Tax Lawyer's Blog

We get hundreds of questions every day from concerned taxpayers.

They range from simple questions like “where do I obtain an IRS tax form?” to complex questions like “what are the tax consequences if I sell my business?”

Below are the 5 most frequently asked questions and our answers:

FAQ #1: Can the IRS take my house?

Yes.

This is true even if you live in a state like Florida that protects your residence from the reach of creditors.

State homestead laws are superseded by federal law. And, of course, the Internal Revenue Code is federal law.

Consequently, the fact that your state protects your home from the reach of creditors is irrelevant when the creditor is the federal government.

Also, even if you alone owe the IRS a back tax debt and you own your house jointly with your spouse, the IRS may seize the home, sell it, and retain your share of the net proceeds as an offset against your tax debt.

It cannot retain the share of proceeds attributable to your non-indebted spouse’s interest in the home.

Finally, it is not as simple for the IRS as it used to be to seize and sell a taxpayer’s primary residence.

Since 1998, a levy is permitted on a principal residence only if a judge or magistrate of a United States district court approves (in writing) of the levy.

FAQ #2: Can I sue the IRS for damages?

Yes.

Taxpayers can sue the IRS for up to $1,000,000 in damages caused by actions that are reckless or that intentionally disregard provisions of the tax code.

The key word here, of course, is “damages.”

The aggrieved taxpayer must have suffered some loss that is measurable and recoverable. As with all tort actions, the plaintiff/taxpayer must be able to prove the fact of his loss, that the IRS misconduct caused the loss, and the amount of the loss.

FAQ #3: Can I get penalties removed from my debt and just pay the tax I owe?

Yes.

But you must have a compelling reason why you failed to comply with the tax laws.

Generally, the IRS assesses a penalty if you file a tax return late, pay your tax late, or underpay your tax.

The purpose of the penalty provisions is to punish taxpayers for willfully neglecting the tax laws.

Penalties do not apply and should not be imposed for actions that are not willful, but rather, are due to “reasonable cause.”

The burden is supposed to be on the IRS to prove that your failure to comply was willful, but in practice the IRS automatically assesses the penalty in non-compliance cases and forces the taxpayer to prove that his failure to comply with was due to reasonable cause.

FAQ #4: An IRS tax lien will ruin my credit and my reputation, can I avoid it or get it released?

Yes, but it’s very difficult to do.

If you owe the IRS more than $25,000.00 and cannot pay it within a very short time period (generally, less than 6 months, that’s if the IRS believes you), you can count on the IRS filing a Notice of Federal Tax Lien.

There are provisions that will allow you to bond out the lien, but these are expensive and most bonding companies are averse to issuing tax bonds because of their risky nature.

Finally, the IRS is well aware that the issuance of a federal tax lien is a bad thing for the taxpayer.

But this is precisely the point.

The federal tax lien is the top tool in the IRS’s formidable collection arsenal because it is so feared by taxpayers.

The mere threat of a tax lien has induced many taxpayers to magically find the funds to pay their back taxes.

FAQ #5: I heard the IRS is cutting deals, is this true and what kind of deal can I get?

No.

The IRS might encourage you to make a settlement offer, but it will actually accept one only if it determines it is in its own best interest to do so.

Translation: The IRS does not “cut deals.”

It does, however, evaluate your reasonable collection potential to determine if you’re offering the maximum amount that could be collected from you.

In effect, if you offer to pay everything the IRS could possibly get if it seized your assets, levied your bank account and garnished your wages, it will take it.

Does that sound like a “deal”, to you?

The reason we get this question so often is because of the myriad unscrupulous and incompetent tax resolution companies who falsely advertise that they can get tax debts settled for “pennies on the dollar.”

This is nonsense and we have written in more detail about it here, here and here.

The extremely rare Effective Tax Administration Offer in Compromise is the closest thing any taxpayer will ever get to a deal with the federal government. However, it is beyond the scope of this FAQ.

Offers in Compromise are difficult to get and a taxpayer should not file one without first consulting with a qualified and experienced tax pro.

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