We handle a number of practice areas. Please click on each area to view details on our services.
Unlike wage garnishment, bank levy seizes on a one-time basis only the funds in the taxpayer’s account at the time of the levy. Just because it is a one-time event does not prevent the IRS from filing additional levies, nor does it provide much consolation to taxpayers who cannot gain access to funds in their account.
Just as with wage garnishments, relief from an IRS bank levy is available. To get this relief, the taxpayer and his tax professional must act quickly. The bank is required to simply freeze funds in the account at the time of the levy for a period of 21 days. During this time, relief from the levy can be obtained and a strategy developed to resolve the larger issues of the taxes due IRS.
With the help of a competent tax lawyer, resolution of your tax debt is possible before the IRS seizes your property.
Employment taxes arise from the employer’s payroll computation. From the wages of each employee, the employer is required to withhold Federal Income Taxes and Social Security and Medicare taxes. During each pay period, an employer must make federal tax deposits of the taxes withheld. He must also file Form 941, Employer’s Quarterly Federal Tax Return, reporting the total wages, taxable Social Security wages, Federal Income Taxes withheld, and Social Security and Medicare taxes. The IRS matches the amount of taxes withheld and reported on an employee’s Form W-2 with the amounts the employer has reported on Form 941. If the amounts do not match with the actual payments made by the employer, the IRS will contact you. The employer is also required to report and pay its portion of the Federal Insurance Contribution Act (FICA) taxes, as well as the Federal Unemployment Tax Act payments (FUTA).
The significance of an employer paying employment taxes cannot be overstated. The reason is that once the federal and social security taxes are withheld from an employee’s wages, IRS must credit this amount against an employee’s individual income tax liabilities regardless of whether the credits may result in refunds to the employees. These taxes withheld by the employer are referred to as funds held “in trust” for the United States. If these trust fund taxes are not paid, the United States suffers a loss of revenue.
Congress enacted Section 6672 of the Internal Revenue Code to protect the United States against this loss of revenue. Protection was provided in the form of giving to the IRS another source from which to collect the “trust fund taxes.” That additional source is those persons or entities, which are required to collect, truthfully account for, and pay over the trust fund tax, but who willfully fail to collect such tax, or truthfully account for, and pay over such tax. The purpose of this provision is to prevent officers, owners, and employees from using these trust fund taxes in their business. The liability these persons face personally is for 100% of the taxes actually withheld from the wages of employees that were not paid over to the United States; hence the term “100% penalty” or “6672 penalty.”
The amount of the 100% penalty is an amount equal to the employee’s portion of the FICA taxes and all of the withholding taxes that were to be paid over to the United States. The penalty is civil in nature, but criminal prosecution can be recommended for repeat offenders.
A substantial part of the work in the IRS Collection Division relates to delinquent quarterly payroll taxes and the non-filing of employment tax returns. Collection from employees determines which individuals are responsible officers for purposes of assessing the 100% penalty.
At a minimum, competent tax representation in employment tax cases requires the ability to quickly structure a plan acceptable to IRS that will ensure the filing of any delinquent employer returns and internal mechanisms for the employer to maintain compliance with all filing requirements. In addition, your representative must be able to structure a plan acceptable to IRS for payment of any delinquent taxes while at the same time preventing or keeping at a minimum the personal liability of responsible officers.
Innocent Spouse Relief
The IRS Code provides relief to spouses who have filed joint returns together and face a liability simply for that reason. The liability includes the tax and any interest or penalty due on the joint return. The innocent spouse defense enables one spouse to be relieved of liability and responsibility for tax, interest, and penalties resulting from the fraudulent actions or misrepresentations of the other spouse on the joint tax return.
Taxes for tax periods that qualify for relief cannot be collected from the innocent spouse, but the innocent spouse remains jointly and individually responsible for any tax, interest, and penalties for periods that do not qualify for relief. The typical claim for innocent spouse relief arises with a couple undergoing divorce, where the divorce decree states that one spouse is responsible for the payment of federal taxes. While this agreement is valid between the estranged spouses and will be upheld by the court, it does not prevent the IRS from seeking to collect from the spouse who is not obligated to pay under the divorce agreement.
Three different ways for the non-obligated spouse to escape liability for the tax, penalty, and interest arising from filing a joint tax return are:
- Innocent spouse relief
- Separation of liability
- Equitable relief
In addition, tax relief is available to an “injured spouse.” When spouses file a joint return and the refund due thereon is applied by the IRS to pay one spouse’s delinquent payments for child or spousal support or a delinquent state or federal tax debt, the other spouse who is not obligated to make these payments may be considered an injured spouse. The injured spouse can claim his or her share of the refund, provided certain requirements are met.
Competent tax representation involves identifying which relief is available to a spouse and determining when to seek relief under more than one category.
- IRS must assess the tax against you. This means that an amount of tax has been determined and recorded by IRS as an amount due that you do not dispute.
- IRS must issue you a notice and demand for payment of the tax.
- You must refuse to pay the assessment within ten days after the notice and demand.
- IRS must send you a Notice of Intent to Levy.
- You must fail to pay the tax liability within thirty (30) days after the Final Notice of Intent to Levy.
Then, the IRS sends a Notice of Levy to any third party who holds your property or rights in property. The two most common levies are: 1) levy on non-wages, such as bank accounts, a vehicle, or real estate and 2) levy on wages, which seizes a portion of your salary or wages each pay period until the tax debt is paid in full.
Offer in Compromise
The Internal Revenue Code provides that taxpayers may settle their federal tax debts for less than the full amount due under certain circumstances.
First, an offer may be accepted when doubt as to the taxpayer’s liability for the tax exists. An example is when there is a genuine legal dispute as to the existence of the debt or of the amount of tax, which IRS claims is due. The latter instance often occurs when IRS asserts a liability based on an original return when an amended return has been filed to correct income and/or deductions set forth on the original
Second, an offer may be accepted when doubt as to collectibility from the taxpayer exists. This category is the one under which most Offers fall. Here, the taxpayer shows that the total financial resources available to him or her are less than the full amount of the tax due. To qualify under doubt as to collectibility, the taxpayer must submit to the IRS certain documentation about his assets, monthly gross income, and monthly expenses.
The third and last category for offers in compromise is effective tax administration. This category enables the IRS to accept offers, even if the taxpayer agrees that they owe the full amount of the tax and have sufficient financial assets to pay. Relief is provided, however, if the taxpayer can demonstrate that full payment would cause an economic hardship or would be unfair and inequitable.
Payment plans, also referred to as installment arrangements, enable you to pay your tax debt on a monthly basis at an amount, which we can convince the IRS, fits within your budget. Four types of installment arrangements are: (1) regular, (2) direct debit, (3) payroll deduction, and (4) streamlined.
A regular installment arrangement is the most common and enables you to make monthly payments toward your tax debt. The IRS may send you a billing notice each month with a return envelope. This is quite convenient. If, however, IRS does not send you a billing statement, you still are required to make the payment. The downside of a regular installment arrangement is that the interest rate can be high. Sometimes the interest on borrowed funds is less than the interest that accrues on your tax debt under a regular installment arrangement.
In a direct debit installment agreement, the IRS may deduct the monthly payment amount from your bank account. In a payroll deduction, the IRS may deduct the monthly payment amount from your wages. Last, the streamlined installment arrangement may be used when your tax debt is $10,000 or less and you have filed your returns and paid your taxes for the previous five years without an installment arrangement in place. This arrangement also is available to taxpayers who offer to pay off their tax debt within a certain period of time and who further promise to remain in compliance with the tax laws during the term of the arrangement.
Installment arrangements for tax debts of $25,000 or less generally can be successfully negotiated without the IRS filing a lien under certain circumstances. An additional benefit of an installment payment arrangement is that the IRS will not issue a levy on your property while the agreement is being negotiated.
Generally, a competent tax professional can reach an agreement with IRS for a taxpayer to pay their outstanding taxes on an installment basis. The bigger issue with installment payment plans is the amount per month the IRS will agree to accept. This amount is almost always significantly greater than the monthly amount a taxpayer is willing to pay. In addition, we must convince the IRS that you cannot pay the tax debt in full from your available cash and assets.
The role of a competent tax professional is to convince the IRS that the amount the taxpayer agrees to pay each month is reasonable and fits within IRS guidelines. A variety of factors must be addressed in order for the tax professional to prevail, including the number of months the IRS is willing to accept as the duration of the agreement, the date each month the tax payment is due, the financial resources available to the taxpayer to meet his obligations under such a plan, and the steps the taxpayer has taken to prevent future tax problems.
The IRS imposes penalties for a variety of transgressions. A penalty is imposed if a return is either not filed or filed late. A penalty is imposed if 25% or more of income shown on a return is understated. A penalty is imposed for failing to include items or income or overstating items of deduction. The IRS is quite creative and relentless in imposing and collecting penalties.
Relief from or abatement of penalties is possible, though not automatic, nor a bargaining chip in settlement efforts. A taxpayer must demonstrate that the circumstances giving rise to the penalty were due to “reasonable cause” and not “willful neglect” of the taxpayer. Careful presentation of the facts and circumstances surrounding the cause for the penalty is essential to obtaining relief.
If the IRS audits you and your return is less than the amount calculated by the IRS, the IRS will propose an adjustment to your return, which will increase the amount of tax you owe. Thus, IRS asserts that your return shows a Deficiency in the tax you owe. The taxpayer may appeal the decision within IRS. If you disagree with the IRS’s assertion of a deficiency and are unable to resolve it within IRS, the IRS will issue you a statutory notice of deficiency.
The notice will be sent to your last known address by certified mail. Be sure to pick it up promptly and read carefully the report of the revenue officer who adjusted the amount of tax that IRS claims is due.
The notice will state that if you disagree with the amount of additional tax IRS claims that you owe as set forth in the IRS report attached to the notice, you have 90 days from the date of the notice to file a petition in the United States Tax Court. Rather than starting what could be a days counting game, the notice will clearly state in the top right hand corner the date by which the petition must be filed. At this stage, the IRS assertion of a deficiency in tax against you is simply IRS’s claim. It is not an assessment that requires payment. If, however, you fail to file a petition in Tax Court on or before the date stated in the notice of deficiency, IRS’s proposed adjustment to your tax becomes the amount you owe and can be assessed.
The purpose of filing a petition in the United States Tax Court is to get the Court’s review of the adjustment to your tax that IRS is proposing. In Tax Court, you can dispute deficiencies asserted by IRS under income, estate and gift, and certain employment and excise tax provisions.
Unfiled Tax Returns
Wage garnishment is one of the most devastating events in the IRS’s arsenal for collecting delinquent taxes. Not only does it potentially embarrass the taxpayer, but also, more importantly, totally disrupts the entire lives of the taxpayer and the taxpayer’s family. Generally, before wage garnishment the IRS has sent several letters to taxpayers seeking to collect the tax. Ignoring these letters is not uncommon, but it does not make the IRS go away. In fact, wage garnishment continues each pay period until the tax is paid, unless the taxpayer gets relief from the garnishment.
Relief from wage garnishment is available. Often it can be obtained within 48 hours of contacting a competent tax professional. In all cases, the speed of relief is determined by the willingness and ability of the taxpayer to provide to the tax professional relevant financial information.
Unfiled returns often add additional weight to the burden of tax problems. We coordinate the preparation and filing of federal tax returns with certified public accountants that prepare returns all day every day. We do not prepare returns ourselves, but use qualified CPA professionals in our association with proven track records. Preparing and filing unfiled returns is not as daunting a task as you might think. Moreover, if you have any return that has not been filed, the IRS simply will not entertain any plan–short of full payment– to resolve your existing tax problems. The good news is that any liability shown on the returns can be a part of any resolution we negotiate for you in connection with your already filed returns.
Other Practice Areas
Charles Ray regularly negotiates, drafts, and/or reviews contracts for a variety of business transactions and relationships. His skill and experience in business operations and management ensures documents that specifically address and protect the particular interests of his broad range of business clients. In the private sector, he facilitates transfers of stock and assets, including due diligence and report preparation. In the public sector, he negotiates and consummates transactions locally with various agencies within the District of Columbia government.
Charles Ray is experienced at performing legal audits of small to medium sized businesses, and with handling legal compliance issues related to business operations. He also provides legal counsel in the areas of entity formation, operation of corporate and non-corporate entities, tax compliance and planning, licensing and regulation, internal governance, contracts between business owners and investors, and select areas of employment law. As the managing attorney for the Employers’ Advocacy Program of the District of Columbia Chamber of Commerce, he routinely represents employers in Washington, D.C. in unemployment compensation appeals cases.
Charles Ray represents buyers and sellers, as well as landlords and tenants in commercial and residential real estate transactions. Services include structuring transactions, preparing and/or reviewing agreements associated with commercial and residential development projects, preparing and filing applications with the D.C. Board of Zoning Adjustment, appealing real estate tax assessments, preparing and/or reviewing loan documents, and coordinating loan closings.