Proceeding blindly is something that you rarely want to do with the IRS. If you owe back taxes, or have unfiled returns, or are in any way concerned about an IRS problem, it’s best to first find out what the IRS knows about you.
1. If the IRS can levy your bank accounts and wages, or seize your property.
The IRS cannot levy your income or seize your property unless you have first been given written notice. This notice is called a Final Notice of Intent to Levy. The IRS will send it to you by certified mail, or a local Revenue Officer could hand-deliver it to you at your home or place of business. IRS account transcripts will tell us if the Final Notice of Intent to Levy has been issued – there will be a line item on the transcript confirming that is was issued, and stating when. If the IRS has sent the Final Notice, you have important rights to dispute the intent to levy and put a stop to IRS collection. By law, you have 30 days to file an appeal. And by IRS administrative rule, that 30 days is extended to one year in most cases. If the account transcripts do not have a Final Notice indicator, then you will have the peace of mind knowing that the IRS cannot take your wages or your property.
2. How long the IRS has left to collect your debt.
The IRS has ten years, starting from when you filed your tax return, to collect a tax liability. After that, in most every situation, they are barred by law from taking any action to enforce the debt. After the 10 years expires, the IRS must forgive what you owe. This is known as the statute of limitations on collection. The IRS account transcript has information to calculate when you will be done with the IRS. This includes when the statute of limitations clock started, and if anything has happened that gave the IRS more than 10 years to collect. Filing bankruptcy, an offer in compromise, or a collection due process appeal gives the IRS more time to collect. This is known as tolling. The IRS account transcripts will show how long a tolling event occurred to permit an accurate calculation of when you will be done with the IRS. You could be close to done with the IRS – the best way to find out is analysis of an account transcript. And based on how much longer the IRS to collect, certain options for resolution may be considered, or even eliminated. For example, since an offer in compromise extends the time frame the IRS has to collect, not filing one could be a consideration if there is a short amount of time left. Either way, it’s good to know how much longer the IRS to collect.
3. When you filed your return, if there have been any audits, and how much you owe in tax, interest and penalties.
The IRS transcript will also tell us if you filed a return, when it was filed, and if there have been any changes made to your account by audit. The amount of tax owed from your return filing, or from audit, will also be shown.
It will also show the type of penalties you owe, including penalties for late-filing and late-payment. The amount owed in penalties will also be available on an account transcript. The IRS charges interest on tax liabilities, and those assessments will also be made available on your account transcript.
4. If you did not file a tax return, whether the IRS filed an estimated return for you.
If you did not file a tax return, the IRS has the legal authority to file one for you, without your permission or signature. This is called a Substitute for Return, and is permitted under Internal Revenue Code section 6020(b).
The IRS almost always gets a Substitute for Return wrong. This is because your income and deductions for the return are estimated, in part because you have not reported them to the IRS with a tax return filing. If you are self-employed, this means that the IRS does not give you credit for your cost of materials, supplies, wages, rent, etc. The result is an overstated tax liability.
Your IRS account transcript will have a clear indicator if the IRS has filed a Substitute for Return (SFR) against you – there will be line on the account transcript clearly stating that the balance is from a SFR. The transcript will also show when the IRS filed the SFR in your name, and how much they calculated you owe. Armed with this information, a corrected, original tax return can be filed with the IRS, reducing your liability to what it should be, not what the IRS estimated.
5. If you have the option of filing bankruptcy on the IRS to eliminate your tax debt.
Bankruptcy can eliminate taxes, but there are certain rules that must be followed first. These rules are primarily based on time – the bankruptcy code requires a certain time frame to pass after you have filed your tax returns to be able to discharge taxes in bankruptcy. Briefly, those rules include requirements that (1) you must have filed a tax return (2) you must have filed the return that has the tax liability more than two years before you file the bankruptcy and (3) the tax must be from a return that was due to be filed with the IRS more than three years before you file the bankruptcy.
And certain actions – such as the filing of a collection due process appeal or an offer in compromise – can impact these timing rules by tolling them. An IRS account transcripts permits an analysis of all of these factors to determine if bankruptcy is possible for you to eliminate your IRS tax debt, and if so, when would you be able eligible to file the bankruptcy?
To move in the right direction to resolve your IRS problems, it is essential to first find out what the IRS knows about you, what they have done, and what they can still do. An IRS account transcript allows you to know much of what the IRS knows, including if the IRS can levy your account or seize your property, your rights to stop such enforced collection, how long the IRS has to collect the debt from you, when you filed a return, the amount of interest and penalties owed, if the IRS filed an estimated tax return for you, and if you are eligible for a bankruptcy filing to eliminate your taxes. That’s a lot of information, and it is all available on your IRS account transcript.