Ask the Tax Advisor

Can I file my taxes late and what is the penalty?

Yes, but if you fail to file a timely extension, or file after the extension deadline, severe penalties may be incurred. It is still better to file late that not file. The longer you wait, the worse the problem becomes. A penalty of 5% a month which tops out at an amount equal to 25% of the total balance due applies if you owe on the 1040. If you have a refund, there is no penalty. However, if you wait 3 years or more to file, you may lose your right to a refund.

I want a payment plan, what expenses will IRS allow me?

The IRS allows you to keep an amount equal to their "National Standard Expenses." This is negotiable and a tax professional can help you with getting a better deal if you have special circumstances.

What is an IRS Levy?

An IRS Levy is a type of collection enforcement action. It can be used to attach bank accounts, investment accounts, and accounts receivable. In the case of bank accounts, a 21 day hold is placed on the funds before they are remitted to IRS. This gives the taxpayer an opportunity to get the levy released. It can also be used to attach employee wages due or funds due to an non-employee independent contractor. In the event of a wage levy, a certain amount is allowed each payday to the taxpayer, the rest goes to IRS. On most other levy actions, 100% goes to IRS up to the total due.

What is an IRS/Federal Tax Lien, how is it different from a levy, and what impact does it have on the debtor?

A Federal Tax Lien (FTL) is a legal instrument that secures the claim of the United States in the right, title, and interest of the debtor taxpayer. It is a public document and is recorded at the County Clerk's office or the Secretary of State, depending on local law. This is done to serve notice on all creditors or other interested parties of the government's claim. The FTL generally becomes the most senior claim against the debtor's assets with the exception of first mortgage holders who have properly filed prior financing documents. The lien may also displace the primary security position of factoring firms lending on accounts receivable and bank revolving lines of credit 45 days after filing (each situation is unique and must be considered on individual circumstances). In some jurisdictions, local law provides for separate filing of liens for real property and personal property. In that case, the IRS will file two identical liens, one under personal property records and one under real property records. Failure to file both could result in the government's claim not being perfected on all assets. If the debtor is a corporation, failure to file at the Secretary of State may also result in an imperfect claim depending on local law. The FTL is the basis for IRS legal authority to foreclose on debtor assets by conducting a seizure. Since the IRS Reform Act of 1998, seizures by IRS Revenue Officers have dropped dramatically. The lien is not to be confused with an IRS levy. The IRS can levy on a debtor taxpayer's bank accounts or wages without a FTL. They only need a valid assessment and must have served legal notice in the form of a certified mail letter to the debtor's last known address 30 days prior to levy. However, usually the IRS has filed an FTL before levy action even though it is not required. A Federal Tax Lien is a negative item on the credit bureau report of the debtor. It may result in some creditors calling in their notes upon becoming aware of the FTL against a debtor. IRS may negotiate with other creditors to subrogate the lien to their claim provided it is in the mutual interest of the government and the debtor taxpayer.

The IRS has levied my paycheck and I have received a Form 668-W. My employer wants me to fill out part of it. What should I do with this and why is it important?

It is very important that you complete this form and return it to the Payroll Department ASAP! If the Payroll Department does not receive the exemption form from the employee, the default of Married filing separately with one exemption must be used to determine the amount of net pay that is exempt from levy. This may be a lower amount than you are entitled to, based on your completion of this form.

If you are married and have children, you should claim Married and the number of people in the household. It doesn't matter what is already on your W-4. Your employer will not use your existing W-4 for the levy. You must complete the form or have more money taken from you.

What do you charge to handle a case or answer a tax question?

A minimum $250 retainer is required ($500 preferred. The rate for office work is $75 per hour and $95 per hour for direct IRS contact work.

Time is billed in 15 minute segments. A typical case runs $1000-$1,500. A complex case can run into the $2,500 range or more. The rate charged is very reasonable for a licensed professional. Some firms charge $150-$300 an hour! Somr online outfits charge $3500-$5000 "flat fees" that could more properly be called Fat Fees!

Tax Questions may also be answered via the Keen call button, below. The fee is per minute billed to a credit card.