How to Stop or Slow IRS Penalties in a Tax Controversy
A tax attorney can help if they seek to seize assets, levy fines, or garnish wagesBy Super Lawyers staff | Reviewed by Canaan Suitt, J.D. | Last updated on May 4, 2023
Use these links to jump to different sections:
- Understanding IRS Penalties
- Why a Tax Lawyer is Worth the Cost
- Understanding IRS Collection Activities
When you have an unpaid income tax bill, the Internal Revenue Service (IRS) can take a number of actions to collect the money you owe.
Some of the more severe penalties include seizing your assets and garnishing your paycheck. The IRS can even assess additional penalties for late filings or payments, which paradoxically make it even harder for you to get current on your tax debts.
Understanding IRS Penalties
The federal tax system includes a number of proverbial landmines. Stepping on any of them can trigger a tax penalty. These are essentially fines assessed in addition to any taxes you owe (including any interest on those taxes).
Some of the more common tax penalties include:
- Failure to File. If you file a return on time but do not pay all of the tax due, you will be separately charged a failure-to-pay penalty of 5 percent of your unpaid balance due per month, up to 25 percent of what you owe. (The IRS will reduce your failure-to-file penalty to account for a failure-to-pay penalty.)
- Failure to Pay. If you file a return on time but do not pay all of the tax due, you will be separately charged a failure-to-pay penalty of 0.5 percent of your unpaid balance per month, up to 25 percent of what you owe. (The IRS will reduce your failure-to-file penalty to account for a failure-to-pay penalty.)
- Accuracy-Related Penalty. If your tax return is audited and you are assessed additional tax, the IRS will also impose a 20 percent penalty on that additional tax owed.
In many cases, an experienced Michigan tax attorney can help you negotiate an abatement of these tax penalties. If it is the first time you received a tax penalty, the IRS can grant a one-time reduction.
You can also get a penalty removed if you can demonstrate that you had a “reasonable cause” for filing your tax obligations or paying late, such as a death in the family or you were the victim of a natural disaster.
Why a Tax Lawyer is Worth the Cost
“It may cost more than the tax professional who claims they can help you down the street,” says Chad C. Silver, a tax attorney for individuals and businesses at Silver Tax Group in Farmington. “But the professional responsibility guidelines that we follow are extraordinarily tight, you’re going to get a good result, and you’re going to get someone who’s going to actually be able to give you a professional closure to your IRS case.”
Most IRS audits or collection actions require a formal tax court petition, Silver says, and many attorneys aren’t admitted to do so, let alone CPAs and tax professionals. In addition, a lawyer offers attorney-client privilege.
“Right now, the IRS is ramping up criminal investigations for people who don’t file tax returns. And if you don’t use an attorney, that person could be required to testify against you or cough up documentation that you sent in confidence,” Silver adds.
Once you’re ready to look for an attorney, Silver recommends going beyond the initial instinct of finding someone local. “If you had cancer and you heard there was a specialist 2,000 miles away who was the best of the best, wouldn’t you say, ‘I need to go to them?’ Local doesn’t necessarily mean they’re good. I would just say: Look at the recommendations, look at the experience,” he says.
“Hiring a lawyer is almost like dating or having a very special person in your life. Maybe the first attorney or person you contact is not a good fit.”
Cost is usually a foremost concern, but any reputable professional will discuss that right away. Some, Silver included, do not simply work on an hourly fee basis and have more flexibility.
“When someone calls in, I do a complete federal investigation of the matter for a low upfront fee. I get a copy of the client’s master tax file and come up with a complete analysis of the problem. I write up a summary, present it to the client and say, ‘All right, here’s A, B, C and D. This is what needs to get done. And here’s what it’s going to cost,’” Silver says.
“For under $600, you can get a complete understanding of what’s going on, a complete copy of the file the IRS has, and a solid recommendation on how to fix it. Some of these things, no doubt, you could probably do yourself if you sat down for two months and did it, but most people don’t have that kind of time.”
On many occasions, Silver adds, an attorney will actually save you money. “Just last week we were able to remove a $1.5 million trust fund recovery penalty due to procedural errors the IRS agents made when they assessed it. So, yeah, it may cost some money, but if we’re able to get great results like that, then it’s worth every single penny. If we’re able to save you more than we charge, it certainly was worth it.”
Understanding IRS Collection Activities
When you file a return but do not pay your tax bill in full, the IRS will send you a series of notices demanding payment. These notices culminate in what is called a “Final Notice of Intent to Levy.” This is basically the IRS telling you that unless you pay your unpaid taxes now, the government will go after your assets, such as your bank accounts. The IRS can also levy/garnish your wages, taking part of your paycheck each period until your tax debt is repaid.
Keep in mind, levy and wage garnishment is always a last resort for the IRS. In most cases, a taxpayer who has fallen behind can ask for a monthly payment plan through an installment agreement, or even get the IRS to settle their debt for less than the full amount owed.
Once again, a qualified Michigan tax lawyer can advise you on the best option for your situation.
For more information, see our tax law overview.
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