As defined within the 26 United States Code section 7201 by the Internal Revenue Code, failure to report taxes accurately, failure to report taxes and failure to pay taxes are all forms of tax evasion. In order to establish a case of tax evasion against you the government is tasked with the duty of proving beyond reasonable doubt that you the taxpayer attempted to evade a tax or the payment of a tax; an additional tax due and owing and that you as the taxpayer acted willfully. If the IRS proves your guilt then the repercussions to you will range from monetary fines to jail time.
Filing taxes can be a cumbersome and complex affair especially when it is done for a self-operated business or over a substantial amount of assets. Even the most innocent of mistakes may be interpreted as tax evasion thus making the line between a law-abiding tax-payer and a tax evader quite thin. Which is why you should know what the tax evasion statute is all about because in a case like this, ignorance can be quite expensive.
What is the Federal Payment Levy Program (FPLP)?
The Federal Payment Levy Program (FPLP) gives the IRS the right to seize a portion of certain payments you receive from the government. If you are a federal employee, a government contractor, or receiving Social Security benefits, your payments could be offset under the FPLP.
Payments Covered By The FPLP
Any of the following payments can be offset under the FPLP:
- Federal employee salaries
- Federal employee retirement annuities
- Certain Social Security benefits
- Railroad retirement benefits
- Military retirement payments
- Medicare provider and supplier payments
- Federal payments made to you as a contractor or vendor doing business with the government
Only Social Security retirement and survivors’ benefits are subject to the FPLP, not disability benefits or Supplement Security Income.
How The Levy Works
Preventing An IRS Tax Seizure
If you refuse, ignore or fail to pay your federal income taxes, the Internal Revenue Service has the legal right to seize your property. Property levies are the most severe action taken by the IRS.
In case you are behind on the tax debt, you should understand how tax seizures work and how you can avoid them.
Types Of Property IRS Can Seize
The IRS has the right to seize your real estate and personal property, even if they are not in your physical possession. The IRS may also take your wages, rent from your tenants, payments from your clients, funds in your bank account, and even your retirement funds. In essence, the IRS could take nearly anything you own, which includes your home.
How The IRS Begins The Seizure Process
In 1942, the U.S. government asked noted director Frank Capra to make a propaganda film that convinced a skeptical American public that waging war against both Japan and Germany was a good idea. Prelude to War: Why We Fight was one of several such movies that Capra made during World War II. The four-plus years he spent with the Army cost him dearly, as he had trouble finding work when he returned to Hollywood. Much like the government had to lay some groundwork before sending troops overseas, the IRS must lay some groundwork before it sends a levy notice. Continue reading to find out how to stop an IRS levy before it begins.
Key Pre-Levy Considerations
A bank levy is the collection procedure of last resort. Unlike tax liens and some other procedures, levies are not automatic. The IRS only proceeds with them if:
How Can a Jeopardy Levy Place You In Jeopardy?
As we have discussed in some previous posts, IRS levies are usually attention-getting tools as opposed to collection tools. The Service almost always cancels bank and other levies if the taxpayer enters into a repayment or other plan. But if the IRS suspects that it will have no other opportunity to collect the tax due, it may use a no-notice levy and immediately seize the taxpayer’s assets. The taxpayer will have no idea that anything is amiss until the waiter quietly says that “there is a problem with your debit card.”
Your Rights in a Jeopardy Levy Case
Typically, the IRS must provide a 30-day notice before it levies the taxpayer’s available assets. Furthermore, it must thoroughly document the need for this levy. Usually, there must be sufficient evidence that the taxpayer has been completely uncooperative. But according to Internal Revenue Manual 5.113, in some cases, the Service may pursue a no-notice levy after only a cursory assessment, if it has a reasonable basis to believe that a levy is the only way it can collect the tax debt. The underlying statute does not set the reasonableness standard, so courts usually rely on a separate provision that authorizes a no-notice levy if there is evidence of:
Methods for Reconstructing Cash Income In Tax Audit
After the Service has targeted a cash business for audit, laid a foundation, examined applicable records, and interviewed the taxpayer, the nitty gritty begins. The auditor will indirectly reconstruct business income if the records are inadequate, inconsistent with the interview answers, or otherwise suspect.
In general, IRS audit methods can include indirect income reconstruction if there is a reasonable indication of potential unreported income. That’s a pretty low standard, so auditors frequently employ this tactic. Cash businesses are especially at risk. The IRS essentially presumes that marijuana dispensaries and other such businesses underreport their income.
Direct Income Reconstruction
Purchase history often reveals accurate sales data. For example, if a car dealer purchased 100 smog certificates from the state or federal government, the dealer most likely sold 100 cars. Or, if a video game store purchased fifty Call Of Duty WWII games and has none remaining in its inventory, the shop most likely sold all fifty copies. Normally, auditors give owners a chance to explain any discrepancies before they do the math themselves.
Contrary to popular belief, there is nothing inherently threatening or sinister about an IRS audit. During the audit, the agency will simply double-check your numbers to ensure that there are no discrepancies in your tax returns. Therefore, if you are truthful and conscientious, you do not have to worry.
At times audits are completely random; however, the IRS usually selects taxpayers on the basis of suspicious or unscrupulous activity. As a rule of thumb, it is better to avoid subterfuge. If you are worried about being audited by the IRS this tax season, the following are some red flags that may land you in the hot seat.
Errors and Omissions
It is true that mistakes often happen in life. That being said, when you are filing your tax return, you must play close attention to all details, and be meticulous. It is likely that if you make simple mathematical errors, they will be noticed by the agency, which can lead to your tax return being audited.