Tax Debt Help Tips

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What is state tax debt?

State Tax Debt

When an individual lives, or a business operates, in a state where an income tax is collected, there are state tax debt issues that are bound to arise. Income taxes are the largest revenue generating sources of income for states.

What is unique about a state income tax debt issue is the fact that the IRS partners with many states in collecting unpaid taxes. The program is titled ‘State Income Tax Levy Program. This Program allows the IRS to take (levy/seize) your state income tax refund to pay your unpaid IRS bill. You will receive a Notice of Levy on your State Tax Refund from your State.

Other state taxes that may be accumulating in your state tax debt include:

  • Real estate taxes
  • Personal property taxes
  • Death taxes (put upon an estate at death)
Employer related:

  • Excise taxes (tobacco, fuel, alcohol)
  • Sales and use taxes
  • Payroll related
  • Other business taxes
Penalties and interest usually accrue on unpaid state tax debt. Each state has its own collection process, also. Just be aware that in addition to federal (IRS) tax debt, you may be responsible for state tax debt. Check with your state's taxing authority to be certain all that is involved.

What is a tax debt help mistake?

Tax Debt Help Mistakes

Becoming involved in a tax debt situation can be a nervous time for many. Receiving the first IRS Notice can come as a total surprise and bring a panic attack. It turns out you must contact the IRS at their request. Before you do, there are some things you need to know.

Be armed. Have all your applicable documents with you. This includes your IRS Notice Letter, your social security number (or taxpayer identification number), applicable tax year, and tax amount.

Be friendly. State why you are calling in friendly terms. Whether you believe it or not, the IRS does have humans working there. Treat them with respect and you will do better than if you do not.

Do not be berated. You do not have to put up with an IRS revenue officer who belittles you or tries to mistreat you. If you are uncomfortable with anything about the IRS revenue officer you are dealing with (or feel they are incompetent), simply ask to be transferred to another officer. If this does not work...

Contact Taxpayer Advocacy Service. This independent organization of the IRS will deal impartially with you regarding your IRS employee interactions. Report the revenue officer you were dealing with.

Meet deadlines. It goes without saying that if you meet your tax deadlines for both filing your tax return and paying your taxes, you will not begin having tax debt issues. Set up a tax calendar to help with this.

Pay your taxes. This is another commonsense statement. When you file your tax return, pay your tax bill in full, or as much as possible. The more you pay, the less can be penalized. Pay your delinquent taxes as early as possible. Penalties and interest have led to many an ugly tax debt situation.

Sell your assets. It may be a good idea to sell some of your assets to pay your IRS tax debt off. The IRS, with its incessant penalty and interest accruing, is not a pleasant creditor to have hovering around.

Do not ignore. Do not ignore the IRS once you receive your first IRS Notice. They will not go away like a bad virus over time.

Do not volunteer information. Stick with the facts that pertain to your tax debt situation. The more information you give the IRS, the more they can question.

Do not admit to violating tax laws. Do not admit to anything. It more than likely was an oversight on your part that caused your tax debt problem, not an out and out violation. The IRS may try to coerce you into admitting wrongdoing. Do not let them.

Know where you stand. Know where along the IRS collection process your tax debt situation really is. What needs to be done to correct it? What do you need to do? What will the IRS do?

Get it in writing . Whatever the IRS says, ask for them to put it in writing. Many times they will offer to do that anyways. It is just better to be safe than sorry.

What is the Taxpayer Advocacy Services?

Taxpayer Advocate Services

There are times when taxpayers have problems resolving issues with the IRS through no fault of their own. For instance, a rude and intolerant IRS agent making negotiations difficult on you would be a reason for contacting the Taxpayer Advocate Service. Or, maybe you have an IRS employee who you just cannot understand due to his or her thick accent. In an effort to help taxpayers when dealing with the IRS, the IRS has a service it provides titled ‘Taxpayer Advocate Service'. This service is independently operated, yet provided by, the IRS. This service may help you resolve a problem that could not be settled through normal IRS channels. More information about what this service is and how you can benefit are as follows:

Generally, the Taxpayer Advocate Service can help if, as a result of the administration of the tax laws, you:

  • Are suffering, or are about to suffer, a significant hardship;
  • Are facing an immediate threat of adverse action (i.e. losing your home)
  • Will incur significant cost (including fees for professional representation)
  • Will suffer irreparable injury or long-term adverse impact;
  • Have experienced a delay of more than 30 days to resolve the issue; or
  • Have not received a response or resolution by the date promised.
The Taxpayer Advocate Service does not have the legal authority to reverse technical or legal tax determinations. They also cannot replace the Appeals process. They are simply there to be a third party ear for when you feel wronged by the IRS tax law process.

You will be assigned an individual Case Advocate who will work with you throughout the process. Your Case Advocate will listen to your concerns without judgment. You can expect the advocate to provide you with:

  • An impartial and independent look at your problem;
  • Quick resolution
  • Courteous service
  • Progress updates
  • Action time frames
  • Timely acknowledgment
  • Name and phone number of Advocate assigned to your case
Whenever you contact the Taxpayer Advocate Service be sure to have the following:

  • Your name, address, and social security number (or employer identification number),
  • Your contact information such as telephone number and hours you can be reached,
  • Your previous attempts to solve the problem, and the office you contacted,
  • The type of tax return and year(s) involved, and
  • Description of the problem or hardship
Power of Attorney . If you want to give someone else the legal right to represent you in front of the Taxpayer Advocate Service, you will need to fill out the Power of Attorney form 2848.

What is bankruptcy?

Bankruptcy: A Method Of Tax Debt Help

After you have exhausted all your other available options with your tax debt, you may be able to gain some tax debt help by filing for bankruptcy.

Once you file for bankruptcy an automatic stay occurs. This protection stops collection efforts by any of your creditors, of which the IRS is the major one. An automatic stay will stop the IRS from issuing a tax lien or from seizing any of your property.

You need to be aware, however, that an automatic stay will only stop the IRS collection process. It will not stop any of the following IRS actions from happening:

  • Issuance of a tax assessment
  • Demand for a tax return
  • An IRS audit examination
  • Issuing a tax deficiency notice
  • Demand for an assessment payment
Each state does have an exemption amount that is applicable to assets. This is the amount that you can keep to meet your current living expenses. It is important for you to know these exemption amounts. It is for your own protection. For instance, one state may have a $2,500 exemption for your vehicle. This means you can have a car worth $2,500 and not worry about it being seized (levied) by the IRS.

Bankruptcy is a complicated legal issue that is out of the scope of this publication. It is best handled by a tax debt attorney who is knowledgeable in that area.

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