As a licensed professional in California and Long Beach, you can lose your professional licenses if listed in the top 500 largest tax delinquents. AB 1424 allows the Board of Equalization and the California Franchise Tax Board to add all delinquent taxpayers to their list of the top 500 tax-delinquent owing above $100,000. On top of revoking professional licenses and driver’s licenses, the AB 1424 allows the Internal Revenue Service to locate debtors who moved their money to bank accounts outside California.
All persons on this list can face suspension or denial of professional licenses when reapplying for them. After learning that you are on the list, you have ninety days from when you received a preliminary notice of suspension to enter into an installment program or clear the outstanding tax responsibility. If you fail to comply, you will have your license suspended or denied until the commission, or licensing board obtains a release from the Board of Equalization(BOE) or Franchise Tax Board (FTB).
While owing tax debt to the Internal Revenue Service can lead to numerous unwanted penalties, including bank accounts and personal property seizing, there are available options to prevent the severe consequences.
Why People Fall Back Their Taxes
Generally, there are numerous reasons why individuals fall behind paying taxes. For instance, independent contractors or freelancers can fail to put away a percentage of their wages to pay their taxes or make their quarterly tax payments.
Additionally, sometimes businesses and people cannot afford to raise the entire amount they owe the Internal Revenue Service. However, instead of having a practical payment strategy, they ignore letters the agency sends until IRS agents knock at their doors.
The agency takes strict measures against taxpayers who do not pay taxes, irrespective of the extenuating circumstances, situations, or reasons. The agent will send you letters notifying you of the total tax debt amount, allowing you to appeal the amount owed and audit your taxes to identify possible mistakes.
Actions IRS Takes to Collect Unpaid Taxes
You should not take your unpaid taxes lightly. The consequences of not clearing FTB-delivered bills can be considerable. They include:
Loss of Benefits, Fees, and Penalties
The initial consequences you can face for failing to pay taxes include penalties, fees, and cancellation of your benefits. Persons who do not bring taxes timely could be accountable for paying up to twenty-five percent more on the taxes.
Additionally, the internal Revenue Service can withdraw your benefits. In other words, if you fail behind on taxes, the IRS can seize the Social Security income, making it challenging to prepare for your retirement.
A Lien and Property Seizure
A tax lien is recorded after demands for payment go unanswered. Then the government will issue a notice of collection to the taxpayer thirty days before the IRS issues the lien. The notice of collection gives the taxpayer a month to clear their debt. Otherwise, the government can legally claim your asset and seize any property to clear your outstanding tax debt. The IRS does not require a court judgment or order before taking your asset,
If you own a limited liability company or business, the IRS can seize your business assets. Moreover, the lien could stop you from obtaining business loans, selling business property, and house refinancing.
The IRS can also suspend your necessary license. If you have at least one hundred dollars in tax debt, penalties, or interest and do not have a collection plan, the driver’s license is prone to suspension. You have sixty days to enter into a collection agreement with the IRS before the agency informs the California Department of Motor Vehicle of the status and requests the DMV to suspend the license.
Additionally, your occupational and professional license can be suspended. Dentists, lawyers, barbers, architects, chiropractors, and realists cannot have their professional licenses renewed in California, losing the ability to make a living in the fields.
Taking Advantage of an Offer in Compromise (OIC) to Pay Your Tax Bill
Sometimes, you can wipe the tax debt at discounts. If you are eligible for an OIC, the IRS can accept an amount less than you owe on the tax bill or even resolve the debt.
Please note that you do not have a constitutional entitlement to have the IRS reduce your tax bill. It is within the government’s discretion.
To qualify for the offer consideration, you should prove the following:
- There are doubts about whether the Internal Revenue Service can collect your tax bill (in the future or now).
- Owing to extraordinary circumstances, clearing your tax bill debt would result in financial hardship or could be inequitable or unfair.
Doubt as to liability is another hardly used ground. Taxpayers pursuing it should bring Form 656-L. You should file the form if there are doubts about whether the assessed tax liability is accurate. Generally, it is a more challenging and unusual option to pursue.
The Internal Revenue Service recommends taxpayers use an online pre-qualifier tool to determine their eligibility in the OIC.
Understanding the OIC Formal Process
Submitting your OIC to the agency is formally initiated by filling out IRS Offer in Compromise (Form 656) alongside $186 in application fees.
A taxpayer could be exempted from the fees if their monthly income is below the poverty guidelines. If they seek the poverty guideline exemption, they should file an Application Fee Worksheet (Form 656 booklet).
You should also provide comprehensive financial details using Form 433-B (business) or Form 433-A (an individual), Collection Information Statement.
Suppose the taxpayer resides in a community property state and is married. In that case, the agency will require that the Collection Information Statement includes information on their partner, notwithstanding that they owe the Internal Revenue Service alone.
Be sure you fill out the form correctly. The tax agency scrutinizes your disclosures more closely.
The IRS can also request copies of financial documentation like vehicle registration, bank records, and pay stubs.
What Amount Should a Taxpayer Offer?
You should adhere to the guidelines on Form 433 to determine your offer amount. Your offer should be equivalent to:
- Your property’s net realizable value, and
- Excess income after deducting your monthly bills from the monthly income
Then multiply the figure by twelve or twenty-four, depending on your payment period of choice.
What happens if your determined amount is beyond your capability to pay? The IRS offers special considerations to an individual with psychological or physical infirmities like:
- Bleak financial ability due to advanced age
- Relative’s challenge provided it has adverse financial effects on the taxpayer.
- Alcohol-related challenges
The most effective method of notifying the IRS of the special circumstances is via a letter filed alongside Form 433-A. The letter should be brief and explain the tale of your woe. You can also attach medical records and statements from medical practitioners proving the condition.
What to Do After the IRS Rejects Your Offer
The Internal Revenue Service should explain whenever the agency fails to accept the offer. Typically, the IRS rejects an offer when the taxpayer is notorious or their offer is low. If your offer is low, the letter issued by the IRS will indicate the acceptable amount.
After learning why the IRS rejected your offer, resubmit it. Special procedures officers or revenue officers can help you strategize on how to make the OIC acceptable.
Installment Payment Plans
One commonly used method for paying existing IRS debt is the monthly installment agreement (IA). If your debt does not exceed $50,000, you can receive an installment payment plan for 72 months.
Please note that the payment plan comes with drawbacks. Penalties and interests continue accruing while you owe. Generally, the interest rate is between eight to ten percent annually, and you can owe more than when you began.
Negotiating Your Monthly Payments
If you cannot clear your debt in less than six (6) years or owe more than fifty thousand dollars, the request for the IA starts with an Internal Revenue Service collector’s analyzing your Form 433-A. The personnel will use the details on your form to decide how much you will pay comfortably. The payment amount is within the agency’s discretion.
However, here are tips for negotiating your installment plan:
- Suggest the payment plan you are comfortable with
- Pay the remaining amount after paying your monthly essential living expenses. Do not promise to pay more than you can afford to have the IRS approve your plan.
- Give your initial payment after proposing your agreement and continue making your monthly payments regardless of whether the agency has approved the IA or not. Making a voluntary payment creates a track record and shows good faith.
The IRS can refuse the installment agreement proposal due to the following reasons:
- The IRS considers your living expenses unnecessary and extravagant
- The details you provided on your Form 433-A are inaccurate or incomplete
- You defaulted on your previous installment agreement
If the installment agreement is rejected, you can continue negotiating. Request to speak with the collector’s manager; making the request can soften the personnel up. If you fail to obtain a fair payment plan, request to talk to their line manager, the collections branch chief, or the district director.
After your IA approval, you and the agency should comply with the conditions of the agreement unless any of these statements is true:
- You did not pay taxes or file your tax returns that arose after entering your IA
- You missed your payments
- Your financial status changed significantly
- The Internal Revenue Service learns that you provided incomplete or inaccurate details during your negotiation.
Making Your Monthly Payments
Until you obtain a notice of approval, send your payments to the local service center using the bar-coded envelopes, and payment slips offered. If you do not want the taxing agency to know your bank, use a cashier’s check from a different financial institution or a money order.
After the IRS approves your IA, you have other options, including:
- Using a direct debit — You should request a payment deduction on Form 2159. Your boss should send your payment to the agency monthly.
- Using a direct debit —You can also have the bank debit the checking account monthly and send your payments to the Internal Revenue Service. Provided your account is open, you will neither miss any payments nor risk losing your professional license.
Eliminating your tax debt in bankruptcy is not as straightforward and seamless as it seems. Typically, you cannot wipe out tax debts in a bankruptcy case; you will repay them in Chapter 13 bankruptcy or continue owing them at the end of your Chapter 7 bankruptcy.
When Can You Discharge Your Tax Debt?
If you want to discharge your tax debt, filing a Chapter 7 case is the best option if you qualify for Chapter 7 and your debt is eligible for the discharge.
You qualify for Chapter 7 bankruptcy if you satisfy the following conditions:
- In the last six months, your average monthly income has been lower than the median income for the same-sized household in California; you should pass a means test. The mean test determines whether the disposable income is enough to make partial payments to your unsecured creditors.
- You have not filed a Chapter 7 case for the last eight (8) years
You should meet the following conditions before discharging your income tax using Chapter 7:
- The tax is income tax
- You will not engage in willful tax evasion or fraud
- The tax return should be due three years or less before filing a bankruptcy case
- You should have filed tax returns for the outstanding debt you want to discharge two (2) years before bringing the bankruptcy case.
- The IRS should have reviewed your income tax debt eight months before bringing a bankruptcy petition.
Please note that Chapter 7 bankruptcy will not wipe out your previous recorded tax liens, even if you are eligible for a discharge. The bankruptcy will stop the IRS from going after the wages or bank accounts and wipe out the responsibility to pay your qualifying tax. However, if the Internal Revenue Service recorded a tax lien on an asset before filing bankruptcy, the lien remains on the asset. You have to clear the lien before transferring or selling the asset to another person.
Managing Your Tax Debt Using Chapter 13 Bankruptcy
Using a Chapter 13 bankruptcy to file your taxes can be easy because:
- Dischargeable taxes will not accrue penalties or additional interest
- The IRS can forgive your dischargeable taxes depending on your disposable income amount after deducting your necessary and reasonable expenses from the pay.
- You meet the IRS tax lien using a Chapter 13 repayment plan
- The IRS should adhere to your repayment plan provided you include your outstanding income tax and keep the tax responsibilities current during the plan.
When Should You File Your Bankruptcy Case?
You should not wait to file the income tax return until after filing for bankruptcy.
Other Ways to Deal With the Internal Revenue Service If You Have Tax Debt
Most taxpayers who are behind in taxes can work things out with the agency using the following options:
Ensure You Keep in Touch With the Internal Revenue Service
If you are behind on taxes and want to keep your professional license, you should contact the taxing authority. The Internal Revenue Service can leave you for a while but will come back later. Ignoring the agency can have dire consequences.
Time is On Your Side
Typically, the agency’s collection machine is slow to act after things start rolling, giving you adequate time to strategize. While you will receive numerous computerized tax bills and phone calls, it can take time before you meet an IRS personnel.
However, that does not mean you should get comfortable. The computerized collection systems become faster each year, and computer-generated levies and tax liens can make your life miserable.
Provide Your Financial Details to the Internal Revenue Service
Be cooperative and give the financial information or documentation that the IRS collector requests. Nevertheless, you should not provide full disclosure. While you should not lie to the agency, you are not lawfully obligated to reveal any information about your income, assets, or finances to the IRS collector unless they serve you a formal summons.
Request an “Uncollectible” Status
If you are in a dire financial situation, you can request the IRS to place you on an “uncollectible” status temporarily. If the Internal Revenue Service agrees, the agency will leave you for a while. However, you will still owe penalties and tax, and your interest will accrue, but the agency will not engage in any collection effort during the duration.
Find Skilled Legal Representation Near Me
Failing to file tax returns or pay taxes on time in Long Beach and California is an offense. Fortunately, the IRS will often prefer to work with professional licensees before imposing penalties. That is why the agency sends notices before taking any action. If you cannot pay the taxes on time, consider speaking with the legal team at The Legal Guardian. Irrespective of your stage regarding written notices, we can help you clear the debt, giving you a fresh start. We can work with the IRS and submit a settlement offer or develop your settlement plan. Please call us today at 866-448-6811 to book your initial free consultation and learn how we can help you.