Bill providing protection against IRS asset seizure advances

A bipartisan bill that would require the IRS to provide evidence of illegal activity before seizing assets has passed the U.S. House of Representatives Ways and Means Committee. Hundreds of taxpayers who have had assets seized between October 2009 and October 2014, when IRS seizure and forfeiture activity in the absence of criminal evidence ceased, will be notified that they are eligible to seek refunds.

The intention of the seizure and forfeiture practice was to ensnare criminals who were making deposits of less than $10,000 at a time to escape bank reporting requirements. But the IRS did not have to prove criminal activity before seizing assets. This led to the IRS freezing bank accounts and taking the property of non-criminal small business owners whose only (non) crime was making habitual bank deposits of less than $10,000.

Keep your property off the IRS auction list

The IRS has its own kind of Craigslist. But instead of selling its own used items to strangers over the internet, the IRS auctions off property that has been seized to compensate for unpaid taxes.

Need a new car, some antiques, some silver coins or a diamond necklace? Maybe you’ve been hoping to make a bid on a lakefront lot or a 7-bedroom home? Don’t forget to check the IRS auction page to see if there might be something worth pursuing. Someone else’s IRS seizure might just be the treasure you’ve been looking for.

Beware of jointly owned property

If you own a property with a spouse, an IRS lien affects both of you. Technically your spouse’s lien would only apply to their portion of ownership in the property, but in reality a lien on a property is a barrier to its sale. You personally may be free of the lien, but until your spouse is able to release themselves from the debt, it’s your problem, too.

The same is true for property ownership transferred in a will. If you bequeath the family home to your son and daughter, and one of them owes the IRS money that they’re not able to pay, the other will feel the consequences of the lien as well.

Not paying is better than not filing

This year’s tax deadline has come and gone, and hopefully you’ve filed your taxes by now; or at least filed for an extension. If you’ve avoided filing this year out of an inability to pay, however, it’s worth knowing that not filing your tax return will cost you much more in the long run than failing to pay in full. Both failing to file and failing to pay will result in penalties, but you can significantly reduce your penalties by filing and then working with the IRS to come up with a solution for whatever balance you might owe.

The difference between the two penalties is stark:

  • Failure to file will trigger a penalty of 5 percent of your owed taxes each month up to a maximum of 25 percent of what you owe.
  • Failure to pay (in full) triggers a penalty of 1/2 of one percent of what you owe per month up to a maximum of 25 percent of the total owed taxes.

How to Survive IRS Audit

So you filed your tax returns and thought all was well only to receive an audit letter from the IRS.  The key in dealing with this is to first and foremost remain calm.  Many taxpayers contact our office in a frantic state after receiving this letter.  Below you will find a series of steps to help you through the audit:

  1. Read the letter closely.  There are several different types of audits, all of which will require a different response.  You need to determine which part of your tax return is being audited.  The IRS typically is only focusing on a few portions of the return.
  2. Get advice.  Reach out to the person who prepared your return and ask if they can explain to you why you are being audited and the process of an IRS audit.  It would also be a good idea if they can provide you with the documents for which they based the preparation of your return on.  Unfortunately most tax prepares are reluctant to help the taxpayer through an audit, or are unskilled in the audit process.  If this seems to be the case you may wish to contact an audit professional.
  3. Paper Chase.  Once you know what the IRS is looking for you will need to gather all documents related to those claims made on your return.  The auditor will typically send you an Information Document Request (IDR) which should direct you towards the documents needed.
  4. Respond to the auditor promptly.  The IRS auditor will set deadlines.  Abide by those deadlines and supply them with the documents they request before the deadline.  Ignoring their requests will only end up in an unfavorable assessment against you.
  5. Only supply them with documents requested.  If the auditor requests specific documents, provide them only with those documents.  You do not want them to open lines of questioning on other issues because you showed them a document that made them question something else.
  6. Be professional.  Remember, the auditor is only doing their job.  Try your best not to be rude or belittle the auditor.
  7. Confused? Get Help!  If you think that you are incapable of handling the audit yourself then you need to get experienced and professional help as soon as possible.  Many taxpayers contact us during or after audits requesting help.  We can provide the best help when engaged early.
  8. Self prepared?  If you used an online program to prepare your return they will not help.  The company will certainly defend its program, that is prepared the return correctly, but not the numbers that you inputted.  You are responsible for the data that you put into their program.
  9. Do your homework.  If you disagree with the auditors assessment, then do your homework and see whether they are correct in their assertions.  The auditors are not always correct.  We have encountered numerous instances in which an auditors reasoning appeared to be facially sound but ended up errant.  There is nothing wrong with arguing – but be sound in your reasoning.