IRS Powers to Collect Debt

In 1988, real estate tycoon Leona Helmsley faced a prison term for defrauding the U.S. government of $1 million in personal income taxes. Most of the time, the IRS does not have to put anyone in jail for failure to pay; a notice of intent to lien or to seize property sure gets everyone’s attention.

The IRS may seize your wages, bank accounts, IRAs, 401(k)s and real estate. The tax code describes a right to seize a taxpayer’s “right, title, and interest” in goods or properties, which of course is a very broad grant of power. If the IRS is intent on attaching a lien to your property, they will file with the county recorder where the real estate is located.

Once you receive notice of a possible lien or seizure, you need to act immediately. You have only 10 days to respond. If you believe that the IRS claims are wrong, then you need to file the most appropriately named IRS form of all time: Form 911 - the taxpayer assistance form, or the collection appeal form - 9423. Even in the midst of a huge power grant to the IRS, you are entitled to protection of your constitutional rights, and you also may file a due process claim if you choose (Form 12153).

For some qualified good news, there are strict standards about how much (or how little) of your money is immune to IRS liens. Federal law requires that no one be forced into homelessness, abject poverty, or an inability to support his or her children because of tax debt. On the other hand, the amount of money shielded from an IRS lien is not very high. You can see these specific amounts by visiting:

http://www.irs.gov/businesses/small/article/0,,id=104627,00.html

There are also limits on what the IRS is willing to seize based on practical considerations. For example, filing bankruptcy usually will halt most types of foreclosures for a certain period of time. Similarly, homestead exemptions protect at least some equity in a primary residence. But personal items that are owned free and clear, or property with high equity like vacation or second homes, are especially at risk. Prior to seizure, the IRS will consider your transactions and transfers of assets that have occurred within the last year. The possibility that you may be hiding assets by minimal sale prices may expose all participating parties to investigation, penalties, and perhaps even criminal charges.

Computer technologies have led to increased interdependence between state and federal budget transfers. The IRS often will submit to certain agreements to honor state tax debts against federal tax refunds. Now there is the Federal Payment Levy Program (FPLP), which allows the IRS to attach certain disbursals, otherwise due to taxpayers, from the U.S. Treasury. If a taxpayer is owed a check for federal retirement benefits, as a federal contractor, for some federal salaries, and even for some social security benefits, the payment may be intercepted by the IRS.

Ultimately, the power utilized by the IRS via computer tracking and the ability to find your assets makes it a very smart idea for you to look for relief to your tax troubles, such as by way of a payment plan.

Before accepting any IRS decision to withhold a lien or to settle a tax debt, you must understand your basic rights and the terms of your agreement. For example, many liens follow from audits of personal records, and penalties almost always are added to any negative findings of tax liabilities. Audits often uncover the most innocent of errors, and you have a right to ask that these penalties be removed. Furthermore, the penalties of your agreement may be worse than the lien.

If you are being pressured too heavily by the IRS, you are not alone. There are tax advocates available in every state to hear cases of undue hardship. You can find an advocate by calling 1-877-777-4778.