Hi, I’m Jeff Fouts, a tax attorney located in metro Atlanta, with a nationwide law practice helping clients who have serious IRS problems. I’d like to share with you another client case study from the 1,000’s of tax clients we’ve represented.
IRS Case Study Summary: Wage Levy
- Client Location: Acworth, Georgia
- Client age: 40’s
- Total tax debt: $50,000 to the IRS for just one tax year with about 6 more years of tax debt to be added.
- Details of the case: The IRS was levying her wages.
- The IRS had created substitute tax returns for some years the client hadn’t filed.
- Client hadn’t filed tax returns in about 10 years.
- We were able to show the IRS that their substitute tax returns were wrong.
- IRS resolution: Client qualified for a $5,000 Offer and other options, and it was agreed that it was best to have the client declared “Uncollectible”.
IRS Case Study Synopsis
A single woman in her mid 40’s from Acworth, GA called us when her employer notified her that they had received a wage levy notice from the IRS requesting they begin levying her wages immediately. Our client said she was surprised because she thought her mother had already filed most of her tax returns.
Our first step was to get our client to sign IRS Forms 2848 and 8821 for us which would allow the Internal Revenue Service to disclose the client’s private case information to us.
A call to the IRS confirmed that the IRS had prepared substitute tax returns for our client for tax years 2004, 2005, 2006 and 2007. For those you who aren’t aware of it, the IRS sometimes prepares and files “substitute” tax returns when a person doesn’t file their own tax returns on time. The total tax debt on these tax returns was over $50,000. The IRS had the legal right to levy and garnish but they had not filed any tax liens yet. The IRS records showed that our client hadn’t filed an original tax return since 2000.
In a federal collection case, the usual rule the IRS follows is that the client must file the most recent six years of tax returns in order to be considered in compliance with their tax return filing requirements. In this case, we recommended that our client file original returns all the way back to 2004 because the original tax returns would lower her tax liability on the substitute tax returns the IRS had filed on those older tax years.
Getting hit by the IRS filing a substitute tax return for you is not good. When the IRS prepares substitute tax returns for you, they use a Single or Married Filing Separate filing status and they don’t allow you any deductions for dependents or other expenses. A substitute tax return is based on gross income only. The substitute tax return thus makes the tax liability as high as it possibly could be for that tax year. We contacted the IRS and got them to send us our client’s wage and income transcripts for tax years 2004 through 2012. We sent these documents to our client for her to review.
We contacted the IRS and requested that they release the wage levy they had against our client. Generally, the IRS requires that all unfiled tax returns be filed before they will consider releasing a wage levy. If you have unfiled tax returns the IRS my potentially be pretty aggressive. However, our client had told us that her payroll income is her only source of income and she does not live with anyone else. We were able to prove to the IRS that the wage levy will cause our client a real financial hardship, and they agreed to release the wage levy. In return, they requested that all unfiled tax returns be filed within 30 days.
We prepared the unfiled returns and they were filed within the 30 days. Once these returns were processed, our client owed the IRS approximately $51,500. The IRS required that we give them more specific financial information which we did. This financial information showed that our client could not afford to make any payments to the IRS at this time. She qualifies for either “Currently Not Collectible” status or an Offer in Compromise.
Our client’s Offer would have been around $5,000. After much discussion, she told us she simply cannot afford to pay this offer amount. She asked us to pursue the “Currently Not Collectible” status instead. We did so and IRS granted her this status.
Moral of this story? It is always best to take action to deal with your tax problem before you get a wage levy, but if you get an IRS Wage Levy, you need to take action to deal with the problem and try to get the wage levy released or reduced as quickly as possible.
IRS Case Study Conclusion
I hope this important client case study has helped you understand the IRS a little better and how tax problems are solved. Chances are you have questions or concerns about your own particular tax problem. I encourage you to pick up the phone and call me. I can answer your questions. Over the past 20 years I’ve represented clients in all 50 states and 29 foreign countries, and I welcome your call. You can reach me at 1-888-995-6785 or by email at firstname.lastname@example.org. I’m Jeff Fouts and thanks so much for watching. Have a wonderful day.
TaxHelpAttorney.com Tax Law video No. 141551