IRS Tax Problem Help

In today’s post I am going to discuss an appeal I recently had with the IRS for one of my clients.

My client is a professional architect.  He had timely filed and paid his taxes for most of his adult life.  In 2007 he lost his job.  When my client filed his 2006 income tax return he owed additional income tax, but since he lost his job he did not have the funds to pay the taxes.  For the next 14 months his income composed of unemployment income and some contract jobs he was able to obtain.  The combination of his unemployment payments and contract work was substantially less than what he used to earn.

My client was divorced and had 4 children for which he was paying child support.  Without his regular income he was not able to keep up with his monthly child support, so he was behind in child support and income tax.

Finally the IRS issued a Final Notice of Intent to Levy and Notice of Your Right to a Hearing (Letter 1058).  Once we received that letter we filed a timely appeal to stop the IRS from filing a levy against his bank account or his income.  In the appeal I requested a face-to-face appeal in the Houston appeals office.  My experience has been that face-to-face appeals are more successful than appeals done as a phone conference.

Once the appeal was assigned to the appeals officer we had to gather financial information for presentation to the appeals officer.  We had to show what assets he had, such as autos, real estate, bank accounts, and investments.  The only assets my client had were a small balance in his checking account and an old car with a large debt. 

We also had to give information about his monthly income and expenses.  His unemployment had played out and he was earning a small amount of contract income.  His monthly living expenses were larger than his monthly income.  I submitted the financial information timely to the appeals officer and waited for our face-to-face appeal.

In an appeal, the appeals officer started off with some legal issues, such as stating the IRS appeal’s mission statement, stating the tax period and amount due, and determining if the appeal was timely filed, etc.  Then we got to the facts of the case.  The appeals officer told me she had reviewed the financial documents I had submitted and asked me what I thought should be done in this case.

I told her I believed my client should be set up as currently not collectable.  If you saw my post on April 30, 2009, you will remember I discussed the 6 main options available if you owe the IRS.  The third item was currently not collectable.  If the money you are making is just enough to pay your basic living expenses (based upon the IRS standards) and your current year taxes, the IRS will set you up as “Currently Not Collectable”.  This is not a miracle!  The taxes do not go away, and penalties and interest continue to accrue.  However, if you truly cannot make payments, this gets the IRS off your back, and lets you go on with your life.  The IRS will periodically request updated financial information to determine is you should stay in Currently Not Collectable status.

The Appeals officer agreed with me that the best option in this case was to set the taxpayer up as currently not collectable.  The IRS is not going to ask my client to make any payments while he is set up as currently not collectable, however, he must timely file and pay future taxes in order to stay set up as currently not collectable.

The main lesson here is to make sure the IRS has a current address for you.  This makes sure you receive all mail from the IRS.  Many of my clients are afraid to receive or open mail from the IRS.  As a taxpayer you have rights, but it is up to you to use your rights and if you do not open the mail from the IRS, you may miss making a timely filing to protect your rights.

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