An Overview of the IRS Tax Collections Process for Non-Tax Lawyers
19. The Problems with Running From the IRS
Briefly, I also want to talk about some of the problems associated with running from the IRS.
Now, it seems like a funny subject–people running or evading their collection potential. I don’t want to use the term ‘evading’ very loosely because I will not want to see a criminal activity.
But we may be dealing with a client who has just been off the grid for a couple of years, or through a series of an unfortunate circumstances has not met their filing obligations, and maybe have not been using their bank account or have been kind of sticking their head in the sand. By ‘evading,’ we don’t suggest they’re criminals. They’re just ducking their responsibilities from the IRS as it tends to happen from time to time.
The problems with “running” from the IRS are these. Mainly you are always at risk of collections. Any asset that you have, any job that you hold, if you are not actively working on an installment agreement with the IRS or negotiating an Offer in Compromise or doing something to resolve your account, then you are technically not in compliance.
When you are technically not in compliance, the IRS can take a serious of actions against you. They can levy you. They can garnish your wages. They can put liens on you. That pressure doesn’t go away if you are not doing something to actively resolve your account.
So, people will literally spend years and years and years with the IRS chasing them, constantly looking over their shoulder wondering when their wages are going to be garnished, if their bank accounts are going to get levied. That’s not really a good place to be in.
IRS liens in addition will damage your credit. Particularly when you have a tax owed for multiple years, multiple liens will drive your credit score down really, really quickly. It’s really important if the taxpayer has aspirations for buying a home, or putting their life back together, running is not the answer.
Even with some of those liabilities falling off the Statute of Limitations, eventually it will take years, often many, many years for those liabilities to fully fall off and for a taxpayer’s credit to be restored.
Even if a lien falls off because it has been released because a liability has expired that will remain in the credit report for up to seven years. You want to encourage your client go in front of that to resolve issues ahead of time to make the process go much, much quicker.
In addition to that, the only thing I found is that IRS liabilities have a psychological effect on clients. For a lot of the reasons that people fear the IRS, there is a deep psychological impact that the IRS has on people. It’s often systemic. It’s “no action’ on the people who owe money on the IRS are falling apart in other areas of their lives or been to some personal tragedy.
But, there is a psychological effect that owing money to the government has on people. It’s not like you owe your friend money. Either it’s a fear of the IRS or it’s a fear of the government. As a result of that, you are often dealing with people who when they finally admitted that they have a tax problem, it’s not something they tell their friends.
It’s something that they disclose to their attorney as part of their deepest and darkest secrets. It’s something that may be unearthed in a financial transaction. For example, client one wants to buy a piece of property to refinance. Also, the tax liens show up. They have to admit their dark secrets that have been hiding on the closet. There is a psychological effect with that and that has an impact on the client.
Oftentimes, our clients are less concerned about their money. They’re more concerned about getting the IRS off their back, getting the pressure off, just having that burden relieved. That’s a really important thing to consider when counselling people with IRS problems is that they are in a mostly fragile state a lot of times when dealing with those issues.