What is a Notice of Determination?

An IRS Notice of Determination (NOD) is the final letter the IRS uses when they are closing out your Collection Due Process hearing under Section 6330 and/or 6320 of the Internal Revenue Code. They will look like this:

Receiving the Notice of Determination means your Collection Due Process Appeal has been closed out and the Levy or Lien against you is now sustained. This means the IRS can now proceed with enforcement action. This can be a big deal if your case is assigned to a Revenue Officer as they now have full enforcement capabilities against your bank accounts, wages, and possibly assets.

Why Did the IRS Issue a Notice of Determination?

The reason the IRS issued a Notices of Determination is because you could not reach resolution with an IRS Settlement Officer with regards to your Collection Due Process Hearing. Chronologically it typically would go:

• You requested a Collection Due Process hearing to dispute and IRS lien or levy notice. This can be in response to an IRS LT11 or 1058.
• You had a meeting with a Settlement Officer, and disclosed financials with IRS Form 433-A to propose an installment agreement or non-collectible status.
• No agreement was reached. Possibly because the Settlement Officer did not allow your expenses and the offered monthly payment did not meet your current cash flow.

After you have not reached resolution, the Settlement Officer will issue the Notice of Determination.

What to Do Once You Receive the Notice of Determination.

First, carefully review the NOD. The Settlement Officer will verify that they complied with administrative procedures and state how they reached their decision. Be careful, the NOD is written from the Settlement Officer’s perspective. They do not include our side of the story. Our side may include facts that were not documented in the IRS case notes.

Some reasons why you may disagree with the Notice of Determination are:

• The Settlement Officer did not consider your financial situation. The Internal Revenue Manual, the handbook on which IRS employees rely on to make decisions, is a expansive manual that covers many rules and exceptions. It may be that the IRS did not follow its own rules and regulations it has listed in their manual. For example, on exemption in the IRM called the “six year rule” allows you to claim the maximum on your expenses such as, student loans and credit cards as long as the liability will be paid back within six years.
• The IRS may have a procedural or administrative error in your case. Although it is not common, the IRS does make errors in their cases. I have seen the IRS fail to receive faxes proposing resolution or new hearing dates. I have also seen the IRS issue Final Notices of Intent to Levy when they were prohibited from doing so.
• You were told you did not qualify for certain relief when you did. You may be told that you do not qualify for an innocent spouse claim or non-collectible status when your documents and facts prove that you do. Sometimes, your profit and loss or bank statements do not paint a full picture of your actual cash flow.

If we disagree with the decision, we can move to our next step, petitioning to the United States Tax Court.

How to Petition to the United States Tax Court

First, and by far the most important factor to keep in mind is that the petition to Tax Court is statutorily set at a 30-day window. The Court, the IRS, and even Attorneys cannot extend this window to file, so it is crucial that a petition is filed within this time frame. Additionally, filing a petition in tax court generally suspends levy and enforcement action during litigation.

The Tax Court makes filing straightforward. They offer starting and filing our Petition online via the Tax Court website, and service is handled by the Court. The Court has a filing fee of $60. Cases are broken into two different areas, small tax cases (S Cases) where the amount in controversy does not exceed $50,000, and Regular cases.

When we challenge a Notice of Determination the Tax Court, the Court does not re-decide your case from scratch. Instead it reviews the Settlement Officer’s decision under an “abuse of discretion” standard, meaning that the Court will review if the Settlement Officer determinations are arbitrary, capricious, or without sound basis in fact or law. If the Court agrees with us, it remands the case back to Appeals for compliance with its instructions.

For example, a Settlement Officer did not accept a proposed installment agreement because of equity in assets. However, we point out to the Settlement Officer that they are overvaluing your house by not taking the quick sale value of the asset as required in the Internal Revenue Manual. The Settlement Officer disagrees and issues the Notice of Determination. If we petition the Tax Court and they agree with us, the case file is sent back to IRS Appeals with instruction to follow the Internal Revenue Manual and take the quick sale value of the house. The Court does not determine what the equity in the house is, they leave that up to the IRS.

How we Can Help

We regularly represent taxpayers before the IRS Independent Office of Appeals and United States Tax Court.

If you have been struggling to resolve your case with an IRS Settlement Officer, or received a Notice of Determination, we can assist you in resolving your case with the Independent Office of Appeals or, when appropriate, Petitioning Tax Court to seek a remand of your case.

The post Challenging IRS Collections: How to Appeal an IRS Notice of Determination appeared first on IRS Tax Attorney Howard Levy.

• “When will the IRS take enforcement action against me through levy or wage garnishment?”
• “Will I be notified before they take this action?”
• “Is there any way I can stop enforcement before it happens?”

The answer to these questions can be explained by looking at the IRS’s LT11 (Or 1058) Final Notice of Intent to Levy.

Will the IRS Notify me Before Levy?

In most cases, yes, the IRS is required by law to give you written notice by mail before they can take enforcement action.

Specifically, the IRS must send you written notice that they intend to take enforcement action and offer you the opportunity to dispute the proposed levy through an administrative appeal. This specific language appears in IRS Letters LT11 and Letter 1058. The letter provides us with 30 days to request a Collection Due Process appeal (CDP). When an appeal is pending, and until its resolution, the IRS is prevented from taking levy or garnishment action.

After the CDP is filed, it typically takes the IRS six to nine months to process the appeal and assign it to an Independent Appeals officer, known as a Settlement Officer.

Additionally, the LT11 is issued by IRS Automated Collection System (ACS). ACS enforcement is typically limited to wage and bank levies. ACS does not have the ability to take your car or house, only a live agent, such as a Revenue Officer can do that. However, the LT11 should not be ignored as ACS can (and frequently does) take wage garnishments and bank levies.

How Is the Final Notice Sent?

The Final Notice of Intent to Levy, is usually sent by certified mail to your last known address. What sets the Final Notice apart from other IRS Letters (such as the CP504) is that the Letter specifically states your rights to challenge the levy and request a Collection Due Process Appeal. Other letters such as the CP504 do not offer the ability to request a Collection Due Process hearing. This is critical as the Final Notice of Intent to Levy requires a 30 day response, while other letters, although important, do not require immediate action.

If you are uncertain whether a Final Notice of Intent to Levy has been issued in your case, we can secure IRS account records to verify if the IRS has issued one.

Okay, I received the LT11 Notice and Appealed, What Happens Now?

If we chose to file a CDP we will complete IRS Form 12153 and submit to the IRS. The IRS will typically take six to nine months to process our appeal and assign it to its Independent Office of Appeals. When the case is finally assigned we should receive an IRS Letter 4837 setting a hearing date, time, and who our Settlement Officer will be.

Typically, the hearings are conducted by phone. My clients never attend the hearings, we handle them on their behalf. At the hearing we will discuss the collection alternatives such as:

• IRS Installment Agreement.
• Current Non-collectible Status.
• Offer in Compromise.

One valuable part of having a CDP appeal is that your tax file is now with a live human directly trained on the Internal Revenue Manual to assist with resolving your tax case. This is often far better than dealing with the IRS call centers and long wait times to speak with a representative.

What if I Miss the 30 Day Deadline?

While missing any deadline is not ideal, the IRS administratively gives grace to taxpayers who do not timely file their Collection Due Process Appeals. Filing the CDP outside of the 30 day window and within one year of the Final Notice of Intent to Levy being issued gives us the ability to request a CDP Equivalent Hearing.

While the IRS can still take enforcement action after filing an Equivalent Hearing, it is policy not to. Additionally, filing outside the 30 day window does not toll the IRS collection statute, as a regular CDP would.

What to Do if you Disagree with What Happened in your CDP.

If you are unable to reach a resolution with the Settlement Officer we can appeal the decision to United States Tax Court. Tax Court will usually adjudicate cases from appeals based on an “abuse of discretion” standard. Abuse of discretion means the Court will see if the Appeals Officer committed any plain errors or failed to follow administrative procedures.

This standard can sometimes be a high barrier to reach, so it is important to fully understand the facts of your case before petitioning the Court.

How We Can Help

We regularly represent taxpayers before the IRS Independent Office of Appeals and United States Tax Court.

If you are uncertain whether a Final Notice of Intent to Levy has been issued in your case, or are struggling to resolve in Appeals, we can review your account transcripts, assess your current enforcement exposure, and develop a plan to protect your rights and resolve your tax liabilities.

The post How Will I Know If the IRS Plans to Garnish My Wages? (IRS CP504, LT11 & Letter 1058 Explained) appeared first on IRS Tax Attorney Howard Levy.

A Freedom of Information Act (FOIA) is a practical, and often overlooked, tool available when dealing with the IRS. Enacted in the 1960s to promote government transparency, the act gives individuals the right to request records from federal agencies, including the Department of the Treasury.

Through FOIA, we can request the full IRS administrative file, which typically includes:

• Case management notes.
• Auditor work papers.
• Internal correspondence.
• Copies of notices and letters sent to you.

Federal agencies must disclose requested records unless a specific exemption applies. However, these exemptions are relatively rare. The purpose of FOIA is designed to make government actions more transparent, not to withhold information.

How can FOIA Request Help my Tax Case?

There are a few different ways a FOIA request can help us resolve your tax cases. Specifically, I routinely use FOIA requests in Audit reconsideration, Collection Due Process Hearings, and while litigating in Federal Court as well as Tax Court.

Audit Support

Many clients come to me in panic after an audit as they no longer have their audit records. I have also seen cases where an audit occurred so long ago that they simply do not have the records anymore. A FOIA request allows us to retrieve the full audit file, showing:

• What documents you previously provided.
• What the auditor reviewed.
• Notes and work papers explaining the IRS’s conclusions.

This information is very helpful when preparing for Tax Court, seeking audit reconsideration, or identifying mistakes that occurred during the audit as it shows us everything that the auditor relied upon. It can reveal mistakes as simple as the auditor improperly disallowed deductions, or can be a little more complex such as contradictions within the IRS’s own notes.

FOIA is also helpful in cases involving a Substitute for Return (SFR). A SFR is where the IRS files a return on your behalf. SFRs will not include your deductions and stock basis information, and many are generated by automated systems without a live agent meaning their is a higher chance you may have missed your response deadlines, or worse case, did not receive any notice. With the FOIA file, we can see exactly what the IRS relied on for the SFR and respond appropriately.

Obtaining Your IRS Account Records

FOIA can also help us obtain your IRS account transcripts. The IRS transcripts verify where you stand in the collection process.

For example, the transcript will verify whether a Final Notice of Intent to Levy has been issued or if you have unfiled returns. A FOIA can also provide Wage and Income transcripts showing what income was reported to the IRS for preparing any missing returns.

FOIA in Litigation and Tax Court

In litigation, FOIA gives us access to Field Agents’ notes and internal correspondence. This information will reveal how the IRS handled your case and whether any procedural errors occurred. For litigation in Federal Court, this is a helpful tool during discovery to obtain records that may not have been disclosed. I have also used them in summary judgment motions to help build up an argument.

FOIA is also particularly valuable in Tax Court as it relates to appealing Collection Due Process (CDP) cases. Tax Court reviews CDP appeals under an “abuse of discretion” standard, meaning the judge evaluates whether the Settlement Officer acted reasonably and followed proper procedures. FOIA allows us to identify administrative errors, missing documentation, or inconsistencies. For example, I have had agents claim they never received our correspondence or requests to settle a case. However, by using a FOIA request, we were able to prove that their own records contradicted their assertion, our records verified that we had made good faith efforts to settle the case. The case was ultimately remanded because of the discrepancy.

The post How Using a FOIA Request Could Help With Your IRS Tax Case appeared first on IRS Tax Attorney Howard Levy.

Surprise visits from IRS field collection agents, known as Revenue Officers, were once one of the most intimidating aspects of owing taxes.

However, in a recent policy change, the IRS decided they will no longer make unannounced visits to your home and office. Instead, the IRS has issued new guidelines, opting for a gentler, friendlier approach, sending appointment letters with meeting times announced and scheduled in advance.  

The IRS has acted quickly, and Revenue Officers are sending out their Notices of Appointment, Letter 725-B to meet with you and investigate collecting your tax debt.

It is important to understand how to properly respond to your Notice of Appointment, Letter 725-B, but also be aware that there is more to meeting with the Revenue Officer than meets the eye. The Notice of Appointment is a starting point for an IRS Revenue Officer. Our Revenue Officer wants to interview you about your finances, any unfiled returns, and determine how the IRS can make you pay them back. The last thing you want to do is go into an IRS meeting blind.   

Let’s learn about how to handle your Notice of Appointment (Letter 725-B), and the collection demands to expect at your meeting, including a Revenue Officer’s request for financial information; Revenue Officer deadlines; financial disclosures in IRS Form 433A; and responding to an IRS Final Notice of Intent to Levy.

What should I do after receiving a Notice of Appointment, Letter 725-B?

Understandably, it can be intimidating to open your mail to find an IRS Notice of Appointment, Letter 725-B, and learn that you have an IRS Revenue Officer assigned to collect your taxes, with a date and time scheduled to meet. 

The reality, however, is that a proposed appointment time to meet with a Revenue Officer gives us numerous negotiation benefits that were previously unavailable.

Previously, Revenue Officers would show up at your home or business, flash a badge, and request to come into your kitchen or conference room and interview you on the spot. In an interview, a Revenue Officer wants to gather information about your finances (where you work, bank, the value of your cars and house, retirement plan information, monthly living expenses, etc.); demand the immediate filing of missing returns; and ensure that you maintain IRS compliance (being current on your estimated taxes if you are self-employed). The end goal is negotiating payment and filing resolution.

With the Notice of Appointment letter, we have knowledge that your case has been assigned to a Revenue Officer, and the opportunity to prepare in advance. There is no need to guess the answers to your finances; the answers can be reviewed and prepared in advance, with cautious and correct completion of IRS collection information statements (Forms 433A/433B).

With the new Notice of Appointment letter, you are out of immediate, direct contact with the IRS Revenue Officer and off the front line.

What is a Revenue Officer, and why was my case assigned?

Revenue Officers are the IRS’s primary field collection soldiers. The IRS collection division refers to the “field” as the area where you live and work.  Revenue Officers work the field – meaning they are assigned collection files identifying individual taxpayers in their assigned area. They are the primary “live and in-person” collection enforcement agents of the IRS.

Revenue Officers are usually assigned higher dollar amount cases, often combined with unfiled returns and “pyramiding” of tax debts (pyramiding refers to “running up” tax liabilities year after year without paying). Unpaid employment taxes from a business often rate high in the world of the IRS for assignment to a Revenue Officer. The IRS has a computer algorithm to identify cases ripe for the deeper investigation of a Revenue Officer. 

Also, the IRS has 10 years to collect the tax debt, and the IRS computer can identify cases with a short collection statute for assignment to a Revenue Officer.

Revenue Officers should be dealt with in a timely manner, and with an understanding of their power. A Revenue Officer can levy your wages and bank accounts, recommend that the IRS seize and sell your real estate, force you to relinquish retirement accounts, and close a business that pyramids tax liabilities.

It should not be taken lightly if you have received a Notice of Appointment letter from a Revenue Officer. Your tax situation is at the top of the IRS collection list.

What are all the IRS papers that came with my Notice of Appointment letter?

With your Notice of Appointment letter, the Revenue Officer likely stuffed a dizzying array of IRS collection forms and publications. The Notice of Appointment is just the beginning for the Revenue Officer’s work.  

Revenue Officer documents that accompany a Notice of Appointment letter and require our immediate attention may include the following:

• Form 9297, Summary of Taxpayer Contact
• Form 433-A, Financial Disclosure (or, if you own a business, Form 433-B).
• Letter 1058, Final Notice of Intent to Levy with rights to Collection Due Process Appeal

Let’s take a look at each of the Revenue Officer’s Notice of Appointment demands, and how to respond and protect yourself:

Form 9297, Summary of Taxpayer Contact

The Notice of Appointment letter is used by Revenue Officers to announce their arrival.  Form 9297, Summary of Taxpayer Contact, contains the Revenue Officers request for information and deadlines.

The Revenue Officer wants to more than just to meet and talk to you.

Here are the documents and filings a Revenue Officer will typically request from us in Form 9297:

• Completion of an IRS Collection Information Statement, using IRS Form 433A.
• Filing of missing tax returns.
• Last three months’ bank statements from all accounts.
• Recent wage statements.
• An itemization and verification of your monthly living expenses.
• If you are self-employed, a recent profit and loss from your business.
• Valuation and disclosure of your autos and personal residence.
• Recent statements showing the amount you owe on auto and home loans.
• Verification you are making estimated tax payments.

In most cases, a Revenue Officer will want the documents demanded in Form 9297 to be provided either at your interview or within 30 days. Remember, however, your meeting with a Revenue Officer can be handled by an attorney, CPA or enrolled agent in your place, allowing you to stay off the front line. Also, the deadlines stated in Form 9297, Summary of Taxpayer Contact, while serious, can often be negotiated.  

IRS Form 433-A, Collection Information Statement

IRS Form 433-A, Collection Information Statement, is used by Revenue Officers to make a “collection decision” as to repayment of your taxes. Form 433-A requires us to list your sources of income and itemize monthly living expenses. Your assets must also be disclosed, including houses, autos, retirement accounts, insurance policies, bank accounts, and cryptocurrency. 

Form 433-A should not be completed hastily, with guesses on your income, living expenses or asset values.  A Revenue Officer should not be left to interview you and notate your answers at an appointment, and then request that you sign the Form 433-A. It is important for us to devote time in advance, gathering information about your finances.

Using Form 433A as our negotiation tool, the IRS can approve an installment agreement, which puts the brakes on any action by the IRS to collect and closes the Revenue Officer’s file. The IRS has several different types of installment agreements available for Revenue Officer approval, including streamlined, partial pay, and full pay.

If we show the IRS you cannot make any payments, and doing so would cause financial hardship to you, the IRS can place our account in currently not collectible status (CNC). CNC status permits a Revenue Officer to close your file without requiring any payments. The IRS can keep a file in CNC status for years, provided there is no indication your ability to pay will increase.

Following IRS guidelines for proper completion of Form 433-A is essential as it will be used to determine and negotiate repayment terms.

Letter 1058, Final Notice of Intent to Levy, with Rights to Collection Due Process.

Revenue Officers are required to ensure that you have received notice before they can levy your wages, accounts, and property. A Revenue Officer will use IRS Letter 1058, Final Notice of Intent to Levy, with Rights to Collection Due Process. If not previously sent, Revenue Officer guidelines are to include it with your Notice of Appointment. Don’t overlook it, or let it get lost in all the IRS paper.

And don’t be fooled – a Final Notice of Intent to Levy should not be ignored.  We have rights that protect you from IRS levy during your meeting and financial disclosure process.

When an IRS Revenue Officer sends out a Final Notice of Intent to Levy, we respond by filing a Collection Due Process appeal.  The Collection Due Process appeal prevents Revenue Officers from levying while we negotiate resolution.  This appeal eliminates your risk of being hit with an IRS levy. The appeal also provides us with an independent hearing with an IRS Settlement Officer, if necessary.

An IRS Final Notice of Intent to Levy is considered the most important collection letter a Revenue Officer will send you. Proper response is essential to protecting you from a Revenue Officer levying your wages and bank accounts.

What happens if I skip the interview?

You may be tempted to skip the interview, or not provide the requested documents, or be talked into not filing an appeal in response to a Final Notice of Intent to Levy. As retribution for not cooperating, a Revenue Officer can levy your wages, bank accounts and can start seizure action on your property. If this enforcement action is not enough, or the IRS does not know where you work or bank, they may issue a legal summons requiring you to appear before the Revenue Officer. Avoiding a summons could result in contempt of court charges filed in District Court.

We want to maintain good communication with our Revenue Officer, timely respond to the Notice of Appointment letter, provide all financial information, meet all requested deadlines, and file any necessary appeals.

Revenue Officers are the most powerful IRS collection agents, and a Notice of Appointment Letter 725-B is serious. It is important to understand how Revenue Officers work, how they think, strategies to accommodate their demands for your financial information, and to protect your rights with the filing of appeals. Fortunately, IRS regulations permit you to avoid meeting with the Revenue Officer and having a professional respond on your behalf. And remember, when your head is the mouth of the bear, say nice bear.

The post How to handle an IRS Revenue Officer’s Notice of Appointment Letter, 725-B appeared first on IRS Tax Attorney Howard Levy.

That’s scary, but it’s also true.

And because those mistakes are often the result of unintentional mishap, the IRS is frequently left unaware of many of their errors. 

That means they are in the dark, and so are you.

It doesn’t have to be that way – IRS mistakes can be dug-up, revealed, and fixed.

One costly mistake that the IRS makes is miscalculating collection end dates. This is important for us to catch because this mistake benefits the IRS, not you. IRS collection end date miscalculations usually gives them more time to collect than legally allowed.  

Left undiscovered, this means the IRS could come after you to collect unpaid taxes when they should not be. The end result is you paying the IRS money that you do not owe them.

The IRS has 10 years to collect taxes from you, starting when a tax return is filed.  After receiving your return, the IRS processes it and inputs your filing into their database, and marks that you owe them money.  The marking of your tax debt is called an “assessment.”  From the date of assessment, the IRS has 10 years to collect the taxes from you. 

In most cases, after the 10 years expires, the IRS is obligated to clear your balance to zero.  The expiration of the 10 years is known as  your “collection end date.”

However, your collection end date can be extended by the IRS not keeping a proper accounting of the 10 years.  This is all done inside the IRS, with a clock that you cannot see, and their fingers on it changing the time to their favor.

We have caught IRS collection end date miscalculations on more than one occasion. Most recently, we discovered an IRS miscalculation when analyzing a client’s account transcript. 

An IRS account transcript is a summary of all IRS collection actions on your account, containing information such as: the date the IRS processed your tax return to begin their 10 year collection period, if the IRS can take your wages and bank accounts, and if your passport has been flagged. We use the information on your account transcript to verify that the IRS has correctly calculated your collection end date. 

Every person has an IRS account transcript that can be used to fact-check the IRS. In our client’s case, we discovered from the account transcript that an IRS agent had marked him with an installment agreement as “pending” for over a year and a half. 

This was an automatic red-flag. 

The IRS marks an installment agreement as “pending” when installment negotiations begin between you and an IRS agent. While you are negotiating an installment agreement, tax laws make it so the IRS cannot “hurt you” or take your wages, accounts, and property. All collection action against you pauses while your installment agreement is considered “pending.” As a result, this “pending” period is added onto your collection end date. 

In most cases, the IRS Internal Revenue Manual limits the time an installment agreement can be pending to six months. Yet we calculated from the account transcript that our client’s installment agreement had been pending for 18 months. 

Unaware of Internal Revenue Manual guidelines, the IRS agent added 18 months to our client’s collection end date, when it should have been limited to 6 months. As a result, the IRS got 12 extra months to collect from our client – and he wasn’t even aware of it, and never would have been told except for our review of his account transcript. 

Fortunately, we are able to remedy the IRS’ mistake by filing an appeal to the IRS Taxpayer Advocate. The Taxpayer Advocate works to help in times where the IRS fails taxpayers, including circumstances where you would experience economic harm or are treated unfairly, with the IRS not properly following their rules.

The IRS deciding to give themselves an extra 12 months for a “pending” installment agreement and not following their own Internal Revenue Manual guidelines clearly met the criteria for utilizing the Taxpayer Advocate. The Advocate accepted our case and assigned it to a caseworker. 

Working with the Taxpayer Advocate, we corrected the IRS’ overextended collection end date. The IRS agreed that they were trying to collect past the allowed timeframe. They agreed to reverse the 12 months that were added from the installment agreement incorrectly being marked “pending.” 

The result of removing the 12 added months was the arrival of our client’s correct collection end date. The arrival of the collection end date led to the IRS forgiving over $100,000 in taxes. Our client’s tax troubles were behind him. 

You should not have to pay for the IRS’ mistakes. A too-frequent error by the IRS is the miscalculation of collection end dates. We can discover these miscalculations through IRS account transcripts, and work to get back costly months – or years – that have been wrongfully added onto your original collection end date. Through working with the Taxpayer Advocate, we can get our collection expiration date back on track, and get your tax debt forgiven. 

The post Can the IRS make mistakes in calculating collection end dates?  appeared first on IRS Tax Attorney Howard Levy.

It’s natural to want to remove the clouds that come with owing money to the IRS. With an offer in compromise, it’s important to consider the downsides and carefully strategize what are often better alternatives. 

Here are the most notable drawbacks you face with an OIC:

• It can take the IRS 12-18 months to investigate an OIC – it is not a quick fix. 
• Even after waiting all those months, the IRS still rejects over 60% of the offers they investigate. 
• The low success rate of OICs is due to the IRS’ complex rules, formulas, and calculations that record your assets, debts, earnings, aliving expenses. 
• The IRS must stop all collection enforcement action against us when an offer is filed. This pauses the time the IRS has left to collect from you. When you first file a tax return, the IRS gets 10 years to collect; after those ten years, the IRS will clear your balance to zero. However, those 12-18 months of the IRS investigating your OIC are added onto your collection period.

We can avoid these drawbacks and still reach resolution. Settling with the IRS is not a one-way street – with proper planning and careful consideration, we can avoid waiting 12-18 months only to have our case rejected. There are better ways – here are three examples of smart alternatives to an OIC:

One alternative to an offer in compromise is entering into a Partial Pay Installment Agreement (known by the IRS as a “PPIA”). The best part of a Partial Pay Installment Agreement – and what separates it from an OIC – is that the clock on your collection expiration continues to tick.

In this case, the IRS allows installment agreements that pay them back “partially” – not in full. So, let’s think about this in an example. You owe $50,000 and the IRS agrees to a Partial Pay Installment Agreement in which you can budget to pay $100 monthly. At the same time, we research and find that the IRS has two years left of the collection period. As a result, you will pay $100 each of the next 24 months (two years), and then your installment agreement ends and your remaining unpaid IRS debt is forgiven. You have settled by paying $2,400 of the $50,000 owed.

No waiting, no tolling, no rejections. 

A second alternative to an IRS offer in compromise is entering into Currently Not Collectible status, in which the IRS agrees repayment would create a financial hardship for you. 

Referring back to our prior example, think of owing $50,000, but rather than the IRS agreeing to a PPIA and paying $100 monthly, the IRS would determine you cannot pay them anything. Like a PPIA, Currently Not Collectible status pairs well with your expiration timeframe as no tolling is involved. Your uncollectible status can last for years, allowing you to be stress-free of payments while also running out the clock on the IRS’ 10 years to collect. 

A third alternative to an offer in compromise might seem counterintuitive, but it may be best for you: staying calm and staying low. 

The IRS doesn’t tell you this, but they cannot surprise you with a levy. Laws require that the IRS alert you first, and give you the right to prevent the levy. The letter the IRS must send is called a Final Notice of Intent to Levy with Rights to a Collection Due Process Hearing.

If we determine that the IRS hasn’t sent you the Final Notice of Intent to Levy, you are not at risk of the IRS taking your bank accounts, wages, and property. As a result, we could stay calm, stay low, not wake the IRS up, and wait out your collection period. When the collection ends, we then secure records from the IRS showing your debt has been cleared.  

The drawbacks of an offer in compromise are clear: the process can be lengthy, and, during the waiting, your collection expiration date gets farther away. Fortunately, we have other options to consider that will lead to the same end goal we all desire: settling your tax debt. Each of these smart alternatives – Partial Pay Installment Agreement, Currently Not Collectible, Staying Low – utilize the collection expiration period to our advantage. You are not stuck with the waiting and complexities that come with an offer in compromise; instead, with careful strategizing and planning, we can find a simpler solution and best path for your tax resolution.

The post Three smart alternatives to an IRS offer in compromise appeared first on IRS Tax Attorney Howard Levy.

Each road with the IRS is different, and what works in one case may not work in another. 

Let’s take an installment agreement, for example. On the surface, an installment agreement may seem like a good choice for you. It appears so promising – it allows you to start repaying the IRS. However, an installment agreement is more nuanced than simply cold-calling the IRS Automated Collection Service. 

The IRS does not want you to know that calling them for an installment agreement could make your situation worse. 

Think twice before telling the IRS you need an installment agreement. In the meantime, here are some of the nuances to help you decide if an installment agreement is right for you: 

1. Will the IRS file a tax lien against you

Be careful: if you owe more than $50,000 and decide to enter into an installment agreement, IRS guidelines require them to file a federal tax lien against you. The IRS will file the lien on your home, tying your house up with them. Now, the IRS has a claim to your home; you cannot sell or refinance unless you have a resolution with the IRS. 

However, if you owe less than $50,000, we can avoid a federal tax lien by entering into a streamlined installment agreement. In this case, the IRS approves a payment plan over 72 months. No federal tax liens are filed against your home. 

An installment agreement may not be the best choice when owing more than $50,000 – it comes with the fine print of a federal tax lien on your home.

2. Has the IRS sent you a Final Notice of Intent to Levy?

The IRS cannot take your wages and bank accounts or seize your house without first sending you a Final Notice of Intent to Levy. Tax laws require the IRS to provide you with notice and the right to representation before they take your property. In other words, the IRS can’t surprise you with a levy. 

You may want an installment agreement if the IRS has sent you a Final Notice of Intent to Levy. Here, an installment agreement would protect you against any IRS levy action. By law, the IRS cannot take your property when you are paying them back through an installment agreement. 

But what if we determine that the IRS has not issued its Final Notice of Intent to Levy? In this case, they cannot take your property, and we would not need an installment agreement to protect you. We may select a path other than an installment agreement.

Bottom line: if your goal is to protect yourself from the IRS taking your wages, bank accounts, or house, an installment agreement would be ideal if you have already received the IRS Notice of Final Intent to Levy. 

3. Does your passport need protection from the IRS?

An installment agreement protects your passport from the IRS.  

By entering into an installment agreement, you will prevent the IRS from taking your passport. Even more, if the IRS has previously acquired your passport, an installment agreement will force the IRS to return it to you. 

With an installment agreement, the IRS sees you are in the process of repayment and will allow you to resume the use of your passport.  

4. How will the IRS Collection Financial Standards impact your installment agreement?

In most installment agreements, you will have to tell the IRS all about your finances and budget. The IRS will then review your monthly spending and calculate the amount of your installment agreement.

The IRS determines how much they think you can pay through internal guidelines known as Collection Financial Standards. The Collection Financial Standards have the effect of putting you on an IRS-mandated budget for living expenses, placing ceilings on the amount you spend every month on expenses such as food, entertainment, rent, utilities, car payments, auto operating expenses, and credit cards.

In other words, your financial reality can be flipped upside down by the IRS Collection Financial Standards – the IRS may demand a payment that is more than what you can actually afford. 

Before you call the IRS for an installment agreement, it’s best to know how the IRS Collection Financial Standards affect you and what you’re in for. Be prepared for them to look into your finances and possibly ask more of you than you had in mind. 

5. How close is your IRS collection end date? 

Your tax debt has an expiration date – which is something the IRS doesn’t tell you. However, we can access your collection end date by calling the Practitioner Priority Line, a phone line exclusively for tax professionals. The IRS is limited to collecting your taxes for 10 years, starting when the IRS first places your debt on their records. 

You may have already reached your collection end date and do not need an installment agreement. Before beginning an installment agreement, we can check if your tax liability has expired.

If there is only a year or two left on your collection period and you chose to enter into an installment agreement, then your agreement would only need to be over those one or two years.

If there is an amount left over after your collection expires and the installment agreement ends, the IRS will forgive everything you have not paid. We can secure records from the IRS that your installment agreement has ended and your debt is cleared.

At first glance, entering into an installment agreement seems like a “sure thing” – it sets you up to start repaying the IRS. However, you may want to think twice and confirm whether an installment agreement is best for you. An installment agreement can be a smart choice if you owe less than $50,000 and want to avoid a tax lien, have received an IRS Final Notice of Intent to Levy, or need to protect your passport. You might want to be careful with an installment agreement if you are uncertain about the IRS placing ceilings on your finances or have reached your collection end date. Whichever path we choose, we can rest easy knowing there are many ways to move towards the resolution of your tax debt. 

The post How to decide if you need an IRS installment agreement appeared first on IRS Tax Attorney Howard Levy.

The IRS’ online calculator is just a computerized system that attempts to tell you if a compromise is an option. But, like many machines, the calculator has its pitfalls.

Qualifying for an offer in compromise is complex – the IRS has an entire book they reference for determining if and how you qualify. This book, the Internal Revenue Manual, details specific human instances – like yours – that the computer calculator does not account for. These real-life circumstances can significantly impact your compromise. 

The kicker is, even if you use this online calculator and it directs you to go forward with your compromise, once you file your OIC you will be met by an IRS offer in compromise investigator, who is trained in the Internal Revenue Manual.

The IRS OIC investigator will have questions about your finances – lots of them – before finalizing any offer in compromise. The online calculator does not ask you these questions, and as a result, can fail you, as these details are key to determining your compromise. 

The IRS OIC calculator is not a reliable tool because it doesn’t predict the human elements of the compromise investigation.

Let’s take a look at two scenarios. The first scenario focuses on how an IRS investigator can manipulate your income to be greater than what you told the OIC calculator. The other scenario lets us in on a loophole that can allow you more money for your car expenses than what’s programmed into the OIC calculator. In both circumstances, the online tool leads us astray. 

IRS Can Manipulate Your Net Business Income

If you are self-employed, the IRS can manipulate your income to reconstruct what your OIC settlement will look like.

If you operate your own business, your net business income, or profit, most likely varies. Your profit may not be the same on a monthly basis, nevertheless per year. 

For example, your self-employment income was $150,000 in 2021, and income in 2022 was $90,000. So, when you find yourself looking at the OIC calculator, you input your 2022 income, and are told you qualify for an offer in compromise.

However, once the human, an IRS compromise investigator, gets involved, they will look at all your finances, and may select the 2021 income for the compromise, rather than the 2022. As a result, they determine you make more than you actually said, your compromise is rejected, and you are back where you started. Even more, this whole process may take up to a year.

So, how do you determine what number to input on the calculator when you have a varying profit? And how do you defend yourself against an OIC investigator’s mission to overstate your income?

The Internal Revenue Manual provides us with the solution: income averaging. Specifically, Internal Revenue Manual 5.8.5.20 “Future Income” permits us to average your income over three years. This combats discrepancies due to “slow years” or uncontrollable forces that affect your income.

Nowhere on the OIC calculator are you alerted to income averaging, and it is unlikely the IRS investigator will share this strategy to fairly represent your income.

If you are self-employed, be careful relying on the OIC calculator and the investigator. There’s more to your compromise than they make you believe.

The IRS’ Internal Revenue Manual has a loophole that can grant us more money for operating our vehicles than the OIC calculator allows. 

The IRS uses “Collection Financial Standards,” which are ceilings, or caps, on how much they think you should spend on living expenses. One ceiling the IRS imposes is on the cost of operating your vehicle, capping how much you spend on gas, car insurance, and maintenance. The ceilings the IRS places on your vehicle operating costs are based on where you live: if you live in Chicago, the cap will be greater than if you lived in a smaller city.

For example, the Collection Financial Standards and the IRS OIC calculator allow a Chicago resident to spend $267/month on vehicle operating costs. However, the IRS imposes this number on every person in Chicago, regardless of personal circumstances. It does not account for your everyday realities – what if you have a long daily commute to work, or your job requires you to drive to different locations each day?

The solution to the IRS limiting your monthly vehicle operating costs is in Internal Revenue Manual 5.8.6.22.3, “Transportation Expenses.” This allows us to bring in more money for vehicle expenses that are necessary for you and your family’s health, welfare, or production of income. The IRM also specifically allows you a commuting expense – but you won’t find this flexibility in the OIC calculator. 

Instead of relying on the OIC calculator, it’s necessary to be familiar and well-versed in the Internal Revenue Manual. Then, we can create a realistic OIC settlement strategy that best reflects the compromise guidelines and your financial situation.

An offer in compromise is complicated. The IRS’ OIC calculator asks you to input numbers regarding your finances, but these are nuanced numbers that have a significant impact on your compromise. The OIC calculator does not incorporate negotiation tools and flexibility that will help give us a better settlement. 

The IRS offer in compromise calculator has significant pitfalls. It fails to let you in on specific guidelines that could benefit your compromise. It is difficult to trust a computer to help you with an offer in compromise, as a settlement plan needs to be done on an individual basis, with humans who understand its nuances.  

The post Pitfalls of relying on the IRS offer in compromise calculator appeared first on IRS Tax Attorney Howard Levy.

As you start to plan for upcoming travel, you may pause for concern over the possibility the IRS will stop your trip. You may be worried since receiving IRS Letter CP508C, Notice of Certification of Seriously Delinquent Federal Tax Debt to the State Department.   

Letter CP508C is what starts the “passport revocation” process, as the IRS notifies the State Department about your tax debt. Then, the State Department can decide between two options: 

• Revoking an existing passport
• Denying an application for a new passport

While the IRS CP508C letter is scary, you can rest easy knowing its threats about your passport do not always play out to the extremes you may imagine. 

Your fear of showing up to the airport only to find out you need to turn right around is not necessarily realistic.

The truth is, the way the State Department responds to tax debt is not the one-size-fits-all they make it seem. In our experience, we have seen them draw a clear line: current passports are not at risk and remain usable, but getting a new passport is a “no-go.” 

When the State Department outlines the consequences of receiving IRS letter CP508C, their position on current passports versus new passports differs. On one hand, they seem to take a more relaxed position regarding current U.S. passports, writing that they “may revoke your current U.S. passport.” On the other hand, the State Department appears much firmer when speaking of renewing or issuing a new passport: they write that they will deny an application to renew or issue a new passport.  

In other words, if you have a current passport, the State Department will be giving you travel flexibility, but they will be denying your renewal and application for a new passport. 

Also, take comfort in knowing that simply receiving letter CP508C from the IRS does not directly impact your passport status. Rather, there must be a second letter – this one coming from the State Department, not the IRS – notifying you that your passport is revoked. If you have not received this second letter, your passport is still viable and safe. Out of all my clients, none have received this second letter revoking their current passport. 

If you have received IRS letter CP508C and find that your passport will soon expire and require renewal, or you want absolute certainty your future travels will be secure, we can choose an option to calm the IRS and the State Department and get your passport back on track. These options range from entering into an installment agreement to securing currently noncollectible status. 

It’s exciting that travel opportunities have returned, and you should be able to enjoy seeing family overseas or visiting a new destination. Even though you have received IRS letter CP508C, you have options and flexibility to still take a trip. IRS letter CP508C does not directly take a current passport away, but it does mean the State Department will deny an application for a new passport. As long as you have not received a second letter from the State Department notifying you of passport revocation, you can rest a bit easier and we will work together to resolve your tax debt, ensuring your future travels. 

The post IRS passport seizure is more limited than you think. appeared first on IRS Tax Attorney Howard Levy.

The bear is now off your back, and you have the IRS out of your hair. With your installment agreement, you can finally sleep knowing that you will not receive threatening IRS letters, calls from Revenue Officers, or worry about them clearing out your bank account.

But all of a sudden, a thought creeps into your head. You’ve heard about the IRS ten year collection time frame, and you wonder how close you are to the light at the end of the tunnel. You have done the right thing, but have your good intentions just ruined everything? Now that you have an installment agreement, will the collection date continue to run?

The good news is that entering into a payment plan does not extend the IRS time to collect.

The IRS has ten years from their assessment date to collect on a liability. There are several events, called “tolling” events that can extend the IRS’s time to collect on a liability.

The most common ways to toll the collection statute include:

• Submitting an Offer in Compromise – The clock is tolled when OIC is filed to the day it is either approved or rejected plus any time spent in appeals (remember, an OIC can take over 12 months to be investigated and decided)
• Filing for Bankruptcy – Extends the collection statute from when your case is filed to when it is dismissed (plus an additional six months are added by law)
• Requesting a Collection Due Process Hearing – From when your appeal is filed to the date until an appeals decision is made, plus any time spent in Tax Court.
• Filing an Innocent Spouse Claim – The clock stops when the claim is filed and ends when the case is resolved (Innocent Spouse claims can also take over 12 months so use caution.)

The simple reason behind these events stopping collection is during these events the IRS is prevented from collecting from you. The time the IRS has lost, for example, the 13 months you were in a bankruptcy, is given back to them. An installment agreement is different, and in a good way, the IRS is now collecting so that will continue to toll collection.

An installment agreement works for you as to the collection end dates. Every month you are getting closer to being done with the IRS. If you are unsure of your collection end date, the IRS has an information hotline for attorneys to call where they can secure your IRS records and confirm that your liability has expired or is close to expiring. This special line does not alert the IRS and will not add time to collect. As you read this, you could already be free from the IRS.

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