What the IRS Can and Cannot Do
Investing Money

What the IRS Can and Cannot Do

You have been sent a notice for not filing tax return or you owe taxes for the year that you bought your primary residence 5 years ago. Now what? Well, your duty as a taxpayer is to respond promptly with either explanation or amount of tax owed even if you are in the country or filing taxes while living abroad. The IRS, unlike most creditors, are entitled to unlimited access of your personal property if you don’t pay tax. It can get a hold on your primary residence, bank accounts, wages and personal belongings to pay off all dues. Fortunately, the Reform Act that was passed in 1998 restricts the IRS from being excessive in terms of tax collection. For example, now the IRS cannot come after your personal clothing, school books and tools necessary to perform your job, personal effects totaling $7000, unemployment benefits and other benefits essential for you and your family’s day-to-day living. 

That doesn’t mean you are exempt from paying taxes that are in default for the previous years. However, the Act has made it easier for taxpayers to come up with a payment plan and also provided taxpayer assistance orders. According to the orders, the IRS cannot make immediate threats or delay more than 30 days in solving the taxpayer’s issue. So, if you get a notice from the IRS that a payment is due for the year before, do not panic. According to a report, almost 50% of IRS employees are entry level data entry operators who are inexperienced in tax and poorly trained. They have made countless mistakes and may continue to do in your case as well. If your tax record shows that there is no money to be owed to the IRS, it is likely that you are one of the victims of tax miscalculation by these employees. Send them a letter along with proof that there is no back due. Better yet, sit down with your CPA and go through your returns. Give adequate explanation as to why you don’t owe any tax. 

On the other hand, if you owe tax, make sure to pay it before the due date. Any tax that you owe if not paid on time will result in confiscation of your personal property as mentioned above. Here, the IRS will not take into consideration the equity of your property but will sell it for whatever amount that covers your tax balance. 

Remember that not filing tax or not paying the amount owed are not just a few instances where you can get notices from the IRS. Every year, a certain number of tax returns are chosen to be scrutinized for discrepancies. If yours is selected, be prepared with all documents, receipts and bills to prove the deduction expense, charges and so on. In other words, if you have chosen to take an entertainment charge as business expense, you should show the proof that it is indeed for the business purpose. The best way to deal with the audit is to have your CPA or tax preparer represent you.