All taxpayers stand the chance to get an audit notice from the Internal Revenue Service (IRS). An audit notice is the IRS’ way of telling such an individual that they are interested in looking deeper into their tax filing. While tax audits are aimed to make sure that all the information that has been supplied by the taxpayer is correct, more often than not, such notice leaves the taxpayer in a state of panic.
IRS naturally audits taxpayers who are under suspicion of fraud and other related offenses or those who have errors in their paperwork and tax filing, in some cases, the IRS may also launch an audit into the finances of people who are part of a target group that is under scrutiny. However, in the absence of these, the IRS may choose to conduct a random audit and then you will need a bankruptcy lawyer.
Overview of the IRS Collection Process
The IRS may choose to randomly audit you as a taxpayer. The auditing process is aimed at ensuring that you have not been underreporting your taxes over the years and also aimed at correcting errors in paperwork. If the IRS, however, finds that such a taxpayer had been underreporting their taxes, the IRS may launch a collection effort aimed at balancing the books.
If you have been found to have paid less than was expected from you, the IRS will issue a bill to you. The Bill from the Internal Revenue Service marks the beginning of the collection efforts which will continue until the full amount that has been demanded is paid.
The payment may continue through an alternative payment option which is imposed on the taxpayer by the IRS until the amount defaulted is fully satisfied. If you are faced with an IRS collection process or wish to know more about it, this article has been put together to give you all the information you need to know about the IRS collection efforts.
The First Bill
The first bill that is sent from the Internal Revenue Service (IRS) to the taxpayer is aimed at informing them of the reason they are deemed to be owing to the IRS and the required payment to be made. In the bill, taxpayers will also be given a full breakdown of the amount due and the penalties. The bill will also include the interest that will be added on to the unpaid balance from the day the payment becomes past-due.
Anybody that has been served with such a bill as this may proceed to make a payment over the phone or make the payment by sending a check or money order to the IRS. The check or money order should be made payable to the United States Treasury.
Failure to Pay in Full
While in some cases the IRS may demand an amount that is easily paid, other cases may present a financial dilemma to the taxpayer. In such cases as this, the taxpayer may be unable to pay the total amount requested by the IRS in full.
If you are unable to make a full payment, it is recommended that you make as much payment as you can with the notice. Be informed that all unpaid balances are subject to interest which according to set up is compounded daily. Additionally, such unpaid amount is also made higher by late payment penalties charged monthly.
To avoid the extra charges that can significantly aggravate the financial burden you have to shoulder, it is recommended that you should strive as hard as possible to make the IRS payment as soon as you can. A good way to pay off this debt which will continue to grow is by securing a cash advance on your credit card. You can also take out a bank loan to service this debt.
The recommendation to take out a bank loan or a cash advance on your credit card is because the interest rate proposed by bank and credit card companies is lower than that which is imposed by the IRS. Also, failure to pay off your tax debts may affect your credit ratings. If you have been fined a certain amount and you are unable to balance up in full, you can schedule a meeting with the IRS where you can discuss a form of payment plan. The payment plan will allow you to offset the debt with monthly installment. In some cases, a taxpayer may not be entitled to this type of financial plan and if all possible options have been exhausted, such a person can also file for an offer in compromise.
Offer in compromise is an agreement that is made between the IRS and the taxpayer to resolve the tax liability on the taxpayer. The IRS has been entrusted with the power to compromise or settle any federal tax liabilities and this may be done through acceptance of amounts that are less than the full payment.
Meeting with the IRS
Contacting the IRS to schedule a meeting can be simple. However, before taking this step, it is recommended that such a person should be armed with all the information they need to prove their point. Some of the necessary documents include income and expenses.
Before meeting with the IRS, it is recommended that such a taxpayer collects all information relating to their basic income and expenses. Besides, information regarding assets, income, necessary living expenses like mortgage, rent, pay stubs, transportation expenses, and others should be documented.
Armed with these documents, the IRS will look into it and offer effective solutions. Making arrangements to pay tax dues voluntarily is a wise choice to make as in the absence of this, the IRS may take other actions towards collecting the amount being owed. Some of the actions that may be taken include;
- Offset of a refund
- Serving a Notice of Levy
- Filing a Notice of Federal Tax Lien
If the IRS chooses to file a notice of Federal Tax Lien, the government makes a move on the taxpayer’s property by establishing communication as a creditor. The lien which is set up is a claim against the taxpayer’s property. The properties the federal government is entitled to include others that are acquired after the lien has been filed.
The IRS may also pursue a Notice of Levy which allows it by legal authority to confiscate and sell properties belonging to the defaulting taxpayer to satisfy the tax default. Some of the items or properties belonging to the taxpayer that can be confiscated include social security benefits, wages, retirement income, and bank accounts. If after these items have been confiscated the tax default remains unpaid, the IRS may choose to also levy on other properties like boats, cars and more.
Another of the IRS’s collection methods for satisfying outstanding tax liabilities is the use of future tax refunds to offset the current liabilities. This means that such a taxpayer will not be entitled to any form of tax refund until the debt is satisfied.
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