You must know if you owe back taxes or have unfiled returns
Who can the IRS come after when there is a tax liability or unfiled returns?
There are many answers…YOU!
If you owe personal taxes (Form 1040), you are personally liable for those taxes. If you are married and you file a joint return with your spouse, you are both 100% responsible to pay those taxes. In other words, the IRS does not come after each of you for 50% each. If you are married, and you owe 1040 taxes for years that you filed Married Filing Jointly, your liability does not end or get reduced if you get divorced. If you get divorced, BOTH of you still are liable for the taxes 100%. So, if you are able to pay the back taxes 100%, and your ex-spouse cannot pay it, they will collect it all from you, even if it is spelled out differently in a divorce decree.
Now, let us say that you do not owe any back taxes and you marry someone that does owe taxes from when they were single. If you live in a Community-Property State, you will be responsible to pay the IRS 50% of your spouse’s back taxes. And, if your spouse owed those taxes with a former spouse for a jointly-filed return, you would be 50% responsible for the taxes that your spouse AND their former spouse owe together. The IRS could use all their enforcement tools against you for any of these taxes, such as liens, garnishments, or seizures of your property that you own individually, or together with your new spouse.
If you do not live in a Community-Property State, then your spouse’s back taxes would be treated differently. In the eyes of the IRS you would not be liable for ½ if your spouse’s taxes. However, that does not mean that you would not suffer any consequences because of your spouse’s back taxes. For example, if you bought a home with your current spouse, and your current spouse owed back taxes either as an individual or jointly with a former spouse, the IRS could still file a Federal Tax Lien against your current spouse for those back taxes that would attach to your home, and you would not be able to sell it without paying the IRS from the proceeds of the sale. And, depending on what style of ownership you have (for example joint tenancy, ownership in the entirety, etc.), the IRS might be able to seize it anyway, and sell it to pay for some or all of your spouse’s back taxes from before you were married.
YOU AND/OR YOUR BUSINESS.
YOU: If you own a Sole Proprietorship, (you file your business income and expenses on a Schedule C attached to your Form 1040) you, and your spouse if you file jointly, are together and individually, 100% liable for any taxes that your sole proprietorship owes. This includes all types of taxes including income tax, employment tax, and excise tax.
The same rules hold true that were stated in the paragraph above regarding taxpayers who live in a Community-Property State. If you file Single, you are 100% responsible for all of your business taxes. If you filed Married Filing Joint, both you and your spouse are 100% liable for all the business’ taxes. If you get divorced, you and your ex-spouse are still 100% responsible for all your business taxes, even if only one spouse actually operated the business. If your spouse owed business taxes prior to getting married to you, you would be liable for 50% of those taxes. Your income or assets that you own individually (not jointly with your spouse) could be taken away from you to satisfy ½ your spouse’s back taxes that he/she owed. If you own anything together with your current spouse, the IRS could seize ½ of it to satisfy the taxes of your ex-spouse. For example, if you and your current spouse have a joint checking account, the IRS could seize half of it to satisfy the back taxes of your ex-spouse if you live in a Community Property State, or possibly all of it if you do not live in a community-property state.
If you do not live in a Community-Property State, you would not be liable for the back taxes of your current spouse that he/she owed before you were married. However if your current spouse has a Federal Tax Lien filed against them, the lien could cloud the title of any major purchases that you make. You should consult with a tax attorney before making any major purchases because the attorney can advise you on the best style of ownership you need in order to protect that asset from an IRS levy.
One way to protect yourself from being liable for the taxes of your current spouse, whether or not you live in a Community Property State, is to file Married Filing Separately when you both file your income tax returns. The main downsides are that your tax deductions can be reduced, and you will be in the highest tax brackets paying more income taxes.
CORPORATIONS OR LIMITED LIABILITY COMPANIES THAT YOU OWN AN INTEREST IN.
Generally, when you are the part or whole owner of a Limited Liability Company (LLC) or Corporation, you are not liable for the liabilities of these business entities. However, there are some liabilities of corporations and LLCs that you are liable to pay personally, even after the corporation goes out of business. The most common of these taxes that you would be personally liable to pay is called the Trust Fund Recovery Penalty. This penalty is equal to the amount of money that the corporation or LLC withheld from its employees’ paychecks for Social Security and Medicare. This was money that did not belong to the corporation or LLC, and that is why the IRS will come after the Members of the LLC and the Corporate Officers of a Corporation for that money.
The IRS takes a VERY harsh stance when it comes to these trust-fund taxes and they come after the responsible parties (Members/Officers) very swiftly. You could have your home taken away from you and auctioned off to pay these taxes, even if your home is titled personally in your name. So, if you are a partial or whole owner of an LLC or Corporation, be aware that you may be personally liable for some of the business’ taxes.
When the IRS assesses this penalty against a taxpayer, the burden of proof is on the IRS to prove that the individual is indeed a responsible party. Sometimes, the IRS assesses this penalty against individuals that are not responsible to pay it. If this happens, there is a way to make the IRS prove their case, and if they cannot, the penalty will be removed from the taxpayer’s account. The IRS will not tell you how to make them prove their case. You should hire a tax professional with experience in this area. Fiscal Solutions Group has over 30 years of experience dealing with Trust Fund Recovery Penalties.
What can the IRS do to you to make you pay your taxes?
When the income-tax laws were passed about 100 years ago, the government knew that many taxpayers were either not going to pay their taxes, or that they would fall behind in paying them. This was unacceptable to the government because the whole reason that the income tax laws were passed was because the government needed to raise revenues to function.
Therefore, as part of the Internal Revenue Code, the government included provisions for the Internal Revenue Service to enforce collection of these taxes against Americans who were not paying what they owed to the federal government.
Tax Liens:
The federal government can file a Notice of Federal Tax Lien against you. A Tax Lien is a document that is filed either at your local county courthouse or at the office of the Secretary of State in the state where you live. When it is filed, it is a matter of public record for anyone to see. A tax lien that is filed at the courthouse or Secretary of State office (this is known as a perfected lien), lets the public know that you have a liability owed to the U.S. government. And, as such, the lien attaches to all property that you own. Theoretically, you would not legally be able to sell anything that you own without paying the lien first. In reality, you would be able to buy and sell most personal property, like a car. But you would absolutely NOT be able to sell any real estate that you owned without paying the IRS first from the proceeds of that sale. A Federal Tax Lien can also adversely affect your credit rating, which could affect your ability to acquire credit, or maybe even prevent you from obtaining employment.
Of course, any tax liens that are filed against you for personal income taxes will attach to your property as stated above. However, if you owe business taxes (employment taxes, Forms 940/941) for a sole proprietorship or certain partnerships that you own an interest in, these tax liens would also attach to everything that you own personally, even if the lien is in the name of the business. Even if you owned a business like these by yourself (your spouse is not involved in your business), the assets and income of you and your spouse would be subject to garnishment and seizure for your business taxes.
There are some ways to get the lien released or withdrawn, but it is not easy. The tax-resolution experts at Fiscal Solutions Group know how to get it done.
Garnishments:
If you owe back taxes, the IRS can garnish, or Levy, any income that you have, such as wages, 1099 income, pensions, and even Social Security income. And, if you are not a highly-trained tax-resolution professional, it could be nearly impossible to get the IRS to release that levy.
Levies:
A Levy and a Seizure are basically the same thing. The IRS can seize any asset that you own to either partially or fully satisfy your back-taxes liability. This includes but is not limited to bank accounts, retirement accounts, 401Ks, stocks and bonds, college savings plans for your children, proceeds from a lawsuit or insurance settlement, etc. Once a tax lien is filed, the IRS does NOT have to give you any notice of what enforcement they are going to use. You may get an unexpected phone call from your bank one day notifying you that the IRS has cleaned out your bank account. Suddenly you do not have enough money to pay your bills this month. Or you get a letter from your 401K manager notifying you that you no longer have a retirement account. Yes, it can happen that fast. And if you are not a tax-resolution professional, you probably will not get it back because the IRS will not tell you how to get it back. It is not their job to give you tax advice. Fiscal Solutions Group can help you with this.
Unfiled Income Tax Returns:
If you have tax returns that you have not filed, the IRS has several tools that they can use to get your returns filed. The most common tool that they use is a Summons. If you have not filed one or more income tax returns (Forms 1040, 1120, 1120S, 1065), the IRS can issue you a federal Summons for you to appear at a designated location, usually your local IRS office, with the prepared income tax return. If you do not appear, or you appear without the return(s), your case can be referred to the IRS’ attorneys. They will petition the United States District Court to make you comply. You will have to appear in federal court in front of a federal judge and explain why you did not comply with the IRS summons. The judge could put you in jail for not complying.
Another tool that the IRS has if you do not produce your income tax returns upon demand is known as a Substitute for Return (SFR). If you do not file your income tax return, the IRS will prepare the return for you. This may sound convenient, but it is not! They will prepare the return and not allow you any deductions, and you will be taxed at the highest possible tax rate. If you normally file a Form 1040 with a business included on Schedule C, the IRS will estimate what they think the highest possible income that you may have had and put it on the return. They will not allow you any business expenses deductions and you will simply pay tax on what they think you made with absolutely no deductions! After they prepare the return, they will process it and assess the high rate of tax against you. After they have a tax assessment, they will pursue collection of that tax using the methods that are mentioned above.
So, as you can see, not filing your income tax returns is not a good idea. There is a way to deal with an SFR assessment by the IRS to get the correct amount of tax assessed, but the IRS will not tell you what it is. Remember, it is not their job to give you tax advice that will benefit you. It is their job to protect the government’s interest, not yours. Seek the advice of an experienced tax-resolution professional like Fiscal Solutions Group for help with a complex matter such as this one. We can help you with any tax return preparation that you may need, and then negotiate with the IRS for a solution that you can live with.
Unfiled Employment Tax Returns:
Unfiled employment tax returns are a completely different story. If you have not filed some employment tax returns, Forms 940 or 941, the IRS is not going to summons you for the returns. They are authorized by 26 USC § 6020(b) to simply prepare those returns for you. And they will use an extremely high estimate of what they think your paid wages were for each quarter in order to compute the tax. The tax will be most likely much more than you would have owed if you prepared an accurate return yourself. So, there is no benefit for you to let this happen.
Once they have prepared these high-tax returns, they will process them and get a tax assessment against you and proceed with enforcing collection of those taxes. If the IRS has prepared returns like this for you, there is a remedy to ensure that you can have them corrected and that only the correct amount of taxes will be collected by the IRS, but they will not tell you what those remedies are. The IRS is not your friend, and you should not face them alone without professional representation. It is not their job to explain to you what your options are in any situation with them. You need an experienced tax-resolution firm like Fiscal Solutions Group to help you through it and make sure that the IRS collects only the amount tax that you owe, no more and no less.
When can the IRS come after you for back taxes or unfiled returns?
Back Taxes:
The IRS can take the enforcement actions mentioned above any time after they have sent you a Final Demand letter. And they will do it without any advance notice to you. During the pandemic, the IRS has been reluctant to use its broad powers to enforce collection of back taxes. That is simply because they do not want the bad publicity that such actions would bring. However, their official deadline for their moratorium on enforcement was July 15, 2020. Since that day has passed, the IRS policy is to resume enforcement soon because the pandemic has cost trillions of dollars and the government needs all of the money they can get.Unfiled Returns:
The IRS can come after you for any unfiled tax return any time after the due date of the return, including any extensions that you filed. Realistically, the IRS is not going to come after you for a return that was due on April 15th on May 1st. But the longer that you wait to file an overdue return, the worse it will be for you. If you have not filed a return for which you will be receiving a refund because you overpaid your taxes during the year, the longer you wait, the longer you will not have your money. Also, there is a time limit for you to get the refund. If you file your income tax return more than 3 years after the due date of the return, or 2 years from the date the taxes were paid, you will not be able to get your refund at all. And there is nothing anyone can do about that. You can get more information about this at IRS Refund Deadlines. The most common solutions for tax-relief problems. If you have not filed some tax returns, you are probably going to owe the IRS a substantial amount of money when you do get around to filing them. Because, if you were going to get refunds from these returns, you probably would have already filed them. If you already owe the IRS a lot of money, then you may be wondering what your options are if you do not have enough money to pay it off now. Here are some of your options: Bankruptcy should only be used by taxpayers to hold off the IRS under very dire circumstances because the consequences can last for years to come. Generally, your taxes will not go away after you file bankruptcy, and you will still have to deal with them after you are discharged. If you feel that you need to file bankruptcy, and it is your ONLY way to hold back the IRS, consult with a reputable bankruptcy attorney.If you owe the IRS a lot of money, you may be able to work out a payment plan with them to pay it back. In the last few years, the IRS has made it a little easier to get a payment plan to repay the back taxes that you owe, but you need to know what the laws are that govern payment plans, also known as Installment Agreements.
Remember, it is not the job of the IRS to grant you an installment agreement that best suits you, with a monthly payment that you can live with. They may tell you that you must pay an amount each month that is way more than you can afford, thus setting you up for failure. And if you default an installment agreement, the IRS will begin to take enforcement actions against you such as garnishing your wages, or taking the money that is in your bank account or retirement account.
The best way to ensure that you are getting the best possible IRS re-payment plan is to consult with a tax-resolution professional who knows the tax laws and can use them to protect you and your family
If you are not able to make payments on your back taxes, you may qualify to have your account put into a Currently Not Collectible status. Once again, there are many rules and regulations that govern this process, so be careful when trying to pursue this on your own.
If the IRS does put your account into a Currently Not Collectible status, it does not mean that they write it off. It means that currently, they feel that you do not have the ability to make payments. The IRS has the ability to see if your income changes as time goes on, and if your income increases to a point where they feel like you do have the ability to make payments, the IRS will remove your account from Currently Not Collectible status. When they do that, they will notify you and they will ask you to contact them to make arrangements to pay them back. So, when your account is put into this status, the IRS is not writing off your taxes completely.
There are many criteria that a taxpayer must meet to qualify to have their account put into a Currently Not Collectible status. For example, the when the IRS figures your monthly budget when computing to see if you have an ability to make payments, they allow certain monthly expenses like a car payment (up to a certain amount), but they most likely would not allow for you to make payments for your children to attend private school while you owe the IRS money.
When your account is placed into a Current Not Collectible status, the IRS does not consider your account to be paid in full. So, they will file federal tax liens against you to protect the government’s interest in any assets that you own.
The statute of limitations, which is the amount of time that the IRS has to collect taxes from you, continues to run while your account is in Currently Not Collectible status. So, when that statute of limitations tolls, the IRS no longer has any legal right to collect those taxes from you. At that point, they are written off the IRS books and you do not have to worry about it anymore.
Getting the IRS to put your account into a Currently Not Collectible status can be tricky if you do not know the laws that govern it. Consult with an experienced tax-resolution professional who can give you some guidance.
Bankruptcy should only be used by taxpayers to hold off the IRS under very dire circumstances because the consequences can last for years to come. Generally, your taxes will not go away after you file bankruptcy, and you will still have to deal with them after you are discharged.
If you feel that you need to file bankruptcy, and it is your ONLYway to hold back the IRS, consult with a reputable bankruptcy attorney.