Open Your IRS and FTB Mail — Not Having Enough Money To Pay Not Good Excuse

People come into my office every week with a stack of unopened letters from the IRS.  If those are fresh letters it is not a big problem.  But, I see people with months of unopened letters.  The IRS in almost all situations tells you in advance what they are going to do before doing it.  For example, Dear Youit seems as though you have forgotten to file your tax return from 2012, or it appears as though you have not paid your tax assessment from 2011.  The letters start out nice and innocuous but become more and more threatening until the IRS either files that return from 2012 for you using information that they have without giving you the benefit of deductions you would use if you filed yourself, or in the unpaid tax assessment situation the IRS will eventually empty your bank account and garnish your wages.

Not being able to afford to pay what you owe is not a good reason to avoid the IRS because there are options available to delay paying until you are making more money (Currently not collectable status).  Also, not being able to pay is not a good reason to avoid filing your tax return.  When the IRS prepares a return for you called an SFR (Substitute for return) or the FTB prepares an NPA (Notice of proposed assessment that is assessed) those returns will never be dischargeable in bankruptcy.   Yes.  Taxes are dischargeable in bankruptcy.  If the taxes meet the requirement of having been filed by the taxpayer (not SFR or NPA), are for a tax year at least 3 years old plus any extensions, have been filed at least two years, and assessed for more than 240 days (8 months) prior to filing the bankruptcy the taxes are dischargeable.

Let me go into Currently Not Collectable Status with the IRS or Hardship with the FTB.  Both the IRS and FTB have financial statements that allow taxpayers to show three things.  First any assets available to be sold to payoff the tax liability.  Second what income you get each month from all sources.  Third what monthly expenses you have to determine if there is anything left over for the IRS or FTB.  When taking into account all necessary expenses if the taxpayer has nothing leftover the IRS and FTB have to place the taxpayer in a hardship category and leave you alone.  It is not just policy it is the law.  Internal Revenue Code Section 6343 provides that no levy shall issue if that levy will create a hardship on the taxpayer.  That means if the levy keeps you from being able to pay your housing or put food on the table the levy is illegal.

So, the next time that letters come in from the IRS or other taxing authority it is important to deal with the contents of the letter.