What is IRS Wage Garnishment?

IRS wage garnishment occurs when you owe taxes and the IRS is no longer willing to wait to collect them. The IRS will deduct the taxes you owe from your paycheck, usually between 30 and 70 percent.

First, the IRS is going to send you a notice of past due taxes and a demand that you pay them with 10 to 30 days. If you fail to pay the taxes, you should contact the IRS to arrange a payment plan. If don’t contact the IRS or pay the taxes, the IRS will send a “Final Notice” of intent to levy and a notice of your right to a hearing on the issue. Thirty days after this notice, the IRS will move forward with the wage garnishment.

Employers have no choice but to comply with IRS salary garnishment notices. Your payroll department cannot help you with this problem and can’t offer any relief. Unfortunately, when the IRS takes your wages, they like to take most of the money, leaving you little to survive on. If you don’t hire a wage garnishment professional to take the proper steps to stop wage garnishment, your employer must continue to garnish your wages until your debt is paid in full.

Professionals dealing with IRS garnishment can get you back in compliance with the requirement to file your back tax returns and negotiate a release of your wages from levy. Even if you have broken previous IRS payment plans a reduction of the garnishment percentage can be negotiated.

In addition to wage garnishment, the IRS can:

• Levy your bank account
• Ruin your credit
• Seize your house
• Keep all future tax returns until your tax bill is paid
• Put you in jail

Provided below are some of the grounds in which a tax professional can help you appeal a wage garnishment :
1.    All taxes owed have been paid prior to the IRS sending the notice of levy.

2.    If the IRS has assessed the tax and sent the notice of levy when the taxpayer was in bankruptcy, the wage garnishment is subject to an automatic stay during bankruptcy proceedings.

3.    A procedural error on the part of the IRS was made during the assessment.

4.    The statute of limitations (i.e. the time for the IRS to collect the tax) expired prior to the IRS sending the notice of levy.

5.    No opportunity was afforded the taxpayer to dispute the assessed liability.

6.    The taxpayer makes a request to discuss collection options.

7.    An innocent spousal relief claim is made by the taxpayer.

While, by all means, you can negotiate the wage garnisment on your own, it’s probably not the best idea. Everything you say can be used against you and the IRS agents are very good at interrogating taxpayers. With the help of an IRS wage garnishment lawyer, you are guaranteed the best results.

Two tax provisions in the health-care bill voted on by the House Ways and Means Committee earlier this summer have gained significant attention. One would impose a surtax on high-income earners. The other would force individuals (or their employers) who do not have approved health-insurance plans to pay a tax penalty. But there are other “revenue provisions” in the bill that also deserve a close look.

One would change the law to mandate that the Internal Revenue Service slap penalties on honest but errant taxpayers.

Under current law, taxpayers who lose an argument with the IRS can generally avoid penalties by showing they tried in good faith to comply with the tax law. In a broad range of circumstances, the health-care bill would change the law to impose strict liability penalties for income-tax underpayments, meaning that taxpayers will no longer have the luxury of making an honest mistake. The ability of even the IRS to waive penalties in sympathetic cases would be sharply curtailed.

The proposed changes in penalty rules have largely escaped notice because they are buried in a part of the bill that purports to deal with abusive tax shelters. They are barely mentioned in the Ways and Means Committee summary. Their inclusion in the bill underscores the need to read it closely. If anyone had doubts about the value of loading the text of the bill into a wheelbarrow and bringing it to the beach this August, the proposed changes to tax penalties should dispel them.

Recent experience shows that Congress needs to be careful about imposing no-fault penalties. In 2004, Congress adopted very large automatic penalties for failures of taxpayers to attach a tax-shelter reporting form to their tax returns. While penalties make sense where a taxpayer deliberately fails to file a return, the approach here was too unforgiving.

The normal ability of the IRS to waive penalties was taken away. Predictably, the result was some taxpayers getting hit with penalties they didn’t deserve.

Last June, the Small Business Council of America sent some compelling tales of woe to Congress, including one in which a 72-year-old owner of a coin operated car wash set up retirement plans for his seven employees and got socked for his good deed with a $900,000 penalty for not reporting the plans properly. The company and its owner are now headed for bankruptcy. In another case, a penalty of $100,000 each was imposed on the six minor children of an owner of a small business in Utah for not filing the right tax forms.

In response, some members of Congress sent a letter to the IRS asking it to suspend collecting the penalties in similar cases while Congress debated what to do.

However, Congress should not be surprised by these stories. The IRS was only enforcing the law exactly as Congress wrote it.

In another example of bad lawmaking, in 2007, Congress stuck into a supplemental appropriations bill a major change in the way penalties are computed for people in the business of preparing tax returns. Congress acted without consulting with the IRS. The IRS chief counsel at the time, Donald Korb, said publicly that the service had been “blindsided” by the change.

The change created a conflict of interest for tax professionals. It subjected them to a higher penalty standard than their clients, which encouraged them to give tax advice that protected the tax preparer more than the taxpayer. The IRS and tax professionals tore their hair out trying to sort through the mess until 2008, when Congress changed the law again.

There are lessons here for Congress. Don’t take away the ability of the IRS to waive penalties. Also, don’t tinker with penalties without thinking through the effect on the overall penalty regime.

Source

Sovereign Bancorp Inc. is suing the IRS to recover $235.2 million in taxes and penalties it says it was “erroneously and illegally’’ required to pay on a loan arrangement with Barclays Bank of England, according to a lawsuit filed Wednesday in US District Court in Boston.

The tax dispute arose from $1.2 billion in financing Sovereign received in 2003 and 2004 from Barclays that was meant to produce tax benefits for both banks.

Sovereign borrowed the funds from the British institution at a lower interest rate than it could get at home, the bank said in the lawsuit. Sovereign paid British taxes that it incurred and claimed foreign tax credits on US tax filings from 2003 to 2005, to avoid what it called double taxation.

But the IRS disagreed and required Sovereign to pay the taxes. The case is being watched by tax lawyers; Barclays made similar deals with other US banks.

Sovereign, a unit of Spain’s Banco Santander with a large presence in Boston, declined to comment on the lawsuit. An IRS spokeswoman was not immediately available to comment.

Source

Tax penalties present taxpayers with unique issues to consider. Wilson v. Commissioner, T.C. Summary Opinion 2008-91, describes the situation where a tax attorney represents a taxpayer with a tax penalty that was imposed for a tax return prepared by the attorney’s firm. The issue that the case describes is the conflict of interest that the tax attorney has in representing taxpayers in this situation.

In Wilson, the taxpayers failed to report their Social Security income on their federal tax return. The taxpayers had their tax return prepared by Tax Help, Inc. The IRS sent the taxpayers a notice that it intended to increase the taxpayers’ tax liability to account for their Social Security income. The taxpayers submitted an amended tax return to reflect this income and the IRS assessed an accuracy related penalty. The taxpayers filed a petition to redetermine the tax, apparently, arguing that the penalty should be abated.

There are several defenses that taxpayers may assert to ward off accuracy related penalties. The most common defense is that there was no understatement of tax. If there was an understatement, another common defense is that the taxpayer acted in good faith in relying on a professional tax return preparer.

The U.S. Tax Court said that:

Petitioners failed to demonstrate reasonable and good faith reliance on their tax return preparer. In fact, at the trial petitioners’ attorney, who is also an accountant and employed at Tax Help, Inc., did not pursue this defense in any meaningful way but instead rested his case on [a] baseless contention…

The U.S. Tax Court also noted that:

Insofar as they might be indicative of the nature or quality of advice dispensed at Tax Help, Inc., petitioners’ attorney’s contentions tend to call into question whether the return preparer had sufficient expertise to justify petitioners’ reliance.

This is harsh language from the relatively reserved U.S. Tax Court. The issue that this raises is whether, given the facts described by the court, the tax attorney had an impermissible conflict of interest. As an employee of Tax Help, Inc., the attorney may have owed some duty of loyalty to his employer. As a tax attorney for the taxpayer, the attorney also owed a duty to the taxpayers as clients. The tax attorney’s duty to his clients is to be a zealous advocate for the taxpayers, which may have been muted by his duty to his employer. A tax attorney in this position may not be able to zealously argue that his employer was negligent.  An outside tax attorney would be in a better position to make this type of argument.

Source

Tax penalties present taxpayers with unique issues to consider.  Wilson v. Commissioner, T.C. Summary Opinion 2008-91, describes the situation where a tax attorney represents a taxpayer with a tax penalty that was imposed for a tax return prepared by the attorney’s firm. The issue that the case describes is the conflict of interest that the tax attorney has in representing taxpayers in this situation.

In Wilson, the taxpayers failed to report their Social Security income on their federal tax return. The taxpayers had their tax return prepared by Tax Help, Inc. The IRS sent the taxpayers a notice that it intended to increase the taxpayers’ tax liability to account for their Social Security income. The taxpayers submitted an amended tax return to reflect this income and the IRS assessed an accuracy related penalty. The taxpayers filed a petition to redetermine the tax, apparently, arguing that the penalty should be abated.

There are several defenses that taxpayers may assert to ward off accuracy related penalties. The most common defense is that there was no understatement of tax. If there was an understatement, another common defense is that the taxpayer acted in good faith in relying on a professional tax return preparer.