Being in the crosshairs of the IRS isn’t fun and, because it’s a government agency, it has many ways to get you to pay what is owed. Needless to say, being on the wrong side of the IRS can be a difficult and extremely draining process. One that even high-profile celebrities have trouble dealing with. If you find out you owe money to the government, at the end of the day, all you can do is prepare to pay up. Because if you don’t write a check willingly, you’d better believe the government has more than a few ways to help you settle your debts.
Additionally, the agency is now utilizing outside assistance when it comes to collecting back taxes. The new program which, according to the IRS website, was enacted by Congress in December enables four contractors “to collect, on the government’s behalf, outstanding inactive tax receivables.” That means that if you owe back taxes, the time to settle past debts on your own terms is running out.
Read on to find out what the IRS can do to collect payment from you and what you can do to prepare.
Fame & Misfortune
The bright lights of Hollywood are no match for the Tax Man. After all, the IRS cares less about fame or status, and more about dollars and cents. Unfortunately, many celebrities have learned this lesson the hard way.
In July of 2016, Tori Spelling and Dean McDermott were hit with a hefty tax bill amounting to nearly $710,000. According to Accounting Today, the IRS was able to go in and empty their bank accounts, leaving the couple to figure how to manage the remainder of their money – and any future tax payments.
Highlighting celebrity cases like the one above, opens the door for discussion about the unrelenting persistence of the IRS.
The Power of the Tax Man
Those who owe the government money have two choices – pay up or stand back and allow the government to take its share. The IRS, the agency collecting tax payments, is able to utilize several tactics:
- Garnish wages – The IRS has the power to order a court to issue wage garnishments which makes your employer withhold a set amount of money from each of your paychecks. The money that’s withheld is then sent directly to the IRS until the debt is settled.
- Take money from your financial accounts – There is no other action as surprising, inconvenient, and frightening than when an IRS Levy is put on your financial accounts. Just ask Tori and Dean. This tactic requires the IRS to send a notice to your bank. The bank will then have access to the account and can proceed with draining the cash until your debt is paid.
- Seize real estate and other property – After exhausting all other options, the IRS can seize your house or other owned properties to collect the remainder of your outstanding tax balance. The agency will then sell your interest from the property and pay your tax debt with the earnings.
Ignoring your tax bill is a big deal and the obligation never goes away. So, if you are struggling to pay your tax bill, consider consulting with a professional tax planner. Not only will they help you get on track with regard to your current obligations, they will help you identify a strategy can help you lower your tax bills moving forward. Email Rea & Associates to speak will one of our expert tax strategists.
By Brian Kempf, CPA (Millersburg office)