Understanding IRS Reasonable Cause Criteria

Often times, when someone owes taxes that they haven’t paid for a few years, they are surprised when they find out how much the IRS says they owe.   This is because the IRS inevitably tacks on several of the dozens of penalties they are allowed to charge.   However it’s the late filing, the late payment and the penalty for not making Federal Tax Deposits (when combined) that can add a whopping 65% to your total IRS bill.  The good news is that if your tax debt is more than two years old, you’ve maxed out all these penalties!

The IRS does actually have a compassionate side, and it’s typically found in the penalty abatement process. The thing to keep in mind is that the IRS has very strict guidelines for granting penalty abatements, and these guidelines are referred to as “reasonable cause criteria.” 

The primary IRS penalty abatement reasonable cause criteria center on natural disasters, loss or destruction of vital business records, bad advice from the IRS or an accounting professional, criminal activity, medical issues, substance abuse problems, and other serious circumstances.  Thus, you are more likely to have your penalties abated if the circumstances cause you to answer “yes” to any of the following questions:

  • Were any business records lost or destroyed?
  • Were there any circumstances that led to a substantial drop in collecting on accounts receivable?
  • Was there any transition in the business that lead to the failure to pay taxes?
  • Was there a death or serious illness that directly affected the business or personal wages?
  • Was there any embezzlement of funds, theft of valuable property, or identity theft?
  • Were there any alcohol or drug abuse issues that affected the business or wage earning capability?
  • Was there a natural disaster that impacted you or your business?
  • Did you rely on the advice of a CPA or IRS employee in making tax decisions?
  • Were there any circumstances that created substantial financial hardship, to the point where your business was close to going bankrupt?

Specific Internal Revenue Manual (IRM) References

The sections of the IRM outlined below will help you see what the IRS will consider and how they evaluate each circumstances. Please note that this list is not exhaustive and that the IRS will consider the facts and circumstances on a case by case basis. The other thing to note is that if your initial request is denied, it might be approved via submitting an appeal.

In our next post, we’ll talk about how you can create your reasonable cause letter to the IRS and what it should contain.

IRS Using Private Debt Collection Agencies

Private Debt Collection
In December 2015, Congress passed the Fixing America’s Surface Transportation Act (FAST Act). Section 32102 of the act requires the IRS to use private collection agencies (PCAs) for the collection of outstanding “inactive” tax receivables.  This post will talk about how the program works as well as answer some of the “concerns” people have voiced to us.

How the new program works
Typically, the accounts that are assigned to private collection are those where the unpaid tax obligations are not currently being worked by IRS collection employees and often were assessed by the tax agency several years ago. Taxpayers being assigned to a private firm would have had multiple contacts from the IRS in previous years and still have an unpaid tax bill.

First, the IRS will send you a Notice CP40 with  the name of the PCA, the PCA’s toll-free telephone number, and a ten-digit Taxpayer Authentication Number (TAN).   This mailing will include a copy of Publication 4518, What You Can Expect When the IRS Assigns Your Account to a Private Collection Agency.

Only four private groups are participating in the program:

CBE Group
1309 Technology Pkwy
Cedar Falls, IA 50613

Conserve
200 CrossKeys Office park
Fairport, NY 14450

Performant
333 N Canyons Pkwy
Livermore, CA 94551

Pioneer
325 Daniel Zenker Dr
Horseheads, NY 14845

The taxpayer’s account will only be assigned to one of these agencies, never to all four.  Furthermore, no other private groups are being used or authorized to represent the IRS in these collection efforts.

Once the IRS letter is sent, the PCAs will send their own letter to the taxpayer and their representative confirming the account transfer. To protect the taxpayer’s privacy and security, both the IRS letter and the collection firm’s letter will contain information that will help taxpayers identify the tax amount owed and assure taxpayers that future collection agency calls they may receive are legitimate.

How do I know if the company contacting me is a scam?
Before the PCA contacts you, they will send you a letter explaining that your tax debt has been assigned to it and listing the same TAN discussed above.  At the beginning of every phone contact, the PCA must ask you to provide the first five digits of the TAN and must respond by reading you the last five digits of the TAN. This allows the PCA to verify your identify and allows you to verify that that the caller works for the PCA. The PCA cannot continue the conversation with you until your identity has been verified.

“Here’s a simple rule to keep in mind. You won’t get a call from a private collection firm unless you have unpaid tax debts going back several years and you’ve already heard from the IRS multiple times,” said IRS Commissioner John Koskinen. “The people included in the private collection program typically already know they have a tax issue. If you get a call from someone saying they’re from one of these groups and you’ve paid your taxes, that’s a sure sign of a scam.”

If taxpayers are unsure if they have an unpaid tax debt from a previous year – which is what the private collection firms will handle – they can go to IRS.gov and check their account balance via the View Your Tax Account service.  If the account balance says zero, that means nothing is due, and you typically wouldn’t be getting a contact from the IRS or the private firm.

Whether or not a taxpayer’s account is assigned to a private collection agency, the IRS warns taxpayers to beware of scammers pretending to be from the IRS or an IRS contractor. Here are some things the scammers often do but the IRS and its contractors will never do.

  • Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. Generally, the IRS will first mail a bill to any taxpayer who owes taxes, and if a case is assigned to a PCA, both the IRS and the authorized collection agency will send the taxpayer a letter. Payment will always be to the United States Treasury.
  • Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.
  • Demand that taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.
  • Ask for credit or debit card numbers over the phone.

“Unexpected and threatening calls out of the blue from someone saying they’re representing the IRS to collect a tax debt is a warning sign people should watch out for,” Koskinen said.

What if I can’t find my Taxpayer Authentication Number?
You can request that the PCA re-send the letter with the TAN. Alternatively, if you agree, the PCA may verify your identity by using your Social Security Number instead of the TAN, as long as you first provide your full name, address, and date of birth. However, the use of your Social Security Number instead of the TAN does not allow you to verify that the caller works for the PCA, so you should consider carefully before agreeing to this.

What can (and can’t) a private collection agency do?
The private firms are authorized to discuss payment options, including setting up payment agreements with taxpayers.  A PCA may not take collection action (such as file a lien, levy your bank account, or garnish your wages), nor may it issue a summons or report your IRS tax debt to the credit rating agencies.  But as with cases assigned to IRS employees, any tax payment must be made, either electronically or by check, to the IRS. A payment should never be sent to the private firm or anyone besides the IRS or the U.S. Treasury. Checks should only be made payable to the United States Treasury. To find out more about available payment options, www.IRS.gov/Payments.

What if I want to explore other alternatives with the IRS?
You can call the IRS and explain that you do not want to pay in installments, or can’t afford to do so. If you orally advise the PCA you plan to contact IRS about collection alternatives, the PCA will place a 60-day hold on your account. If you have not reached an agreement with IRS within those 60 days, the PCA may resume collection activity on your account. Because many actions take longer than 60 days, you may wish to write to the PCA to request that it stop contacting you by sending them a No Contact Letter.

Do I have to work with the private collection agency?
No. You can send the PCA a written request to stop further communication with you (see No Contact Letter above).

What if I need to make a complaint about a PCA?
To make a complaint about a PCA or report misconduct by its employee, call the TIGTA hotline at 800-366-4484 or visit www.tigta.gov or write to:

Treasury Inspector General for Tax Administration
Post Office Box 589
Ben Franklin Station
Washington, DC 20044-0589

What Is An IRS Substitute For Return (SFR)?

Sometimes, when a person does not file a tax return on their own, the IRS will prepare one based on the information they have available.  This is called a substitute for a tax return or SFR. The IRS does this so they can assess tax and begin collection activities.  But just how does a SFR get filed and what are the ramifications?  Read on to find out.

Situations where the IRS will file a SFR
A SFR is typically filed when the IRS notices that a person hasn’t filed for a few years, but that person has income documents on file with them (e.g. W-2, 1099-MISC). The IRS will then file SFRs for all the unfiled years based on the information on those tax documents.

How does the IRS calculate the tax on a SFR?
The SFR is always prepared in the best interest of the government.  What this means is that they will use the filing status of Single and they will not include any deductions or credits.  Typically this can result in the taxpayer having a balance owed.  Now let’s think about that for a second.   If a tax return is prepared without any deductions, without any tax credits, it’s quite likely that the IRS’s calculation of tax is much higher than it should be.  Thus, in most cases, that’s just what happens. There are even instances that had the taxpayer filed the return themselves, the IRS would owe them a refund.

Does the IRS have the authority to file a return on your behalf?
The short answer is yes.  Congress authorizes the IRS to prepare tax returns based on information available to it in situations where a person has not filed a return (Internal Revenue Code 6020).

What happens after the SFR is filed?
The IRS will send you a Notice of Deficiency CP3219N (90-day letter) proposing a tax assessment.  You then will have 90 days to file your past due tax return or file a petition in Tax Court.  If you do neither, the IRS will proceed with their proposed assessment.

Technical implications of having a SFR filed on your behalf
It’s important to know that a SFR is not an “original” return (i.e. filed by the taxpayer).  As such, the IRS treats them differently when it comes to several things.  A SFR that is not signed by the taxpayer:

  • Does not start the collections statute of limitations
  • Does not start the audit statute of limitations
  • Has no effect on the refund statute of limitations

Per the Internal Revenue Manual 25.6.1.9.4.5, “the assessment date will start the period for the statute of limitations for collection per IRC Section 6502(a)(1), but does not start the period of limitations for assessment.”  However, if a person agrees with the SFR, then signing it does start the audit statute of limitations.  From the same section of the Internal Revenue Manual, “If the taxpayer signs a SFR return prepared from income information received from the taxpayer, it becomes the taxpayer’s return per IRC Section 6020(a) and starts the assessment period of limitations.”

Should a person file an original return after the IRS files a SFR?
If a taxpayer didn’t file an original return, they always have the opportunity to do so.  Filing the original return after an SFR has been filed allows the taxpayer to possibly choose a more advantageous filing status if applicable (e.g. Head of Household, Married Filing Jointly, etc.) as well as include any deductions and credits they are entitled to.  This may reduce or eliminate the tax that the IRS says the taxpayer owes.

The IRS has temporarily suspended the ASFR case selection
In September of 2018, a Treasury Inspector General for Tax Administration (TIGTA) official  announced suspension of the automated substitute for return (ASFR) program.  As such, selection of new cases (i.e. the IRS filing SFRs on a taxpayers behalf) is not occurring at the moment.  This is due to “resource limitations” which can be construed as the series of IRS budget reductions that have taken place in recent years.  Furthermore, the IRS has stated that they remain committed to taking many actions in 2018 to improve methods of allocating nonfiler cases across their potential compliance treatment streams, and this includes the ASFR program.

So while the IRS is not “currently” filing SFR returns for taxpayers, don’t expect it to last forever.  It’s also important to note that the IRS said it is continuing to work on active ASFR cases and ASFR reconsiderations.

How To Resolve A Tax Lien

If you are facing a Federal tax lien, ignoring the IRS’ correspondence won’t make it go away. Thus our first word of advice is to try and avoid having a tax lien filed against you if possible.  This can be done by responding to the correspondence, setting up a payment plan or a host of other options.  But if one has already been filed against you, this post will tell you how to deal with it.

How to Get Rid of a Federal Tax Lien
The easiest way to get a Federal tax lien lifted is to pay the tax owed, however, this is not always possible. If that is the case, you may qualify for one of the following three options:

Withdrawal
A “withdrawal” removes the public Notice of Federal Tax Lien (NFTL) from your credit report and assures that the IRS is not competing with other creditors for your property; however, the taxpayer is still liable for the amount due.  Generally, the conditions to have a tax lien withdrawn are as follows:

  • Filing of the NFTL was premature or otherwise not in accordance with the IRS’s administrative procedures.
  • The taxpayer has entered into an installment agreement to satisfy the liability for which the lien was imposed.
  • Withdrawal will facilitate the collection of the tax liability.
  • With the consent of the taxpayer or the National Taxpayer Advocate, the withdrawal of the NFTL would be in the best interests of the taxpayer and the United States.

For more information, refer to IRS Form 12277 (Application for the Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien).

Release
A “release” is when the IRS or State tax agency formally acknowledges that a tax lien has been paid off, satisfied or is in some other way no longer enforceable.  The common ways to get a lien released include:

  • Checking that the IRS followed their own rules. If not, the lien must be released.
  • Preparing Form 656, Offer in Compromise. This is the infamous “pennies on the dollar” option taxpayers often hear on late night TV. IF you qualify and IF your offer is accepted, then the IRS has to release the tax lien.  Specifically, the lien will be released within 30 days of when the payment terms have been satisfied and the payment has been verified.
  • Entering into an Installment Agreement.
  • Paying off the tax owed in full.

For more information, refer to IRS Publication 1450 Instructions for Requesting a Certificate of Release of Federal Tax Lien.

Discharge of Property
A “discharge” removes the lien from specific property.  A “discharge” of property from a Federal tax lien may be granted if you qualify under certain Internal Revenue Code (IRC) provisions. For more information, refer to IRS Publication 783 (Certificate of Discharge From Federal Tax Lien).

Subordination
“Subordination” does not remove the lien, but allows other creditors to move ahead of the IRS, which may make it easier to get a loan or mortgage.  The IRS will do this if it is necessary to secure the other creditor’s approval for a sale. For more information, refer to IRS Publication 784 (Certificate of Subordination of Federal Tax Lien).

For example, let’s suppose the IRS holds a lien against your house. Suppose there is also a mortgage on the property, which means that a bank holds a lien as well. If the bank won’t get all of its money from the property sale after the Federal tax lien is satisfied, then it won’t necessarily approve the sale. However, if the IRS ‘subordinates’ its lien, the bank can paid first and the IRS can get the remainder.

Other Key Points To Keep In Mind

  • The distinction between whether a NFTL has been released or has been withdrawn is important because of the manner in which credit reporting agencies treat withdrawals verses releases. When credit reporting agencies receive a notice of the withdrawal of a NFTL, they delete any reference to the tax lien in the taxpayer’s credit history.  In contrast, when the credit reporting agencies receive a release of a lien, while they note the filing of the release in the taxpayer’s credit history, the filing of the release does not operate to remove the references to the tax lien from the taxpayer’s credit history. As such, if a lien has been satisfied, one should always ensure that it is withdrawn.
  • If you want the lien withdrawn, you’ll want to locate a copy of the Form 668(Y) that was filed as it has the serial number of your original case file with the courts.  You can usually obtain a copy of the form by contacting the county recorder where the lien was filed (typically the county you lived in for the tax year associated with the debt).
  • IRS Centralized Lien Operations  — To resolve basic and routine lien issues: verify a lien, request lien payoff amount, or release a lien, call (800) 913-6050 or fax (855) 390-3528.
  • IRS Collection Advisory Group — For all complex lien issues, including discharge, subordination, subrogation or withdrawal; find contact information for your local advisory office in Publication 4235, Collection Advisory Group Addresses .
  • IRS Office of Appeals — Under certain circumstances you may be able to appeal the filing of a Notice of Federal Tax Lien. For more information, see Publication 1660, Collection Appeal Rights

Revenue Agents vs. Officers

One item that taxpayers always get a little confused on is the difference between and IRS Revenue Agent and a Revenue Officer. The two are quite distinct despite the similarities in title. If you are dealing with tax debt, your case may be assigned to a Revenue Officer (RO) at some point. This post will help you understand the difference between the two positions.

Job Description & Duties
Revenue Agents primarily work for the Examination Division. Their job is to conduct tax audits of individuals and businesses as well as trusts and non-profit organizations. Revenue Agents generally conduct tax audits of the most complicated tax returns ranging from small “Schedule C” businesses to the largest multi-national corporations. They are also assigned to the IRS’ Offshore Voluntary Compliance Program to determine whether the failure to file a Form TDF 9-22.1, Foreign Bank Account Report (FBAR) and will be subject to FBAR penalties.

ROs on the other hand work for the Collection Division. Their job is to collect money, or more precisely, collect all that is available. In this post, we go into great depth about the entire collection process and where the RO fits into it.  ROs are assigned to the most difficult IRS tax debt cases. Those individuals or business whom the IRS has been unable to collect from through letters, phone calls and tax levies and garnishments generated by IRS computers are generally assigned to a RO after a period of time.

Qualifications
Revenue Agents have a college degree and are highly trained in all aspects of auditing, tax law, research, and report writing. The minimum requirement for the job generally includes having a bachelor’s degree or higher in accounting from an accredited college or university that included at least 30 semester hours in accounting.  While Revenue Agents are not required to be CPAs, a few of them are.

ROs also must have a have a college degree, but the requirements are different. A RO can have a bachelor of Fine Arts and be qualified for the job. This is why ROs initially engage in months of training and then weeks of training on an on-going basis. It’s no surprise that when it comes to the best ROs, the IRS has a lot of money and time invested in them.

Interested in a job in either role? Check out this additional info from the Bureau of Labor Statistics.

Interesting Facts About Revenue Officers

  • A RO doesn’t carry a badge. If someone flashes a gold badge and says they are from the IRS, that’s not a RO. That is an agent form the IRS Criminal Investigation Division (CID). This means that you are being investigated for a criminal matter and you need to reach out to an attorney! These cases may include tax evasion, fraudulent tax returns, large failure-to-file cases, money laundering, and false documents or statements submitted to the IRS under the penalties of perjury.
  • A RO cannot arrest you. If any CPA, attorney or enrolled agent tells you they can stop a RO from arresting you, find a new professional! ROs have no arresting authority. All a RO can do is make a “referral” to the CID. This means they lay out the facts why they think you should be arrested. Referrals are made when they align with the types of cases mentioned above and the CID only accepts a fraction of them.
  • A RO isn’t graded on how much money they collect. A RO does not get promoted for bringing in the most money. But rather, how many cases they successfully remove from their “inventory” of collections matters. A RO would rather you enter into a resolution option like an offer in compromise today, than be sandbagged for 2 years, even though you wind up paying in full.
  • A RO MUST attempt initial contact in person. Everyone thinks their RO is a total jerk for showing up, unannounced, to make first contact with a taxpayer. But little do most taxpayers know that Internal Revenue Manual Section 5.1.10.3 (Initial Contact) requires that they make first contact with a taxpayer in person. You may not have been home the first time they showed up, so if you are wondering why someone from the IRS left a card for you at your home or on your car, don’t ignore it. There will be further contact!
  • Many ROs are friendly and reasonable. Most employees working for the IRS are normal, hard working folks like you and I. They go to work, attempt to do a good job and then head home to relax just like we do. Thus, understand that they want to close your case and they need your help to do so. They will not “go away” if you ignore them and neither will your problem (it will just get shifted to another part of the process).

Needless to say, if you are uncomfortable dealing with an RO or simply don’t want to talk to them, then give us a call. We’d be happy to talk to them on your behalf and help you (and them) make your tax matter a thing of the past!

Understanding IRS Statute Of Limitations

When dealing with an old tax return, sometimes people wonder just how long the IRS has to come after them for the tax.  Sometimes people want to know how long they have to claim their refund.  Other times people want to know what happens if there was a mistake.  The short answer? It all depends.

Filed Tax Returns:

Deadline for Assessment
Generally, the statute of limitations for the IRS to assess taxes on a taxpayer expires three (3) years from the due date of the return or the date on which it was filed, whichever is later.

However, the IRS has six (6) years to assess additional taxes if:

  • You omitted income that adds up to more than 25% of the income you reported on your return OR
  • You fail to included foreign financial assets that breached the reporting thresholds

Deadline For Collections
The IRS statute of limitations period for the collection of taxes, known as the Collection Statute Expiration Date (CSED), is generally ten (10) years. Thus, once an assessment occurs, the IRS has 10 years to collect.  If they can’t collect within the time frame then the taxes simply just vanish as a result of being discharged.

Unfiled, False or Fraudulent Returns:

Deadline to Claim Your Refund
The deadline for you to claim a refund on a tax return in which one was owed to you is 3 years from its due date (excluding extensions).  For example, if you were due a refund on your 2011 Income Tax Return (which was due April 15th 2012), you have until April 15th 2015 to claim it.  If you don’t file a claim for a refund within three years, the money becomes property of the U.S. Treasury.

Note, there are no interest and penalties for failing to file a return in which a refund was owed.  However, if you have a balance due, those items can be pretty stiff as outlined in this post.

No Statute Situations
The IRS has an “unlimited” amount of time to assess taxes against a taxpayer if they can establish that they:

  1. Simply failed to file a return;
  2. Filed a false or fraudulent return; or
  3. Willfully attempted to evade tax

Understanding IRS Penalties

Some of our “current Year” clients come in to see us on April 15th. When they do we often ask “why did you wait so long?” Their response usually has something to do with the fact that they knew they owed and didn’t want to pay the IRS before they had to. To this we usually respond with “you can file your return at any time before the April 15th deadline, EVEN if you have a balance due. The payment isn’t due until April 15th and interest and penalties don’t start running until AFTER that date.”

With that said, here are some key things every taxpayer should know about interest and penalties.

No Penalty Situations.

  • There is no penalty if you’re getting a tax refund, provided that you file within 3 years of the April 15 deadline (or October 15 deadline if you filed an extension).
  • After 3 years, your unclaimed tax refund is forfeited and becomes the property of the U.S. Treasury.
  • There is no penalty if you filed an extension AND paid the taxes owed by April 15, as long as you file your return by the October 15 deadline.

Possible Penalties.  If you file your federal tax return late and owe tax with the return, two penalties may apply. The first is the failure-to-file penalty for filing late. The second is the failure-to-pay penalty for paying late.

Failure To File Penalty (Late Filing).  This penalty applies if you owe taxes and didn’t file your return or extension by April 15.  It will also apply if you owe taxes, filed an extension, but didn’t file your return by the extended October 15th deadline.

  • The late filing penalty applies to the net amount due, which is the tax shown on your return and any additional tax found to be due (as reduced for any credits and estimated payments).
  • The combined penalty is 5% (4.5% late filing and 0.5% late payment) for each month or fraction of a month that your return was late, up to a maximum amount of 25%.
  • If your return was over 60 days late, the minimum failure-to-file penalty is the smaller of $135 or 100% of the tax shown on the return.
  • If after five months you still have not paid, the failure-to-file penalty will max out.

Failure To Pay Penalty (Late Payment).  This penalty applies if you didn’t pay the taxes owed by April 15, whether you filed an extension or not.

  • The late-payment penalty is 0.5% (1/2 of 1%) of the tax owed for each month or fraction of a month that the tax remains unpaid after the due date, up to a maximum of 25%.
  • The 0.5% rate increases to 1% per month if the tax remains unpaid after several notices and 10 days after the IRS issues a final notice of intent to levy or seize property.
  • For any month(s) in which both the late-payment and late-filing penalties apply, the 0.5% late-payment penalty is waived.
  • You will not have to pay the penalty if you can show reasonable cause for the failure to pay on time.
  • If your return was filed timely and you are paying your tax via an installment agreement, the penalty is 0.25% for each month or part of a month that the installment agreement is in effect.

Accuracy Related Penalties.  These penalties are not really related to filing your return on time, but we include them here because one can find them subject to them by not filing all of the income documents associated with their return (e.g.  forget to include a sizable 1099-MISC).  The two most common accuracy related penalties are the “substantial understatement” penalty and the “negligence or disregard of the rules or regulations” penalty. These penalties are calculated as a flat 20 percent of the net understatement of tax.

  1. Penalty for substantial understatement.  You understate your tax if the tax shown on your return is less than the correct tax. The understatement is substantial if it is more than the larger of 10 percent of the correct tax or $5,000 for individuals.
  2. Penalty for negligence and disregard of the rules and regulations.  This penalty may be assessed if you carelessly, recklessly or intentionally disregard IRS rules and regulations, take a position on your return with little or no effort to determine whether the position is correct or knowingly taking a position that is incorrect.

Interest.  In addition to the penalties, you will have to pay interest on any balance that remains unpaid post April 15th.  This interest compounds daily from the due date of the return (regardless of whether an extension was filed or not) until the date of payment.

  • The interest rate is the federal short-term rate plus 3%.
  • The federal short-term rate is determined every three months.  To find the current rate search “quarterly interest rates” on IRS.gov; the relevant interest rate is the rate for underpayments.

Helpful Tips.

  • The late filing penalty can be 10 times higher than the late payment penalty. If you can’t pay your tax bill and didn’t file an extension, at least file your return as soon as possible! You can always amend it later.
  • Always file for an extension if you can.  Secondarily, always file your return before your extension runs out or your be subject to the late filing penalty.
  • Think you owe?  File early!  This way you will know what the balance due is and can either 1) pay it by April 15th, 2) save your money to do number 1 or 3) prepare to make an alternative arrangement (e.g. borrow, charge it, apply for an installment agreement).

Where To Mail Past Tax Returns

Back in the day, when people listened to music on a Walkman or had to sit in front of a TV to catch their favorite show, the only way to file your tax return was to mail it to the IRS. Then technology took over and we became accustomed to e-filing our tax returns. But wait, what do you do when you have an old tax return or the IRS has shut down e-file? Well, you must mail it in my friend!

Shown below are the addresses where you can send your old tax return once you’ve finished preparing it. Note that you must send it to a different IRS Service Center depending on 1) if you are sending them money or not and 2) where you live. While the chart is pretty accurate, note that the IRS is always changing things.

As such, we advise you to check this handy map on the IRS site prior to sending in your return. You can also find the mailing addresses on the last few pages of Publication 17.

Where To File

Understanding IRS Collection Procedures

The U.S. Internal Revenue Service is the single largest collections agency in the world.  According to the most recent statistics available, in 2013 the IRS spent $11.6 billion and employed just under 87,000 to collect more than $2.8 trillion in tax revenue.  Of those 87,000 personnel, over 19,000 are directly involved in enforced collections against taxpayers that owe back taxes.

While the IRS is one bill collector that can have a serious impact on your life, it’s important to understand just how they work.  So the first thing to realize is that the IRS is a slow moving bureaucracy.  It is highly driven by forms, written procedures and is resistant to change.  Their playbook is public record and they are required to follow it.  While this may not bode well for you resolving your tax matters expeditiously, it does give you some comfort in that you can figure out what is coming next.  Below we break the IRS collections process down into the 1040 notice sequence and the collections system.

1040 Notice Sequence
The IRS doesn’t start collections against you simply because you file a return with a balance due.  The process actually begins when they issue a letter called a Statutory Notice of Deficiency or SNOD.  This letter informs you of the IRS’ intent to assess a tax deficiency and informs you of your rights to dispute the proposed adjustment.  From here, the notice sequence progresses like this if you fail to respond at each stage:

  • Request For Payment
  • Form 668 – Notice of Federal Tax Lien Filing (for balances over $10,000)
  • CP501 – Reminder Notice
  • CP503 – Immediate Action Required
  • CP504 – Notice of Intent to Levy
  • Letter 1058 – Finial Notice of Intent to Levy

The CP503 typically comes about 4-5 weeks after the first notice.  The remaining notices will each come around 30 days after one another so it can take about 4 months from the initial letter until it culminates with a Letter 1058.  While the CP504 language sounds nasty, one may choose to ignore it.  However, there are two things to note about the Letter 1058:

  1. It is the first opportunity you have to file an appeal
  2. Thirty days after the letter, the IRS can levy you.

Does this mean that the IRS will levy you?  Not necessarily; especially if they don’t know where your assets are.  However, it would be wise to pick up the phone at this point and call the IRS as well as file Form 12153, Request for Collection Due Process Hearing (i.e. appeal).

Collections System
Now you may ask why understanding the “system” is even important to this discussion.  Well, it’s because some of the notices you get aren’t being generated by humans.  They are done on an automated schedule.  Thus, until your case winds up with a dedicated “human” at some point (i.e. a Revenue Officer) it can be hard/frustrating trying to get the notices to stop.  Thus, collections enter into the following levels of the system at varying stages:

  1. Collection efforts on each account begin with computer notices from a Regional Compliance Center.
  2.  If the efforts of the Compliance Center  don’t yield payment, the account is then assigned to the Automated Collection System (ACS). ACS attempts to collect the tax liability by initiating telephone calls to the taxpayer and others. Unless your case has special circumstances, you will usually stay assigned to ACS even if you accumulate 2-3 years worth of tax debt as an individual or 3-4 quarters of payroll liability as a business.  But once you reach these levels or you simply fail to respond…
  3.  The account is eventually assigned to a Revenue Officer for a field investigation.

When you are assigned to a Revenue Officer, the course of your tax case can take a sudden shift. Having an experienced, trained human being looking at your tax case, and passing judgment on you based on what’s in a file and thereby determining how they are going to handle your tax case, means a lot.  Unfortunately, due to current economic times, the waiting line for assignment to an RO is many areas of the country is growing longer and longer.

Similar to above, having a trained representative on your side working the case with the IRS can mean a world of difference.  If you are interested in assistance or just want to discuss your situation, we’d be happy to speak with you.  Simply shoot us an email or give us a call.

Until next time…