Hi, I’m Jeff Fouts, a tax attorney located in metro Atlanta, with a nationwide law practice helping clients who have serious IRS problems.
Every year, the IRS receives information on you such as W-2 earnings, or Form 1099 items such as interest or dividend income, contractor income, mortgage interest paid, and other items.
The IRS computer systems review this information periodically and compare the information against the tax returns you’ve filed. If the computer finds a filed tax return that does not appear to have included all reported income, the computer issues a special letter asking to be paid.
But if the IRS computer system does not find that you filed a tax return at all and it appears you were supposed to have, a letter is generated requesting that you file a tax return for that year.
If you don’t file a tax return yourself the IRS will file one for you called a Substitute tax return. They’ll then give you 90 days to respond to them. If you don’t respond to this notice, the IRS will begin collecting against you based on the tax owed on the Substitute tax return they filed on your behalf. These collection actions can include wage levies and bank levies.
Let me give you an example of a client where all this happened.
We were hired by a high-level executive from a Fortune 500 company who had been hit by an IRS wage levy. This taxpayer told us his employer had transferred him around the United States frequently during the last 10 years. He also told us that his W2s always showed his correct address and that he believed he had more than enough withholdings to cover his tax debt. However, he had not filed a tax return in 10 years because he had been preoccupied with various life issues. But the IRS got his attention when they hit him with a wage levy that took away most of his take home pay.
The first flaw in this taxpayer’s logic was that the IRS updated his address in their computer system based on the W2 information they received on him each year. This is an incorrect assumption – they don’t. Taxpayers’ addresses are only updated when:
1) a tax return is filed, or
2) a Form 8822 change of address notice is mailed to the IRS.
This taxpayer did neither.
The second flaw in this taxpayer’s logic was that he was having sufficient withholdings. Yes, it turned out he was due refunds because he had 5 children and itemized deductions. But IRS did not know this and the Substitute filed tax returns the IRS filed on his behalf showed tax balances owed.
The IRS prepared Substitute tax returns on this taxpayer and proceeded to collect the resulting tax debt. Once the collection process had reached a certain point, the IRS was allowed to use enforced collections, and they levied the taxpayer’s wages. After all, the IRS knew where he worked because they had received his W-2’s each year.
The IRS would not release the wage levy until the taxpayer filed original tax returns to replace the Substitute tax returns, as well receiving his current year filings. Luckily this taxpayer had other funds he could use to pay his every day living expenses as it took him nearly 3 months to file his original tax returns and another 3-4 months for the IRS to process them and correct his tax liability.
This taxpayer put himself in a highly charged emotional position because he did not file his original returns in a timely manner. It turned out that the taxpayer had been over-withholding for most of these 10 years. The refund statute had expired on all but the most recent 3 years. That means he lost some of the refunds he had coming to him. What a waste.
What is the moral of this story? File your tax returns on time! And if you haven’t filed them on time, contact a tax professional who can obtain your IRS records to see if IRS has prepared any of your tax returns for you. Don’t wait until the IRS issues a levy against you before you decide to deal with your tax debt problem!
I hope this important video tip has helped you understand the IRS a little better and about how tax problems are solved. Chances are you have questions or concerns about your own particular tax problem. What I encourage you to do is 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 the phone number on this video 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. 114657