Forms

• Form 2848: IRS Power of Attorney (PDF)
• Form 433-A: Collection Information Statement for Wage Earners and Self-Employed Individuals (PDF)
• Form 433-B: Collection Information Statement for Businesses (PDF)

The IRS Levied My Bank Account
IRS Garnished My Paycheck
I haven't Filed my Tax Returns
I just received an IRS Audit Notice

The IRS has a levy and is about to seize my assets

I haven't paid my business employment or payroll taxes
IRS has filed a lien against me
I Can't Pay What I Owe (Offer in Compromise)

The IRS Levied My Bank Account

If the IRS levies your bank account, your bank must hold funds you have on deposit ONLY on the particular day the levy is received by the bank. The bank is required to remove whatever amount is available in your account that day (up to the amount you owe the IRS) and send it to the IRS in 21 days. This 21-day holding period allows time to resolve any issues about account ownership of the bank account and also provides a period of time to negotiate with the IRS for a release. After 21 days, the bank must send the money plus interest, earned on the seized amount to the IRS. So you must act quickly! This type of levy does not affect any future deposits made into your bank account unless the IRS issues another Bank Account Levy.

The levy will end when:

• The levy is released, through the help of a tax resolution specialist or by working with the IRS directly, or
• You pay the tax debt the IRS says you owe

What can I do?

• Represent yourself before the IRS or increase your chances of success by choosing a tax attorney.  If you need assistance, do not hesitate to contact the Tax Attorneys of The Mandale Law Firm at (888) LIEN-FIX (888-543-6349) for a FREE and Confidential Consultation.

• Complete IRS Form 2848 Power of Attorney (POA). Without this form, an attorney, CPA, or EA can do nothing for you. IRS requires this form before they will talk to anyone other than you about your case.  Fill in your name(s), address, and Social Security number(s) on page one, then sign and date page two.

What you might need to present to the IRS to verify some of your expenses:

• Copy of your bank levy, if you have it.

• Most current pay stub(s) with year-to-date information on you and your spouse

• Copy of divorce documents. Mainly page one and the page(s) that list(s) alimony and/or child support information.
• Copy of three months' child support and/or alimony checks. If child support is deducted from your paycheck, then your pay stub will be sufficient.
• Copy of three months' childcare checks and/or invoices.
• Support for medical expenses (checks and receipts).

IRS Garnished My Paycheck

IRS often begins its collections efforts by levying taxpayers’ wages (or paycheck garnishment). Wage levies are filed with your employer and remain in effect until the IRS notifies the employer that the wage levy has been released. Once a wage levy is filed with an employer, the employer is legally required to collect a large percentage (usually 30-70%, sometimes more) of the taxpayer’s paycheck and send it to the IRS. The wage levy stays in effect until the IRS is fully paid or until the IRS agrees to release the levy. The law applies in all 50 states, the District of Columbia, and all U.S. territories and possessions.

What can I do?

• Represent yourself before the IRS or increase your chances of success with an experienced tax attorney who can sometimes halt the collections activities or at least reduce the amount that the IRS taxes. If you need assistance, do not hesitate to contact the Tax Attorneys of The Mandale Law Firm at (888) LIEN-FIX (888-543-6349) for a FREE and Confidential Consultation.

• Depending upon your individual circumstances, the representative may file an Offer in Compromise, arrange for an Installment Agreement, or have your account placed in “Currently Not Collectible” status. Any of these arrangements would allow you to proceed without any fear of the IRS.

• Offer in Compromise form may be downloaded.   

The amount levied is determined by the amount earned and the number of dependents in the taxpayer’s family. The formula for deciding the amount to send the IRS is explained on the levy Form 668-W or the state equivalent. 

I haven't Filed my Tax Returns

For various reasons, you may not have filed your federal income tax return for this year or previous years. You may not have known whether you were required to file. You may not have filed because you owe additional tax that you cannot afford to pay in full. You may not have filed because you expect a refund and just have not taken the time to complete the return.

Regardless of your reason for not filing, you should file your tax return as soon as possible. If you cannot pay all of the tax due on your return, you may be able to arrange payments, an Offer in Compromise, or “Currently Not Collectible” status, depending on your situation. 

Failure to file your return on or before the due date may result in penalties and interest.  However, if you filed on time but did not pay in full, you will be subject only to the failure to pay penalty. Interest is charged on taxes not paid by the due date, even if you have an extension of time to file. Interest is also charged on penalties.

What can I do?

• You may be surprised to learn that filing your tax returns can be the quickest way out of tax trouble.  Gather your tax documents.  If you are missing some you can contact the IRS for assistance

• Prepare the tax returns or hire a tax professional.  Good reasons to hire a tax pro: if you need advice on how to handle incomplete tax documentation, or an advocate who will negotiate with the IRS on your behalf.  There are many to chose from including our client dedicated law firm,  http://www.mandalelaw.com/  

• You should create a plan for how you will pay off your tax debts. You may need to consider an Offer in Compromise (OIC). You also need to plan on how to protect yourself from an IRS investigation, assessment, levy, or lien. It requires patience, good judgment, the ability to talk courteously with the IRS, and the advice of a competent, experienced tax attorney. See About Us

• For questions, contact a tax professional or find your local IRS Taxpayer Assistance Center

• File your taxes as soon as possible. Click here to find out where to file for your particular location.

• Late tax returns must be filed on paper, and mailed or walked into your local IRS Service Center. They can not be filed electronically.

• Mail your tax returns in separate envelopes, and send them by Certified Mail. You will have proof each return was received by the IRS. Mailing them in separate envelopes will help prevent the IRS from making any clerical errors in processing your returns.

• Walk your tax returns into a local IRS Office where they will be reviewed and time and date stamped. Click here to find your local IRS Office.

I just received an IRS Audit Notice

If you're audited by the IRS this year, you won't be alone. In 2003, less than 2% of filers were audited.* As you can see, percentage wise, the IRS audits very few tax returns. Most tax returns singled out by the IRS for audit contain either tax deductions that appear to be too high in relationship to the person's income, or tax items that are erroneous, tax items that require proof or an explanation, or are on the IRS' list of hot tax issues (see below).

The IRS selects those tax returns which, upon preliminary inspection, have high audit potential. Your chances of an audit are higher if you fall into any of the following categories:

• High Wages
• Large Amounts of Itemized Tax Deductions
• Unreported Taxable Income
• Self-Employment
• Home Office Tax Deductions
• Unreported alimony
• Automobile Logs for people who use their car in business

Is there a statute of limitations on audits and on tax debt(s)?
The statute of limitations limits the time during which an action can be brought by the IRS for an audit and the time for IRS tax collection activities. Generally, there is a 3-year statute of limitations for the IRS auditing a tax return and a 10-year statute of limitations for the IRS collecting a tax debt (However, many collection alternatives extend this 10-year statute of limitations) - you should consult with a tax attorney to determine when the IRS' statute of limitations will expire on your tax debt.

What is an audit?
The traditional view of an IRS tax audit is a face-to-face contact with an IRS auditor. About one-third of IRS "tax audits" are in the form of letters asking for explanations of various tax items on a tax return or supporting documentation. If you receive a tax audit letter from the IRS, read the letter to see the nature of the tax audit problem. The IRS may want to audit the entire tax return or could audit just a portion of it, for example, meals and entertainment or automobile and travel expenses.

If the issue concerns documenting a tax deduction or a tax credit, send the IRS copies of the appropriate documents. Do not send the IRS originals, as they may get lost in the mail or at the IRS.

If the tax notice concerns your entitlement to a tax deduction or questions a tax position taken on the tax return, consult a qualified tax representative before responding to the IRS. A satisfactory explanation can end the matter quickly. In any event, it is important to respond to the IRS in writing.

There is also a National Tax Compliance Audit Program IRS tax audit, which is the most thorough of all IRS tax audits. Persons selected for this type of tax audit must verify all data on their tax return. This information could include birth certificates for children, a marriage license for a spouse, and complete documentation of all tax deductions taken on the tax return. 

How should I prepare for an audit?

• Contact a tax attorney, qualified to “stand before the IRS” to represent you
• Bring all the documentation relevant to the tax item(s) in question ONLY, so that the evidence needed to support your tax case is available.
• Organize the papers according to the tax items in question, and make copies of them
• Bring relevant worksheets to show how the tax figures in question were calculated.
• Do not volunteer tax information not requested by the IRS. Be cordial, but remember, "Loose lips sink ships".
• At the end of the IRS tax audit, the IRS agent will cite any problems with the tax return.
• After the IRS agent informally advises you of any tax adjustments needed on the tax return a formal report is filed.
• If you owe money on one tax issue and the IRS owes money on another tax issue, the two tax  amounts can be netted. In a small number of tax cases, the IRS tax audit results in a tax refund for the taxpayer.
• If the IRS agent's tax decision is unsatisfactory, you can appeal to the IRS agent's supervisor, the Appeals Division of the IRS, and if necessary, the U.S. Tax Court.

What are my rights if I’m audited by the IRS?

• You can have a Tax Attorney, CPA or EA who is “admitted to practice before the IRS” represent you.
• You also can tape record the meeting, but you have to notify the IRS 10 days in advance of the IRS tax audit.
• You have appeal rights in IRS tax collections, such as tax liens, tax levies and property seizures.
• You can seek hardship relief from the IRS if a property seizure would create a significant hardship.
• The IRS can waive tax penalties if you show you acted in good faith on the incorrect advice of an IRS worker.
• You can give your Enrolled Agent (EA), CPA or attorney, a power of attorney for the IRS tax audit; therefore, you can be absent during the actual IRS tax audit, provided you don't receive a summons from the IRS. This can give your representative more time to respond to tax questions from the IRS agent because they may have to confer with you on some issues, delaying the progress of the IRS tax audit. This may also be a strategic advantage for you.

Tax Attorneys, CPA's and EA's say the best way to avoid a tax audit is to:

• File a complete and accurate tax return.
• Double check your math.
• Make sure you have used the correct IRS tax forms and IRS tax schedules.
• If you think the IRS may question a large tax deduction or tax credit, attach an explanation to your tax return when you file it

See also: www.irs.gov

The IRS has a levy and is about to seize my assets

A levy is a legal seizure of your property to satisfy tax debt(s). Levies are different from liens . A lien is an instrument used as security for the tax debt, while a levy actually takes or seizes the property to satisfy the tax debt.

If you do not pay your tax debt (or make arrangements to settle your debt), the IRS may seize and sell any type of real or personal property that you own or have an interest in.

• IRS could seize and sell property that you hold (such as your car, boat, or house), or
• IRS could seize property that is yours but is held by someone else (such as your wages, retirement accounts, dividends, bank accounts, rental income, accounts receivables, the cash value of your life insurance, or commissions).

What can I do?
You got into this dire situation most likely by failing to communicate with the IRS. The way to get out of it is to open a dialogue immediately with the IRS. A Tax Attorney may be able to negotiate with the IRS to settle your debt – if you qualify -- in a much more reasonable and beneficial manner.

They may be able to help you with an Offer in Compromise, Installment Agreements or maybe Currently Not Collectible.

If an asset seizure would cause severe hardship, a Taxpayer Assistance Order can be requested to protect you.

I haven't paid my business employment or payroll taxes

Employment taxes are:

• The amount you should withhold from your employees for both income and social security tax, plus
• The amount of social security tax you pay on behalf of each employee.

To encourage corporate business owners to make prompt payment of their employees’ withheld income and employment taxes, including social security taxes or collected excise taxes, Congress passed a law that provides for the Trust Fund Recovery Penalty. (These taxes are called trust fund taxes because you the employer actually hold the employee’s money in trust until you make a federal tax deposit in that amount.) If the IRS plans to assess you for the trust fund recovery penalty, you will receive a letter stating that you are a responsible person. You have 30 days after the IRS sends the letter to appeal.   If you do not respond to the letter, the IRS will assess the penalty against you and send you a Notice and Demand for Payment.

Please note, the IRS can apply this penalty whether or not you are out of business. A responsible person is an individual or group of people who had the duty to perform and the power to direct the collecting, accounting, and paying of trust fund taxes. This person may be:

• an officer or an employee of a corporation.
• a corporate director or shareholder.
• a member of a board of trustees of a nonprofit organization.

If you do not pay your employment taxes on time the IRS will charge you interest and penalties on any unpaid balance.

What can I do?

• Contact a CPA or Tax Attorney complete your overdue payroll and employement taxes.  

• Contact a qualified Tax Attorney that is “admitted to practice before the IRS”. 

IRS has filed a lien against me

Liens are different from levies. A lien is an instrument used as security for the tax debt, while a levy actually takes the property to satisfy the tax debt(s).

A tax lien is a negative record on your credit report, severely lowering your credit score.  This often makes it difficult for a taxpayer to obtain financing on an automobile or a home, get a credit card, or sign a lease. Tax Liens are public records that indicate you owe the IRS money. They are filed with the Clerk in the county where you live or where your business operates. Once a Federal Tax Lien is filed against your property you cannot sell or transfer the property without a clear title. You need to act NOW!

Liens mark the priority of IRS against other creditors and attach to all your assets as payment for your tax debt. A Notice of Federal Tax Lien may be filed only after:

• IRS has assessed the liability;
• IRS has sent you a Notice and Demand for Payment - a bill that tells you how much you owe in taxes; and
• You neglect or refuse to fully pay the tax debt within 10 days after IRS notifies you.

By filing notice of this lien, your creditors are publicly notified that the IRS has a claim against all your property, including property you acquire after the lien is filed.

The IRS will issue a Release of the Notice of Federal Tax Lien:

• Within 30 days after you satisfy the tax due (including interest and other additions) by paying the debt or by having it adjusted, or
• Immediately upon payment with cash or the equivalent of cash, or
• Within 30 days after IRS accepts a bond, guaranteeing payment of the debt or
• A mortgage is given to IRS against property that is worth twice the amount of your tax liability, or
• Usually 10 years after a tax is assessed, a lien releases automatically if the IRS has not filed it again.

What should I do?

• Download IRS Form 1450 – Request a Federal Lien Release. A lien must be released if it is fully paid or legally unenforceable. The IRS must also release when they accept a bond for payment of the tax.
• Hire a Tax Attorney to represent you. 

You may ask an IRS manager to review your case, and you may request a Collection Due Process hearing with the Office of Appeals by filing a request for a hearing with the office listed on your notice. You must file your request by the date shown on your notice.

Some of the issues you may discuss include:

• You paid all you owed before IRS filed the lien,
• IRS assessed the tax and filed the lien when you were in bankruptcy, and subject to the automatic stay during bankruptcy,
• IRS made a procedural error in an assessment,
• The time to collect the tax (called the statute of limitations) expired before IRS filed the lien,
• You did not have an opportunity to dispute the assessed liability,
• You wish to discuss the collection options, or
• You wish to make spousal defenses

 

It is important to attack tax liens that are invalid. The trustee or the debtor has the power to avoid an invalid tax lien. A tax lien could be invalid if a lien is on property which is not owned by the debtor, a lien was filed during the automatic stay, a lien was recorded in the wrong county, or it was for discharged taxes now being asserted on future-acquired assets.

Time is of the essence. Do not just try to ignore this lien process. The IRS will file a lien against a business or individual when they continue to be ignored. 

I Can't Pay What I Owe (Offer in Compromise)

Many taxpayers find themselves in a position where they can never pay off the IRS. It’s mathematically impossible with all the penalties and interest the IRS continues to add everyday vs. the income or lack thereof, the taxpayer may have access to.

What many taxpayers don't realize is just about everything is negotiable with the IRS - if you know how. The amount you owe may be reduced to an amount you can afford to pay with the help of our Tax Team.

If you qualify (see below), the IRS Program called Offer in Compromise (OIC) is an agreement between the taxpayer and the government that settles a tax liability (including all penalties and interest) for payment of less than the full amount owed. When the IRS accepts your Offer and you pay it, then all federal tax liens are removed. You must remain compliant by filing and paying your tax returns for the next five consecutive years, or the liability will be re-assessed and all penalties and interest will be assessed as well. If you do comply, though, you will get your life back!

The IRS will generally accept an OIC when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential. An OIC is a legitimate alternative to declaring a case currently not collectible or to a "protracted installment agreement.". The IRS goal of an OIC is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to government.

Preparing and successfully negotiating an Offer in Compromise is a very complicated process and can take more than 6-18 months. Once your offer has been submitted to the IRS all collection activities against you stop.

An offer in compromise is an agreement between a taxpayer and the IRS that resolves the taxpayer's tax debt. The IRS has the authority to settle, or "compromise," federal tax liabilities by accepting less than full payment under certain circumstances. A tax debt can be legally compromised for one of the following reasons:

• Doubt as to Liability - Doubt exists that the assessed tax is correct
• Doubt as to Collect ability - Doubt exists that you could ever pay the full amount of tax owed.
• Effective Tax Administration - There is no doubt the tax is correct, and no doubt that the amount owed could be collected, but an exceptional circumstance exists that allows the IRS to consider a taxpayer's OIC. To be eligible for a compromise on this basis, the taxpayer must demonstrate that collection of the tax would create an economic hardship or would be unfair and inequitable.

What Should I do?

• Represent yourself before the IRS or increase your chances of success by choosing a Tax Attorney to represent you.  

• Review the step-by-step procedure followed by professionals that can help assist you.

• Complete IRS Form 2848 Power of Attorney (POA).  Without this form, a specialist can do nothing for you. IRS requires this form before they will talk to anyone other than you about your case.  Fill in your name(s), address, and Social Security number(s) on page one, then sign and date page two.

• Read the IRS FAQ’s about Offer in Compromise

• Understand that there is an IRS application fee of $150.00 for the Offer in Compromise (OIC) in addition to any representation fees.

• Review IRS Form 656 – Offer in Compromise booklet.

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Abatement of Penalties
An abatement of penalties is a request to the IRS to remove certain penalties that were added to the taxpayers account for a particular year or multiple years. The taxpayer is required to have reasonable cause that is specific for each year when submitting this request and must be able to explain why this reason should grant the penalties to be removed from their account.

Amended Tax Return
This is a tax return filed to make changes to a previously filed tax return. A taxpayer has 3 years from the due date of the original return or the actual date of filing to file an amended return. **If filing amended returns, you must have a copy of the original return filed, along with an explanation and documentation as to what items need to be amended.

Appeal
IRS administrative process for taxpayers to contest decisions within the IRS. Also known as the Appeals Division.

Back Taxes
Taxes that have not been paid on the due date or were underreported either by accident or by intention on a past tax return. The tax authorities (IRS) can demand payment of back taxes plus the imposing of penalties and or interest.

Bankruptcy
This is a legal process under Federal statutes that provides for rehabilitation of a debtor (provide the opportunity to make a fresh start) through the discharge of certain debts or through a debt repayment plan over a certain period of time. Creditors cannot contact the debtor during the bankruptcy. They must wait until it is fully discharged. There are three chapters of bankruptcy.

See descriptions below.
Chapter 7: In Title 11, United States Code, this chapter of bankruptcy law provides for a full liquidation of an entitys non-exempt property to satisfy creditors, and discharges all dischargeable debts.

Chapter 11: This chapter of the bankruptcy law provides for a partial payment of some debts and the partial discharge of some debts belonging to a business.

Chapter 13: This chapter of the bankruptcy law provides for the partial payment of some debts and the partial discharge of some debts for an individual. It is also known as the Wage Earners Repayment Plan since all creditors must receive a dividend.

Basis
The cost of an asset owned by a taxpayer. The cost of the asset may be adjusted upwards by the cost of improvements, or may be adjusted downward by depreciating the asset.

Burden of Proof
A formal legal requirement to provide persuasive information or evidence of the legitimacy of a claim. For tax returns, OICs, or requests for any resolution, the burden of proof to substantiate the claim or deduction rests with the individual or entity either required to sign the return or who submitted the claim.

Centralized Authorization File (CAF)
Located three of the ten IRS Service Centers, it contains all Forms 2848, Powers of Attorney, and Forms 8821, Tax Information Authorizations. Each individual authorized by these forms will be given a CAF number.

Collection Division
That organizational arm of the IRS which has the mission of collecting delinquent taxes and securing delinquent tax returns for individuals, businesses, corporations, trusts, or any other entity that owes IRS money. The Service Center Collection Function, the Automated Collection Site, or the Field Collection Function is all part of the Collection Division. The revenue officer is required to effectively collect against any Balance Due accounts.

Collection Information Statement (CIS)
IRS standard financial statements required from individuals and/or self-employed individuals (Form 433-A) and businesses (Form 433-B) that owe IRS taxes and have indicated an inability to pay the liability. IRS uses these forms to determine the taxpayers ability to pay in full by installment agreement or a hardship situation.

Collection Statute of Limitation
IRC Section 6503 places an express limit on the time in which the IRS may collect a tax. Normally, the Collection Statute is 10 years from the date of assessment, but can be extended under certain situations.

Community Property
A state law that creates a community upon marriage and all property acquired during the marriage is held as community property, with both the husband and the wife having a one-half interest in the community assets. Hence, the IRS can serve a Notice of Levy for of the wifes salary for the husbands separate liability. **Community property states include: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

Compliance
All taxes are paid up to date and all returns required to file are filed to date. Therefore, if submitting an OIC, IA or status 53 for individuals request, the taxpayer must have all estimated tax payments paid to date and returns filed. If submitting an OIC or IA for a business, the taxpayer must have paid all taxes for the past two quarters and filed all returns.

Currently Non-Collectible
Status 53 is also referred to as Currently Non-Collectible, Currently Uncollectible, or CNC. Status 53 allows taxpayers to make no monthly payments to their delinquent tax debt due to minimal income to provide for themselves and their family.

Deductions
An expense subtracted from adjusted gross income when calculating taxable income, such as for state and local taxes paid, charitable gifts, and certain types of interest payments or business expenses.

Default
Failure to repay an outstanding debt as agreed.

Discharge of Federal Lien
Authorized under the IRS Code. The process whereby the taxpayer or interested third party applies to have the federal tax lien removed from a specific piece of property or other asset. The discharge may be granted if:

- IRS has no interest in the property,

- IRS will receive the net proceeds from the sale of the asset, or
- The taxpayer has equity in other assets equal to 3 times the amount of the tax liability.

Earned Income Tax Credit
A tax credit given to qualified low-income wage earners, even if no income tax was withheld from the individuals pay.

Enrolled Agent
An Enrolled Agent (EA) is a federally-authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audits, collections, and appeals.

What does the term Enrolled Agent mean?
Enrolled means to be licensed to practice by the federal government, and Agent means authorized to appear in the place of the taxpayer at the IRS. Only Enrolled Agents, tax attorneys, and CPAs may represent taxpayers before the IRS. The Enrolled Agent profession dates back to 1884 when, after questionable claims had been presented for Civil War losses, Congress acted to regulate persons who represented citizens in their dealings.

Enrolled Agent" (EA) is a tax professional who has passed an IRS test covering all aspects of taxation, plus passed an IRS background check. Enrolled Agents have passed a two-day, 8-hour examination. The examination (called the Special Enrollment Examination) covers all aspects of federal tax law, including the taxation of individuals, corporations, partnerships, and various regulations governing IRS collections and audit procedures. Like CPAs and tax attorneys, EAs can handle any type of tax matter and represent their client's interests before the IRS. Unlike CPAs and tax attorneys, Enrolled Agents are tested directly by the IRS, and enrolled agents focus exclusively on tax accounting. The "EA" designation may be revoked by the IRS' Office of Professional Responsibility for malpractice.

How can Enrolled Agent help me?
Enrolled Agents advise, represent, and prepare tax returns for individuals, partnerships, corporations, estates, trusts, and any entities with tax-reporting requirements. Enrolled Agents expertise in the continually changing field of taxation enables them to effectively represent taxpayers audited by the IRS.
Privilege and the Enrolled Agent

The IRS Restructuring and Reform Act of 1998 allow federally authorized practitioners (those bound by the Department of Treasurys Circular 230 regulations) a limited client privilege. This privilege allows confidentiality between the taxpayer and the Enrolled Agent under certain conditions. The privilege applies to situations in which the taxpayer is being represented in cases involving audits and collection matters. It is not applicable to the preparation and filing of a tax return. This privilege does not apply to state tax matters, although a number of states have an accountant-client privilege with the U.S. Treasury Department.

Equitable Relief
If a spouse does not qualify for innocent spouse relief or separation of liability, they may qualify for equitable relief. The taxpayer must show, under all facts and circumstances, that it would be unfair to be held liable for the understatement or underpayment of taxes. (U.S. Master Tax Guide 2004)

Estimated Tax (ES) Payments
Tax payments made to IRS for the current tax year. Those taxpayers that do not have withholding taken out of their paycheck OR owed more than $1000 on the previous years tax return is required to pay estimated tax payments to the IRS for the current year. Taxpayers are supposed to estimate their income at the beginning of the year to determine their estimated tax liability. If they owe taxes when they file a return even though they have withholding, the IRS will penalize them if they do not pay estimates. Estimated payments allow taxpayers to remain in compliance with the payment demands of the IRS. ES payments are due the 15th day of April, June, and September of the current year and January of the following year.

**If a taxpayer is required to make ES payments, and they want an OICthe taxpayer must be current with all tax payments including ES payments prior to submitting an OIC. If the OIC is submitted between January and March, the taxpayer is not delinquent until he does not pay his first ES payment due April 15th. If they are not current with last years ES payments, an OIC can be submitted including last years debt. If an OIC has already been submitted, the taxpayer must continue to pay ES payments while the OIC is in review and until they have proper withholding and stop acquiring a debt. Since taxpayers are required to pay their taxes after the OIC is accepted, it is to the taxpayers benefit to start off in compliance by paying all estimates while the OIC is in review and not by adding that year to the current OIC.

Federal Insurance Contributions Act (FICA)
This is Social Security Tax. FICA consists of Social Security (supplemental retirement income) payroll tax and a Medicare (hospital insurance) tax. The tax is levied on employers, employees, and certain self-employed individuals. On some pay stubs it may be listed as some form of Old Age Survivors and Disability Insurance (OASDI)

Federal Tax Deposit (FTD)
An employer must deposit employment taxes withheld (income tax withholding and FICA taxes) including the employers share of the FICA, either monthly or semi-weekly (depending on the amount of tax withheld) with an authorized commercial bank or Federal Reserve Bank.

Federal Unemployment Tax Act (FUTA)
A Federal tax paid by employers that provide for the administrative costs of a states unemployment compensation program for workers who have lost their jobs through no fault of their own. Only the employer pays FUTA tax, it is not deducted from the employees wages. This annual tax is reported on Form 940.

Garnishment
Legal process whereas a creditor (the IRS in this case) has obtained judgment on a debt (IRS back taxes or other debt) may obtain full or partial payment by seizure of a portion of a debtor's (taxpayer in this case) assets such as wages, bank account, etc.

IRS Form 1040- Individual Income Tax Return
Those individuals and married couples who are required to file with IRS must complete this return. **Form 1040EZ is for income less than $100,000, interest less than $1,500 and cannot be used if the taxpayer received the advanced earned income credit. Form 1040PC is a paper tax return prepared on a computer using the approved IRS tax preparation software.

IRS Form 1065- Return for business partnership income
Return for partnerships to report income and expenses for the previous tax year.

IRS Form 1120- Corporation Income Tax Return
Return for incorporated businesses to report income and expenses for the previous tax year

IRS Form 940 - Annual Unemployment Tax Return
Each business reports Federal Unemployment Tax Act (FUTA) tax based on the amount paid to each employee. The tax applies to the first $7000 paid to each employee [Federal base = $7000, State base is different] in a year after subtracting any exempt payments. FUTA tax along with state unemployment systems provides payments of unemployment compensation to workers who have lost their jobs

IRS Form 941- Quarterly tax return/ payments
Businesses that withhold wages from their employees are required to file 941-Employers Quarterly Federal Tax Return. These are filed each calendar quarter i.e. January thru March, filed April 30; April thru June, filed July 31; July thru September, filed October 31; and October thru December, filed January 31. Any business that pays more than $2500 in net taxes is required to make quarterly deposits to authorized financial institutions. Again, IRS is trying to aid businesses in being compliant with paying their tax.

IRS Form W-2
Employers must provide employees with a statement of how much they earned in wages, tips and other compensation from the previous year in a W-2 form (by January 31 of each year). The form will reflect state and federal taxes, social security, Medicare wages and tips withheld.

IRS Form W-4 (Employee's Withholding Allowance Certificate)
This form, completed by the employee, determines how much of the individuals paycheck is withheld for federal income taxes.

Innocent Spouse
A spouse who unknowingly filed a joint return with their spouse who had reported an understatement of tax due to erroneous items. The unknowing spouse must prove that at the time the tax return was signed he/she did not know, or have reason to know, there was an understatement of tax. Also with the fact and circumstances taken into consideration, it must show that it would be unfair to hold the unknowing (innocent) spouse liable for the understatement of tax. To request innocent spouse relief, the taxpayer must file Form 8857. (See also Equitable Relief and Separation of Liability)

Installment Agreement (IA)
An agreement between the IRS and a taxpayer to allow the taxpayer to pay their delinquent debt over a specified period of time.

Itemized Deductions
Expenses claimed on an individuals tax return (on Schedule A), that are subtracted from the adjusted gross income to determine taxable income. Examples of itemized deductions include medical expenses, taxes paid (other than federal taxes), interest, charitable contributions, and employee business expenses.

Levy
Garnishment attached to taxpayers wages, bank account, account receivable, social security income, etc.

Lien
Whether a taxpayer does or does not own any property, IRS will issue a lien against their SSN to hinder them from purchasing, selling or transferring any property. A lien will effect their credit report. If the taxpayer is preparing an OIC and it is accepted, the lien will be released once the OIC payment terms have been satisfied. If not preparing an OIC, the lien will be released when the tax debt is either paid in full or the statute to collect the tax has expired. *The Internal Revenue Code of 1986 provides for a statutory lien of the Federal Government to be filed for a tax debt after a proper assessment, notice and demand, and a neglect or refusal to pay. Liens can be discharged or subordinated under special circumstances. **A Federal Tax Lien is formally recording in the appropriate public records office (county recorder, MENSE, Secretary of State (UCC) or US District Court) in order to establish priority over creditors, judgement lien creditors and other lenders.

Lien Discharge
Removal of a lien on a specific piece of property to allow for its sale or disposal.

Lien Release
Issued by IRS when a tax debt is fully paid or if the taxpayer can prove they are suffering from a financial hardship and are unable to provide for their familys health and wellbeing.

Lien Subordination
To set aside a lien temporarily to allow for a sale or refinance.

Master File
An IRS File which consists of a series of runs, data records and files that are in production with links to many of the other IRS systems.  All businesses and individuals have an IRS Master File. Master files receives individual or business tax submissions in electronic format and processes them through a pre-posting phase, posts the transactions, analyzes the transactions and produces output in the form of Refund data, Notice data, Reports, and information feeds to other entities.

Module
On the IRS Master File, the module of the return defines a specific return by its time frame. Form 1040, Individual Income Tax Return, is normally for a calendar year module and Form 941, Employers Quarterly Tax Return, is for a 3-month quarterly module during a calendar year i.e. March 31st, June 30th, September 30th, and December 31st). (Same as the term period.)

Monthly Disposable Income
Any positive amount remaining after the taxpayers necessary monthly living expenses are subtracted from their monthly income. MDI is used to help calculate the taxpayers RCP (reasonable collection potential) for OIC purposes.

Notice of Federal Tax Lien
Whether a taxpayer does or does not own any property, IRS will issue a lien against their SSN to hinder them from purchasing, selling or transferring any property. A lien will effect their credit report. If the taxpayer is preparing an OIC and it is accepted, the lien will be released once the OIC payment terms have been satisfied. If not preparing an OIC, the lien will be released when the tax debt is either paid in full or the statute to collect the tax has expired. *The Internal Revenue Code of 1986 provides for a statutory lien of the Federal Government to be filed for a tax debt after a proper assessment, notice and demand, and a neglect or refusal to pay. Liens can be discharged or subordinated under special circumstances. **A Federal Tax Lien is formally recording in the appropriate public records office (county recorder, MENSE, Secretary of State (UCC) or US District Court) in order to establish priority over creditors, judgement lien creditors and other lenders.

Notice of Levy
A notice imposing and collecting a fine. When used in conjunction with IRS, this normally refers to the document that is served on a third party that attach wages, bank accounts, and other personal property.

Offer In Compromise
Code Section 7122 authorized the Commissioner or his delegate the authority to compromise most tax liabilities. An OIC is an agreement between the IRS and taxpayer that allows the taxpayers delinquent tax debt to be compromise for less than the amount owed. The offered dollar amount is based on the taxpayers net worth plus their future income potential.

An offer in compromise is an agreement between a taxpayer and the IRS that resolves the taxpayer's tax debt. The IRS has the authority to settle, or "compromise," federal tax liabilities by accepting less than full payment under certain circumstances. A tax debt can be legally compromised for one of the following reasons:

Doubt as to Liability - Doubt exists that the assessed tax is correct.

Doubt as to Collectibility - Doubt exists that you could ever pay the full amount of tax owed.

Effective Tax Administration - There is no doubt the tax is correct, and no doubt that the amount owed could be collected, but an exceptional circumstance exists that allows the IRS to consider a taxpayer's OIC. To be eligible for a compromise on this basis, the taxpayer must demonstrate that collection of the tax would create an economic hardship or would be unfair and inequitable. The objective of the OIC program is to accept a compromise when it is in the best interests of both the taxpayer and the government and promotes voluntary compliance with all future payment and filing requirements.

Typically there is an application fee of $150.00 for the offer in compromise. The IRS will accept an Offer in Compromise (OIC) when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential. The ultimate goal is a compromise that is in the best interest of the taxpayer and the IRS. Acceptance of an adequate offer will also result in creating, for the taxpayer, an expectation of a fresh start toward complying with all future filing and payment requirements. The OIC process is based on a debt-to-asset formula devised by the IRS.

The Process - The OIC process is complex and time-consuming and can take up to 24 months to resolve. We rely on the client to provide detailed financial information required by the IRS. The IRS will not consider an OIC if the client-submitted documents are more than three months old. In addition, the client must be in compliance (all taxes must be filed and quarterly estimated payments, if applicable, have to be current).

Power of Attorney
The legal form giving an authorized individual (Certified Public Accountant, Enrolled Agent, or Attorney, etc) authority to represent a taxpayer before the Internal Revenue Service.  At the Mandale Law Firm, an Attorney is the only authorized indivdual listed on our client's Power of Attorney.

Qualified Domestic Relations Order
A state court can allocate an interest in a qualified retirement plan to a former spouse through a qualified domestic relations order. Payments made to a former spouse as the result of QDRO will not result in the taxpayer being assessed a penalty for early withdrawal from the plan; the former spouse will be taxed on the benefits when received, or the benefits can be rolled over tax free into an IRA or other qualified retirement plans.

Reasonable Collection Potential
The total realizable value of the taxpayers assets plus any future income. The total is generally the minimum Offer in Compromise amount.

RCP Equation:
Total Income - Total Expenses = MDI (Monthly Disposable Income)
MDI x FIP Factor (Future Income Potential) = Future Income
Future Income + Equity in Assets = RCP

Recovery Period
The period of time, normally in years, over which the basis (cost) of an item of property is recovered (by depreciation).

Refund
When an individual has more tax withheld from their wages than what is owed on their tax return, this difference results in an overpayment of taxes or a refund.

Refund Statute Expiration Date
A taxpayer may request a refund of an overpayment within three years from the time the return was filed or within two years from the time the tax was paid, whichever is later. If no return was filed by the taxpayer, the claim must be filed within two years from the time the tax was paid (IRC 6511(a)).

Schedule C - Profit and Loss from Business
When a taxpayer has an unincorporated business and is a sole proprietor business owner, they are required to file taxes on Schedule C attached to their Form 1040. Schedule C allows taxpayers to deduct the expenses incurred during the tax year they conducted business from the gross income received. Schedule C taxpayers are required to pay half of their Self-Employment tax since they work for themselves. Any debt incurred by a sole proprietor will be recorded as a 1040 liability under the taxpayers SSN and can be found on their IMF (Individual Master File). **Taxpayers need to be able to prove the figures listed on the 1040, Schedule C.

Schedule K-1 - Partner's Share of Income, Credit, Deductions
Each partner within the partnership uses this Schedule K-1 to report his or her share of the partnerships income, credits, deductions, etc. This form is not filed with IRS, but is simply a record-keeping requirement. Even though partnerships are not generally subject to income tax, each individual partner is liable for tax on their share of the partnership income, whether or not it is distributed.

Self Employment Tax
Self-employment tax is the social security and Medicare tax for people who work for themselves. When an individual pays self-employment tax, they are contributing to their coverage under the social security system. This differs from wage earners who have social security taxes taken from their wages. An individual must pay self-employment tax if: 1) the net earnings from self-employment are $400 or more OR 2) Services are performed for a church as an employee and $108.28 or more is received.

Status 53
Status 53 is also referred to as Currently Non-Collectible, Currently Uncollectible, or CNC. Status 53 allows taxpayers to make no monthly payments to their delinquent tax debt due to minimal income to provide for themselves and their family.

Status 53 is reviewed by the IRS on a regular basis and the client's status can be changed back to "Collectible" if there is any change in the client's financial situation. Penalties and interest continus to accure while the client is in Status 53.

Statute of Limitation
The IRS has set specific time periods before expiration of certain actions, i.e. to collect a tax, make an assessment to an account, to request a refund, to file bankruptcy, etc.

Subordination of Federal Tax Lien
The legal process whereby the IRS will subordinate its Federal Tax Lien to a third party by temporarily setting aside the lien to enable a refinance or sale of a piece of property. Normally the IRS must determine that it is in its best interest to subordinate, which translates, What are we going to get out of this?

Substitute for Return
If a taxpayer has not filed a return and the IRS feels it can collect from the money earned, an IRS Revenue Officer may file a SFR. When a SFR is filed, the agent lists all of the income reported to the IRS for that year, but only gives the taxpayer one exemption and only the standard deduction, i.e. nothing is itemized. Even if for the past 10 years the taxpayer has itemized, the IRS prepares the return in their favor. If the taxpayer has children the IRS tries to file the return based on the information from the previous years, i.e. married filing joint with 2 children. But IRS will only file this way if they have previous returns showing this info.

Tax Debt
A debt is something owed, such as money, goods, or services.  In this case, it is a debt that is owed to the IRS or state authority.

Tax Exempt
Not subject to tax. Normally this refers to charitable and other qualified organizations, but can also refer to specific exempt income of individuals.

Tax Exemptions
The amount allowed by the Code for a personal exemption (for an individual and spouse if filing a joint return) and for a dependency exemption (for a taxpayers dependents). In 2004, each exemption was worth $3100 as a deduction from adjusted gross income.

Tax Help
There are lots of companies that will offer tax help. But true tax help is not just setting up payment plans it is interceding with the IRS on your behalf with the IRS to help solve your tax problems.

Tax Laws
The body of law created by congressional action that governs the entire administrative process of the tax system. Officially known as Title 26, Unites States Code, it is more commonly known as the Internal Revenue Code or the Code. Interpretation of the Code begins with the IRS, and will ultimately end with the interpretation provided by the judicial system.

Tax Liability
The total tax bill that an individual or business owes after all withholding (individuals), Federal Tax Deposits (businesses), Estimated Tax Payments (individuals, sole proprietorships & corporations), and payments attached to the tax return are submitted and credited by the IRS.

Tax Problem
Tax problems can refer to any type of problems taxpayers are having with the IRS (federal) or state tax authority.  These problems may include garnishments, levies, liens, back taxes and interest owed, haven't filed a tax return, haven't paid your business taxes, haven't paid your self-employment taxes, can't pay your Installment Agreements, etc.

Tax Return
Any federal, state, or local tax return (personal income tax, corporate income tax, employer quarterly tax return, excise tax return, estate tax return, partnership tax return, fiduciary tax return, or any other return) required by law to be filed to report income, taxes withheld, sales tax, etc.

Tax resolution
The Tax Resolution industry has experienced tremendous growth over the last 10 years, yet with that growth has come broken promises and bad service. When Michael Z. Mandale founded The Mandale Law Firm, he recognized the great need for taxpayers to have stellar legal representation before the IRS and at an affordable rate.  The Mandale Law Firm consists of only attorneys, not CPA's or Enrolled Agents.

Taxes
Taxes are required payments of money to the government (federal, state or local). Tax money provides public goods and services for the community as a whole (roads, schools, law enforcement, public libraries, etc.). Taxes are the price we pay for our liberty.