We Have Moved

This blog has moved, and the posts keep coming. Please check out http://www.irsmind.com for more information about IRS tax debt issues!

Offer in Compromise- are State installments agreements allowed?

In short, no. For the most part, a State Installment Agreement does take prcedence over the federal liability. The IRS Policy does not allow State or local tax repayments as an expense toward lowering your monthly disposable income ("MDI").

However, state and local tax repayments (i.e. installment agreements) are allowed for federal installment agreement purposes.

This deliniation may effect your choice of tax resolution options. You should consult a tax professional if your situation is this complicated.

Tax Debt- Does an SFR start the Collection Statute?

An SFR or Substitute for Return DOES start the 10-year collection statute of limitations ("CSED"). The rationale is that the IRS can start collecting on the balance due if they have followed collection due process (see the notice requirements in previous blog entries). The IRS, in IRM 5.1.19.6.15, explicitly state that they cannot collect past this date.

What does this mean?? Those debts in the "closet" may be closed by statute. A practical example is as follows:

The IRS files an SFR for 1993 and assesses the tax on 1/15/2006 (the IRS sometimes takes up to 6 years to do SFRs but most likely about 2.5 years later if in the Automated SFR Unit or "ASFR"). Unless you file a return that adds tax to the SFR amount and/or extend the CSED by some other action (see my prior blog entry on extending the CSED), the IRS cannot collect on the amount due after 1/15/2006.

Sometimes taxes do die....if you need help on computing your CSED or if you owe that tax debt that is in the "closet," contact an expert in IRS collections.

Tax Debt- Collection Statute of Limitations ("CSED")- What extends it?

Normally the IRS has 10 years from the date of assessment to collect on the tax debt due. However, it starts as of the date of assessment which means, if you file late, the statute runs from the date the IRS assesses the late filed return.

Also, there are many actions that extend the CSED date. Here are some of these actions:


Form 900- Waiver of the CSED
Assets in Custody of the Court that prohibit levy
Bankruptcy Judgment
Taxpayer Assistance Order (TAO)
Military Deferment
Offer in Compromise
Wrongful Seizures that are returned to the taxpayer
Collection Dur Process hearings

Each of the above above have different rules and effects on the CSED. You can ask the IRS directly for the CSED date. If you have any questions on the CSED, you should consult a tax expert.

Tax Debt- An Offer in Compromise- can the IRS just reject?

The IRS can reject an OIC for public policy reasons. In their Policy Statement since 1960, they can just reject for this reason:


IRM 1.2.14.1.15 (Approved 07-26-1960)Policy Statement 5-89
Offer may be rejected for public policy reasons :
If the acceptance of an offer might in any way be detrimental to the Government's interests, it may be rejected even though it is shown conclusively that the amounts offered are greater than could reasonably be collected in any other manner.

Some of these reasons may be:

1. Liability is from an audit where fraud was present
2. Liability is from tax on an illegal activity
3. There is a criminal investigation ongoing
4. There is involvement in an abusive tax avoidance transaction ("ATAT")
5. The taxpayer is a tax protestor

There are some other reasons the IRS may summarily reject an OIC. Before an OIC is submitted, it is important that you consider all of the options available. Consultation of a tax professional is imperative as an error may mean you have exposed your financial situation and extended the collection statute of limitations.

Tax Returns- how far back do I need to file???

The current IRS policy is that filing compliance constitutes the last 6 years tax returns. Why is that? This is an admistrative directive by the IRS because they do not have the real-time capability to go back more than 6 years (the IRS only keeps your income documents in real-time for the last six years). The IRS reserves the right to ask for more than the past six years and they often do in two situations:

1. When you file an Offer in Compromise
2. When you have a business that is formed as a corporation or partnership

It is virtually impossible to file accurate returns for the last six years without some professional help. Make sure the professional assistance you obtain has the ability to gather the IRS records for the past six years to make the deliquent returns you file at least minimally processable.

IRS Levy- on your Social Security?

Can the IRS be so adamant about your tax debt that they levy your social security benefits? The answer is yes. The IRS can levy up to 15% of your social security retirement income. In fact, if you do not reply, they often levy this source of income until you resolve your tax situation. Also, they will continuously levy this source until the tax debt is resolved by payment in full or another tax resolution option (abatement of tax, CNC, OIC, or Installment Agreement, etc.)

Interesting to note, the IRS does not levy SSI payments for hardships. Technically, they are leviable, but the current IRS policy is not to do so.

If your SSA benefits are levied, you may want to seek professional help.