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Tax Problems

Don’t go it alone. Let us help you resolve these common tax problems.

Tax Debt Problems and the IRS Collection Process

If you are being targeted by the IRS for unpaid taxes, you are feeling the pressure of the IRS collections process. We don’t need to tell you what an unpleasant experience that is.

It is easy for life to get in the way of maintaining tax compliance. Sometimes it involves divorce, illness, a job loss or the additional demands of being a single parent. For others it’s the responsibilities of running their own business, stretching their money and time. Missing a couple of years can feel overwhelming and the issue often snowballs.

We see it every day and assure our clients that their situation is more common than they realize. It is also resolvable.

The information below outlines the most common problems taxpayers experience that cause IRS and state collections issues. If any of these issues look familiar, there is no reason to delay action. We remove them from people’s lives every day. Let us help.Return to top

Unfiled Tax Returns

This is often where it all starts. If you fail to file a tax return, the IRS can file one for you- it’s called a substitute filing. The IRS uses W2s and 1099s from your employer(s) and other payers to complete the filing. It doesn’t include many of the deductions that you would take if you filed a return.

The tax return the IRS files for you can show more taxable income, a higher tax rate, and greater tax liability than if you filed a return. So obviously, the best starting point for resolving any tax issue is to make sure your tax returns are filed correctly and include every deduction you are entitled to.

*Note: When choosing someone to resolve your tax problems, be sure they have the desired expertise in tax preparation. Some companies will opt to prepare “transcript returns” which are essentially the same as what the IRS would prepare. While it saves the company time, it can cost you a much higher tax balance.Return to top

Unpaid Taxes Owed

A common scenario for employees and the self-employed alike is not withholding enough taxes throughout the year. It makes tax-day no fun for you or your accountant when they have to deliver the bad news. Big tax balances can also come from sales of assets like real estate, and from retirement distributions.

It is important to move quickly on these outstanding balances. The IRS adds penalties for late payment and interest on the balance. A growing tax debt is the result.

Depending on your specific situation, there are several resolution options and IRS programs that may be available to you.Return to Top

Tax Penalties

The IRS will apply penalties when a taxpayer is out of compliance. The most common are:

  • Failure to File: If you fail to file your tax return on time, the IRS will impose a penalty of 5% of the original balance owed per month up to a max of 25%.
  • Failure to Pay: If you do not pay the balance owed by the deadline, the IRS will impose a penalty of .5% per month of the original balance up to a maximum of 25%.
  • Estimated Tax Penalty: The IRS will impose a penalty for failure to make sufficient prepayments. A common misunderstanding is that we pay our taxes once a year. However, the system is actually a “pay as you go” system. Failure to make estimated tax payments or withhold from wages is considered delinquent payment and can result in penalties.
  • Accuracy-Related Penalty: If the IRS has reason to believe that a mistake you made on your tax return was negligent or a substantial understatement, they can impose a penalty. The penalty is equal to 20% of the portion of the understatement attributable to the error.

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Federal Tax Lien

If you are unable to pay anything because of a current financial hardship, the IRS can file a Notice of Federal Tax Lien. This doesn’t change the amount you owe to the IRS. They will continue to charge you interest and late payment penalties on the balance due.

The federal tax lien is a legal claim to your property, including property that you acquire after the lien is filed. It arises automatically when you fail to pay in full the taxes you owe within ten days after the IRS sends the first notice of taxes owed and demand for payment, and makes an assessment of the tax.

The government also may file a Notice of Federal Tax Lien in the public records. A Notice of Federal Tax Lien publicly notifies your creditors that the IRS has a claim against all your property, including property acquired by you after the Notice of Federal Tax Lien is filed.

The filing of a Notice of Federal Tax Lien may appear on your credit report and may harm your credit rating.Return to top


The IRS also may use a levy to collect taxes. A levy can target your wages, bank accounts, Social Security benefits, and retirement income.

The IRS also may seize your property for the purpose of selling the property to satisfy a tax debt including your car, boat, or real estate.

In addition, any future federal tax refunds or state income tax refunds that you are owed, may be applied to your federal tax liability.Return to top

IRS Revenue Officer

The IRS will assign a Revenue Officer to your case when it meets certain circumstances and they believe it will increase the probability of collection.

A Revenue Officer will impose requirements and deadlines for compliance and payment. They have independent power to seize property and impose bank and wage levies. They can and do visit your home and business in an effort to facilitate compliance and collections.Return to top

IRS Tax Audit

The IRS may audit your tax returns randomly, or if they detect errors or suspect fraud. An IRS examiner will request documentation for the entries on your tax return that are in question. The process can take weeks to complete. For complex calculations like operating losses and sales of stock and real estate, failing to have detailed records can result in a big tax bill, penalties and interest.Return to top

State Tax Problems

State taxing authorities vary in their approach to unpaid tax debt and compliance requirements. Most use similar collections tactics to that of the federal government, but the programs available to resolve the debt can be very different. The state can be quicker to escalate to aggressive collections such as bank levies and garnishments.

It is common that when taxpayers owe their state for back taxes, they also owe the IRS. However, the states generally act more quickly so taxpayers who owe both are often notified by the state first. The instinct is to resolve the issue that appears to be most urgent first. In fact, it is better to resolve them both at the same time.

Addressing them together allows the outstanding obligations to be considered in any repayment or settlement program. This is usually beneficial when qualifying for available programs and results in a better outcome for the taxpayer.

State tax liability and compliance issues add a layer of complexity to any tax problem. Speak to a Total Tax, Inc CPA to clarify your options.Return to top


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