Tax Trouble
Got tax questions? Get live answers to your tax questions by contacting one of the experts below. Learn about tax audits, internal revenue enforcement actions, and the types of underpayment of taxes that can result in collection actions and criminal prosecution. If you are going through an audit consider using what is called an “offer in compromise” which is an agreement negotiated between the taxpayer through his representative and the IRS to settle a tax liability by paying less then the full amount of taxes owed in exchange for a legal release of claims by the IRS. For more information and advice on this issue and others, contact one of the experts below.
How does IRS "collection" operate?
Your case goes to the Internal Revenue Services "Collection" department whenever the IRS determines that you owe back taxes. This will happen if you file a tax return and don't pay the tax owed, or if the Internal Revenue Service wins at an audit of the tax return you filed. They have many tools to collect the tax. Once your case is in Collection, you will receive notices asking for payment of the tax. If that does not bring about payment, then the IRS automated system will begin seizing assets they know exist such as your bank accounts. If the amount you owe is high enough, an IRS Revenue Officer will be assigned to your case. The officer will call you and will either ask you to come in to an IRS field office or come out to see you personally.
I don't think I owe the tax. Can I fight collection on this basis?
During an audit, you may dispute an IRS claim that you owe more taxes. But generally you cannot do this as a way of fighting collection. You must pay the tax and then file a claim for refund. There are a few special situations where you can dispute an IRS claim that you owe more taxes. If you think you don't owe the tax, you might want to talk to a tax expert about your situation. In most cases, the IRS has ten years (the "statute of limitations") to collect back taxes - from the time they "assess" the taxes. Assessment is the point where the IRS stops saying, "We think you might owe some taxes," and says simply, "you owe the taxes." This happens if you file your tax return but don't pay all the taxes or if the IRS has been successful in an audit. In most cases, waiting out the ten years will not work. However, if for some reason, eight or nine years have passed since the taxes were assessed, waiting out the rest of the ten years could work. Be careful to count the years properly. There are a number of processes that will extend the ten years. For instance, a bankruptcy or filing an Offer in compromise will extend the ten years. Sometimes the Internal Revenue Service makes a mistake, but usually one of two things has happened. Often the taxpayer has moved and not told the IRS his or her new address. If the IRS sends notices to the last known address, it has satisfied the law. The other thing that happens is that the IRS sends letters, but they are either ignored or thrown away. When either of these things happens, the whole audit is completed without the taxpayer even knowing about it. Then when it goes to Collection, the Internal Revenue Service sometimes finds the taxpayer - who is now in for a big surprise.
What happens in criminal tax collection actions?
Many federal white-collar prosecutions are for tax crimes, such as tax evasion, failure to file income tax returns, or tax fraud. There are some special considerations to keep in mind if you are under investigation for violations of the Internal Revenue Code. In a bank fraud case, for example, the federal investigative agency is typically the FBI. The FBI usually works directly with the local United States Attorney's office. When the FBI has completed its investigation, it forwards its case to the local U.S. Attorney's office, and the local office determines whether to prosecute or not. In tax crime cases, the procedure is significantly different. The typical criminal tax case is investigated by the Internal Revenue Service Criminal Investigation Division ("CID"). CID investigators are federal agents trained in law enforcement techniques and tactics. Most are also accountants by trade, and many have achieved their CPA. There are CID offices throughout the country.
When a CID agent completes an investigation and recommends that an individual be prosecuted, there are at least two stages of review by Internal Revenue Service attorneys prior to the approval of the prosecution. Once the Internal Revenue Service approves prosecution at its highest level, the case is forwarded to the United States Department of Justice Tax Division in Washington, DC, where federal prosecutors specializing in criminal tax violations review the case and decide whether or not to authorize prosecution. If the Department of Justice Tax Division in Washington approves prosecution, the case is sent to the local US Attorney's office with the direction that the individual or individuals named be indicted and prosecuted for the offenses alleged. In tax crime cases, the multi-tiered approval process can work to your advantage. The process gives you a number of different opportunities to derail a federal criminal case before it ever gets to grand jury.
At each of the IRS approval levels and at the Department of Justice Tax Division level, your lawyer will have the opportunity to schedule a conference where he or she can sit down with government attorneys and attempt to convince them to decline prosecution of the case. If the government has a strong case against you, it is unlikely that he or she will be successful in convincing either the IRS or the Department of Justice Tax Division to refrain from prosecuting. However, if there are misunderstandings that can be explained away and the government can be convinced that there was no criminal conduct, you have the opportunity to convince the government to decline prosecution prior to grand jury. It is always less stressful to have your attorney address matters in meetings with government attorneys than to present your side of the story to a jury at a federal criminal trial.
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Your case goes to the Internal Revenue Services "Collection" department whenever the IRS determines that you owe back taxes. This will happen if you file a tax return and don't pay the tax owed, or if the Internal Revenue Service wins at an audit of the tax return you filed. They have many tools to collect the tax. Once your case is in Collection, you will receive notices asking for payment of the tax. If that does not bring about payment, then the IRS automated system will begin seizing assets they know exist such as your bank accounts. If the amount you owe is high enough, an IRS Revenue Officer will be assigned to your case. The officer will call you and will either ask you to come in to an IRS field office or come out to see you personally.
I don't think I owe the tax. Can I fight collection on this basis?
During an audit, you may dispute an IRS claim that you owe more taxes. But generally you cannot do this as a way of fighting collection. You must pay the tax and then file a claim for refund. There are a few special situations where you can dispute an IRS claim that you owe more taxes. If you think you don't owe the tax, you might want to talk to a tax expert about your situation. In most cases, the IRS has ten years (the "statute of limitations") to collect back taxes - from the time they "assess" the taxes. Assessment is the point where the IRS stops saying, "We think you might owe some taxes," and says simply, "you owe the taxes." This happens if you file your tax return but don't pay all the taxes or if the IRS has been successful in an audit. In most cases, waiting out the ten years will not work. However, if for some reason, eight or nine years have passed since the taxes were assessed, waiting out the rest of the ten years could work. Be careful to count the years properly. There are a number of processes that will extend the ten years. For instance, a bankruptcy or filing an Offer in compromise will extend the ten years. Sometimes the Internal Revenue Service makes a mistake, but usually one of two things has happened. Often the taxpayer has moved and not told the IRS his or her new address. If the IRS sends notices to the last known address, it has satisfied the law. The other thing that happens is that the IRS sends letters, but they are either ignored or thrown away. When either of these things happens, the whole audit is completed without the taxpayer even knowing about it. Then when it goes to Collection, the Internal Revenue Service sometimes finds the taxpayer - who is now in for a big surprise.
What happens in criminal tax collection actions?
Many federal white-collar prosecutions are for tax crimes, such as tax evasion, failure to file income tax returns, or tax fraud. There are some special considerations to keep in mind if you are under investigation for violations of the Internal Revenue Code. In a bank fraud case, for example, the federal investigative agency is typically the FBI. The FBI usually works directly with the local United States Attorney's office. When the FBI has completed its investigation, it forwards its case to the local U.S. Attorney's office, and the local office determines whether to prosecute or not. In tax crime cases, the procedure is significantly different. The typical criminal tax case is investigated by the Internal Revenue Service Criminal Investigation Division ("CID"). CID investigators are federal agents trained in law enforcement techniques and tactics. Most are also accountants by trade, and many have achieved their CPA. There are CID offices throughout the country.
When a CID agent completes an investigation and recommends that an individual be prosecuted, there are at least two stages of review by Internal Revenue Service attorneys prior to the approval of the prosecution. Once the Internal Revenue Service approves prosecution at its highest level, the case is forwarded to the United States Department of Justice Tax Division in Washington, DC, where federal prosecutors specializing in criminal tax violations review the case and decide whether or not to authorize prosecution. If the Department of Justice Tax Division in Washington approves prosecution, the case is sent to the local US Attorney's office with the direction that the individual or individuals named be indicted and prosecuted for the offenses alleged. In tax crime cases, the multi-tiered approval process can work to your advantage. The process gives you a number of different opportunities to derail a federal criminal case before it ever gets to grand jury.
At each of the IRS approval levels and at the Department of Justice Tax Division level, your lawyer will have the opportunity to schedule a conference where he or she can sit down with government attorneys and attempt to convince them to decline prosecution of the case. If the government has a strong case against you, it is unlikely that he or she will be successful in convincing either the IRS or the Department of Justice Tax Division to refrain from prosecuting. However, if there are misunderstandings that can be explained away and the government can be convinced that there was no criminal conduct, you have the opportunity to convince the government to decline prosecution prior to grand jury. It is always less stressful to have your attorney address matters in meetings with government attorneys than to present your side of the story to a jury at a federal criminal trial.
Got more questions? Get more answers on Tax Trouble. Click here.
Learn and Grow With Our Community
Join the discussion and get new insights and tips on solving life’s troubles with our community. Make a difference; share what you know and join today.