Contending with the IRS Collection Monster

This column, in slightly different format, originally appeared in The San Francisco Examiner Newspaper, October 12, 1997

Copyright 1995-7 Robert L. Sommers, all rights reserved.

Contending with the IRS Collection Monster

Recent hearings detailing IRS abuses televised the obvious: IRS routinely uses harassment and intimidation to collect taxes. While Congress makes noise about reforming this country’s most feared agency, it must take the blame for providing IRS with unbridled powers to ruin taxpayers’ lives. Protect yourself against the IRS collection monster:

Make Sure You Owe The tax

Taxes must be legally assessed (charged against you) and must be legally owing before they can be collected. You do not owe taxes charged against your spouse, unless you filed a joint return with that spouse.

Even if you filed a joint return, you may not owe taxes on income earned by your spouse, if you qualify as an "innocent spouse," which has three requirements: (1) The other spouse misreports income or deductions, causing a substantial understatement of tax liability; (2) the innocent spouse did not know, or had no reason to know, about the understatement; and (3) it is inequitable to hold the innocent spouse liable.

Note: Although you personally might not owe tax, California’s community property laws considers 50% of your earnings as belonging to your spouse and thus reachable by IRS. California law prevents creditors from satisfying premarital debts from the earnings of the other spouse; however, IRS contends it is not affected by this state law. You can protect your earnings by written agreement with your spouse, which converts community property income and assets into the separate property of the spouse who earns it.

IRS is barred from collecting taxes assessed more than 10 years ago. File a claim for a refund if IRS has seized funds from you (including recent tax refunds) and applied them to a closed year. Also, if you have discharged taxes in bankruptcy, IRS is forbidden from collecting them. Further, it is not automatic that you personally owe taxes assessed against your corporation; IRS must take additional steps to assert those taxes against you.

Taxes Must Be Properly Assessed

When you file a return stating you owe taxes, you have performed a "self-assessment" and IRS may immediately collect the money. If IRS says you owe more money, it must properly assess the additional amount (IRS must "assert a deficiency") within strict time limits, usually within three years from the date the return was filed. If IRS fails to timely assess additional taxes, it is barred from collecting them.

Before it can assert any deficiency, IRS must mail you a Notice of Deficiency and, upon receipt, you have 90 days (150 days if the notice is addressed outside the country) to petition the United States Tax Court to contest the pending assessment. The assessment procedure requires giving you notice: IRS uses your last known address, but it is put on notice of a change when you file a subsequent return with your new address. Failure to provide you with a Notice of Deficiency prevents the IRS from assessing any additional tax.

Dealing With IRS

If IRS is attempting to collect taxes that you do not owe, keep all notices and correspondence dealing with the matter. Call the office whose number is on their correspondence and explain clearly all reasons why you do not owe the tax. Write down the date, time and with whom you spoke and the department. Ask for a date certain for the release of levy or garnishment, if any. You will need this information if the person does not resolve the matter. If the IRS fails to resolve your matter or provide you with this information, then contact the Taxpayer Advocate in your area.

The Taxpayer Advocate (an independent branch within IRS) has enormous powers to stop an IRS collection action and will investigate your claim (1-510-637-2703). You submit Form 911, describing "significant hardship" (a serious economic deprivation) caused by the administration of the tax laws by the IRS. An IRS levy of your bank account or garnishment of your wages usually suffices as significant hardship. You may download Form 911 from the IRS website (click on the Taxpayer Advocate link).

If you still cannot resolve the problem, contact your congressional representative, and provide your documentation and a written explanation of what happened. Usually, IRS will react when it hears from a congressional representative. Make sure your representative’s office monitors IRS’s response, until your complaint is resolved.

Rather than dealing with IRS bureaucracy, consider hiring a professional. Tax attorneys and CPAs often handle tax collection matters, but do not overlook using an enrolled agent (a person licensed to practice before IRS). Many enrolled agents are former IRS employees who specialize in dealing with tax collection.


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**NOTE: The information contained at this site is for educational purposes only and is not intended for any particular person or circumstance. A competent tax professional should always be consulted before utilizing any of the information contained at this site.**