The federal tax law provides for an office within the Internal Revenue Service (IRS) known as the Office of the Taxpayer Advocate. This office, headed by the National Taxpayer Advocate, aids taxpayers in settling their income tax problems with the IRS.

The National Taxpayer Advocate has the authority to issue a “taxpayer assistance order” to relieve certain difficulties that the IRS levies on a taxpayer.

When Can a Taxpayer Assistance Order Be Issued?

The National Taxpayer Advocate may issue a taxpayer assistance order when a taxpayer is suffering or is about to suffer a significant hardship due to the IRS’s actions. Sheer financial or personal inconvenience to the taxpayer usually does not constitute significant hardship.

In resolving whether a taxpayer has significant hardship, the Advocate looks at the following four factors:

  1. Whether there is an immediate danger of adverse action from the IRS;
  2. Whether there has been a hold of more than 30 days in resolving the taxpayer’s problems;
  3. Whether the taxpayer will have to pay high costs if relief is not granted; and
  4. Whether the taxpayer will suffer irreparable injury or a long-term adverse impact if relief is not granted.

What Does a Taxpayer Assistance Order Do?

A taxpayer assistance order may be issued to force the IRS to:

  • Release the taxpayer’s property from a tax lien;
  • Stop collection actions on the taxpayer; or
  • Reissue a lost refund check.

What Are Tax Liens?

In general, a lien is a legal claim to a particular item of property. Liens are commonly used to secure debt payments (e.g., loans). A tax lien is a particular type of lien that the government files against the assets of an individual or entity that fails to pay its taxes. Therefore, if an individual or entity refuses to pay their taxes, the government may set a lien on their assets.

If an individual or entity refuses to pay their taxes even after a lien is in place, then the government can seize the assets that the lien is attached to. They can then sell them to recoup some or all of the payments still owed.

For instance, suppose you are a limited liability company member (“LLC”). If the LLC has failed to pay its business taxes on time, the Internal Revenue Service (“IRS”) may file a lien against the business property. These are known as “IRS tax liens” or “federal tax liens.”

Although members of an LLC are personally shielded from liability and debts incurred by the business, the LLC itself is not. Therefore, the IRS (e.g., a federal government agency) may seize its property. This may include physical property, such as equipment or inventory, or intangible property like copyrights, trademarks, and patents.

In addition to federal taxes, the business must also pay any state and local business taxes. If the LLC fails to pay business taxes at the state and local level, then a state or local government agency may issue a state tax lien against assets that belong to the LLC.

Aside from the level of government, one other important distinction between state tax liens and federal or IRS tax liens is the amount of time that a government agency has to collect on a tax debt. Specifically, the IRS may have up to ten years to collect on unpaid federal income taxes. On the other hand, a state agency only has up to three years to collect unpaid state income taxes.

However, it is essential to note that the above time limits may change based on the facts of a particular situation and the laws of a specific state. For example, some states do not enforce a three-year statute of limitations, whereas others impose a three-year or four-year time constraint. As for federal taxes, you may be able to suspend or reset the clock by either declaring bankruptcy, entering into an installment agreement with the IRS, or reaching a settlement.

Finally, suppose a tax lien is already attached to the assets, and the person or entity has continued to overlook a government agency’s demand for payment of taxes. In that circumstance, the agency may seize the items contained in the lien documents using a legal procedure known as a “tax levy.” Tax levies refer to the actual act of taking the person or entity’s assets.

How Should I Respond to the IRS’s Action?

The safest and best way to ensure that a federal tax lien is wholly removed is by paying off the tax debt amount in full. If payment is not possible, then the debtor can request to do one of the following:

  • Set up an installment payment plan agreement;
  • Finish the application for an online payment agreement;
  • Reach the IRS and ask if they would be inclined to compromise by lowering the amount of debt owed; or
  • Check if the IRS placed a notice on the debtor’s account that says they are presently unable to pay and a temporary delay on collection.

Regardless of the method chosen, a debtor should never ignore a tax lien notice from the IRS. Refusing to pay or ignoring a demand to pay overdue taxes can result in several heavy penalties.

Some consequences of an unpaid tax lien include:

  • A tax lien can make it challenging to get loans and other lines of credit: This means that the debtor will have a difficult time doing certain things, such as buying or selling a house.
  • The IRS may issue a Notice of Levy on the property contained in the lien documents: This notice will authorize the IRS to seize the property listed to satisfy the tax debt. One of the ways the IRS recoups tax debt is by selling the debtor’s property. If the amount recovered is less than the debtor still owes, they will need to find another way to make up that difference.

The IRS may also enforce collection actions (e.g., summoning third parties to determine a debtor’s ability to pay or garnishing wages directly from a debtor’s paycheck).

In some circumstances, the IRS may also require the debtor to pay the penalty for certain unpaid employment taxes.

Lastly, in drastic cases, a debtor may have their application to receive a passport denied, or the government may revoke a passport that they presently hold.

Can an Order Be Issued against a Private Debt Collection Agency?

Yes, so long as the IRS has contracted the private debt collection agency to collect on its behalf. Once a taxpayer assistance order has been allocated, it will apply to the IRS and any private debt collection agencies working under a contract with the IRS.

Will I Need a Tax Attorney for an Appeal?

The tax appeals process can be very complicated. You may wish to have a tax attorney guide you through the appeals process and let you know what your rights and potential defenses are.

Suppose your appeal makes it to the U.S. District Court. In that case, you will almost certainly want a tax attorney to represent you, as various federal rules of procedure come into play and make the proceedings even more complex than usual. Use LegalMatch to find the right tax attorney for your needs today.