The following is a list of frequently asked questions and our suggested answers for your consideration.   If you have any questions that are not addressed, please feel free to ask us via e-mail or phone call.

   * I just received a letter from the IRS that my tax return is being audited.  What now?
   * I have not filed my last two years tax returns.  What do I do?   
   * I filed my tax return, but now I owe more than I can pay.  Can I make payments?
   * The IRS levied my bank account.  What can I do?
   * The IRS has filed a lien against me.  What do I do?
   * What is an Installment Agreement?


Audit Notice 

First thing, do not panic.  Most examinations (audit) are routine and result because your tax return did not quite match the "norm" for someone in your line of work or business and approximately the same amount of income and expenses.  It does not mean that there is anything wrong, but from the IRS' perspective, the probability of you having a mistake is worthy of checking it out.  

Don't ignore this audit notice!  You want to cooperate with the IRS as much as possible.  If you make the Auditor or Revenue Agent's task difficult because of your lack of cooperation, the employee will be far less agreeable to giving you the benefit of the doubt when deciding on what evidence or oral testimony to accept that you offer in support of questioned items.

There are four types of audits - correspondence; office audit; Small Case/Self-employed (SBSE); and Large and Mid-sized business (LMSB).  

   * Correspondence audits are letters sent to you from an IRS Campus location and will identify specific issues for which the IRS is asking to be verified.  
   * Office Audits are face-to-face  and take place in an IRS facility.  The Office Auditor will sometimes let you know what areas are being looked at, but not always.  
   * SBSE Audits can take place in either the taxpayer's location or an IRS office and are face-to-face conferences.  The Revenue Agents who conduct these audits will not tell you which areas they are investigating.  They'll ask questions, request documentation and try to see if you've made an error or can't prove a deduction.
   * LMSB Audits are face-to-face conferences that usually involve a team of general Revenue Agents and specialist Revenue Agents who are expert in employment tax and computer sciences, for instance.

As a general rule, you should not attempt to handle the audit yourself.  A seasoned representative will know how to respond to questions asked by the Revenue Agent or Auditor in a manner as not to suggest other areas where further auditing is warranted.  Also, Revenue Agents are usually pretty sharp.  They may asking you questions on one item hoping that you will trip up and provide a basis for opening other issues for examination.

To illustrate from a case I worked as a new Revenue Agent many years ago, I asked a taxpayer questions about his children to verify that they were his proper exemptions.  In addition to giving me their ages, he told me that they both were full time college students in schools hundreds of miles away from the area.  I remembered that information when I audited the taxpayer's salary expenses for his corporation and noted that his children were on the payroll.  Since they were going to school full time, out of state, and did not actually work for the corporation, I disallowed these "salary expenses" in full.  And I hit the taxpayer with the negligence penalty for claiming these bogus expenses.  It could have been worse, if I forwarded the case for criminal investigation!

A seasoned tax representative would have reviewed the tax return information before the start of the audit and anticipated where I was going with my questions. 

This is just one example of why it is very important to have a qualified and experienced  Enrolled Agent, CPA, or Attorney represent you in an audit with the IRS or State tax agency.
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Delinquent Tax Returns

If you have tax returns that have not been filed, you really need to have a professional prepare your delinquent returns and then file them as soon as possible.  If you make an effort to get back into compliance before the IRS takes action to force you to comply, then you will have less of a chance of being audited or having penalties imposed.  In most situations, you will be faced with a delinquency penalty (based upon the tax due) and interest (computed from the original due date of the tax return).
                                                                                                           
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Paying Your Taxes 

The IRS will almost always allow you the option of paying your tax liability in installments.  You will pay a one-time fee for this opportunity.   Further if the amount of tax you owe is far greater than you could ever pay, you may qualify for an Offer in Compromise.  This program enables taxpayers who are deep in tax debts, over their heads to settle their tax debt for less  than its value.  There are strict rules and procedures that need to be followed.  Be sure that you retain a qualified representative to guide you in this process.

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Levied Bank Account 

If the IRS levies on your bank account, your bank must hold the funds you have on deposit only on the particular day of the levy is received by the bank.   The bank is required to remove whatever amount is available in your account that day (up to the amount you owe the IRS), and send it to the IRS in 21 days.  This 21-day holding period allows you time to resolve any issues about account ownership of the bank account and also provides a period of time to negotiate with the IRS for a release.  After the 21-day holding period, the bank must send the money plus interest earned on the seized amount to the IRS.  So you must act quickly!  We strongly suggest that you secure the services of a tax professional to represent you before the IRS.  The levy will released either by working with the IRS directly, or by paying the full tax debt. 
 
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Tax Lien

Liens are different that from levies.  A lien is a legal instrument that is used as security for the tax debt.  On the other hand, a levy is a legal action of taking your property to satisfy the tax debt.

A tax lien is a negative record on your credit report, which severely lowers your credit rating.  This often makes it difficult for a taxpayer to obtain financing on an automobile or a home, get a credit card, or sign a lease.  Tax liens are public records that indicate that you owe the IRS money.  Tax liens are filed with the Clerk in the county where you live or where your business operates.  Once a Federal tax lien is filed against your property, you cannot sell or transfer the property without a clear title.  You need to act NOW!

Liens make the priority of the IRS against other creditors and attach to all your assets as payment for your tax debt.  A Notice of Federal Tax Lien may be filed after 
   * the IRS has assessed the liability;
   * the IRS has sent you a Notice for Demand of Payment (a bill that tells you how much taxes you owe; and
   * you neglect or refuse to fully pay the tax debt within 10 days after the IRS notifies you.

The IRS will issue a Release of the Notice of Federal Tax Lien:
   * within 30 days after you satisfy the taxes due (including interest and other additions) by paying the debt or by having it adjusted;
   * or immediately upon payment with cash or the equivalent of cash, or
   *within 30 days after the IRS accepts a ban, guaranteeing payment of the debt, or
   * a mortgage is given to the IRS against property that is worth twice the amount of your tax liability, or
   *usually 10 years after a tax is assessed, a lien releases automatically, if the IRS has not filed the Notice of Federal Tax Lien again.

You may appeal the filing of a lien.  You may also ask the responsible IRS Collection manager to review your case.  In addition, you may request a Collection Due Process hearing with the IRS' Officer of Appeals by filing a request for a formal Appeals hearing.    You must file your Appeals request by the date shown on your notice.

It's also important to attack tax liens that are invalid.  A tax lien could be invalid if a lien is on property which is not owned by the debtor, a lien was filed during the automatic stay, a lien was recorded in the wrong County, or was for discharged taxes now being asserted on future-acquired assets.

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Installment Agreement 

An installment agreement (IA) is an amount paid monthly to satisfy your full tax obligation.   IA's are generally used when you are unable to pay your taxes all at once, but you can pay enough each month to pay off your total tax debt in a reasonable period of time...usually not more than 5 years.  On cases exceeding the automatic installment agreement requirements, the IRS will generally require you to provide information regarding your monthly income and expenses.  They will usually require you to complete a Form 433-A (and Form 433-B if you're self employed).

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