Receiving a notice from the IRS is not something most people look forward to. You may be confused as to what the notice is saying, and afraid of the possible consequences, such as owing substantial back taxes, interest, and penalties.
However, there are two important things to know about most IRS notices:
The California Franchise Tax Board (FTB) can come after snowbirds and other people who spend time in California, but maintain a tax residence in other states. For California income tax purposes, nonresidents are only taxed on income earned from California sources. Residents, on the other hand, are taxed on all of their income, even if it was earned outside of California, and even if it was earned outside of the country.
The difference between having a status as a California tax resident or nonresident can therefore amount to tens of thousands of dollars in potential tax liability, and tens of thousands of dollars in additional revenue to The Golden State. The general definition of a resident is an individual who is present in California for other than a transitory or temporary purpose, or someone who is domiciled in California, but it located outside of California other than for a transitory or temporary purpose.
The term “domicile” means the place where you voluntarily establish yourself and family, not merely for a special or limited purpose, but with a present intention of making it your true, fixed, permanent home and principal establishment. Determining whether a visit is temporary or transitory depends on the purpose and length of the visit.
The IRS is generally required to send you a notice before levying or seizing your property. You may be able to prevent a levy by timely requesting a Collection Due Process (CDP) hearing, and negotiating a payment plan or otherwise contesting the levy. You have 30 days from the date of the notice to request a CDP hearing.
There are situations where the IRS is not required to send you a pre-levy notice, and can take your property without giving you a chance to contest the levy. State tax refunds can be taken without notice, and the IRS can levy without notice if they believe that collection of the tax is in jeopardy.
There are also other situations where you may not get the chance to contest the levy until after your property has been seized. The IRS sends notices to your last known address, and you may never receive these notices if the IRS does not have your current address. You may also simply be unaware of your CDP rights or the 30-day deadline, and miss your chance to request a CDP hearing. Payroll taxes are also subject to different rules.
Equitable relief is one of three forms of innocent spouse relief available to married, or formerly married, taxpayers. Taxpayers who filed joint returns are generally jointly and severally liable for the full amount of any tax due, but innocent spouse relief allows an escape from this liability. Unlike the other two forms of relief, equitable relief is available for amounts reported on a tax return but not paid, in addition to amounts attributable to items that were not reported on your tax return.
Generally, the following requirements must be met in order to qualify for equitable innocent spouse relief:
No one looks forward to receiving a letter from the IRS notifying you that you have been selected for an examination, also known as an IRS tax audit. The IRS may choose to complete the examination by mail by requesting additional information about certain items on your tax return, or they may complete an in-person examination.
Just because your return is selected for an audit, it does not automatically mean that something is wrong. The IRS uses automated methods to select returns for tax audits, but an audit does not always result in an increase in your tax bill.
However, you still want to be cautious whenever you are selected for a tax audit. If you have any concerns about items on your return, you should strongly consider consulting with a tax attorney before you speak to the IRS. If you make false statements to the IRS, or if you accidentally say something that can be used against you, it could lead to more serious problems, including criminal tax charges.
A request for innocent spouse relief is made by filing form 8857 within two years of the date that the IRS first attempted to collect the tax from you. You may have more time in certain situations, such as if you are seeking equitable relief.
The IRS must contact your spouse or former spouse to let them know that you have requested innocent spouse relief. This is true even in cases where spousal abuse or domestic violence occurred. The non-requesting spouse’s interests are affected by the IRS determination regarding your status as an innocent spouse because if you are successful, it will leave your spouse solely liable for some or all of the tax debt from your joint returns.
Because of the adversarial nature of innocent spouse determinations, your spouse or former spouse may try to show that you are not entitled to relief. They may claim that the item that caused the tax liability is partially attributable to you, or that you knew about an understatement of tax on the return. There are many factors that are weighed when making an innocent spouse determination, and you can expect the non-requesting spouse to point out all of the factors that weigh against a grant of innocent spouse relief.
The IRS has broad authority when attempting to collect delinquent tax, but there are limitations to what collections actions they can take. The IRS generally has to follow certain procedures before they can levy, or seize, your property, and certain property is exempt from IRS seizure.
Generally, the IRS must send a taxpayer a Notice of Intent to Levy, which gives the taxpayer 30 days to request a Collection Due Process hearing. This gives you a chance to avoid the levy by negotiating an IRS installment agreement, an offer in compromise, or disputing the underlying tax liability, if you have not previously had an opportunity to do so.
The IRS also has a general policy to only seize a taxpayer’s assets as a last resort. If you are attempting to negotiate and cooperate, you should be able to work out an arrangement and prevent your assets from being levied.
The IRS must generally issue a notice to a taxpayer before proceeding with a levy on their assets. The taxpayer is given 30-days to request a Collection Due Process hearing (CDP hearing), where the taxpayer can attempt to avoid the levy action by negotiating an installment agreement, disputing the tax liability that resulted in the levy, or presenting other defenses. The IRS will usually not take any levy actions during the 30-day period, or while the CDP hearing process is ongoing.
There are exceptions to the 30-day notice requirement. One situation where the IRS is not required to provide a notice is when they believe that collection of the tax is in jeopardy, known as a jeopardy levy. In this case, the IRS can bypass the notice requirement and immediately levy the taxpayer’s assets, such as a bank account, the taxpayer’s wages, cars, or other property.
In these situations, the taxpayer has no choice but to request an appeal of the levy after it has taken place. The taxpayer may request a CDP hearing, or hearing under the Collection Appeals Program, to argue that the jeopardy levy was unreasonable.
The Collection Appeals Program (CAP) is an IRS procedure available to appeal a broad range of collection actions. However, it does have some pitfalls when compared to a Collection Due Process (CDP) hearing, so consider consulting with a tax attorney if you are not sure which procedure to use.
The CAP procedure can be used to dispute the following collection actions:
• Before or after the IRS files a Notice of Federal Tax Lien
Fast Track Settlement (FTS) is an IRS program designed to resolve tax disputes within 60 days with the help of a trained mediator. Small businesses and self-employed taxpayers can used this program to quickly and efficiently resolve tax disputes, while still retaining all of their other appeal rights.
Before using FTS, a taxpayer must attempt to resolve all issues with the IRS auditor and their supervisor. If no agreement can be reached, then the taxpayer can use form 14017, along with a written statement of her position on the disputed issue, to apply for the program.
There are several advantages to FTS, when compared to appeals within the IRS or filing a petition in Tax Court:
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