The IRS is known for its formidable reputation when it comes to collecting taxes and pursuing non-compliant taxpayers.
However, there are common misconceptions about the extent of their powers and the severity of the tactics they can pose.
In this article, we'll shed light on some common IRS tactics and what the IRS can actually do, providing valuable insights from a tax relief professional's perspective.
If you have dealt with any of the common tactics listed below, contact our office today at (860) 580-5183 for a free, no-obligation consultation to review your options.
Tactic #1: Seizing Your Home or Assets
One of the most feared IRS tactics is the potential seizure of your home or assets. Many taxpayers worry about losing their property if they owe back taxes.
Reality: While the IRS does have the authority to place liens on your property, and they will, seizing your primary residence is rare and is a complex process, and the IRS often prefers alternative collection methods, such as wage garnishments, bank levies and taking your accounts receivable if you are self-employed or run a business. A second or vacation home, however, is fair game for the IRS.
Tactic #2: Jail Time for Unpaid Taxes
Some taxpayers fear that unpaid taxes will lead to imprisonment. The idea of going to jail due to tax debt is a pervasive myth. However, many Americans have been convicted and gone to jail for not filing legally due income tax returns.
Reality: While the IRS can pursue criminal charges for non-filing and unpaid taxes, they rarely go this route. In most cases, the focus is on collecting what is owed, not criminal prosecution. However, it's crucial to address tax debt promptly to avoid escalating issues.
Tactic #3: Garnishing Your Entire Salary
Many individuals worry that the IRS can take their entire paycheck through wage garnishments, leaving them with nothing to live on.
Reality: The IRS follows specific guidelines for wage garnishments, which consider your income, deductions, and necessary living expenses. However, it is true that the IRS can take up to 80% of your net pay to satisfy your IRS obligations.
Tactic #4: Freezing Your Bank Accounts
The idea of the IRS freezing your bank accounts can be terrifying, as it implies immediate financial turmoil.
Reality: The IRS can levy your bank account to collect unpaid taxes, but they typically provide notice before taking such action. Additionally, you have rights to appeal and negotiate a release of the levy, allowing you to access your funds. The IRS allows you 21 days, from the date of the levy notice, to attempt to have the funds returned to your bank account.
Tactic #5: Never-Ending Interest and Penalties
Taxpayers often worry that interest and penalties on unpaid taxes will accumulate endlessly, leading to insurmountable debt.
Reality: While interest and penalties can significantly increase your tax debt over time, there are options for reducing or eliminating them. Tax professionals can help negotiate penalty abatements and explore payment plans to manage the debt effectively. With IRS interest rates at 8% charged on unpaid taxes today, your debt can literally double in a short period of time when you take into account the daily compounding of interest and penalties that are left unresolved.
Tactic #6: Losing Your Passport
The IRS has the authority to revoke or deny a passport if you owe a significant amount of unpaid taxes.
Reality: This is a relatively recent enforcement tool used by the IRS, primarily targeting individuals with tax debt over $50,000 who are actively avoiding their obligations. Most taxpayers will not face passport revocation if they engage in resolving their tax issues.
Tactic #7: Endless Audits
Some taxpayers believe that once audited, they'll be subjected to continuous audits, creating an ongoing burden. However, the IRS will want to audit the prior and subsequent periods all at the same time. For example, if the IRS is auditing your 2021 return, they will also be looking at 2020 and 2022 simultaneously.
Reality: IRS audits are typically conducted to address specific issues within a tax return. While being audited can be stressful, it does not automatically lead to perpetual audits. Addressing any identified concerns can bring the audit to a close.
Tactic #8: Imminent Seizure of Business Assets
Business owners often worry that the IRS will seize their business assets, leading to the collapse of their livelihood.
Reality: The IRS does have the authority to padlock your business, but this is typically a last resort. They prefer to work with businesses to establish payment plans or negotiate settlements that allow the business to continue operating.
However, owing payroll (941) taxes is a double whammy. Not only can the IRS go after your business, they can also go after you personally.
Understanding the reality behind common IRS tactics is essential for taxpayers facing tax issues. While the IRS has unbridled power to collect unpaid taxes, they prefer resolution over severe enforcement actions.
Seeking assistance from a tax relief professional can help you navigate the IRS maze of complexities, negotiate manageable solutions, prevent them from enforcing collection against you, and protect your rights and options.
Don't let fear of IRS tactics paralyze you—take proactive steps today to address your tax challenges and find a path toward resolution.
Contact our office today at (860) 580-5183 for a free, no-obligation consultation to review your options.