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Tax Law FAQ

What are the options if a taxpayer owes money to the Internal Revenue Service or California Franchise Tax Board?

Both the IRS and FTB have the authority to collect a balance due through various enforcement actions including levies on wages, salary, and other income; (2) filing a Notice of federal tax lien; (3) Seizure and sale of assets; and (4) with respect to the IRS, suits by the U.S. government in federal district court such as a suit to reduce a tax assessment to judgment.

If a taxpayer lacks the ability to pay in full, there are several collection alternatives that exist, and they include the following:

  1. Extension of time to pay
  1. Installment agreement
  1. Offer in Compromise (doubt as to liability or doubt as to collectability)
  1. Currently not collectable status (based upon financial analysis)
  1. Innocent spouse relief
  1. Penalty abatement (file Form 843, Claim for Refund and Request for Abatement, and request abatement of civil penalties by establishing reasonable cause)
  1. Request for audit reconsideration (an audit reconsideration is the process the IRS uses to reevaluate the results of a prior audit where additional tax was assessed and remains unpaid, or a tax credit was reversed). See Publication 3598 and IRM (12-16-2015).
  1. Bankruptcy (debtor may be able to discharge taxes and/or bring an adversary proceeding to litigate the amount owed in federal bankruptcy court)
  1. Claim for credit or refund. There is a limitation period on filing a claim.  See I.R.C. sec. 6511(a).  If the IRS denies the claim, the taxpayer may have an administrative hearing before the IRS Office of Appeals, and ultimately may file a refund suit in federal district court.

Individuals or businesses facing tax collection should contact competent tax counsel, who can evaluate the case, explain the options, and develop a defensible strategy.

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