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Ask Phil: IRS Enforcement

Today, Optima Tax Relief’s Lead Tax Attorney, Phil Hwang, discusses IRS enforcement, including the statute of limitations and how it might affect your credit report. 

Did you know the IRS has a certain amount of time to collect your tax debt before it expires? How long? Well, the simple answer is 10 years, but several factors can pause this timeline. For example, filing for bankruptcy, living abroad, applying for an installment agreement, submitting an offer in compromise, applying for innocent spouse relief, applying for a taxpayer assistance order, requesting a collection due process hearing, serving in the military, or being sued by the IRS can all pause the 10-year collections period 

Many also wonder if IRS enforcement can affect your credit. The IRS can file a Notice of Federal Tax Lien, or a priority claim over all of your assets. While this notice does not show up on your credit report directly, it does become public information that creditors can access through supplemental reports. This can affect your access to credit, business opportunities, and even employment. 

Join us next Friday as Phil will answer your questions about levies and wage garnishments! 

If You Are Being Hit with IRS Enforcement, Contact Us Today for a Free Consultation 

What Happens If You Don’t File Your Taxes?

what happens if you dont file your taxes

The April 18th tax deadline passed, and you did not file your tax return. Now what? First, don’t panic. Not everyone needs to file a tax return. Typically, if you earn less than the standard deduction associated with your filing status, you do not need to file a return. On the other hand, if you did not file a tax return even though you were required to, you might have an issue. Here’s what happens if you don’t file your taxes. 

You will be charged a Failure to File penalty. 

If you did not file a tax return when you were required to, the IRS will charge you a Failure to File penalty. This penalty is currently 5% of the unpaid taxes for each month or partial month that a tax return is late, up to 25% of your total unpaid tax bill. If you are due to receive a tax refund, then you will not receive a penalty for failing to file. However, not filing may result in losing that refund. Keep in mind, a tax refund can be only claimed within 3 years of its due date.  

You will be charged a Failure to Pay penalty. 

If you owe a tax balance and do not file your taxes, you will be penalized for failing to pay your tax bill. In 2023, the Failure to Pay penalty is 0.5% for each month or partial month your tax balance goes unpaid, up to 25% of your total tax bill. If both a Failure to Pay and a Failure to File penalty are applied in the same month, the Failure to File penalty will be reduced by the amount of the Failure to Pay penalty applied in that month. For example, instead of a 5% Failure to File penalty for the month, the IRS would apply a 4.5% Failure to File penalty and a 0.5% Failure to Pay penalty.  

Your tax bill will accrue interest. 

If you do not file your taxes, the IRS will assess interest on your unpaid taxes, even if you do not receive a Failure to File penalty. Even worse, the IRS begins accruing this interest beginning on the date your taxes are due, which is April 18th in 2023. If you do receive the Failure to File penalty, not only will you incur interest on your unpaid taxes, but on the penalty as well. Underpayment interest rates can change each quarter. The interest rate through June 2023 is 7% per year, the highest it has ever been. This essentially means that having a tax balance is more expensive than ever. 

The IRS may file a return on your behalf. 

In some cases, the IRS will file a substitute tax return on your behalf using tax documents that were sent to them from your employers and financial institutions. What they will not do, however, is try to reduce your tax liability with credits and deductions. If you still take no action, the IRS will continue processing the return and charge you any taxes owed.  

The IRS statute of limitations is delayed. 

Some may think that they can avoid filing a tax return for many years and the IRS will lose its power to enforce after the 10-year statute of limitations ends. However, the statute of limitations does not begin until a tax return is actually filed. This means that the unfiled tax return will essentially follow you until you file it. If you wait too long though, you risk losing out on refunds and tax credits. 

What Should I Do If I Didn’t File My Taxes? 

The simple answer to this question is to file immediately. The tax deadline has passed, and so has the deadline to request a tax extension. However, penalties and interest will be minimized if you file a tax return now. Some taxpayers do not file because they know they cannot afford to pay taxes they owe, but not filing and not paying only escalates the issue at hand. If you need help with your tax debt, tax relief is always an option. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.  

Contact Us Today for a No-Obligation Free Consultation 

What is the IRS Collection Statute of Limitations?

What is the IRS Collection Statute of Limitations?

They say that death and taxes are the only two certainties in life. However, taxes are only collectible for so long. Did you know there is a statute of limitations for IRS collections? Here’s an overview of how the IRS statute of limitations works. 

How Long is the IRS Collection Statute of Limitations? 

The IRS has a 10-year statute of limitations for tax collections, beginning when the IRS first assesses your tax liabilities. In other words, the IRS cannot collect tax debt that is older than 10 years. You should keep in mind that the first IRS notice you receive is not necessarily when your liabilities are assessed. Specifically, there is a Collection Statute Expiration Date (CSED), which marks the last day the IRS can collect tax debt. After the CSED, the IRS cannot legally collect your tax debt, which means that your tax debt essentially disappears. 

If you want to find your CSED, you can count 10 years from the date on your Notice of Federal Tax Lien. You can also request a transcript of your IRS account to find the date your liability was assessed and filed. Keep in mind that there are several actions that can delay the statute of limitations, thus pushing out your CSED.  

Which Actions Extend a CSED? 

There are several qualifying events that can extend a CSED, including: 

  • Filing for bankruptcy: The IRS will pause the statute of limitations while your bankruptcy filing is pending, beginning from the filing date until the court makes a decision. The CSED will remain suspended for an additional six months.  
  • Living abroad: The IRS will pause the statute of limitations while you live abroad for six consecutive months or longer. The CSED will remain suspended for six months after you return to the United States. 
  • IRS installment agreement: The IRS will pause the statute of limitations while it reviews your installment agreement application. If the agreement is rejected, the CSED will remain suspended for 30 more days. This is also the case if your installment agreement defaults. If you appeal your rejection, the CSED will remain suspended until a decision is final. 
  • Offer in compromise: The IRS will pause the statute of limitations while it reviews your OIC application. Once a decision is made, the suspension ends. If your offer is rejected, your CSED will remain suspended for 30 more days. 
  • Innocent spouse relief: The IRS will extend the CSED until the 90-day petition expires. If you appeal the tax court decision, the statute of limitations will be suspended until a final decision is made, plus an additional 60 days. 
  • Taxpayer assistance order: The IRS will pause the statute of limitations while it reviews your submitted Form 911, Request for Taxpayer Advocate Service Assistance and Application for Taxpayer Assistance Order.  
  • Collection Due Process (CDP) hearing: The IRS will pause the statute of limitations while it reviews your request to stop a levy or remove a lien until a determination is made or until you withdraw your request.  
  • Military deferment: The IRS will pause the statute of limitations during military service and for an additional 270 days afterward. If you serve in a combat zone the CSED will be suspended for up to 180 days after military service. 
  • Being sued by the IRS: While this event rarely happens, the IRS will pause the statute of limitations during the court proceedings. 

Can I Ignore My Tax Debt Until the IRS Collection Statute Expires? 

You might be enticed to just wait out the IRS collection statute of limitations. However, this strategy is generally not recommended since it would mean ignoring your growing tax bill and IRS notices. Under these circumstances, simple actions like getting a job, purchasing a home, registering a vehicle, and operating a business would be very difficult. Working with the IRS will typically be your best option, but doing so alone can be tedious, intimidating, and stressful. Working with a credible and experienced tax relief company can help save time, money, and stress. Optima Tax Relief has over a decade of experience helping taxpayers get back on track with their tax debt. If you need tax help, contact us for a free, no-obligation tax consultation today.