Enrolled Agent > EA - Part 3: Representation > Unit 9: Tax Payments and IRS Collections > Flashcards

Unit 9: Tax Payments and IRS Collections Flashcards

Understand IRS collection methods and payment alternatives. (48 cards)

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1
Q

What triggers the IRS collection process?

A

Failure to pay the full balance due by the original tax return due date.

The collection process includes penalties and interest and continues until the full balance is paid or the statute of limitations expires.

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2
Q

What are the approved IRS payment methods?

A
  • Direct Debit or Electronic Funds Withdrawal (EFW)
  • Credit Card or Debit Card
  • Personal Check, Cashier’s Check, or Money Order
  • Installment Agreement
  • Electronic Federal Tax Payment System (EFTPS)
  • Same-Day Wire Transfer
  • Direct Pay and Direct Pay Business
  • Cash at a Retail Partner

Each payment method has specific requirements and may involve fees or conditions.

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3
Q

True or False:

Taxpayers must send payment at the same time they file their tax return.

A

False

Taxpayers can file their return and choose to pay at a later date as long as the payment is postmarked by the due date.

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4
Q

What is the reduced failure-to-pay penalty rate while an installment agreement is in effect?

A

0.25% per month

This is a reduction from the usual penalty rate of 0.5% per month.

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5
Q

What is the maximum amount an individual can owe to apply for an installment agreement online?

A

$50,000 or less in combined individual income tax, penalties, and interest.

All required tax returns must be filed to be eligible for the online application.

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6
Q

What does a guaranteed installment agreement ensure?

A

It ensures taxpayers owing $10,000 or less cannot be denied an installment agreement if specific conditions are met.

Conditions include timely filing and payment history, inability to pay in full, agreement to pay within three years, and no prior installment agreement in five years.

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7
Q

What happens if a taxpayer misses an installment payment?

A

The installment agreement is considered in default, and the IRS will generate an automatic 30-day notice.

The notice informs the taxpayer that they defaulted on their installment agreement and provides a 30-day period for the taxpayer to address the missed payment.

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8
Q

What is required for a taxpayer to reinstate a defaulted installment agreement with the IRS?

A
  • Contact the IRS using the phone number on the notice.
  • Explain why the payment was missed.
  • Describe how future payments will be made on time.
  • Pay a reinstatement fee unless reasonable cause is demonstrated.
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9
Q

Under what circumstances can a taxpayer request additional time to pay their tax liability without incurring late payment penalties?

A

If paying on time would cause undue hardship. If approved, this delays the late payment penalty but not interest.

The taxpayer files Form 1127 to make the request for an Extension of Time For Payment due to Hardship.

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10
Q

Does interest accrue on tax due if an extension is granted due to hardship?

A

Yes

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11
Q

What is the Collection Statute Expiration Date (CSED)?

(CSED)

A

The date after which the IRS is no longer allowed to collect the tax, normally ten years from the date of assessment.

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12
Q

Under which conditions can the CSED be tolled or extended?

A
  • While the IRS considers a proposed installment agreement or Offer In Compromise (OIC).
  • From the date a taxpayer requests a Collection Due Process (CDP) hearing.
  • While the taxpayer is residing outside the United States.
  • During a bankruptcy, extended by 6 months upon conclusion.
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13
Q

Can bankruptcy discharge all types of tax debt?

A

No, only income tax debt under specific conditions.

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14
Q

What are the IRS Collection Financial Standards?

A

Standards to help establish allowable living expenses necessary for a taxpayer while repaying tax debt.

These standard amounts are allowed nationwide for food, clothing, out-of-pocket healthcare expenses and other items.

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15
Q

What does ‘Currently Not Collectible (CNC)’ status mean for a taxpayer?

A

The IRS stops all collection activities due to the taxpayer’s financial hardship but allows penalties and interest to accrue.

The collection statute of liitations continues to run while a taxpayer is in ‘Currently Not Collectible’ status.

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16
Q

What is the IRS’s authority to compel taxpayers to provide information?

A

Congress grants the IRS the statutory authority to compel taxpayers to provide information necessary for determining tax liability and collecting taxes.

This includes examining books, papers, records, and summoning individuals to appear under oath, especially in collection proceedings and audits.

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17
Q

What actions can the IRS take to collect unpaid taxes?

A
  • Liens and Levies
  • Issuing a summons
  • Preparing Substitute for Return (SFR)
  • Refund Offset Program

These actions help the IRS secure information, prepare unfiled returns, and intercept refunds to pay off delinquent debts.

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18
Q

What is a Substitute for Return?

(SFR)

A

It is prepared by the IRS when taxpayers fail to file their return voluntarily, using information on file and other data.

The IRS assesses tax and begins collection activities after preparing SFRs.

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19
Q

What is a federal tax lien?

A

A legal claim against a taxpayer’s property, including after-acquired property, filed to establish the IRS’s interest as a creditor.

A Notice of Federal Tax Lien alerts other creditors and is filed when a taxpayer neglects or refuses to pay assessed taxes.

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20
Q

What is an IRS seizure (or a levy)?

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A

The legal act of confiscating a taxpayer’s property to satisfy a tax debt.

Special rules prevent levy during pending agreements or appeals, and certain exemptions apply.

21
Q

When is the IRS typically prohibited from seizing a taxpayer’s property?

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A
  • During a pending installment agreement or an Offer In Compromise (OIC).
  • During a pending or active bankruptcy (unless the seizure is authorized by the bankruptcy court).
  • If the taxpayer’s liability is $5,000 or less in a seizure of real property.
  • While an innocent spouse claim is pending.
22
Q

What items are exempt from IRS levy?

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A
  • Wearing apparel and school books
  • Fuel, provisions, furniture, personal effects, arms, livestock up to an allowable amount
  • Tools necessary for trade up to an allowable amount
  • Undelivered mail
  • Unemployment benefits
  • Workers’ compensation
  • Certain annuity or pension payments
  • Judgments for child support
  • Public assistance and welfare payments
  • Supplemental Security Income

Traditional and Roth IRAs are not exempt from levy.

23
Q

What is the role of the IRS Summons?

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A

The IRS can issue a summons to examine records or summon individuals under IRC §7602 for tax determination or enforcement.

A summons cannot force the creation of new documents and must follow strict procedures.

24
Q

What are Collection Due Process hearings?

(CDP)

Study These Flashcards
A

CDP hearings are taxpayer rights to protest IRS collection notices, allowing challenge of tax liability or collection methods.

Taxpayers use Form 12153 (Request for a Collection Due Process or Equivalent hearing) to request a hearing, with issues like tax payment, procedural errors, and collection alternatives open for discussion.

25
# True or False: A taxpayer can appeal a decision made in a **Collection Appeals Program** hearing. | (CAP)
False ## Footnote Decisions made in a CAP hearing are final for both the taxpayer and the IRS and cannot be appealed further.
26
What is a **CAP hearing** in the IRS collections process?
* A Collection Appeals Program (CAP) hearing allows taxpayers to **appeal certain IRS collection actions**, such as liens, levies, seizures, or the denial or termination of installment agreements. * It provides a quicker resolution than a Collection Due Process (CDP) hearing but does not allow judicial review. ## Footnote CAP decisions are conclusive and do not offer this further appeal avenue
27
Under what circumstances might the **IRS waive or reduce penalties**?
* Natural disasters and personal emergencies * Inability to obtain records * Reliance on a tax professional * Reasonable misunderstanding of fact or law ## Footnote Lack of funds is not considered a 'reasonable cause' for failing to pay or deposit taxes due.
28
What is the **First Time (Penalty) Abatement** waiver? | (FTA)
An administrative waiver that relieves taxpayers from **failure-to-file, failure-to-pay,** **and failure-to-deposit penalties** if they have a good tax compliance history.
29
Under what conditions can interest be abated by the IRS?
* Excessive, barred by statute, or erroneously or illegally assessed interest * Interest assessed on an erroneous refund * Interest incurred while in a combat zone or federally declared disaster area * Interest resulting from certain errors or delays caused by an IRS employee ## Footnote IRS will not abate interest using the First Time Abatement procedure or for reasonable cause.
30
What is **'joint and several liability**' in the context of joint tax returns?
Both taxpayers are legally responsible for the **entire tax liability, interest, and penalties**, even if they later separate or divorce.
31
What type of relief can be requested using **Form 8857**?
* Innocent Spouse Relief * Separation of Liability Relief * Equitable Relief
32
What are the requirements for a taxpayer to qualify for **innocent spouse relief**?
* Filed a joint return with an understatement of tax related to the other spouse's erroneous items. * Unaware of the understated tax or erroneous reporting. * Unfair to hold the taxpayer liable based on all facts and circumstances. ## Footnote A request for innocent spouse relieft must generally be filed within two years after the IRS first takes collection action against the requesting spouse.
33
Who can **represent** a taxpayer during a CAP appeals hearing?
* The taxpayer themselves * A qualified representative such as an attorney, CPA, EA, spouse, or family member * For businesses: a full-time employee, general partner, or official officer
34
What are factors that weigh in favor of **granting equitable relief**?
* Abuse by the spouse or former spouse. * Poor mental or physical health on the date of signing the return or requesting relief. ## Footnote Equitable relief may be available to a taxpayer when they are not eligible for innocent spouse relief or separation of liability relief.
35
What is the difference between **innocent spouse relief** and **injured spouse claims**?
* **Innocent spouse relief**: pertains to relief from tax liabilities due to erroneous filings by a spouse. * **Injured spouse claims**: involve a taxpayer's share of a refund being used to pay their spouse's debts.
36
What is the time limit for a taxpayer to request **equitable relief** under the **Taxpayer First Act**?
A taxpayer has up to **ten years to file a request for equitable relief**. ## Footnote This period is the same as the IRS's collection period. Requests for refunds must comply with the statute of limitations for refunds.
37
Which form does an injured spouse use to **request their share of a tax refund**?
**Form 8379**, Injured Spouse Allocation
38
What is an **Offer in Compromise**? | (OIC)
An agreement between a taxpayer and the IRS to settle tax liabilities for **less than the full amount** owed.
39
What are the eligibility requirements to apply for an **Offer in Compromise**?
* Filed all required tax returns * Made all required estimated payments * Not be in an open bankruptcy proceeding * Made tax deposits for current and past two quarters (if an employer)
40
Under what **conditions** will the IRS typically accept an **Offer in Compromise**?
* The taxpayer **cannot fully pay the liability** within the remaining collection period. * The proposed offer is the most the IRS can collect from the taxpayer within a **reasonable period**.
41
What must a taxpayer do after an Offer in Compromise is **accepted**?
Remain in **good standing** with the IRS for at least five years. ## Footnote This includes timely filing all tax returns and paying all taxes due during this period.
42
What are the **three grounds** on which a taxpayer may submit an **Offer in Compromise**?
* Doubt as to collectibility * Doubt as to liability * Effective tax administration (Exceptional circumstances)
43
What must a taxpayer demonstrate to apply for an Offer in Compromise (OIC) under '**Exceptional Circumstances**'? ## Footnote Exceptional Circumstances (Effective Tax Adminstration)
That collection of the tax would create a **serious economic hardship** or would be **unfair**.
44
What is the purpose of **Form 433-F, Collection Information Statement**?
Form 433-F is used to obtain current financial information necessary for determining how a wage earner or self-employed individual can satisfy an outstanding tax liability ## Footnote For individual taxpayers who owe more than $50,000, Form 433-F, Collection Information Statement, will have to be submitted along with the installment agreement request.
45
Should the IRS notify the taxpayer of an intent seize of property to satisfy outstanding debt?
Yes, The IRS generally must wait at least 30 days from the date of the **notice of intent to levy (Letter 1058 or Notice LT11)** before it can make a seizure. ## Footnote However, if the IRS has determined that the collection of tax is in jeopardy, it may immediately seize property without the normal 30-day waiting period.
46
What happens when an **installment agreement** has been **rejected** or the IRS is proposing for it to be **modified or terminated**?
Taxpayer should appeal by completing **Form 9423, Collection Appeal Request**. The form should be submitted within 30 days to the IRS office or revenue officer who took action regarding the installment agreement.
47
What is the difference between Form 656 and Form 656-L?
1. Form 656, Offer in Compromise - To apply for an *OIC* on the grounds of **“doubt as to collectibility” or “exceptional circumstances,”** a taxpayer must submit an application fee and initial nonrefundable payment along with Form 656, Offer in Compromise. 2. 656-L - To apply for an *OIC* on the grounds of **“doubt as to liability”**. No fee required in this case. ## Footnote Fees may be waived for low-income taxpayers.
48
Can a taxpayer appeal a rejected Offer In Compromise(OIC)?
Yes, taxpayer may appeal a rejected offer in compromise within 30 days by filing **Form 13711, Request for Appeal of Offer in Compromise**, or drafting a separate appeals letter.
EA - Part 3: Representation
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