The debt doesn’t go away, it actually continues to grow because penalties and interest are still accruing.

If you qualify for CNC status, you may also qualify for an Offer in Compromise.

This is not always true though — CNC status is based primarily on monthly income and you can usually get the IRS to ignore equity in your assets (real estate, retirement accounts etc) by just proving that you cannot get to the money.

In an Offer in Compromise, however, you can almost never get the IRS to ignore equity that is in your assets — even if you cannot actually get to the money, they add it into their settlement calculation.

If I can get you into currently not collectible status, we should also look into filing an Offer in Compromise. If I don’t think you qualify, I generally recommend staying in CNC status for as long as possible — especially if the statute of limitations is getting close to expiring.

IRS Offer in Compromise

An Offer in Compromise is a settlement with the IRS that allows you to pay less than what you owe, and walk away from the rest. Generally, the IRS will accept a settlement through the Offer in Compromise if you can convince them that the amount you are offering is the most that they could expect to collect from you through other means.

How Much Should I Offer?

The IRS will only accept an Offer if they believe you are offering your “reasonable collection potential”. Generally, this means that your offer should include all of the equity in all of your assets plus four years of disposable income.

As your Tax Settlement Attorney, my job is to make both of these numbers as low as possible. When we present your Offer in Compromise to the IRS we will need to first evaluate your assets and show the IRS how much money you could actually receive and send to them if you were to sell everything that you own, not including personal items such as household goods and appliances.

When the IRS evaluates your income and expenses, they are going to determine your “disposable income”, which is simply your gross income minus your IRS allowed expenses.

The IRS has established maximum amounts for allowable expenses, and they will not allow more than those standards for the purposes of calculating your disposable income

Once they have determined your disposable income, they multiply that monthly amount by four years (48 months) or more and add that to the settlement figure.

As your Tax Settlement Attorney, my job is to ensure that we can present an accurate picture of your monthly finances in a way that, using the IRS’ own standards and rules, results in the lowest “disposable income” figure possible.

This is how to get a low settlement with the IRS

Do I Qualify for a Settlement?

I cannot answer this without reviewing your specific circumstances. In general, though, in order to qualify for a settlement using the Offer in Compromise you need to have very little equity in your assets (real estate, retirement accounts, etc.) and your income and expenses need to be at a level where you are having a tough time making ends meet.

If you have significant equity in your assets (enough to pay the IRS in full), or your income is above-average, an Offer in Compromise may not be an option.

The only way that I can give you a definitive answer is for you to contact me for a free consultation. We can review your assets and determine your “disposable income” figure and decide whether or not you would qualify for a settlement. I do this free of charge with absolutely no obligation.

Payment Plans or Installment Agreements with the IRS

Individuals and businesses, across the country negotiate a payment plan with the Internal Revenue Service. A payment plan, also called an Installment Agreement, is one of the quickest solutions that can be negotiated with the IRS.

How Do I Qualify for a Payment Plan?

The only requirements that you must meet before the IRS will consider a payment plan are:

You must have filed all required tax returns — if you have some unfiled tax returns, I can prepare them for you to help you meet this requirement.
You must not accrue any additional tax debts — the IRS will want proof that you are not going to owe again this year. Usually this means they want you to adjust your withholdings at work, or begin making your required tax deposits on time.

If you meet both of these requirements you are eligible to propose a payment plan to the IRS for consideration.

How Much Will I Have to Pay Each Month?

In most cases, the IRS is going to require that you provide a financial statement detailing your assets, income, and expenses. The purpose of this financial statement is to determine the following:

Can You Sell Anything?: If you can sell some assets to pay the IRS, they may demand that you do so. They don’t want to put you on a payment plan unless it is the only way for them to get paid.
How Much Can You Afford?: The IRS will review your monthly income and expenses to determine how much they think that you can afford to pay them. Typically this is the amount that they will demand from you.

My job, as your Tax Attorney, is to negotiate this monthly amount to be as low as possible. This is accomplished by presenting a realistic picture of what you can afford to send the IRS, rather than letting the IRS strong-arm you into a payment agreement that you cannot afford to pay while also meeting your basic living expenses. Such an agreement will only result in you defaulting the agreement or accruing a new tax debt in the future, neither of which are desirable to you or the government.

What If I Can’t Afford To Pay Anything?

If you cannot afford to pay the IRS anything each month, then we need to prove that to them. You do this in the same way that you propose a monthly payment to them — by completing the financial statement detailing your assets, income, and expenses

If you cannot afford to make monthly payments and can prove it, then the IRS will place you into currently not collectible status, which means that they won’t require a monthly payment until you get back on your feet. This is basically just like a payment plan, but for $0.00 per month.

Usually, but not always, if you qualify for currently not collectible status you also qualify for an offer in compromise.

Bankruptcy and Taxes

Bankruptcy and Taxes in Utah

In certain circumstances, debts owed for income taxes can be discharged through either a chapter 7 or chapter 13 bankruptcy.

Chapter 7 allows for complete discharge of certain unsecured debts whereas Chapter 13 allows for the repayment of debt through a monthly payment plan, with a discharge of certain debts.

As per the Bankruptcy Code, debts for taxes can be discharged in both a Chapter 7 and Chapter 13. Some debts for taxes cannot be discharged by bankruptcy. To discharge income taxes, a debtor who owes a tax debt to the IRS or Utah Department of Revenue needs to meet the following five criteria:

When can tax debts be discharged?

If the debt for taxes meets the following requirements, the debt for taxes can be discharged in both chapter 7 and Chapter 13 matter:

The tax debt is for an income (Form 1040) tax liability, and not for payroll or self-employment taxes.
The deadline for filing the tax return was more than three years prior to the filing.
Two years or more have elapsed since the filing of the tax return.
240 days or more have elapsed since an assessment.
The taxpayer did not file a fraudulent return.
The taxpayer has no conviction for tax evasion.

Deadline for filing the tax return is more than three years prior

The debt for taxes must concern a state or federal tax return which was due three years or more prior to the bankruptcy filing date, including extensions.

Over two years have elapsed since the filing of the tax return

The debt for taxes must concern a state or federal tax return filed over two years prior to when the taxpayer’s bankruptcy filing. This time commences as of the date the debtor filed the tax return.

Over 240 days have elapsed since an assessment

The income tax must be assessed 240 days or more prior to the debtor’s filing. The tax assessment can result from a taxpayer’s income tax balance due, a final determination resulting from an audit, or a proposed tax assessment made final.

The taxpayer did not file a fraudulent return.

A fraudulent tax return files disqualifies the debtor from a discharge.

No conviction for Tax Evasion

A taxpayer is not eligible for a discharge any debt for taxes if guilty of a knowing or intentional act of tax evasion.

The taxpayer has not been convicted of the crime of tax evasion

A debtor cannot discharge a debt from taxes if the tax return (for the tax year in question) is unfiled. On tax returns which have not been filed, the IRS and Colorado Department of Revenue regularly assesses tax (and interest and penalties). The tax debt will not be discharged if the tax return has not been filed for that year at issue.

Additional issues

Prior to the granting of a discharge in Chapter 7 or Chapter 13, the debtor needs to have filed tax returns for the previous four years with the IRS and Utah Department of Revenue. Such tax returns need to be filed on or before the 341 Meeting of Creditors. Additionally, debtors need to provide to the trustee a copy of most recently filed state and federal tax returns. A debtor must also provide a copy to creditors of the tax return, upon request.

Do you have IRS Tax Problems or Debt Problems?

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I am here to help provide clients with solutions for their IRS tax problems throughout Utah. Oor services include: Offers in Comromise, Installment Agreements, Penalty Abatement, and much more.

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We have dedicated ourselves to helping taxpayers like you in overcoming tax-related difficulties.

If you find yourself in a demanding predicament with the IRS or state tax agencies, then let us help you alleviate your stress. Our tax attorneys will handle all your tax-related problems in a professional, tough and thorough manner. Let our years of success work for you.