What To Expect When the IRS Gets Serious

Anticipate the consequences when the Internal Revenue Service (IRS) escalates its efforts due to tax arrears. 

If you find yourself falling behind on taxes, expect to receive a series of overdue notifications over the subsequent one to two years. 

However, a different scenario unfolds if your tax obligation exceeds the threshold of $50,000 or encompasses any magnitude of payroll taxes. (The IRS gets pretty serious with noncompliance against payroll taxes!) 

In such instances, the possibility arises that an IRS Revenue Officer, a specialized cadre of tax collectors, could pay you a visit. These officers command both fear and respect due to their authoritative mandate.

What Is A Sneak Attack?

These incognito Revenue Officers are known for their unannounced appearances at your residence or place of business, often taking place either before 9:00 a.m. or after 5:00 p.m. If permitted, they initiate probing inquiries on the spot. 

During this encounter, it is imperative to maintain composure and refrain from expressing frustration towards your situation or the IRS. 

Instead of delivering spontaneous responses, it is advisable to request time to consult with a tax professional or assemble your financial documentation. 

Emphasize your commitment to resolving your tax issues and propose a subsequent meeting with the Collector at an IRS office within one to two weeks.

It is advisable to abstain from making any financial commitments during this juncture unless you possess complete certainty in your ability to fulfill them. 

Meeting With the Collector

When engaging with the Collector, you can anticipate inquiries concerning both your personal and business finances. This information is subsequently recorded on IRS Collection Information Statement forms—Form 433A for wage earners and self-employed individuals, and Form 433B for separate business entities. You can consult the Collection Financial Standards section of the IRS website to gain insights into the IRS’s methodology for assessing an individual’s capacity to meet financial obligations.

Upon completion of the CIS forms, you will be requested to review, validate, and endorse them. It is essential to acquaint yourself with the specific information that the IRS seeks before your meeting with the Revenue Officer. To facilitate this, you can acquire CIS forms 433A and 433B from IRS offices or by contacting 800-829-1040.

So, Are Your Personal Assets At Risk? 

The question of whether the IRS can potentially target your personal assets or business assets for taxation hinges upon the nature of your business entity and the type of taxes owed. 

For Sole props:

For sole proprietorships, there exists no legal distinction between your business and personal assets. Consequently, the IRS has the capacity to claim assets for any tax obligations.

For Partnerships and LLCs:

For partnerships and limited liability companies, the IRS can pursue your proportionate share of the company’s holdings. Additionally, general partners can be subject to claims against their personal assets, while a partnership’s entire tax debt can be attributed to a 100% stakeholder. 

For Corporations:

In the case of incorporated businesses, the shield that protects personal assets from corporate tax liabilities varies based on the intricacies of the structure. For small business corporations with outstanding payroll taxes, the IRS retains the prerogative to target the personal assets of shareholders and officers responsible for the tax debt.

The distinction between a corporation and its shareholders creates limits to the IRS’s access to corporate assets for shareholders’ debts. However, if a corporation is being utilized as a vehicle to shield assets from IRS reach, this barrier may be circumvented. This underscores the criticality of adhering to established corporate formalities.

While the IRS typically possesses the ability to employ corporate assets to satisfy personal tax liabilities, it can also seize shares of stock in a corporation. Nonetheless, given the complexities associated with trading shares of a small business corporation, the IRS may not frequently opt for this route.

Dealing With A Monster Tax Bill

In scenarios where substantial tax liabilities appear insurmountable, many individuals confront the daunting prospect of addressing their financial obligations. Nevertheless, avenues for alleviating or even eradicating these burdens do exist. 

Among these options is the consideration of an offer in compromise, which could prove advantageous for select individuals. Additionally, the exploration of bankruptcy can emerge as an alternative solution.

Navigating this intricate terrain warrants informed decision-making and potentially consulting a tax professional to guide you through complexities of the IRS processes.