How to Settle Your IRS Debt for Less: Taking the First Step

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You’ve heard those commercials on the radio or seen them on late night television.  “Settle your debt with the IRS for pennies on the dollar!”  Those companies charge a lot of money for something called an “Offer in Compromise.”  I’ve dealt with a lot of people who’ve paid between $5,000 and $8,000 for those services and gotten nothing-NOTHING for their money.  That’s good money they could have used to pay off their debt!

So, before you spend that kind of money, you should see if you have a fighting chance at getting an Offer in Compromise (OIC) first.  And here’s the best part–you can test it out for free.  FREE!

The IRS has an Offer in Compromise Pre-Qualifier.  It’s a wonderful little tool that will let you know if you even have a shot at an OIC before you spend money trying to get one.  Here’s the link:  IRS Offer In Compromise Pre-Qualifier


The first page has some pretty basic questions.  Are you currently filing for bankruptcy?  The answer has to be no, you can’t have an OIC if you’re in bankruptcy.  If you’re in bankruptcy, you’ll have to wait until that’s over to file for an OIC.   The next question is have you filed all of your tax returns.  You have to say yes–otherwise the result will be no OIC.  You’ll have to file those returns before filing for OIC, but you’re just trying to figure out if you could qualify in the first place.

Same thing with making your tax payments.  Before you file for OIC, you’ll have to have your estimated payments caught up for the current year and self employed people must have their payroll deposits made.


So, just to get past the first page, you need to answer NO, YES, NA, NA.  If that’s not true, you’ll need to rectify the situation, but you need to answer that way just to get past that screen to get to the meat of the program.


The next page is about where you live and the amount of tax that you owe.  (This is one good reason why you need to file all of your returns before you make an offer–how can you settle your debt when you don’t know how much you owe?)  But this is just a pre-qualifier, it’s to see if you may be able to make an offer so make your best guess.


The reason they ask about where you live is because the cost of living is different in different areas.  A New Yorker will be able to claim more in housing expenses than someone from St. Louis because the cost of living is higher there.  On the flip side, New Yorkers don’t get an adjustment for their other expenses which can hurt them when trying to qualify for an OIC.  But that’s why the question about where you live is on the pre-qualifier.


This page also asks about your age.  If you’re over 65, they make a higher allowance for your out of pocket medical expenses.  That’s why that question is there.


From there, on the next page the IRS is looking at your equity–what are you worth financially?  How much money do you have in the bank?   What’s the value of your home?  How big is the loan on it?   How much is in your 401(k)?  Do you have any stocks?  How about the value of your car?  How much do you still owe on your car loan?   So where it asks for the equity in your car, it means what is the value right now minus how much you still owe on your car loan, that’s your car equity.


Home owners with a lot of equity and people with retirement assets often lose out right here.  If you have assets, the IRS figures you can sell them or cash them in to pay your IRS debt.  Be honest when filling this out (remember, no one is going to see it but you.)  If you apply for an OIC, the IRS will be able to substantiate everything you say, so you may as well tell the truth to yourself on the pre-qualifier.


If your assets are too high to qualify for an OIC, the pre-qualifer will stop right here.  You may want to double check your figures before giving up completely, but most likely you’ll need to pursue a different route to get settled with the IRS.


If you do get to the next section it’s all about your income.  Wages, interest, dividends, child support, alimony, distributions from partnerships and S corporations.  Anything else?  The IRS doesn’t care if it’s taxable income or not.  They include social security, pension income and even Veterans benefits as being money that you can use to pay your tax debt with.


The IRS is looking for monthly figures here.  So, let’s say you get paid every two weeks.  That means 26 paychecks a year.  You’ll take the gross on your pay stub multiply that by 26, and divide by 12 to get your monthly pay.  Lots of people would just double their pay check, because for the most part, you’re getting 2 checks a month.  But the IRS doesn’t count that it way.  They multiply by 26 and divide by 12 it makes a difference.  You need to know how they’re calculating if you want to win this game.


The next page is all about your expenses.  How much is your rent or mortgage?  How much do you pay on your cars?  What do you spend on gas and groceries?  Child care?  Child support?  Alimony?  Utilties?


Life insurance is on the list too.  Now what they mean here is term life insurance.  A whole life policy where it’s like an investment isn’t considered to be a cost of living expense, but term life is.


So now you’ve input your income, your expenses, your debt and your equity and the IRS computer runs all these numbers together and either says you may or may not qualify for an Offer in Compromise.  It will also say what the IRS expects your offer to be given the information you put in.


Here’s the thing:  the IRS tool is only as good as the information you put in.  Most people do the IRS Pre-Qualifier the first time around just guessing at the answers.  (I think I’d get this much if I sold my house today, I’m guessing my loan balance is about $x.xx.)  This is just to get a ballpark.  To get a better picture, you’re going to want to really know what your home loan balance is.  Check out the fair market value of your house on  Really look at what you spend for your utilities.   Get the actual numbers off your pay stub and do the pre-qualifier again with the actual figures.


Does it still look like you can do this?  Great.  Remember, page one?  Make sure all of your returns are filed first and you know how much debt you owe.  Don’t be in bankruptcy.  And most importantly, make sure that if you need to be making estimated tax payments, you’re caught up with making them.  Make sure these issues are taken care of before you submit an actual offer.  I suggest hiring a professional to do this, but if you’re going to do it yourself, start with the Offer in Compromise Booklet, here’s the link to that:  Offer in Compromise Booklet


And if you don’t qualify for an Offer in Compromise?  That’s still not the end of the world.  If you have exceptional circumstances, like huge medical expenses, you may still be able to make an OIC.  Be aware that your chances are significantly lower for getting accepted, but you can still make the offer.   But you’re going to have to demonstrate that your circumstances are exceptional and that paying the tax would create an undue hardship.  This seems silly, but I cannot stress this enough–simply not wanting to pay your tax is not considered an undue hardship.  (I get asked that question all the time.)  Paying for chemotherapy treatment for a cancer patient, that might get you somewhere.


Even if you cannot qualify for an OIC, you can still work out a payment arrangement with the IRS to get the debt handled.   You’re just going to have to pay the full amount of your debt.


If you have the time, please answer a question about this blog post.  The following link will take you to my little two question survey.  Thanks.  Survey


IRS Letters – the CP 2000: Common Errors and How to Fix Them

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Have you gotten a letter from the IRS that says something like this?


“The income and payment information we have on file from sources such as employers or financial institutions doesn’t match the information you reported on your tax return.  If our information is correct, you will owe…”

That letter is called a CP2000—it’s from the Individual Automated Under Reporter Unit of the IRS.   In 2012, they issued 4.5 million notices with an average of $1,572 in additional taxes owed.  That’s over $7 billion dollars!


Just because you receive one of these CP2000 letters, doesn’t necessarily mean that you owe the IRS any money.  So before you go writing the IRS a check, you need to take a look at your tax return and the CP2000 letter very carefully to make sure you owe before you pay.  Let’s take a look at some of the most common things the IRS is asking about.


Missing W2:  You’d be surprised how many people forget a W2 off of their tax return.  It’s easier than you’d think.   You could have a Christmas season sales job at Macy’s in 2011 but get a pay check for one day in January 2012.   When you file that 2012 tax return in 2013, you’ve forgotten about that one paycheck.  If you moved during the year, you might never get your W2.  If you forgot a W2 on your tax return, usually it’s just best to sign the letter and pay the tax.


Missing stock trades:  This is probably the most common type of CP2000 letter that I see and they fall into two categories.  The first is employee stock options.  If you work for a company that issues employee stock options, when you exercise those options, you pay the tax through your payroll withholding.   Even though the stock options are accounted for in your paycheck, you still have to do additional paperwork on your taxes. If you don’t also report the employee stock options on a Schedule D, you’ll get an IRS notice.  Usually, if this is what happened, you won’t owe any additional tax, you just need to submit the missing paperwork.


The other category of missing stock options consists of trades that just weren’t reported.   Many people who made the election to receive their brokerage notices online didn’t realize that their 1099B notices were online also.  I think that’s one of the most common reasons I’ve heard for people not reporting their trades.  If you fall into this category, remember that the IRS doesn’t always include stock basis when they figure your tax.   If you have stock trades on your CP2000, you’ll need to prepare an amended return and be sure to include the basis of all our stock trades.  You may still owe the IRS money, but I’ve never seen one of these cases where the person owed the IRS the full amount that the IRS stated.


Mismatched documents:  This happens all the time.  For example, let’s say that you have three accounts at Bank of America.  One earned $10 interest, another earned $15, and the other earned $20 of interest.  You put $45 of interest down on your tax return.  And that’s right.  But the IRS may get the documents as 10; 15; and 20 and since it’s a computer and not a human that does the matching, you could get a notice saying you didn’t report your interest properly.  You can usually solve issues like that with a simple phone call.


These are just a few of the more common and easy ways to solve CP2000 issues.  If you receive a CP2000 letter and it doesn’t make any sense, or you just need some help, please call us.  That’s what we do.


Check out the IRS link as well:

Angels at the IRS


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My job is to fight the IRS. All year long, that’s my job. It’s like a little accounting war. I’m the soldier for the little guy.


But, although the IRS as an institution is pretty cold and impersonal, many of their foot soldiers are real people. They have friends and families who love them. And they are kind and generous and they actually care about the human beings that call them and try to straighten out their tax problems.


To you IRS agents, today is my day of truce. I’ll be back battling you again all too soon. But for today, I’d like to acknowledge the good guys.


To Mr. H—who helped straighten out the account of a senior lady with Alzheimer’s and understood that her tax issue really wasn’t her fault. You went above and beyond to help figure out her situation. Your information also helped the doctor understand the problem better as well. You’ll never know how you helped her that way.


To Mrs. G—who deals with the really hard luck cases and tries not to cry every night because she sees so much suffering. I’m sorry for sending you more hard luck stories, but I’m glad you’re out there for those people. It helps when there’s someone who actually cares on the other end of the line.


To Miss S—who exhausted every possible avenue until she found a way to help a taxpayer who really needed it. It took a long time to work something out, but you didn’t give up. I underestimated you, but you surprised me. Thanks.


To the woman whose name I don’t remember but whose laugh I’ll never forget—thank you for recognizing that the IRS really did make a mistake when they sent my client a bill for $2 million dollars! If more agents were like you, there’d be less need for people like me. The first agent my client had called was not nearly as smart, nor friendly, as you.


To Mr. D—you said that the IRS had, “Empowered you to help people.” I nicknamed you Captain IRS; you were like a super hero. (You even had the super hero voice!) Not only did you go out of your way to help a woman who was truly indigent, you also pressured me to do the case pro bono as well. I kept up my end of the bargain.


To all the phone people who answered questions correctly—please know how much that is appreciated. There’s nothing worse than getting incorrect information from the IRS.


To all the people who said, “I don’t know,” when they didn’t know an answer. It’s also much appreciated. “I don’t know,” is always better than wrong information. Thanks.


We’ve got a new year ahead of us and I’ll be back in battle mode again soon. Most of my clients think that I’m fighting against the IRS when I try to help them with their tax problems. And sometimes I am. But more often than not, there’s an IRS agent out there battling for them as well. Most people don’t know about the good guys, but they’re out there. Just thought you should know about them.

Santa and the IRS

Wanted: Santa Claus

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Roberg Tax Solutions will be closed from Monday December 24, 2012 – January 3, 2013.  Generally, confidentiality rules prevent me from sharing client information, but our very special client has authorized the release of his personal information so that our clients may understand why we will be closed that week.  We were recently contacted by Mr. S. Claus concerning this letter that he recently received from the IRS.  What follows is our correspondence on behalf of our client with the IRS.


IRS:   Mr. Claus,   It has come to our attention that you have never filed a US Income Tax return, despite that fact that you have been receiving US business income.  We have gone back as far as 1913 and estimated your income and taxes and have determined that you owe the IRS $16,345,619,841.61 including penalties and interest.


Roberg Tax:  Dear IRS, Don’t you think it’s a little absurd for you to be charging tax back to 1913?  What about the 10 year statute of limitations on collections?


IRS:  The 10 year statute does not apply if a tax return was never filed.  Therefore, we demand full payment for all years in question.


Roberg Tax:  But Santa doesn’t receive US income, he delivers gifts for free.


IRS:  Mr. Claus has been receiving his income in the form of barter.  He has been receiving cookies, milk, and reindeer carrots for years as payment for his deliveries.  We understand, Ms. Roberg, that your parents used to leave Santa beer but we have been gracious enough not to impose federal alcohol excise taxes on Mr. Claus at this time.


Roberg Tax:  Well thank you for your generosity on that point, how could you possibly know my Dad used to leave Santa beer?


IRS:  We have our ways.  We know lots of things.


Roberg Tax:    I don’t think I want to know!  Anyway, you’re arguing that Santa runs a business in the US and gets paid with milk and cookies.  Therefore, since his operation is a business, then he gets to deduct his business expenses which certainly exceed any revenue he could possibly receive from the milk and cookies he receives, therefore he owes no tax.


IRS:  Not so fast!  Only a legal business may write off expenses.  Santa does not live in the United States and he flies into the country illegally—thereby voiding any expense deduction that he would otherwise have been allowed to claim.


Roberg Tax:  So you’re calling Santa’s delivering of toys a criminal activity?  But if he has proper permission to enter the country, then his business is legal and he may deduct his business expenses which would make his tax bill zero.  Is that correct?


IRS:  Well, it will work on the business income, but we’ll probably be asking for his federal fuel excise tax on the reindeer.


Roberg Tax:  I don’t believe that reindeer feed falls under fuel tax guidelines.


IRS:  We’re reaching.  We’ve got to close the tax gap and the fat guy could be our ticket out of trouble.


Roberg Tax:  Don’t call my client fat, he prefers the term, “Jolly.”  And you can’t use Santa to solve the federal deficit.  That’s Congress’ job.


Anyway, we’ll be closed for the week.  Bill’s heading down to Homeland Security to get written clearance for Santa and Mike’s headed to the North Pole to get the books in order (plus he’s always wanted to see the reindeer in person).  I’m going to be spending my time with a very nasty IRS agent, who really should be dropping this case if he doesn’t want to stay on Santa’s naughty list.  We’ll all be back in time for tax season.  Don’t you worry about Santa, we’ve got him covered.


Merry Christmas.

My Dog Barks at IRS Agents

Jan's dog Lady! Ruff Ruff!

I know this sounds a little crazy, but my dog barks at IRS agents.  Some people think that this is a good thing, but in my business—no.  It really puts a damper on the whole “working from home” concept.  I figure that I spend a pretty large percentage of my time talking on the phone with IRS agents; I can’t have my dog barking.  It’s just unprofessional.


My husband says that I have a special “IRS voice” and the dog recognizes it as me talking to an enemy and reacts accordingly.  For the record:  I don’t consider IRS agents to be my enemy.  Most of the time we’re trying to achieve the same goal:  getting my client to pay his fair share of income tax.  Where the IRS and I tend to disagree is in the amount of money that would be considered to be a “fair share of income tax,” but overall we’ve got the same goal.


Anyway, the dog barks when I talk to the IRS so she can’t be in the room when I make my phone calls.  (Or I just call from my business office—no dogs there.)


But on days that I’m not doing IRS work, I like to work from home.  My dog likes to nap in the corner of my home office while I’m on the computer.  She’s usually pretty quiet and most of the time I can’t even tell she’s in the room; except for the other day.  Nothing unusual, the phone rang and it was a person asking for advice about an audit letter she received.  It was a pretty normal, friendly sort of call.  I get that type of call all the time and I was just answering questions for a potential client.


But while I was on the phone, my dog woke up and started barking at the phone routine.  It was so embarrassing.  I couldn’t get her to shut up.  I apologized to the caller and explained that she usually only barks at the IRS and I didn’t know what had gotten into her.  The woman on the phone paused for a moment and said, “I do work for the IRS.”


So I learned a couple of lessons:  First, IRS employees are not exempt from getting audited.  And second, my dog is smarter than I thought.

How to Call the IRS

A mysterious phone call

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Because of my line of work, I spend more time on the phone with IRS agents than anybody else I know. When I used to work for a big tax company, my co-workers joked that my real reason for calling the IRS so much was because I liked their hold music and I should just buy a radio instead. But the truth is, the IRS is a scary organization for many people to deal with and not everyone can hire someone like me to do it for them. These are my tips for calling the IRS if you’re going to try it yourself:

  1. The most important rule in the book is to remember your good manners. No matter what you may be thinking, no matter how angry you are about the situation, you absolutely must remember your good manners that your mother taught you.
  2. You are most likely going to be on hold for a long time. Be someplace where you are comfortable and have something else to do while you’re waiting. Even with my special “Bat Phone” that I get to use for the IRS, I still have to wait on hold. You’re going on a regular civilian line and the wait can be very long.
  3. Make the call someplace where you won’t be disturbed. I have a home office and a work office. You would think that my home office is the perfect place for making IRS phone calls, except that my dog hates the IRS. I do not understand her problem—she’s a dog, she doesn’t pay taxes; but every time I’m on the phone with the IRS she begins barking like a crazy beast. In my line of work, this is not a good thing. I now make all my IRS calls from work. You probably don’t have the luxury of a designated IRS calling place, but just do your best to limit your distractions.
  4. You have to make the call yourself; you can’t have your daughter or neighbor call for you. If you can’t call for yourself, you need to be in the room. The IRS agent will want to talk to you personally, confirm your identity, and then you will have to give permission for the IRS to talk to the other person. Even after you give permission, you still have to be in the room.
  5. If you have a letter or notice from the IRS, have it with you when you call. Call the phone number on the notice that they provide. If you don’t have a phone number, the main IRS phone line is 1 (800) 829-1040—but only use that if you have no other phone number, you’ll wait on hold even longer.
  6. Be prepared to get transferred and put on hold again. (I find that dark chocolate M&Ms have a calming effect on the stress of being on hold. Just a suggestion.)
  7. Finally, the moment will come when a real live IRS agent will pick up the phone and will actually be able to assist you without sticking you on hold and forwarding the call again. Ta Da! By now, you could be really frustrated with the hold music and all, but you will remember your good manners and pleasant voice and say, “Hi, I’m ________________, and I’m calling about a notice that I’ve received from your office.”

And now the real conversation begins. The agent will need to identify you, she will ask you questions about your name, birthday, social security number, phone number, etc. Basically, she’s trying to make sure that you really are the person you say you are. Don’t be offended by that, it’s actually for your own protection.

The next part of the conversation will be about why you’re calling. Is the notice wrong? How do we fix it? Is the notice right and you want to find out how to pay the tax? Or maybe the notice is right but you don’t have the money to full pay and need to make arrangements. This is the nuts and bolts of the phone call where you find out what’s needed to end your problem.

I’d say that 95% of the IRS agents who man the phones are actually decent people and they really do want to help you. They might not be able to—they have rules and laws that they must stick to—but most of them genuinely want to be helpful.

So what if you get one of the other 5%, or what if the IRS agent just can’t solve your problem? You don’t have to settle the issue right that instant. Let’s say you get a notice that says you owe $20,000—you can’t pay and when you call the IRS you can’t come to a resolution on the phone. You very politely say, “I’m going to have my representative call you next week.”

If you can’t settle the issue on your own, then it’s time to hire someone like me (an enrolled agent), but at least you’ll know that you’re not wasting money on something you could have handled yourself.

IRS Liens and Your Credit Score

Yes, that's an axe

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A question that I’ve heard a lot lately is, “How much damage will an IRS lien do to my credit score?” I recently heard that question again at an IRS panel about liens and they couldn’t answer the question either. I decided to do some research.

The term FICO score comes from a company called Fair Isaac and Company. They developed a computer software program that most of the credit bureaus use to determine your credit worthiness. Because the computer software is the Fair Isaac and Company’s business (and source of their income), they don’t release the mathematical formulas they use to determine the scores. If they did, no one would buy the software, people would just recreate the program and figure their FICO scores themselves. How any one event, such as an IRS tax lien, might affect your personal credit score is a pretty well guarded secret.

That said, there are a few things I can tell you.

  1. Although I can’t say by how much, I can tell you that an IRS tax lien will make your FICO score go down.
  2. Although many debts will come off of your credit report after 7 years, an IRS tax lien will never come off your credit report unless it’s paid.
  3. Once you have paid off your IRS debt, the IRS will automatically issue a lien release. Even with the lien release, the IRS tax lien will stay on your credit report for seven years.

Seven years! But there is something you can do about that. An IRS Lien Release is basically an automatic procedure that happens after you pay off your tax debt. You pay the bill, the release is issued and your credit still stinks. But you can take action.

What you want is an IRS Lien Withdrawal. An IRS Lien Withdrawal expunges the tax lien from your record as if it was never filed. This is what you want to do to bring your credit score up. In order to get an IRS Lien Withdrawal, you have to request it with a special form. Here’s a link to get it: It’s called form 12277. Remember, every IRS form has a name and number.

You can request an IRS Lien Withdrawal even if you haven’t paid your taxes in full, you just have to have a direct debit installment agreement set up and make a few payments. I have some more information about that in another post:

An IRS tax lien can do some damage to your credit report, but you have the power to fix it.

ATMs and the IRS: Why Your Business Shouldn’t Take Cash Out of the ATM


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You should never take cash out of the ATM using your business bank account. Never.

If you never have and never will take ATM cash out of your business account, you’re done here. Go read a different post, I’m not worried about you. If you still think it’s okay to make a cash ATM withdrawal from your business account, keep reading. Imagine you’re routinely getting whacked upside the head with a rolled up newspaper about every two minutes until you learn this lesson.

Why not use the business account for the ATM?

1. It’s a blazing red flag to the IRS that you’re doing something naughty. Even if everything you do related to your ATM withdrawals is 100% legitimate, to the IRS it says, “I’ve been a scumbag! Make me pay more taxes!” It’s really not a message you want to convey.

2. It’s bad bookkeeping practice. You have income and expenses. You take money in and you spend it. You need to account for how you spend it. An ATM cash withdrawal doesn’t give you the paper trail you need for your expenses. Even if you’re good about keeping those receipts (and believe me, you’d be the exception) you’re still stuck with issue number 1 – blazing red flag to the IRS.

But I own the business and it’s my money, why can’t I just make a withdrawal? Good question. Let’s say you’re just a plain sole proprietor, nothing fancy. You’re absolutely right; that’s your money and you’re entitled to use it as you see fit. If you’re keeping a separate bank account for your business, then you should write a check from your business to you for your “draw”. That’s legit and it gives you a paper trail. Whenever you take money from your ATM, it is considered as going to you and you’ll be taxed as that being your profit.

Here’s an example: Fred takes $200 a month out of his business account to pay some contract laborers. He occasionally hires some kids from the local football team to help him with his moving company. He pays the boys in cash and has never paid any one boy more than $600 so he hasn’t had to issue a 1099 (1099s must be issued if you pay $600 or more.) Fred gets audited by the IRS. He’s claimed $2400 in expenses for contract labor. That’s the $200 a month cash he’s paid to the boys on the football team to help him with some moving projects. What the IRS sees is $2400 in ATM cash paid directly to Fred and they charge him $1200 in taxes and penalties for under-reported income. Fred will have a very difficult time fighting this. It’s possible that he can fight and win, but why be in that position in the first place?

Let’s move it up a notch, what if Fred has an LLC-a limited liability company? Let’s say Fred takes an ATM withdrawal from his business account so he can take his wife out to dinner. Once again, its Fred’s money and he has that right. But now Fred is treating his business account as a personal account. This messes up his “limited liability” status. If you don’t keep a strict line between your business account and your personal account, you risk losing your limited liability protection. This makes it even more important for Fred not to use his business ATM card for cash if he has an LLC.

How’s your head? Been smacked enough times? Bottom line: never make an ATM cash withdrawal from your business bank account. If you want to pay yourself, write yourself a check. If your business needs to use cash, set up a petty cash account and fund it by writing a check for petty cash. A clean paper trail will keep the IRS off your back and that means money in your pocket.

Things To Do If the IRS Threatens to Levy Your Bank Account

Tax Concept

If you’ve received an IRS notice saying that they intend to levy your bank accounts if you don’t pay up in 30 days, then it’s time to pay attention. Before the IRS actually issues a levy notice, they’ve usually made a few attempts at contacting you and trying to get a payment. If you’ve received an IRS levy notice, it means that the IRS hasn’t heard from you—they think you’ve been blowing them off (which in many cases is true). If you ignore the levy notice, they’ll just take your money and the law is on their side so you need to act now.

First, the responsible thing is to call them, or hire someone to deal with them for you. (I personally think that if you’ve reached this point, it’s best to hire someone—but remember, I do this for a living, so note that I’m biased.)

There are things you can do to prevent the IRS from going through with the levy. Let’s assume that you really do owe the money:

1. You can set up a payment arrangement–you pay off the IRS on a monthly bill schedule

2.Your situation might qualify you for an offer in compromise (the pennies on the dollar thing you see in TV commercials), or

3. Maybe you’re going through hard times and need to be put into the currently uncollectable status—you still owe, but the IRS quits hounding you until you get a job or your situation changes.

But maybe you don’t really owe the money. That’s the big kicker for me. Usually, if you’re getting IRS levy notices, you do owe them money—or at least part of it, but I have seen several cases where my clients don’t owe the IRS anything! A couple of times I have even gotten them refunds instead. If you didn’t do your taxes, and the IRS did them for you, don’t assume that the IRS did them right. When the IRS does your taxes for you, they automatically put you in the highest tax bracket they can justify and you get no deductions or tax credits that you might have qualified for. (Here’s a hint: if you’ve got kids, the IRS probably did your taxes wrong.) Even if you find that you don’t owe the IRS money—you still have to contact them, let them know the situation, and then you’re going to have to provide proof. Usually your proof is your corrected tax return.

Dealing with the IRS is the best way to get yourself out of levy trouble. But here are a few things that you also might want to consider doing while the threat of a levy is still hanging over your head:

1. Make sure your name is taken off of your kids’ and/or parents’ bank accounts. If you’re on someone else’s bank account, the IRS can and will levy that account too.

2. Don’t keep large amounts in your bank accounts. If you’ve got lots of cash, then maybe you can just pay your debt. But usually, this isn’t an option for most people. If your paycheck is going direct deposit into your bank account, get the money out immediately. You can put your cash onto a prepaid Visa debit card. Once the levy is in place, the IRS can only take the funds that are in your account at the time of the levy, if you get another deposit, that money is accessible. Transfer money in only as you need to make payments out of the account.

IRS levies are serious business. Don’t make the mistake of ignoring them.


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Baseball Fans and Taxes: Christian Lopez and the Derek Jeter Ball

Derek Jeter

Photo by Keith Allison on

You’ve probably heard the story about Christian Lopez, the guy who caught Derek Jeter’s 3,000 career hit ball at Yankee Stadium and then was classy enough to return the ball to Mr. Jeter. He was rewarded handsomely by Yankee management with box seat tickets for the rest of the season, autographed balls and other merchandise. There’s been a lot of talk on the radio and in the media about the IRS going after Mr. Lopez for taxes. And while there are some really good articles out there already about the tax issue, I’ve decided to answer some of the actual questions people have been asking me because not all the stories running around out there are accurate.

I’ve heard that the IRS has already issued a bill to Christian Lopez for $10,000, how can they do that? That rumor isn’t true. There’s some speculation about how much tax Lopez will have to pay, but no bill has been issued by the IRS-they just can’t do that. The IRS will have to wait until April 15, 2012 to see any money from this event.

I’ve heard that Christian Lopez will have to pay a gift tax to the IRS for giving the ball to Derek Jeter. Why? First, that’s not true. But this is why people are talking about that: You can give a “gift” to someone with a value of up to $13,000 and not have to deal with any gift tax issues. People estimate that the ball Christian Lopez caught is worth between $275,000 – $300,000. Since Lopez gave it to Jeter, some people are erroneously calling that a gift. Even if they would be right about the gift, you can gift up to $5 million in your lifetime without paying tax on it—it just requires paperwork.

But I say it’s not a gift at all. Christian Lopez caught the ball and gave it back right away. Kind of like turning down a prize at a game show, he just gave it back so there’s no taxable transaction there. I’m from St. Louis. In 1998 when the fan returned Mark McGwire’s ball when McGwire broke Roger Maris’ single season home run record, the IRS did not require a gift tax return. That gives Lopez legal precedent.

But what about the tickets and stuff the Yankees gave him? Will that be taxed or is that a gift too? It would be nice if it could be considered as a gift, but it won’t. I’m pretty sure that the Yankees will issue a 1099 to Christian Lopez for the value of the tickets and merchandise he was awarded.

So he’s screwed no matter what? Not completely. One option is for Christian Lopez is to sell some of his tickets.

But if he sells the tickets, then won’t he have to pay tax on that money too? Only if he makes a profit. You see, because he’s paying tax for receiving the tickets then he has what’s called basis in the tickets. Say for example one of the tickets is worth $100 (I know it’s worth more than that, but let’s make the math easy.) Christian Lopez is getting taxed on receiving the full fair market price of the ticket, right? So it’s like he paid the full $100 for the ticket. So if he sells that same ticket for $100, he hasn’t made a profit on it, so there’s no tax on the $100 (because he’s already paid the tax on it). For you tax geeks, it would go on a Schedule D, just like selling stock.

Now it’s possible that Christian Lopez could sell his $100 ticket for $125. (Come on, really. Wouldn’t it be kind of cool to sit in Christian Lopez’s box seat? I think people would pay extra for that.) If he sells his tickets for more than their face value, he would be stuck paying taxes on the profit. That’s cool, make a profit and smile. If I were Mr. Lopez, I’d sell enough tickets to be able to pay the taxes and have fun going to as many baseball games as I could.

For more tax information about the Jeter baseball, this article at Accounting makes the most sense: