The holidays are meant to be a time of peace and reflection, and even the Internal Revenue Service agrees with that. From the last week of December through the first week in January, the IRS takes a break from sending any new levies and garnishments so taxpayers can provide for their families and enjoy their company during this already-stressful season.Once the new year arrives, however, the IRS once again resumes collection measures — and they usually do so in force.
Why Does the IRS Pause Collection Efforts During the Holiday Season?
Because many IRS collection officers take time off during the holidays, the agency abides by an unwritten rule that they will not pursue or enforce collection activities during the last two weeks of the calendar year. This is because most collection activities ― liens, levies, garnishments, and audits, among others ― come with strict deadlines, which could be impossible for delinquent taxpayers to meet if they cannot reach anyone at the IRS office.
Therefore, it’s unlikely that taxpayers will be subject to any form of bank or property seizure during the holiday season. However, taxpayers should confront their tax problems directly once the holidays have passed, as the IRS will swiftly and aggressively resume their collection efforts between now and April 15.
What to Expect from Now Through Tax Season
Following the holidays, IRS employees return to work just like the rest of us. And when they do, they resume their collection process in full force. If you have an outstanding tax debt once the new year comes, though, you can expect to deal with any or all of the following:
Tax Liens: One way in which the IRS will pursue collection is through a federal tax lien, which is a legal claim to property ― including property acquired after the lien is placed. The IRS is placing liens now more than ever before — often times when clients enter into installment agreements owing more than $25,000.
While a lien is in effect, the IRS assumes a financial interest in your property, as they essentially own it. This means that if you decide to sell your property, the IRS has the first claim to any excess revenue derived from your home or other property, as opposed to any other creditors.
The lien process begins when the IRS assesses your liability and then sends a Notice and Demand for Payment, which is a bill that explains how much you owe. If you’re unable to pay, the IRS files a Notice of Federal Tax Lien alerting you that the government now has the legal right to your property.
If you can pay your debt in full, the lien will usually be released within 30 days. If not, the lien could result in the government claiming ownership of your personal and business property, as well as damage to your credit. In fact, federal tax liens can be so difficult to get rid of that in many cases, the lien will remain even if you file for bankruptcy. However, with the help of a skilled and experienced attorney, it is possible that the lien could be lifted, especially for small- to mid-sized businesses.
- Tax Levies:
You can think of a tax levy as the more-extreme version of a tax lien. Whereas liens entitle the government to ownership of your property (and thus financial compensation should you sell said property), levies entitle the government to not only take legal ownership of your property but also seize possession of it outright. They will then sell the property to help satisfy your tax debt.When the IRS decides to levy your property, they will send an official Final Notice of Intent to Levy and Notice of Your Right to a Hearing at least 30 days before the levy occurs. This brief grace period provides you an opportunity to contest potential seizures or make payment arrangements with the IRS.
- Wage Garnishments:
Once the IRS has begun garnishing your wages (which is technically a form of levy), a portion of your paycheck from each pay period will be sent directly to their offices. Unlike garnishment from other entities, there is no court order required for the IRS to garnish your wages, and they are exempt from any regulatory limits on the amount they can garnish. The IRS may take as much as 70% or more of your wages from a given pay period (although the amount generally depends on your tax filing status; more exemptions usually means more income exempt from garnishment).Before garnishing your wages, the IRS will determine the amount you owe and then send several notices in the mail informing you of that amount. After this, they’ll send a Notice of Intent to Levy, and you will then have 30 days to contact the IRS before they forward the notice to your employer. After that, you have two weeks to pay your debt in full or make other payment arrangements before the IRS begins garnishing your wages. (If you do not respond, your employer has no choice but to adhere to the order.)
If you or your business has been selected for an audit, the IRS will notify you by mail. From there, IRS personnel will conduct the audit either in person or by mail. The IRS typically won’t initiate an audit for tax returns more than three years old, but there is no time limit if they discover substantial errors. In most cases, these audits are conducted if the IRS suspects that businesses have been under reporting their revenue by at least 25% or committing some sort of fraud.If you can appropriately substantiate all the items being reviewed, the audit will likely result in no change to your tax status. To prove an expense, you mush show a bill in your name and a payment your or your business’ name — both documents are required for substantiation. If the IRS proposes changes and you agree to those changes, however, you will then be responsible for any discrepancies in payment, which could ultimately result in a lien, levy, or garnishment.
If you disagree with the results of the audit, you can request a conference or hearing with an IRS representative or file an appeal if the statute of limitations has not expired. This can be a time-consuming and stressful process, so be sure to consult an experienced tax attorney before entering into an audit or if you’re facing or have received unfavorable results from an audit.
Need Help with Liens, Levies, or Audits? Contact S.H. Block Today!
If you are facing an audit or are dealing with any of the collection issues listed above, please contact S.H. Block today by completing the form on this page or by calling us directly at 410-793-1231.
Our attorneys and staff have more than 100 years of combined experience representing taxpayers, and we look forward to speaking with you so we can get you on the road toward resolving your tax problems for good!