Legal Thought’s – Episode 2 of Dealing with IRS Liens

Coleman Jackson, P.C. | Transcript of Legal Thoughts
Published July 31, 2023

Attorney introduction: Welcome to Legal Thoughts! My name is Coleman Jackson and I am an attorney at Coleman Jackson, P.C., a taxation, litigation, and immigration law firm based in Dallas, Texas.

In addition to myself, we have Leiliane Godeiro – Litigation Legal Assistant, and our administration staff Ernesto Munoz and Michelle Gutierrez.

On today’s “Legal Thoughts” podcast, our Litigation Legal Assistant, Leiliane Godeiro will be interviewing me in our continuing federal tax series entitled, “ Dealing with the IRS”. In todays Legal Thoughts podcast the attorney will be talking about IRS liens and the taxpayers’ options in dealing with them. This is Episode 2: “Dealing with IRS Liens”.

INTERVIEWER: Leiliane Godeiro, Litigation Legal Assistant

Hi everyone, my name is Leiliane Godeiro and I am a Litigation Legal Assistant at the tax, litigation and immigration law firm of Coleman Jackson, Professional Corporation. Our law firm is located at 6060 North Central Expressway, Suite 620, right here in Dallas, Texas, 75206.

Good afternoon Attorney; thank you for being here with me to today as I interview you in our continuing podcast series entitled; “Dealing with the IRS”.

In this second episode in this Legal Thoughts Podcast series,  our topic today is  “Dealing with IRS Liens”.

Attorney, let’s get started.

QUESTION 1: Attorney, please explain, what is an IRS lien?

ATTORNEY ANSWER – QUESTION 1:

Good afternoon Leiliane;

The Federal Tax Line Act of that was enacted into law in 1966 created Internal Revenue Code Sections 6321 through 6326. These sections 26 United States Code, provides that “if any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, additions to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.”

Leiliane, what all this means in plain English is that the following facts have been established:

1.The IRS has made a tax assessment against the taxpayer (tax assessment simply means the IRS has put on the taxpayers’ tax account that the taxpayer owes the United States government due to taxable income tax, gift tax, estate tax or some other form of lawful taxes, penalties or interest; and

2.The IRS has followed all lawful procedures and notified you that you owe the outstanding taxes, penalties and interest; and

3.You the taxpayer has ignored the IRS notices to you or you otherwise has not made arrangements to satisfy the outstanding tax debt.

Note that the lien is created as a matter of law; if the above facts one through three are true, there is a tax lien created against you (the taxpayer) in favor of the United States government.  The lien creation does not require any court involvement or any further actions by you, the IRS or anyone else.

INTERVIEWER: Leiliane Godeiro, Litigation Legal Assistant

Interviewee Comment:  Attorney what a IRS tax lien is now absolutely clear to me now!

QUESTION 2: Now that the IRS has a tax lien against the taxpayer, what now?

ATTORNEY ANSWER – QUESTION 2

Well it means that the IRS tax lien attaches to all of the delinquent taxpayer’s real and personal property regardless of where it is located. Now this IRS tax lien attaches to the delinquent taxpayers property that is in existence on the date of the lien as well as any property in the future that the taxpayer has a legal interest in directly on indirectly. For example, putting property in a trust is ineffective in defeating an IRS lien because the lien attaches to all property that the delinquent taxpayer has any beneficiary interest in as well as any real and personal property acquired during the existence of the lien that the taxpayer has legal title.  The IRS tax lien is not defeated at death of the delinquent taxpayer either because the lien attaches to the decedent’s property both real property and personal property owned by the delinquent taxpayer.

The legal term “attaches” simply means that the IRS lien by law connects to the taxpayers property like glue to two pieces of paper; they are glued together and you cannot separate the two.

And Leliane, these are not all the ramifications for the delinquent taxpayer; there are potentially broad family and financial consequences as well resulting from the IRS tax lien.

INTERVIEWER: Leiliane Godeiro, Litigation Legal Assistant

QUESTION 3: Attorney, what are some of those other ramifications of have an IRS tax lien?

ATTORNEY ANSWER – QUESTION 3

Okay; the ramifications are very expansive. The two pieces of paper glued together tend to tell the story regarding the reach and strength of a IRS lien. Take for example these ramifications or effects of the tax lien on the delinquent taxpayer:

Credit – most people from time to time want to access a credit instrument to buy real estate, buy a car, investment in equipment, and all other kinds of activities that require money and the delinquent taxpayer cannot pay for in full with cash;

Employment – most people from time to time want to work or be employed to earn a living for themselves and their families. Employers may not want to hire someone who, perhaps, cannot handle their financial affairs in responsible way;

Family relations– most people from time to time want to be in a steady, stable and supportive family. Family members and potential family members could be reluctant to enter into or maintain relations under the stressful situation of dealing with bill collectors and the threat of financial ruin;

Responsible leadership positions– in their church, in their community, in their local, state and federal government. Some people will see the delinquent taxpayer as possibly irresponsible and dishonest.

Travel Restrictions— when a delinquent taxpayer owes more than $50,000, the IRS has the authority in U.S. tax law to refer the delinquent taxpayer to the U.S. Department of State for the purpose of restricting their U.S. passport or revoking it all together. This would not impact domestic travel; but, it most certainly will hinder travel to most international destinations which require valid passports to travel into the country.

INTERVIEWER: Leiliane Godeiro, Litigation Legal Assistant

Interviewee’s Comment: I can see how all those negative consequences to occur when a taxpayer is under an IRS tax lien.

QUESTION 4: Attorney is there any possible way to legally get rid of an IRS tax lien?

ATTORNEY ANSWER – QUESTION 4

• Yes, indeed. There are several possible ways to get rid of an IRS lien:
• First of all you need to test the validity of the lien to begin with; and
• Assuming the lien is valid, consider getting rid of the lien by

1.Borrowing the money or earning the money to pay the tax debt in full.  You need to first check with the IRS Lien Operations to get the lien pay off balance.  Now this balance likely to be higher than any recent correspondence that you might have received from the IRS or any annual statements that you might have received from them;

2.Second, you can send an official request to the IRS to release or discharge the lien on certain pieces of property, to say, facilitate a real estate sells transaction.  This lien discharge procedure typically agreed to by the IRS to collect part or all of the outstanding debt from the real property transfer or sale.  The IRS tax is typically paid out of the escrow from the real property transaction;

3.Third, you can request that the IRS to withdraw the lien when the ten year statute of collection has expired;

4.Fourth, you can in some circumstances seek a release of the lien upon agreeing to an installment agreement with the IRS for monthly payments of the outstanding tax debt.

INTERVIEWER WRAP-UP: Leiliane Godeiro, Litigation Legal Assistant

Attorney, thank you for being here today with us, this information about dealing with an IRS lien. Hopefully our audience finds it informative and helps them to know their rights as taxpayers; know how to protect their rights in the unfortunate event that they or their business has an IRS tax lien; and hopefully our audience knows now how to preserve their legal rights under the federal tax code if they are unfortunately have a tax lien on their attached to their real and personal property.

Our listeners who want to hear more podcasts like this one should subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or where ever you listen to your podcast. Everybody take care! And come back in about two weeks, for more taxation, contracts, litigation and immigration Legal Thoughts from Coleman Jackson, Professional Corporation, located right here in Dallas, Texas at 6060 North Central Expressway, Suite 620, Dallas, Texas 75206.

English callers: 214-599-0431 | Spanish callers: 214-599-0432 |Portuguese callers: 214-272-3100

ATTORNEY’S CLOSING REMARKS

This is the end of “LEGAL THOUGHTS” for now.

Thank you for giving us your valuable time this morning and listening to our law firm’s Legal Thought Podcast. This has been the first episode in our new podcast series entitled dealing with the IRS. Hope you enjoyed Episode One: “ Dealing with an IRS Lien”.

If you want to see or hear more taxation, contracts, litigation, and immigration LEGAL THOUGHTS from Coleman Jackson, Professional Corporation. Subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify, or wherever you listen to your podcast.

Stay tuned! We are here in Dallas, Texas, and want to inform, educate and encourage our communities on topics dealing with taxation, litigation, and immigration. Until next time, take care.

Legal Thought’s – Episode 1 of Dealing with IRS Penalties

Coleman Jackson, P.C. | Transcript of Legal Thoughts
Published July 17, 2023

 

Attorney introduction: Welcome to Legal Thoughts! My name is Coleman Jackson and I am an attorney at Coleman Jackson, P.C., a taxation, litigation, and immigration law firm based in Dallas, Texas.

In addition to myself, we have Leiliane Godeiro – Litigation Legal Assistant, and our administration staff Ernesto Munoz and Michelle Gutierrez.

On today’s “Legal Thoughts” podcast, our Litigation Legal Assistant, Leiliane Godeiro will be interviewing me in our federal tax series entitled, “ Dealing with the IRS”. In todays Legal Thoughts podcast the attorney will be talking about IRS penalties and the taxpayers’ options in dealing with them. This is Episode 1: “Dealing with IRS Penalties”.

INTERVIEWER: Leiliane Godeiro, Litigation Legal Assistant

Hi everyone, my name is Leiliane Godeiro and I am a Litigation Legal Assistant at the tax, litigation, and immigration law firm of Coleman Jackson, Professional Corporation. Our law firm is located at 6060 North Central Expressway, Suite 620, right here in Dallas, Texas.

Good Morning Attorney; thank you for being here with me today as I interview you in our brand new federal tax series, “Dealing with the IRS”.

In this first episode in this new Legal Thoughts Podcast series,  our topic is “Dealing with IRS Penalties”.

Attorney, let’s get started.

Question 1: Why does the IRS charge penalties?

Attorney Answer – Question 1:

Leiliane; the federal tax code which is codified in 26 United States Code gives the Department of the United States Treasury the authority and mandate to administer and enforce the countries federal tax laws. The agency within the Department of United States Treasury with specific responsibility to maintain the integrity of the federal tax system and ensure compliance with federal tax laws and consistent treatment of taxpayers under the tax code is the Internal Revenue Service, (the, IRS).

So the broad answer to your question as to why the IRS imposes penalties for violations or noncompliance with the Internal Revenue Code is that the IRS is carrying out its function to protect the integrity of the federal tax system and ensure voluntary compliance with the federal tax laws. These IRS penalties are imposed on violators of the federal tax laws..

INTERVIEWER: Leiliane Godeiro, Litigation Legal Assistant

Interviewee Comment:  Oh, I see.

QUESTION 2: What kind of penalties does the IRS impose for violation of the Internal Revenue Code?

ATTORNEY ANSWER – QUESTION 2:

That question is broad; for sure, because the IRS imposes penalties for all kinds of violations of the Internal Revenue Code. Let me just mention a few broad areas and behaviors that could trigger IRS penalties:

1.Filing related penalties can be imposed by the IRS when a taxpayer has a duty to file a tax return and files it late or not at all.  These filing related penalties can be imposed by the IRS on all kinds or taxpayers for all manner of filing violations.

2.Accuracy related penalties ranges from taxpayers’ negligent mistakes and errors,  to their reckless and frivolous tax positions all the way to willful understatement of assets, overvaluations of assets, over and under statement of liabilities and erroneous equity position valuations.  These accuracy related penalties can be assessed against individuals, businesses, trusts, estates, and other entities.

3.Preparer liability related penalties are assessed by the IRS on professional tax return preparers  for failure to  comply with various due diligence requirements, or on return preparers who advise their tax clients to take frivolous tax positions, or reckless positions or tax positions on their returns that are simply not unfounded in law tax or facts.

The story that I am attempting to tell here is that there are all kinds of reasons and all kinds of individuals, businesses, entities who might be assessed IRS penalties for all kinds of tax violations.  Also their tax preparers likewise are subject to certain types of IRS penalties.  The IRS penalties are assessed to encourage compliance with federal tax laws.  Human beings are curious and ingenious in coming up with new ways and even schemes to avoid what they don’t want to do.  Probably not too many people like paying taxes… so penalties are assessed to help the curious, ingenious and schemer alike to comply with federal law.

INTERVIEWER: Leiliane Godeiro, Litigation Legal Assistant

QUESTION 3: Attorney, what is the amount of money we are talking about in terms of IRS penalties?

Attorney Answer – Question 3:

IRS penalties can vary depending upon the type of tax violation. These penalties can be very substantial and they often continue to run until the underlying tax violation has been resolved. So that is the general answer to the question you asked.  Violators simply need to know that tax penalties in some instances can exceed the amount of the tax liability owed to begin with.

But let me deal with your question more specifically by naming a few IRS penalty rates:

1.Filing-Related Penalties Rates range all over the place depending upon the type of tax return involved; on your typical return, such as, the Form 1040, Form 1120, and Form 1065 the failure to file penalty begins at 20% of the net-amount due on the date the return was due not including any extensions of filing

2.Accuracy-Related Penalty Rates ranges from 5% to 20% based on the net-tax amount on the return due date not including any extensions of filing.  The quantum of the penalty is determined numerous factors that I am not going to go into right now.  In some instances, such as substantial valuation overstatements the penalty is 30% of the tax that should have been paid had the correct valuation or basis been used to begin with.  I am intentionally leaving out the specific Internal Revenue Code sections because it would be really getting into the weeds of federal tax law; and most of our podcast audience are not tax practitioners.  We don’t want to unnecessarily bombard them with tax law.  Just know, tax law is complex.

3.Information Reporting Penalties are imposed on employers for various violations for information reporting requirements in the tax code involving Form W-2, Form 1099, and so forth and can range from $50 per return if corrected within 30 days of the due date or $250 per return if its not corrected in 30 days.  Employers should know that information return penalties hand be brutal.

4.Penalties imposed on tax return preparers can range from $250 per return on returns taking unsustainable legal positions to the penalty regime designed to encourage tax return preparers to perform proper due diligence before taking certain tax positions, such as, earned income credit, head of household, and like tax positions.  The Code has imposed more-and-more due diligence requirements on return preparers over the years designed to encourage preparers to know the taxpayers for whom they prepare returns.

This is just the surface.  Like I said earlier I do not want to overwhelm our lay podcast audience by going too deep into the tax weeds.

INTERVIEWER: Leiliane Godeiro, Litigation Legal Assistant

Question 4: How long does the IRS have to charge a taxpayer these penalties you’ve been talking about Attorney?

Attorney Answer – Question 4:

Okay, Let me see whether I can keep this simple and straight forward:

1.If a taxpayer has a legal obligation under the Internal Revenue Code to file a tax return for a particular tax period but never filed the return, the IRS has forever to charge any applicable tax penalties, such as, failure to file penalties, accuracy penalties and any other penalties that can be lawfully charged based on the facts and circumstances.  Also the IRS has forever to audit the return and make tax adjustments and assessments.  This is so because the ‘three year statute of assessment’ never begins to run until the tax return is filed with the IRS.

2.If a taxpayer has a duty under the Internal Revenue Code to file a tax return and does file the return on or before the returns due date, the IRS has three years after the return was filed or its due date to assess any of the penalties that I previously mentioned.

3.Now let’s say the tax return was filed late.  With respect to late returns the IRS can assess the penalties beginning one day after the return is actually filed.

4.Keep in mind certain things that the taxpayer does and does not do can impact these assessment dates; such as, filing of an amended return and agreeing with an IRS representative to extend the statute of limitations for assessing penalties, interest and additional tax.  IRS examination of returns within this statute of limitation period can also impact the assessment of penalties, interest and tax.

INTERVIEWER: Leiliane Godeiro, Litigation Legal Assistant

Interviewee Comment: Attorney, I have one final question regarding this very interest topic: dealing with IRS penalties.

Question 5: What can a taxpayer do to minimize or get rid of IRS penalties?

Attorney Answer – Question 5:

If the penalty is resulting from an IRS audit examination, the taxpayer can ask for a hearing with the field examiner’s supervisor and if that fails to resolve the issues, the taxpayer can seek an audit redetermination where the penalty can be addressed or the taxpayer can seek redress in the IRS Independent Office of Appeals.

Taxpayers can seek penalty relief from an IRS penalty assessment by filing a Penalty Abatement or Refund Request with the field office where the return was filed and go to the IRS Independent Office of Appeals in the event the taxpayer is still unsatisfied with the results.

The taxpayer also have the right to file a petition with the United States Tax Court. It is very important that the tax court petition be timely filed. The taxpayer has 90 days from receipt of the IRS additional tax assessment, penalties and interest to file a complaint with the U.S. Tax Court without having to first pay the tax assessment.

I have summarized briefly the taxpayers options. It is more complex and taxpayers with these types of additional tax, penalty and interest assessments should contact legal counsel immediately upon receipt of any correspondence from the IRS or IRS examinations. For to protect and preserve your rights under the Internal Revenue Code, taxpayers must know their legal rights.

In all of the remedies that might be available to the taxpayer in penalty relief cases; the taxpayer must have acted reasonably and have ‘reasonable cause’ defense. Evidence must be gathered and marshaled to make reasonable cause defense arguments. Relief from IRS additional taxes resulting from examination, penalty and interest assessments cannot be based on thin-air, or groundless arguments; but, based in federal tax law and facts.

INTERVIEWER Wrap-up: Leiliane Godeiro, Litigation Legal Assistant

Attorney, thank you for being here today with us, this information about dealing with the IRS penalty. Hopefully our audience finds it informative and helps them to know their rights as taxpayers; know how to protect their rights in the unfortunate event that they are being examined by the IRS; and hopefully our audience knows now how to preserve their legal rights under the federal tax code if they are unfortunately hit with a IRS tax penalty.

Our listeners who want to hear more podcasts like this one should subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or where ever you listen to your podcast. Everybody take care! And come back in about two weeks, for more taxation, contracts, litigation and immigration Legal Thoughts from Coleman Jackson, Professional Corporation, located right here in Dallas, Texas at 6060 North Central Expressway, Suite 620, Dallas, Texas 75206.

English callers: 214-599-0431 | Spanish callers: 214-599-0432 |Portuguese callers: 214-272-3100

Attorney Conclusion:

This is the end of “LEGAL THOUGHTS” for now.

Thank you for giving us your valuable time this afternoon and listening to our law firm’s Legal Thoughts Podcast. This has been the first episode in our new podcast series entitled dealing with the IRS. Hope you enjoyed Episode One: “ Dealing with IRS Penalties”.

If you want to see or hear more taxation, contracts, litigation, and immigration LEGAL THOUGHTS from Coleman Jackson, Professional Corporation. Subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify, or wherever you listen to your podcast.

Stay tuned! We are here in Dallas, Texas, and want to inform, educate and encourage our communities on topics dealing with taxation, litigation, and immigration. Until next time, take care.