Avoid Being a Victim of IRS Scams

a worried woman on the phone with an IRS scammer

Over my many years in this industry, I have encountered petrified taxpayers that reach out looking for help that feels the IRS is bearing down on them. This is what the IRS does, so in some cases, it is 100% valid to be scared. 

With others that contact me, I ask some simple questions and come to realize that they have been the victim of an IRS scammer. In any situation when people are vulnerable you will always have nefarious people in our society trying to take advantage. 

Thousands of people fall victim to these scammers every year. An FTC (Federal Trade Commission) report said that these scams have cost Americans some $667 million in 2016.  

In today’s article, I am going to discuss things to look out for when you feel you are communicating with the IRS to avoid falling victim to these scammers. I will go on to provide and describe some of the most common scams to look out for from people calling and posing as the IRS all the way to companies in our industry who scam taxpayers in need of help.

The IRS has provided a list they call “the dirty dozen”. The dirty dozen list focus’ on scams that target taxpayers. The IRS urges everyone to be on guard and look out for others.  Taxpayers should all be aware of these different scams and know that they are legally responsible for what is put on their tax returns even if it is prepared by someone else. 

Make sure when hiring a tax professional to look at their online reviews to see what previous clients have said about them and to make sure they have the correct licensing and educational background to properly help you. An Enrolled Agent and CPA (certified public accountant) are true tax professionals that can assist you. 

 

The Dirty Dozen IRS Scams

Phishing

Scammers utilize fake emails or websites looking to steal personal information. The IRS will never initiate contact with taxpayers through email about a tax bill, refund, or Economic Impact Payments. The IRS Criminal Investigations has seen a tremendous increase in phishing activity utilizing emails, letters, texts, and links. These schemes are blasted to large numbers of people to get personally identifying information or financial account information including account numbers and passwords.

Fake Charities

Criminals Frequently exploit natural disasters and other situations such as the current Covid-19 pandemic by setting up fake charities to steal from well-intentioned people trying to help in times of need. These schemes can start with a contact by telephone, text, social media, or in-person using a variety of tactics. They try to trick people into sending money or personal financial information. Legitimate charities will always be willing to provide their EIN (Employer Identification Number) which can be used to verify their legitimacy. You can search these directly on the IRS website. 

Threatening Impersonator Phone Calls

Scammers will call taxpayers posing as the IRS. They can threaten arrest, deportation, or license revocation if the person does not pay a bogus tax bill. These callers will often use robocalls which are text to speech recorded messages with instructions for returning the call. The IRS will never demand immediate payment, threaten, or ask for financial information over the phone or call about an unexpected refund or Economic Impact Payment.

Social Media Scams

Social media scams have also led to tax-related identity theft. The basic element of social media scams is convincing a potential victim that he or she is dealing with a person close to them that they trust via email text or social media messaging.

EIP or Refund Theft

Scammers will steal identity information and then file false tax returns or supply bogus information to the IRS to divert refunds to wrong addresses or bank accounts.

Senior Fraud

Seniors are more likely to be targeted and victimized by scammers than other segments of society. The IRS recognizes the pervasiveness of fraud targeting older Americans.

Scams Targeting Non-English Speakers

IRS impersonators and other scammers also target groups with limited English proficiency. These scams are often threatening in nature. Some scams also target those potentially receiving an Economic Impact Payment and request personal or financial information from the taxpayer.

Unscrupulous Tax Preparers

Dishonest tax preparers pop up every tax season committing fraud, harming innocent taxpayers, or talking taxpayers into doing illegal things that they regret later. Taxpayers should avoid what the IRS calls “ghost preparers”. This is where a tax preparer will not sign a tax return. 

All paid tax preparers must have a PTIN (Preparer Tax Identification Number) and must sign and include this PTIN on all returns. These types of preparers will promise inflated refunds by claiming fake tax credits, including education credits, the Earned Income Credit, and others. 

Taxpayers should avoid preparers who ask them to sign a blank return, promise a big refund before looking at the taxpayers’ records, or charge fees based on a percentage of the refund.

Offer in Compromise Mills

While there are many good tax relief companies out their anytime you have people in vulnerable situations you will have companies that prey on that. There is an extremely attractive IRS Program called the OIC (Offer In Compromise). This is where the IRS settles, takes a lesser amount, and forgives the remainder of the tax debt. This is a difficult program to qualify for. 

These unscrupulous companies oversell the program to unqualified candidates so they can collect hefty fees from taxpayers already struggling with debt. These companies will cast a wide net for taxpayers and charge them pricey fees and churn out applications for the program that they are unlikely to qualify for.

Fake Payments with Repayment Demands

A new method that scammers are tricking taxpayers with has emerged since the IRS has taken measures to crack down on identity theft. In the past scammers would steal a taxpayer’s personal information such as social security number and bank account information and then file fake returns with refunds directed to the scammer. With IRS cracking down and making sure refunds are going to the correct taxpayer these scammers will now make a call once the refund is issued posing as the IRS and tell the taxpayer they need to pay the money back to them to avoid trouble. These scammers typically demand payment with specific gift cards for the amount of the refund.

Payroll and HR Scams

These scammers use phishing techniques to steal Form W-2 and other tax information from tax professionals, employers, and taxpayers. They commonly use two methods which are business email compromise or business email spoofing. This has become more common since people have been working from home due to covid and more business communication is done through email.

Ransomware

Ransomware is malware targeting human and technical weaknesses to infect a potential victim’s computer, network, or server. Once infected ransomware looks for and locks critical or sensitive data with its own encryption. Victims typically are not aware of the attack until they try to access their data, or receive a ransom request in the form of a pop-up window.

 

How to Avoid Falling Victim to an IRS Scam

In conclusion, the IRS very rarely if ever makes phones calls or sends emails. They definitely do not do this as an initial interaction with a taxpayer. The IRS will never call you and threaten arrest nor will they send local police to arrest you. Ordinary taxpayers are not at risk of going to jail over unpaid taxes. If you receive contact from the IRS by these methods, it is most likely fraudulent. Even if the caller ID shows IRS does not mean it is really the IRS. Unfortunately, caller IDs can be easily spoofed to say whatever a caller wants.

If the contact is initiated via email do not respond or click any of the links. Forward any of these emails to phishing@irs.gov. If you receive a phone call, tell them you are busy and will call back shortly and ask for the caller’s badge number and name. Then contact the treasury department directly by calling its fraud hotline 1-800-366-4484.

If you receive a text that claims to be from the IRS, it is a scam. The IRS does not send text messages. If you receive a text claiming to be the IRS forward it to the IRS at 202-552-1226. If you feel you have been a victim of Identification theft, then you need to complete a form 14309 Identity theft affidavit.

If you really owe taxes, then make sure you are dealing directly with the IRS or have a legitimate tax professional working on your behalf. You can check if you owe right on the IRS website. 

If you feel that you want or need representation, make sure to investigate whatever company that you hire. Fortunately, with the internet, you can see through a company’s reviews how they have treated their previous clients. Also, make sure they have true tax professionals on staff who are licensed to communicate directly with the IRS on your behalf. Enrolled Agents, CPAs, and Tax Attorneys are your best choices to represent you.

 

FAQs about the Internal Revenue Service

an IRS office sign

How do I contact the IRS? What is their phone number?

You can get in touch with an IRS representative over the phone from Monday to Friday (7 am- 7 pm local time). Now, depending on your case, you can call any of the following numbers:

  • 800-829-1040 For IRS errors & individuals (main IRS number available 24 hours a day)
  • 800-829-4933 For businesses
  • 866-699-4096 For excise taxes
  • 866-699-4083 For estate and gift taxes
  • 877-829-5500 For non-profit taxes
  • 800-829-4059 For hearing impaired
  • 844-545-5640 For a face-to-face meeting

 

Is there another phone number that I can call?

Following are other telephone numbers/e-help Desk numbers available to specific groups of individuals or businesses:

  • 1-866-255-0654 Partnerships, Corporate taxpayers & Software vendors and developers and  with queries about e-filing
  • 1-800-829-4933 Taxpayers with tax law or account queries
  • 1-800-829-8374 Tax practitioners with law or account questions

 

How do I speak to someone at the IRS? When is the best time to call?

The best time to call the IRS is either when they open at 7 am or near closing time.

Note that you will be asked an automated question when you phone the IRS to select your language. As soon as you set your language, choose option 2 (Personal income Tax) and press 1 (form, tax, history, or payment) > 3 (all other questions) > 2 (other questions). Finally, let the system ask for your EIN or SSN number twice. Do NOT enter it, so you are forwarded to another menu. There, press 2 (personal or individual tax questions) and then 4 (other inquiries). You will then be able to speak with an IRS agent.

 

I mailed in my tax return, but I still haven’t heard from them. When will I get a response?

Usually, it takes about 6 weeks to get a Federal refund from the day you filed by mail. However, the coronavirus situation has created shortages in their personnel, so all bets are off. This means that there is limited processing of paper returns at the IRS.

The IRS has announced that it has suspended or significantly limited some of its services, such as processing paper tax returns. If it has been at least a month (4 weeks) since you mailed your tax return, you might find it using the Where is My Refund tool. If you use it, though, ensure you enter the amount in Form 1040 (the Federal refund sum on Line 21a, NOT the total refund sum).

Generally speaking, an e-file is a much faster way to have your tax return processed. You can e-file the three most recent years. Any older ones must be paper-filed. Again, before the Coronavirus situation, it would take between 4-6 months to hear back from them. Now, it is nearly double that time (around 8-10 months).

 

Does the IRS call you?

Rarely ever does the IRS call someone. Technically, they can but it is rarely the case. Most taxpayers never hear from the IRS over the phone unless they owe large sums of back taxes (normally over $100,000) or are subject to a field audit. Usually, the IRS sends notices (letters) due to a lack of personnel.

They also refrain from contacting taxpayers via the phone to fight the many IRS impersonators. To identify one, remember that the IRS will FIRST send you a notice and arrange a call or visit with you and THEN call you (if they call you at all). So if somebody calls claiming to be an IRS agent demanding payment and threatening criminal and legal consequences, rest assured that they are fraudsters trying to get your money that should be reported.

Note that the IRS will also NOT send any text messages or emails.

 

Does the IRS use private debt collectors?

Yes. The IRS has subcontracted debt collection with a few private collection agencies, such as Pioneer, ConServe, Performant and CBE, that work with taxpayers with tax debt and help them settle their debt. You can visit this IRS page for more details about the Private Debt Collection program.

 

Will the IRS come to my house or job?

Unless you have a very serious tax problem, the IRS won’t visit you. So, generally speaking, the IRS has the right to visit you, but they rarely ever do. Note, though, that when they do, they will let you know beforehand (it’s the standard operating process). So, it won’t be a surprise for you. This means that if you have NOT received a letter or call from the IRS scheduling a visit and an IRS agent or revenue officer shows up, they are IRS impersonators.

The only ones that may come announced are IRS special agents who conduct criminal investigations for tax evasion and other serious tax-related offenses. You will know if this is the case, though (if you are in major tax problems). In this case, it is best to contact a tax professional to help you with the IRS.

 

How can I get my IRS tax transcripts?

You will have to set up an e-services account. Then, you can ask to have your tax transcripts online or by mail to the address on file (one per year) here. It usually takes around 60 days to receive them. The new tax transcript format is even more advanced as it is designed to protect your personal data more efficiently. It partially covers your personal ID details while keeping your financial data fully visible for income verification, tax representation, and tax preparation.

Note that the IRS will NEVER ask for your personal information via email, phone, or text messages. It will also NOT require that you log in to update your profile or get a transcript over the same means. So, if somebody calls or messages or emails you requesting any of the above, make sure you report them.

 

How can I track my stimulus payment?

You will need to create an IRS online account. Alternatively, you can refer to IRS Notices 1444-B and 1444 emailed to you after your first and second stimulus check. Then, you can access the updated Get My Payment tool that will ask you to provide some details, such as your ITIN (Individual Tax ID), SSN (Social Security Number), street address, date of birth, and postal code or ZIP code.

Please note that we at Innovative Tax Relief do not have and cannot obtain any information about your stimulus payment or tax refund.

 

Does the IRS have a Spanish department?

You can visit the Spanish IRS site that allows Spanish-speaking taxpayers to access information, tools, publications, forms, online payment agreements, and many more, including the Where’s My Refund tool. You may also call 800-829-1040 for assistance in Spanish.

 

Can I go to a local IRS office and speak with someone?

At this time, the IRS only accepts scheduled appointments with taxpayers that need in-person assistance from an IRS Taxpayer Assistance Center. Note that you may not get a same-day appointment rather than one several days later. Also, not all local offices are open to the public due to the Coronavirus situation.

Generally speaking, though, our experience has shown that it is unwise to go to a local office if you have a tax debt. This is because the IRS agents there can collect information about you that could be used against you, such as income information, bank information, and where you work. So, unless you have the money to pay your tax debt (if you have one), try to refrain from walking into an IRS Taxpayer Assistance Center.

 

Where is the local IRS office located?

You can find a local IRS office here. If you want to visit it, you will need to make an appointment by calling the specific office’s appointment number.

 

How do I change my address that’s on file with the IRS?

You may notify the IRS about your address change when you file your tax return. You simply enter the new address on it before you file it. When the IRS processes your return, they will update your records. Just make sure the tax return preparer is also aware of this change. You could visit the IRS platform and update your address from there.

Another way is to notify the post office that services your previous address AND notify the IRS directly as some post offices don’t forward government checks. To do that, access Form 8822 (for individuals) or Form 8822-B (for businesses) and send them to the address you will find on these forms. For addresses related to an employment tax return, you need to fill out Notices 148B or 148A.

You may even write to the IRS to let them know that your address has changed. The overall processing of the claim can take between 4-6 weeks.

 

Can I change my direct deposit information with the IRS?

The Get My Payment tool enables taxpayers to update their bank account information. However, you can do so only if the IRS has sent you a payment and it was returned to the IRS. This is the only time you can enter an account and routing number for your bank account, an alternative financial product, or debit/prepaid cards with an account and routing number tied to it. In any other case, please contact the IRS.

Note that the tool mentioned above does not allow changes in direct deposit details at this moment until further notice.

 

How do I update my bank information with the IRS?

If you have already filed your tax return, you will need to contact the IRS directly to update your bank information. The IRS notes that if your bank account has changed, they will mail your payment (the one that the bank returned to the IRS) by check at the address you have on file. This gives no alternative to change your bank details at this given moment.

 

FAQs: IRS Collection

the IRS seal

What can the IRS do if you owe them money?

According to the IRS, their job is to find ways to recuperate their money. In doing so, they may seize (levy) your assets, such as retirement income, social security benefits, bank accounts, and wages. They may even seize your real estate, boat, car, and any other property you may have and sell it to satisfy the debt.

The first way to collect their money comes from garnishments. For example, if you are self-employed and 1099’d, they can take 100% out of your paycheck. W-2’d individuals, on the other hand, are in a slightly better position, especially those married with kids. The IRS can take most, but not all, depending on their filing status.

Aside from that, the IRS can garnish income through a business’ merchant account, such as PayPal, Stripe, and Square. In this case, they can take it all (100%). As for self-employed with personal tax debt, the IRS will send a garnishment letter to the business to garnish the owner’s wages. So, although they cannot take money from the business, they have figured out a way to get their owed money back since almost nobody chooses to garnish themselves.

That aside, if you have any state income tax refunds or future federal tax refunds, the IRS may seize them and then apply them to your federal tax liability.

Can the IRS put you in jail?

Generally, no. There is no such thing as a debtor’s prison, although an unfiled tax return is punishable by 12 months in jail, at least on paper. The IRS chooses not to pursue criminal tax evasion cases for many individuals annually. However, those that are caught are called to pay harsh penalties. These cases have to do with criminal intent, such as blatant tax evasion, and start with an audit of the filed tax return.

If the IRS identifies a pattern of willful evasion (i.e., large error sums occurring for several years), they have a strong indication that the taxpayer has willingly and knowingly committed serious tax evasion. This, consequently brings them under criminal investigation. The same applies to unreported income (i.e., from a side hustle) and dodgy behavior during an audit (i.e., purposely hide bank accounts or other records).

So, even though the IRS itself cannot put you behind bars, the court can if the IRS initiates a criminal investigation and you are found guilty. Although this is rarely the case (very few taxpayers face criminal charges for tax fraud annually), it still is a possible scenario.

Can the IRS levy your bank account?

Yes. An IRS levy gives the service the right to seize your property to satisfy a tax debt. Besides garnishing your wage and seizing your personal property, they can also take money from a financial account, such as a bank account. To do this, they first freeze the account for 21 days. Whatever money you have in that account is turned over to the IRS at the end of the 21-day period. This is an automated process done by the bank. Note that the IRS can levy any bank account in which your name appears, whether you are the sole owner or co-owner.

This is a serious situation that can put the taxpayer in a very tough spot. Nevertheless, Innovative Tax Relief knows how to fix it if you act fast. Although it is a difficult task, there is a good chance that you can get the account funds unfrozen and the levy lifted if we have enough time in the 21-day window. Our expertise can help achieve this outcome and make the IRS change course.

Can the IRS place a lien on your property?

Yes. The IRS can place a lien on your property, which means that you will have to pay the due amount when you sell it. It should be noted that the IRA cannot force a foreclosure on your primary home. But they can take your second home or an investment property and force a sale. Generally speaking, they do it when the tax debt is over $25k.

This is because a lien is a legal claim against your property to satisfy a tax debt as opposed to a levy which is a legal seizure of your property for the same reasons. In other words, a levy allows the IRS to take your property while a lien does not.

If you get a lien, though, all creditors are alert that the government has a legal right to your property as the IRS files the Notice of Federal Tax Lien, a public document that informs creditors that there is a secure claim against your assets. This can affect your credit report as credit reporting agencies can find the Notice and include it in your credit report. A levy is nothing like that as it is not a public record.

Can the IRS seize your business property?

In short, yes. The IRS can seize your business property to get paid the amount you owe them. They cannot seize business assets tied to no net recovery for the IRS. This means that they can get their hands only on business property that has equity. In doing so, they start the collection process by sending you a Notice and Demand for Payment letter.

At this time, you may be offered installment payment plans to repay your due taxes, depending on your financial circumstances. Or, you could file an Offer in Compromise, which will allow the IRS to consider the tax bill as fully repaid by making a partial tax payment. If you refuse to pay your taxes or don’t respond to the letter, the IRS sends a Notice of Federal Tax Lien, which enables them to claim your business property (both present and future).

The Notice of Levy is the final step before your business property is seized for back taxes. Usually, you have 30 days before they actually seize your business assets. During this time, you can make some efforts to stop the levy (i.e., set up an installment payment plan, discuss your case with an IRS manager, etc.).

If you reach no resolution within the 30-day window, the IRS will seize your business property, including rental income and accounts receivables, and force a sheriff’s sale of the business property and business items.

Also, if you operate as a sole proprietorship (have personal liability for the owed business taxes), the IRS may even garnish your Social Security benefits, retirement payments, and wages to pay the tax bill.

Innovative Tax Relief can help you stop the seizure by trying to appeal the levy., which is a time-consuming process and often overwhelming for business owners.

Can the IRS repo your vehicle?

The IRS has the legal right to take your vehicle’s title, right, and interest. This means that they can seize a vehicle you own. However, this is an option that is left as a last resort. The IRS will only consider seizing your car or another vehicle if there is equity in it.

For instance, if you have purchased a $15,000 car and are making payments on it and still owe $12,000, it will be highly unlikely for the IRS to take it. If you have paid off a $25,000 vehicle, though, they will seize it. This is because there should be equity so the IRS can keep it (the equity) after they auction off the vehicle and repay the lien holder. If there is no equity, they are not interested in seizing your car.

In general, the IRS will not pursue repossessing your vehicle unless there is around 20% equity they can get from the sale of your vehicle. And, this is after they take out 20% of your asset of the fair market price. So, a $30,000 vehicle they seize is actually worth $24,000.

Aside from that, the Congress passed the Taxpayer Bill of Rights in 1988, which gives taxpayers more rights concerning what the IRS can seize. The same bill also limits the IRS’ actions in regards to the process in which they can seize it. In other words, the IRS won’t just show up one day at your business or home and seize your vehicle. They are obliged to give you a 30-day notice of the intent. Plus, you have the legal right to be represented by a CPA or attorney and appeal an IRS decision.

All in all, the IRS does not favor repossessions of taxpayers’ assets, like their vehicle. They will, instead, want to work out any issues related to back taxes as they usually understand that seizing your vehicle can severely affect your day-to-day life. There is also a code that does not allow the IRS to put an additional economic burden on you (or cause one).

However, the IRS CAN seize and sell your second and third vehicles. If you find yourself in such a situation, please contact Innovative Tax Relief to assist you in keeping your vehicle and settling with the IRS.

 

IRS Notices: What They Mean and What You Should Do

couple receives IRS notice

If you have received a notice from the IRS, don’t panic. Yes, it can derail your plans and throw you off balance both in your personal and business life. However, in most cases, there are solutions to help make the IRS offer you a reasonable way out of the unwanted situation you have found yourself in and a good deal. This means, of course, that you will have to settle. Here are some details about the four most common notices the IRS sends, as well as ways to tackle them so you can heave a sigh of relief.

 

What Are IRS Notices?

They are letters the IRS sends you when they think you owe them taxes. There is a specific sequence followed when it comes to the types of letters you receive. Each one proposes interest, penalties, and taxes the Internal Revenue Service says you owe per tax period and each has its own significance.

 

Notice of Deficiency – What is it?

Also referred to as ticket-to-Tax Court, 90-day letter, letter 531, SNOD, CP3219A or Statutory Notice of Deficiency, the Notice of Deficiency is sent due to under-reporting income and the underpayment of tax. You usually receive it about 6 months after filing via certified mail from the IRS. Nevertheless, it may take up to 3 years after filing before you get one.

This first notice gives you significant appeal rights. If you disagree with the IRS, you have 90 days to petition to the U.S. Tax Court (after getting the Notice of Deficiency). This, automatically, gives you extra appeal rights as your case goes to the IRS Office of Appeals. Then, you might be able to skip going to Tax Court and work something out with the IRS.

Or, you could contact your local Taxpayer Advocate Service office and let them assist you in case you have received a Notice of Deficiency in error or feel that your taxpayer rights have been violated. This is also a good option if your financial situation has worsened, causing you financial hardship after getting the Notice of Deficiency or if you have tried to speak with the IRS repeatedly and have not received a response from them. However, this is where getting help from professional tax experts could make a big difference in the outcome.

What You Should Do

First of all, act quickly because you only have 90 days to do whatever needs to be done. After the 90-day deadline has passed, you won’t be getting any extensions. Remember that during this 90-day period, the IRS can NOT collect your taxes. Now, if you must appeal an IRS decision, do consider filing a petition with the Tax Court. Otherwise, the IRS will send you a bill and charge you the taxes.

Truth be told, it is quite likely for taxpayers receiving a Notice of Deficiency to miss the 90-day window or fail to make any kind of arrangements with the IRS. This always results in the IRS initiating their collection procedure through tax levies, tax liens, and other tools. For that reason, we firmly recommend contacting Innovative Tax Relief and requesting a free tax consultation for help, advice, and protection. You may even have options to reduce Notice of Deficiency-related penalties or even remove them in their entirety.

 

Notice of Intent – What is it?

The IRS will send you a Notice of Intent when you have not paid a balance. This type of letter informs you that the IRS will start the process to collect to satisfy your tax debt. This letter may also represent the IRS’s intent to seize your property (levy) if you don’t pay or set up a payment arrangement. Most of the time, a Notice of Intent is sent when you have missed at least three payments in a row or failed to file on time. This is why it is critical that you stay current with filling your taxes. In the opposite case, you are regarded as in default even if you have paid all of the arranged payments. Then, the IRS considers you as an agreement breaker and sends you into Collections. This means that they will garnish your wages. Whether they continue accepting your payments or not is up to them, though

When taxpayers receive a Notice of Intent, they usually panic. However, in reality, a Notice of Intent is just a heads up from the IRS that they are about to start the process to collect if you do not try to set up a payment arrangement or pay. Nevertheless, don’t take it lightly because you are heading down the path to a levy. So, it is best to take some sort of action pronto before it is too late.

Beware, though, at this point, as there are two different types of Notices, the (1) Notice of Intent to Levy and the (2) Final Notice of Intent to Levy. The second one is the last notice the IRS will send you before they seize your assets, and gives the Service the legal right to do so. This means that you have very little time before the Internal Revenue Services can levy your bank account. On some rare occasions, the IRS will only issue a Final Notice of Intent to Levy. If you find yourself in this situation, seek professional assistance immediately because a levy is about to happen.

What You Should Do

First of all, know your rights. The IRS is obliged by law to give taxpayers proper written notice before they do anything with your bank account (i.e., levy the account), per the Internal Revenue Code Section 6330. That notice should definitely include details about your right to appeal the imminent collection action within a month’s time (30 days). In the majority of cases, the Notice of Intent and the Final Notice of Intent are around 4-5 months apart, which means you have more than 4 months to prepare for the Final Notice of Intent.

Nevertheless, if you receive any of these letters, please have a tax professional handle your case. We have seen too many taxpayers disclosing information that hurt them (or not disclosing the right details). So, their attempt to manage their own case actually backfired.

 

Notice of Default – What is it?

A Notice of Default (aka Notice of Demand or CP523) is sent when you have been in an agreement with the IRS and has defaulted. It informs you that you have missed several payments to a creditor or lender (normally more than three in a row). You may also receive a Notice of Default if you did not file on time from that point forward when you set up the payment agreement.

When you have reached the point of defaulting payments and receiving a Notice of Default, the IRS stops accepting your payments. Even worse, they continue accepting your payment and, at the same time, send you into Collections AND garnish your wages because you broke the agreement. It should also be noted that the IRS may terminate your installment agreement without letting you know first if the Secretary (or an authorized representative) considers the collection of the due tax is in jeopardy.

What You Should Do

Respond to it within 90 days of receiving the notice so the IRS does not file a federal tax lien (or a levy) that will enable them to seize your assets. So, ensure you (or your tax professional) contact the IRS to reinstate your payment plan. It is also paramount that you make a payment before the payment deadline or termination date listed on the Notice of Default – you might be able to get your installment plan back in good standing again. You may need to provide some information about your assets, though, in this case or even be asked to fill out a new Installment Agreement (Form 433-D).

You should also contact the IRS if you believe that they have terminated your payment agreement by mistake or if you disagree with the due amount. You will find all contact details in the letter.

 

Notice of Garnishment – What is it?

The IRS is free to garnish your wages if you have tax debt and may even do so without getting a judgment first. It should be noted that the IRS is the only creditor that has this kind of power – all other types of creditors need a court ruling first. Plus, the sum any other regular collector takes is a fraction of what the IRS can take. Fortunately, the IRS provides several different options for you to repay your tax debt and skip the unwanted wage garnishment process.

When it comes to the max sum creditors (judgment creditors and others) can take from your wages, these are defined by federal and state laws. However, the tax code enables the IRS to take as much as it can and leave you with the necessary amount you need (per the tax code) to pay for your basic living essentials. As for the sum you can keep (protected wage), it is directly related to the number of exemptions you claim for tax purposes. For instance, a married individual filing jointly (paid monthly) that claims two exemptions can keep $1,625. A single individual claiming five exemptions (gets paid weekly) is allowed to keep slightly less than $480. the IRS garnishes anything above these sums.

What Should You Do

Since the IRS sends out several notices before garnishing your wages, once garnishment begins your options are limited. You can either pay off the tax debt, prove to the IRS that the garnishment is creating a financial hardship for you and attempt to get it reduced, or file an Offer in Compromise.

And, if you are wondering whether you could plead with your employer to get your wages back, the answer is no. Since there is a court order to garnish your salary, they won’t risk facing a penalty of law for not abiding by it. It is not up to them, and it is not their choice – just something they are obliged to do.

Also, don’t think that quitting your current job and getting a new one will save you from having your wage garnished. The court order follows you wherever you go, including your new position. Finally, disputing the Notice of Garnishment won’t get you anywhere if you truly owe the tax debt. You will only waste money and time that you could spend elsewhere (i.e., to reduce or get rid of your debt).

 

If You’ve Received a Notice From the IRS, We Can Help

No matter the situation you are facing, know that there are ways out and solutions to consider. Just contact the tax relief experts at Innovative Tax Relief and ask for a free consultation. Let’s find the best way out of these stressful circumstances, always with your best financial interest in mind.

 

Can the IRS Send Taxpayers to Jail

main in jail

Cheating on your taxes is a crime. No doubt about that. However, a mere 0.002% of all taxpayers are convicted of tax crimes, even though roughly 16% of Americans are found not complying with the tax laws every year, in one way or another. 

As for the number of convictions for tax crimes, it has stayed relatively stable over the most recent 5-year period (less than 1% increase). This means that a person is rarely sent to jail for tax fraud. 

However, there is some fine print you do need to read, as not all cases end up being punished with penalties and fines. Some may as well put you behind bars. This is a topic that we get asked about a lot so we wrote this article to answer some commonly-asked questions.

 

Can You Go to Jail For Lying to The IRS?

The majority of cheating cases comes from tax evasion, which is the deliberate underreporting of income (willful or actual). This is the type of tax crime that is charged the most often. Truth be told, it can be tempting for some taxpayers to fudge the numbers to improve their tax refund. Nevertheless, misrepresenting yourself on your tax return can get you into trouble as it is considered tax fraud. So, you could be (1) audited, (2) fined considerable amounts, or (3) put to jail.

Remember that the IRS knows whether you report all of your income or not as it gets all of the 1099s and W-2s you receive. Your financial activity may also raise some red flags with the IRS (in case you are thinking of hiding income in the form of cash payments). All these may trigger a tax audit, which is an in-depth review of your financial records and taxes to make sure everything has been reported accurately. 

Although there is less than a 1% chance of being audited, most of the time, at least, undergoing an audit is simply not worth the risk as it involves a costly and time-consuming procedure, where you are called to present years of documentation. You may even be called in for multiple in-person interviews. 

Now, whether you go to jail for an IRS audit or not, it all depends on how the IRS finds you – guilty of tax fraud or evasion (so charged with an offense that carries jail time) or not. In general, an incorrect tax return case (i.e., under-reporting your income) comes with late payment penalties, while you may also be charged interest on the underpayment but you will not go to jail for it.

And, don’t fool yourself into thinking that tax fraud or evasion affects high earners only. Everybody should be careful, even those with low income. This is because the IRS does NOT differentiate its cases based on how much you underpaid your taxes or between income amounts. Falsifying any information on a tax return can end up with you being fined up to $250,000. 

 

Can the IRS Put You In Jail?

In a nutshell, no. The IRS cannot send you to jail. However, the court can. When an IRS auditor audits your tax returns and detects possible fraud, they can initiate a criminal investigation. It should be noted that around 3,000 taxpayers are convicted of tax fraud every year. So, lying on your taxes is, indeed, a big deal for the IRS. Overall, though, the IRS rarely charges taxpayers with fraud. Therefore, even if you are investigated, you will probably not face a criminal charge.

That being said, though, lying on a tax return carries potentially severe consequences that are just not worth the risk; you may end up having to pay way more than the sum you are attempting to hide. 

 

How Much Taxes Do You Have to Owe To Be Sent to Jail?

As already mentioned, the chances of facing criminal fraud penalties are very slim. In the overwhelming majority of cases (at least 98%), the IRS punishes this type of fraud with CIVIL penalties. This simply means that you will be called to pay a 75% fine that will be added to the tax due, plus interest on both the fraud penalty and the tax. So, if you owe $10,000 from tax fraud, you will have to pay an extra $7,500 as a penalty. 

Things change dramatically, though, when the IRS suspects that you have gone too far. In this case, it may call the CID (Criminal Investigation Department) to investigate your situation. The CID then has two options: (1) recommend that the Justice Department prosecute you or (2) drop it forever, depending on its findings. The good news is that the CID does not usually recommend prosecution except in very rare cases. 

Of course, the larger the sum you tried to hide, the more likely CID agents will recommend prosecution. In criminal cases, the typical amount of taxes owed is at least $70,000 and usually refers to tax cheating activities over a three-year time span (or more). 

To sum up, the IRS itself can NOT prosecute you, but the CID can recommend prosecution. If  it does, and you get convicted by the Justice Department, you may be fined, put on probation, imprisoned, or all three. The bad news is that if you are brought to court, there is more than an 80% chance of getting convicted and a high chance of going to prison even if you have a spotless criminal record. 

 

 

Tax Crimes That CAN Put You In Jail

Individuals that are recommended prosecution by a CID agent are typically charged with one of the following three crimes: (1) failing to file a tax return, (2) filing a false return, or (3) tax evasion. Here are some details about each:

Failing to file a tax return. This is the least serious tax crime of the three and is defined as not filing a return intentionally. So, if you must file tax returns and you do not, the maximum prison time you can get is 12 months and/or a $25,000 fine for each year you have not filed. However, most non-filers only get civil penalties and are rarely prosecuted criminally.

Filing a false return. This is the case where you file a tax return that contains a material misstatement. This is less serious than tax evasion and can get you behind bars for up to 36 months. Also, according to the Internal Revenue Code §7206 (1), you will be fined a maximum of $100,000. 

Tax evasion or fraud. This is the most serious thing you can be charged with as it is considered a felony rather than a misdemeanor, which is the case with the two situations mentioned above. Tax fraud or evasion is when you try to defeat the income tax laws intentionally, and carries a maximum prison sentence of five years. The fine you will also be called to pay per the Internal Revenue Code §7201 is up to $100,000. 

Important Note: The CID can also recommend prosecution for filing false claims against the IRS and for money laundering. Although these are not tax crimes in a technical sense, they tend to be charged in the same case as a tax crime against the same taxpayer (entity or individual). 

 

 

When Can the IRS Send You to Jail?

The truth is that failing to pay your taxes can eventually initiate a process to send you to prison. But, the IRS does not have the power to put you behind bars or file criminal charges against you if you have not paid your taxes, as already explained. Nevertheless, some exceptions apply. 

It all depends on the reason for not paying the due amount. If you can’t because you do not have the money, you are in the clear. But, if you intentionally try to deceive the IRS or lie on your tax return, this is regarded as tax fraud, and you could end up serving jail time. 

Let’s take things from the beginning, though. Bear in mind that most tax crimes are NOT criminal cases; they are considered civil cases. This is because the IRS understands that taxes can be confusing, and you could fill out your return incorrectly due to the complexity revolving around filing tax returns. So, if you get confused or forget to include an important document on your tax return, the IRS will most likely send you a letter asking you to address your mistakes and amend them. 

If you made a more serious error, the IRS will probably audit you and place a civil judgment against you. Again, this will NOT put you in jail as it is NOT a criminal act. It is simply a notice that you need to change your tax return and pay back your unpaid taxes. 

This is not the case when you intentionally change your taxes or file fraudulent taxes or fail to file. If the IRS thinks that you are failing to file your return altogether or intentionally fill out your tax return incorrectly (which is tax evasion in any case), you may face jail time. 

 

Should You Be Concerned That the IRS Is Going to Send You to Jail?

Generally speaking, it is extremely rare for the IRS to charge a person with a tax crime and attempt to send them to jail.  So for the most part, you don’t have to worry about the IRS sending you to jail.

But with that said, not filing your tax return or trying to hide income from the IRS is not worth it in the long run, as you will probably end up paying much more than the taxes you want to evade. And, if you are in a tight financial situation where you cannot meet your tax obligations, there are several tax relief strategies to help you get out of it. Feel free to contact us and we’ll help you find the best solution to your problem. 

IRS Offer in Compromise: What It Is and How It Works

IRS Offer In Compromise form

Offer in Compromise is an IRS program that enables taxpayers to get a fresh start with the Internal Revenue Service. In doing so, they have the chance to settle their tax debt for less than the overall amount of money they owe. Therefore, if you are struggling to pay your federal or state tax debt, this could be a useful program to consider. In 2018 alone, the IRS accepted around 24,000 offers (up 24% from 2010) while rejecting just as many.

So, how can you determine if Offer in Compromise (OIC) is an initiative that could solve your tax issues? How can you get an offer accepted? How much should you offer to the IRS? We give you all the necessary details and answer these concerns below.

How Much Should I Offer in Compromise to the IRS?

This is perhaps one of the most challenging parts of submitting an Offer in Compromise. On the one hand, you don’t want to come forward with an unrealistically low offer that could ruin your acceptance chances. On the other hand, you do aspire to pay as little as possible to the IRS so that you can finally settle your tax debt. Given that each case is different, there is really no magic formula. In fact, it requires a lot of experience to be able to recognize when an offer is too low.

That being said, there ARE some ways to get some idea of how much is probably enough when you make an Offer in Compromise. Let’s start with the basics – the bare minimum offer sum. Note that it will NOT guarantee that your offer gets accepted by the IRS. It will, however, give some confidence that your offer is in the right ballpark.

What the IRS is primarily focused on is to receive offers of at least the same amount of the taxpayer’s Reasonable Collection Potential (RCP). This is a number the IRS uses to determine your ability to pay the owed taxes, and takes into consideration several liabilities, such as your:

  • Assets
  • Monthly living expenses
  • Monthly income

So, generally speaking, you can begin with an estimate of 12 months’ worth of your disposable income. Then, calculate any additional cash you can get from selling valuable assets and submit an offer with an amount higher than your RCP. This is critical, especially if you are planning on submitting an Offer in Compromise on the basis that you are unable to pay the due tax (as opposed to Effective Tax Administration or Doubt as to Liability).

The problem lies in calculating your Reasonable Collection Potential. Here are some steps to follow:

  • Estimate the income you have from all sources within a month and then subtract the full sum that corresponds to your living expenses (the necessary ones only, such as car payment, groceries, utilities, rent, etc.). The number you will get is your monthly disposable income.
  • Multiply your monthly disposable income by 12 to get your annual disposable income.
  • Add to that amount any assets that you could sell, such as valuable collectibles, investments, and an extra car. At this point, note that determining how much these assets are worth is a point of negotiation with the IRS for many taxpayers.

The result of these calculations will give you the bare minimum you can offer.

Should You Pay Installments or All At Once?

Many taxpayers wonder if they should pay the offer amount in installments rather than with one lump sum payment. Although the IRS enables monthly payments for this purpose, it is best to pay the offer in fewer than five monthly installments if it is possible. This is because the IRS will use 24 months of your disposable income for anything beyond five installments to calculate your Reasonable Collection Potential (with five or fewer installments, they will use 12 months of your RCP). If that happens, the amount the IRS will want from you will essentially double.

How To Get An Offer in Compromise Approved

As already mentioned, the IRS is highly likely to turn down offers that do not meet (even better, exceed) the taxpayer’s RCP. That being said, some factors play a leading role in making an Offer in Compromise quicker. These include:

  • Low Income W2 Earnings – You make less than $30,000 annually, and your only income source is a wage-earning job.
  • Fixed Retirement Income – You are a 55+ years of age retiree and receive a fixed income.
  • Social Security/ Disability Income – You only get a Disability or Social Security income.

Some factors, on the other hand, can contribute to longer-than-average decisions about your Offer in Compromise, such as:

  • High Balance – Offers with balances $25,000+ usually take much longer to process than those with lower balances.
  • Self-Employment – The IRS conducts in-depth research on your expenses, making sure you don’t mix your personal and business expenses.
  • Initial Rejection – If you have already submitted an offer that got rejected and want to have it reevaluated, you could be adding up to six more months to the overall procedure.
  • Other Circumstances – If you own multiple vehicles, have lots of loans, or many different deposits all over the place, you will need to do some explaining to the IRS. This pushes the process further back in time.

So, is everything lost? Not at all. You can still boost the Offer in Compromise process by doing the following:

  • Ensure you have all the necessary details – The IRS will request things like bank statements. Check that the ones you submit have all the pages, even those that you may find useless (i.e., a blank page). Then, send your Offer.
  • Provide good explanations – If your financials, for some reason, does not look right, make sure that you give a sound reason for it in the cover letter.
  • Reply fast and accurately – It is paramount that you respond to IRS requests for further clarification as timely as you can. The information you provide should also be accurate.
  • Propose the presumed maximum amount of money – The IRS expects to collect some money from you within a reasonable time period. Offering them the max sum of the presumed amount will most likely get your offer approved

To get there, ensure that you have filed all tax returns, made the required estimated tax payment for the current year, and include a bill of one or more tax debt in your offer. Business owners with employees must have made the needed federal tax deposits for the current quarter.

Besides what is reported to Form 433-A, the IRS will investigate several other factors, such as your level of education, age, asset equity, expenses, income, Collection Statute Expiration Date, and, of course, your lifestyle. If something about the way you live is contradictory to the fact that you are unable to pay your taxes, the IRS may reject your offer.

How Can I Submit An Offer In Compromise Application?

To apply for an Offer in Compromise, you will need the following Offer in Compromise Forms:

    • Form 656 – You need this to make your offer.
    • Form 433-A – This Collection Information Statement for Wage Earners and Self-Employed Individuals helps the IRS determine whether you are facing financial strain and to what extent.
    • Form 433-B – This is the same as with Form 433-A with the difference that it is a Collection Information Statement for Businesses. It serves the exact same purpose as Form 433-A.

Common Mistakes to Avoid when Filling out your OIC Application

The IRS will get all the information they need about your financial situation from Form 433-A (see above). It is, therefore, crucial that you ensure you don’t make any math errors on that form, although the form indeed requires a considerable amount of complex calculations. You certainly don’t want to put your OIC process to a halt to have incorrect calculations sorted out.

Other mistakes on OIC forms we usually see and either cause confusion or have a dramatic impact on a case are as follows:

  • Leaving empty/blank spaces – Never leave a field on a 433 or 656 empty. It is best to write “N/A” in these spaces.
  • Writing negative equity – It is essential that any negative equity is reported as zero. Many tax accountants subtract the negative equity from the taxpayer’s NRE (Net Realizable Equity) when the taxpayer’s asset (property, in this case) is worth less than they owe on it, which is wrong.

 

How Long Does It Take To Get a Response From the IRS?

Although there are no set timelines for exactly how long it will take the IRS to decide whether to reject or approve an Offer in Compromise, our experience has shown that it usually requires between 4-9 months. However, some more complex Offers in Compromise may need much more time to get resolved, which could reach 48 months from the day the OIC process was completed, which usually takes roughly 6 months. The most common factors that could drag a response from the IRS are related to self-employment. Regardless, the IRS does respond within two years.

If the IRS accepts your offer, you need to stick to your part of the deal and pay the agreed sums. Now, if your offer gets rejected, know that you can file an appeal via Form 13711 (hence, renegotiate your OIC under more favorable terms) within 30 days of the rejection notice date.

Is an Offer In Compromise the Best Option for You?

Although an Offer in Compromise is an excellent collection solution, it is not the only option you could consider. To determine that, you will need to have a trusted tax professional evaluate your tax situation, the IRS collection alternatives, and your personal finances as a means to develop the optimal approach to repay your debt. Don’t hesitate to call or contact us for a free tax consultation to see how we can help you get out of debt as painlessly and swiftly as possible while negotiating the best terms for you.