The Internal Revenue Service today announced an expedited process that will make it easier for financially distressed homeowners to avoid having a federal tax lien block refinancing of mortgages or the sale of a home.
If taxpayers are looking to refinance or sell a home and there is a federal tax lien filed, there are options. Taxpayers or their representatives, such as their lenders, may request that the IRS make a tax lien secondary to the lien by the lending institution that is refinancing or restructuring a loan. Taxpayers or their representatives may request that the IRS discharge its claim if the home is being sold for less than the amount of the mortgage lien under certain circumstances.
The process to request a discharge or a subordination of a tax lien takes approximately 30 days after the submission of the completed application, but the IRS will work to speed those requests in wake of the economic downturn.
“We don’t want the IRS to be a barrier to people saving or selling their homes. We want to raise awareness of these lien options and to speed our decision-making process so people can refinance their mortgages or sell their homes,” said Doug Shulman, IRS commissioner.
“We realize these are difficult times for many Americans,” Shulman said. “We will ensure we have the resources in place to resolve these issues quickly and homeowners can complete their transactions.”
Filing a Notice of Federal Tax Lien is a formal process by which the government makes a legal claim to property as security or payment for a tax debt. It serves as a public notice to other creditors that the government has a claim on the property.
In some cases, a federal tax lien can be made secondary to another lien, such as a lending institution’s, if the IRS determines that taking a secondary position ultimately will help with collection of the tax debt. That process is called subordination. Taxpayers or their representatives may apply for a subordination of a federal tax lien if they are refinancing or restructuring their mortgage. Without lien subordination, taxpayers may be unable to borrow funds or reduce their payments. Lending institutions generally want their lien to have priority on the home being used as collateral.
To apply for a certificate of lien subordination, people must follow directions in Publication 784, How to Prepare an Application for a Certificate of Subordination of a Federal Tax Lien. Again, there is no form but there must be a typed letter of request and certain documentation. The request should be mailed to one of 40 Collection Advisory Groups nationwide. See Publication 4235, Collection Advisory Group Addresses, for address information.
Taxpayers or their representatives may apply for a certificate of discharge of a tax lien if they are giving up ownership of the property, such as selling the property, at an amount less than the mortgage lien if the mortgage lien is senior to the tax lien. The IRS may also issue a certificate of discharge in other circumstances if the taxpayer has sufficient equity in other assets, can substitute other assets, or is able to pay the IRS its equity in the property. Without a tax lien discharge, the taxpayer may be unable to complete the home ownership change and the ownership title will remain clouded.
To apply for a tax lien discharge, applicants must follow directions in Publication 783, Instructions on How to Apply for a Certificate of Discharge of a Federal Tax Lien. There is no form but there must be a typed letter of request and certain documentation. The request should be mailed to one of 40 Collection Advisory Groups nationwide. See Publication 4235 for address information.
The IRS also urges people to contact the agency’s Collection Advisory Group early in the home sale or refinancing process so that it can begin work on their requests. People sometimes delay informing lenders of the tax liens, which only serves to delay the transaction.
Currently, there are more than 1 million federal tax liens outstanding tied to both real and personal property. The IRS issues more than 600,000 federal tax lien notices annually.

In the vast majority of cases, you will not lose any of your stuff to the IRS.  Most clothing and personal household belongings are beyond the scope of the IRS collection power.  Here’s why:

Section 6334(a)(1) of the Internal Revenue Code allows you to keep all of your clothing.  Bear in mind that the tax code uses the words “necessary” in describing the clothing that is exempt from IRS collections, meaning that the IRS can technically take clothing that is not necessary, like designer shoes, handbags, etc. (click here for some fancy clothing that the IRS did see fit to seize, and note that this is type of activity is highly unusual). 

Section 6334(a)(2) of the tax code protects your furniture and household effects up to $7,900 in value from the IRS.  The IRS is not taking your television, or your bed, or lawnmower.

The Internal Revenue Manual, at Section 5.17.3.4.7, Property Exempt from Levy, restates these exemptions in guidance to IRS employees.

It is important to remember these exemptions when completing IRS financial statements, like Form 433A. Claim the value of these everyday items as exempt.  And in an offer in compromise, make sure that these assets are not included in the value of the offer as they are off limits to the IRS - again, claim it as exempt. 

IRS Revenue Officers continue to become more aggressive in the field. Here is a new approach to look for:

I had a recent case in which a Revenue Officer sent my client a notice stating that that there would be an interview at my client’s house. These meetings usually take place at an IRS office. It was a somewhat bold move to request access to a personal residence for an interview in a collection case, especially because my client lived with her mother. This made my client very uncomfortable, for good reason (then again, wasn’t that the point of the IRS request?).

Here is my response:

1. The IRS has no right to access a taxpayer’s private living quarters or business without the permission of the taxpayer or a court ordered writ of entry. Sometimes it makes sense to grant permission or access, but not this time.

2. Under Internal Revenue Code 7521(c), the IRS cannot compel the presence of a taxpayer at a meeting if the taxpayer has representation.

The relevant parts of Section 7521 state as follows:

Any attorney, certified public accountant, enrolled agent, enrolled actuary or any other person permitted to represent the taxpayer before the Internal Revenue Service… who has a written power of attorney executed by the taxpayer may be authorized by such taxpayer to represent the taxpayer in any interview…(a)n employee of the IRS may not require a taxpayer to accompany the representative in the absence of an administrative summons issued to the taxpayer.

The taxpayer is not required to meet with the IRS if there is representation. If the representative is not going to be at the client’s house or place of business, then there is no meeting. The Revenue Officer is required to meet with the representative, and that would either be at the representative’s office or at the IRS. Compelling the taxpayer’s attendance can only be done with a summons, which was not present in this case. The IRS was testing the waters on this one.

There can be circumstances where access to a personal residence or business can be beneficial. A Revenue Officer once drove by my client’s mobile home and stated afterwards that she believed (correctly, I might add) the case would be uncollectible.

As a general rule, cooperation and good communication is essential in dealings with the IRS, but that must be tempered with knowing when to say no.

If I file bankruptcy on the IRS, but my spouse does not, will the filing stop the IRS to both of us or only me?

Posted on October 26, 2008
Filed Under Bankruptcy, Chapter 13, Chapter 7 | Leave a Comment

When a bankruptcy is filed on the IRS, Section 362 of the Bankruptcy Code imposes what is called an “automatic stay” on collection activity by creditors, including the IRS. The automatic stay requires the IRS to release any levys and to cease any further collection action.

But what if a husband and wife owe back taxes on joint returns, and only the husband files bankruptcy? Will the bankruptcy cause the IRS to stop collecting on the whole amount or just the husband’s portion?

The bankruptcy will stop the IRS from collecting against the spouse who filed the bankruptcy (husband in this case), but it will not stop the government from collecting against the non-filing spouse (here, the wife) on a joint liability.

This question refers to what is known as a “co-debtor stay.” In most Chapter 13 bankruptcy cases, a co-debtor stay protects both the filing and non-filing spouse against all collections on joint debts during the bankruptcy. The catch is that co-debtor stays apply only to consumer debt. Most courts define consumer debt to mean extenstions of credit, like loans and credit cards, not taxes. So, taxes are not consumer debt, and are not subject to the co-debtor stay in Chapter 13 cases. As to Chapter 7 cases, there are no co-debtor stays regardless of the type of debt involved.

That being said, bankruptcy can be a very effective way to eliminate taxes. Learn a little more in this post, or read an article I recently wrote on the topic for the Journal of the National Association of Enrolled Agents (NAEA).

In most cases, the IRS will require the past six years of unfiled tax returns for an account to be considered current.  This is a written directive of the IRS, found in IRS Policy Statement 5-133, “Delinquent Returns - Enforcement of Filing Requirements”.  

If the unfiled returns have a balance due, the amount you owe will double every five years from the interest and penalties charged by the IRS (more about the time limitations to collect here.  Since IRS billing notices will start after the returns are filed, an early financial analysis is always recommended to determine the collection approach (offer in compromise? bankruptcy? installment agreement?).  You will receive refunds, but only for returns that were to be filed within the last three years.  

Exceptions to the six year rule may apply in cases involving a prior history of noncompliance, false statements, existence of income from illegal sources, or the class or industry the taxpayer is in (a physician with advanced education may be held to a higher standards of awareness).  These cases could involve criminal elements and must be handled very delicately, although the vast majority of nonfiling cases are civil matters, not criminal.

If the IRS finds that you owe the government money, then your first instinct is to fight. An attorney taxes seems too expensive, so you decide to represent themselves.

However, this is a dangerous course to take for a number of reasons. First of all, tax law is extremely complicated, and only professionals who are really well-trained and experienced, and who has access to specialized (and expensive) tax law libraries and databases and know-how to use them are truly capable of navigating through. The number of things that can go wrong with the taxpayers are trying to represent themselves is legion.

I have dozens of situations in which the taxpayer came to me, to them, after they tried to do themselves. Most of my work, in the cases consisted of undo the damage they had done. These include highly qualified professionals set me too late - after they left prison after tax convictions.

Protect yourself against IRS Error

If you looked at all the legal dramas, you have no doubt heard the phrase: “Anything you say can and will be used against you in a court.” The same applies to the IRS.

Every conversation you have with IRS personnel will be saved and memoranda of one kind or another, and that IRS employees are perfectly capable of mistaking what you say. As Martha Stewart found any false statement of a federal official of any kind, even if they are not under oath, can lead to criminal prosecution.

Without knowledge of the law, taxpayers can seemingly innocent statements, the IRS employees very differently interpreted, even if the IRS agents, in good faith, that is unfortunately not always the case.

Let tax law to the experts

Since the tax law is so complicated that taxpayers are likely to do more harm than good if it is a questionable matter between them and the IRS. And if you have a conversation with the IRS, a questionable issue is almost always the case.

Any action in this area can have serious consequences. They would not try your own brain surgery, so why your financial risk, life, by trying something equally complex: the takeover of the IRS alone?

The stakes are high, and the requirements are numerous and complex. It could very well be a mistake and not even know it until after even more serious problems than you were trying to resolve arrive.

With the help of a tax lawyer, you can avoid talking with the IRS itself. It can be used with all of them to communicate with you.

Give you the full protection of the law

Do not rely on IRS employees. You are on the side of the government, not from you. An attorney taxes, on the other hand, knows what you are entitled.

Believe it or not, in fact Congress gave taxpayers substantial new procedural protection measures in 1998. However, if you are self-represented, you have no real possibility of forcing the IRS to respect these protective mechanisms. A tax lawyer would know what these are prohibited, and how they help you make the most of them.

Choose the right tax lawyer - they will tell you if you are a lawyer or not

Everyone’s situation is different, but it is rare that you do not save money by using a tax on lawyer interface with the IRS. If people need me, I tell them. Sometimes, I will free them is a relatively nominal amount for a short training, how they should deal with the IRS. I never do, unless I have noticed that first, there is no possibility of criminal exposure for the people with their specific tax problems.

If you are looking for a tax attorney, make sure you have a lawyer with specialized training. Good references, like other attorneys, judges, or “peer review” ratings as Martindale-Hubbell, will also help you in the decision-making. Good lawyers tax is also on litigation years of experience in their belt.

Do not solely to the IRS. They will be invited to more stress and many unknown problems if you make a mistake. A tax attorney may be expensive, but they help you avoid the mistakes and the money they could help save it worthwhile.

Michael Z. Mandale is a tax attorney based out of the boutique tax law practice of Mandale Kaufmann in Philadelphia, Pennsylvania. Throughout his career, he has helped people with serious tax problems fight the government and win. If you’re deep in IRS debt and need somewhere to turn, visit him online at http://www.MandaleLaw.com.

The Internal Revenue Service today released an updated document discussing
and rebutting many of the more common frivolous arguments made by individuals and groups
that oppose compliance with federal tax laws.
Anyone who contemplates arguing on legal grounds against paying their fair share of taxes
should read this document first.
This 74-page document, The Truth about Frivolous Tax Arguments, is updated at least once a
year by the IRS and is designed to help individuals and groups fully understand their
responsibilities and not violate the law.
The document explains many of the common frivolous arguments made in recent years and it
describes the legal responses that refute these claims. This document is available on IRS.gov and
will help taxpayers avoid wasting their time with frivolous arguments and incurring penalties.
In 2006, Congress increased the amount of the penalty for frivolous tax returns from $500 to
$5,000. The increased penalty amount applies when a person submits a tax return or other
specified submission, and any portion of the submission is based on a position the IRS identifies
as frivolous.
“Too good to be true schemes are exactly that–too good to be true,” said IRS Chief Counsel
Donald L. Korb. “Taxpayers should be careful in making frivolous arguments since courts have
routinely rejected them.”
A section of this document responds to some of the more common frivolous arguments made in
collection due process cases brought pursuant to sections 6320 or 6330.
Another section explains the penalties that the courts may impose on those who pursue tax cases
on frivolous grounds. It should be noted that the cases cited as relevant legal authority are
illustrative and are not intended to provide an all-inclusive list relating to frivolous tax arguments

Tax payers having problems with the IRS often wonder when they need the assistance of an IRS tax attorney versus trying to handle these problems on their own. The question as to whether or not a tax lawyer is needed can be very important because many options available to taxpayers, whether or not they have filed their back tax returns, have definitive time frames.

The short answer to when do you need IRS tax attorney help is simple. You should seek the assistance of an IRS tax attorney as soon as you start thinking you might. If there is any question in your mind as to whether or not you need a lawyer to help you with IRS issues, then chances are you already passed the threshold of when one may be of great assistance to you.

The IRS has many different collection options at their disposal and will be aggressive in their collection of perceived or real back taxes, penalties, and interest. Did you know, however, that you have legal rights that the IRS may have violated? Did you know that you can sue the IRS for improper actions? An experienced and qualified tax lawyer will know this and should be able to protect your rights.

Every day the IRS makes mistakes and those mistakes can cause significant harm to taxpayers who may or may not have violated tax laws. Even if you believe you made mistakes in the filing of your taxes that does not mean you do not have recourse. You need to make sure your rights are protected by having a qualified tax attorney review your particular circumstances and provide you with information about what, if any, recourse you have.

Protecting your rights against the IRS is something you need to take seriously and you should consider an experienced IRS tax attorney. Law firms like the Mandale Law Firm in Pennsylvania & New Jersey concentrate specifically in this area of the law in order to protect your rights as taxpayers.

Mandale Kaufmann provides a customized approach to the tax relief rather than the assembly line technique that is the norm within the industry. For more information on getting an IRS tax attorney go to http://www.mandalelaw.com or call 1 (888) LIEN-FIX (543-6349).