There is any variety of reasons taxpayers find themselves owing money to the IRS.  Some are very complex, but others are commonplace.  In order to avoid problems, it may be worth considering how the average person finds himself winding up in debt to the IRS.

If you earned money in the calendar year, you have to file an income tax return.  If you had enough withholding, you may not need to pay the IRS anything.  However, if you owe, you need to pay as soon as you possibly can.  Stalling tactics and delay doesn’t work with the IRS.  The IRS is the most tireless collection agency in the world.  If you owe them money, they aren’t just going to go away.

If you file an income tax return and you owe, but do not pay by April 15th, you are now in debt to the IRS.  Penalties, interest, and fines will begin to accrue on April 16th.

Reporting the correct amount of your earnings is your responsibility.  If your W-2 form is incorrect and does not reflect the true total of your earnings for the year, you could be assessed additional tax liabilities, penalties, fines, and interest.  If this continues for a number of years before the IRS catches on, you could find yourself with an immense tax liability when they finally do learn of the mistake.

Everything you win from a lottery, a contest, or gambling is taxed as earned income.  If you have winnings of $600 or more, you must report it on your income tax return.  Most contests, lotteries, and casinos report winners and their prizes won to the IRS.  If you don’t file such income and the IRS becomes aware of it, you can face increased tax liability, fines, penalties, and interest.

Filing disproportionate deductions, exemptions, and tax credits will, eventually, get you tagged by the IRS.  You may get away with filing excessive deductions for a while, but eventually you will get caught.  No one is certain exactly how the IRS decides who to audit, but filing big deductions, tax credits, and exemptions seems to always send up a red flag on your income tax return.

If you are an employer and you fail to pay your payroll taxes, you will be in trouble fast.  Over the years, the IRS has become very aggressive in seeking unpaid payroll taxes, especially if you are a small business.  Be careful to pay all of your payroll taxes on time.  Falling behind on withholding could land you in jail.

If you own your own business or if you are self-employed, you must pay Estimated Taxes on a quarterly basis.  If you fail to do so, you will owe the taxes due plus penalties and interest for failing to make your quarterly payments.



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What is an IRS Federal Tax Lien?

The IRS federal tax lien is a claim registered against property for the non-payment of back tax liabilities. Unlike a bank or wage levy, the tax lien does not deprive the taxpayer of the property or the right to transfer this property. If you owe back taxes then you may ultimately become the victim of one of the most powerful tools in their collection arsenal: IRS tax liens. And know that the larger your back tax debt liability, the sooner the IRS may issue this federal tax lien against your property. The formal notification is called a Notice of Federal Tax Lien and this is a “public notice” that you owe the IRS money. Now your IRS tax problem will no longer be a “private or confidential matter”. Anyone considering doing business with you like banks, various financial institutions, customers and vendors will know that you owe the IRS back taxes. That is the reason so many delinquent taxpayers hope to stop IRS tax liens before this matter goes on the public record at the County Clerk’s office in their particular county. Once the IRS federal tax lien is registered, then the IRS has now become a secured creditor right behind other prior secured creditors, but ahead of all your unsecured creditors. And to make matters even worse, this IRS tax lien will go on your credit report. It will negatively impact your credit score, obviously making future financing for home, vehicle or other types of loans very difficult. Very often, this federal tax lien can make you completely ineligible to borrow, even at ridiculously high rates of interest, depending upon the guidelines imposed by the lender.

What are your options to secure an IRS lien release?

The Internal Revenue Service will release a Notice of Federal Tax Lien within 30 days after you satisfy the tax due (including any interest charges or other additions) by paying the tax debt or by having it adjusted, or within 30 days after the IRS accepts a bond that you submit, guaranteeing payment of the debt. It is prudent to seek out the advice of IRS tax specialists for IRS tax liens. The negative impact can be far reaching, as noted above in the first section. Keep in mind that an IRS lien release will typically occur ten years after the tax is assessed, provided the IRS does not file it again. However, contacting IRS tax specialists to review your tax lien problem is certainly advisable over “waiting out the 10 year period” for the IRS federal tax lien to automatically or self-release. There are standardized procedures in place for IRS lien releases, discharges and subordination. In qualifying situations, the IRS will normally remove the tax lien within 30 days and the taxpayer may receive a copy of the Certificate of Release of Federal Tax Lien.

What can be done if you cannot afford to pay the tax debt in full?

Obviously, if you had the funds to remit on your back tax liability, you would not find yourself in this predicament where you are staring in the face of an IRS federal tax lien. As discussed above, the IRS will issue an IRS lien release if you satisfy the tax debt due by paying it or having it “adjusted”. This essentially means that the IRS is open to a tax settlement, also called a “compromise offer”, for an amount less than your full back tax liability. While this may sound quite easy, do not plan on this being a simple situation. If you are hoping to reduce your delinquent tax debt, there are several programs you may qualify for. IRS tax specialists have the in depth knowledge and experience to review your financial situation as it pertains to the Offer in Compromise program (both personal and business) as well as IRS Penalty and Interest Abatement. Both these programs offering IRS tax debt relief do reduce the overall tax liability. However, making or submitting an “offer” to the IRS will not affect the IRS tax lien which remains effective until your offer is formally accepted and the amount is full paid to the IRS. At that point, a taxpayer may request the IRS lien release. Again, IRS tax specialists handle IRS tax liens a daily basis. They are abreast of all the complexities to insure your best chance at success for an accepted reduced offer and the ultimate release of your IRS federal tax lien.



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Short sale approval occurs when banks allow borrowers to sell their property for less than the balance due on the mortgage note. The primary goal of short sales is to minimize lenders’ financial losses and prevent the property from falling into foreclosure.

Short sale approval is based on many factors and varies by lender. Unified criteria include: properties cannot be in foreclosure; borrowers owe more than the home is worth; and borrowers cannot own assets which can be used to satisfy the mortgage note.

The biggest mistake borrowers make is procrastinating about contacting their lender when they become delinquent with payment. This usually stems from embarrassment or fear. Believe it or not, lenders do not want your property. They are in business to make money, not manage properties. Most are willing to work with borrowers and devise a plan that is beneficial to both you and the lender.

The short sale process typically takes between four to nine months. Much depends on the bank’s caseload, number of lenders involved, and ability to locate a buyer. The process becomes more burdensome when borrowers hold a second or third mortgage against the real estate.

Borrowers will work with a loss mitigator assigned through their lender. Mitigators do not make final decisions on short sale approval, but can be instrumental in helping obtain a successful outcome.

Loss mitigators are overwhelmed with work. They are oftentimes verbally abused by frustrated, stressed-out borrowers. If you want an edge on obtaining short sale approval, be nice to your mitigator. Organize financial records and provide requested information in a timely fashion. Take time to thank the person for assisting you through this difficult process. As they say, you catch more flies with honey.

Banks generally require borrowers to submit a short sale packet consisting of a variety of financial documents. Expect to provide bank, credit card and investment statements, previous years’ tax returns, tax or creditor liens, list of income and expenses, spousal or child support orders, and property tax and homeowners’ insurance receipts.

Lenders oftentimes request borrowers to submit a short sale hardship letter outlining events which caused them to become delinquent. The hardship letter is a crucial element toward obtaining short sale approval. It should be crafted with care and include dates of events which took place. Events might include loss of employment, death of a spouse or child, divorce, or chronic illness.

Many banks require borrowers to have a sales contract in hand before authorizing short sale approval. Others grant time to list the property through a realtor to locate a buyer. Borrowers can save time and money by selling to real estate investors.

Today, investors are particularly interested in foreclosure and short sale real estate because these properties are sold below market value. Use the Internet to locate investors in your area or ask friends, family, realtors and banks for referrals. Some investors purchase real estate across the nation, so if you are unable to locate a local investor look for nationwide investors.

Investors oftentimes purchase distressed properties with cash in order to obtain a lower purchase price. Everyone knows cash is king and lenders are generally more receptive to working with buyers who have cash in hand.



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Most people are confused about short sales vs. foreclosure. Both are options presented by mortgage lenders when borrowers can no longer afford to stay in their home. Homeowners facing foreclosure or attempting to negotiate short sales should consult with their bank’s loss mitigation department to determine which option is available.

Similarities and differences exist with short sales vs. foreclosure. Neither option allows borrowers to keep their home. Short sales allow borrowers to sell their property at a discounted rate to satisfy the balance owed on their mortgage note. Foreclosure forces homeowners to return the property to the lender and relinquish all monies vested in the property.

Short sales are usually the better solution for borrowers delinquent on their mortgage loan, but not yet entered into foreclosure. This type of arrangement requires approval from the mortgage lender and requires borrowers to undergo a financial audit.

When borrowers become delinquent on their mortgage loan, their account is turned over to a loss mitigator. These individuals work with borrowers to resolve the delinquency. Loss mitigators will first attempt to obtain a loan modification if borrowers are able to make future mortgage payments.

When borrowers do not qualify for a modified loan, banks can offer the option of a short sale if the borrower and their property meet specific criteria. In order to determine eligibility, borrowers must submit a short sale packet consisting of various financial documents such as bank and credit card statements, payroll records, tax returns, and a list of income and expenses.

Most loss mitigators require submission of a short sale hardship letter. The letter of hardship allows borrowers the opportunity to explain circumstances which caused the mortgage delinquency. Loss mitigators prefer handwritten letters that not only include a timeline of events, but any actions taken to overcome financial difficulties.

Depending on the lender’s policies, borrowers must either have a buyer lined up or list their property through a realtor. If banks allow borrowers to list their property, the home must be sold within a few months. Otherwise, the lender will commence with foreclosure proceedings.

It is important to understand the type of short sale available through the lender. Two types exist and include Payment in Full or Deficiency Judgment. Payment is Full is the preferred choice because is releases the borrower from paying additional funds.

When banks issue deficiency judgments, the borrower is held responsible for the difference between the sale price and loan balance. Deficiency judgments can amount to several thousand dollars and take years to repay. Judgments remain on the borrowers’ credit history until paid in full and can prohibit them from obtaining any type of credit for several years.

Foreclosure remains on borrowers’ credit reports for up to ten years. The foreclosure process can take between three and twelve months to complete. Once property is foreclosed it is placed for sale through public auction. If the property does not sell, it is returned to the lender.

Bank owned homes are sold through the bank’s loss mitigation department or local realtors. When foreclosed real estate sells for less than the loan balance, mortgage lenders can issue deficiency judgments against the homeowner.

One solution to prevent foreclosure deficiency judgments is to request a Deed in Lieu of Foreclosure. Similar to ‘Payment in Full’, a deed in lieu releases borrowers from repayment of the deficiency amount.



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In November 2009, the IRS began a new National Research Program Initiative (the Initiative): an industry wide detailed random audit of employment taxes for 6,000 employers during the course of the next three years. The purpose of the Initiative is dual fold: (1) assess systemic employment tax compliance; and (2) collect assessments from delinquent employers.

With diminishing tax revenues due to the depressed economy, the U.S. Treasury Department is stepping up efforts to decrease the tax gap between overall tax liabilities and taxes paid to the Internal Revenue Service. Auditing employment taxes is seen by the IRS as a necessary method of closing this tax gap. For tax year 2001 for example, the gross tax gap was estimated by the IRS at around $345 billion, with underreporting of employment taxes accounting for around 17% of the tax gap.

The IRS will audit businesses to ensure that Federal withholding taxes are deducted and paid over to the government from employees wages for Social Security and Medicare as well as Federal Unemployment taxes. An employer found to be in noncompliance could face stiff civil penalties and interest on unpaid taxes. These penalties could have a particularly severe impact on small business owners.

The IRS has prioritized four areas to focus their auditing efforts under the Initiative, including:

Worker Classification: i.e. whether an employer properly classifies an employee as an employee or independent contractor for tax purposes. Determining which depends on the behavioral, financial and type of relationship the company has with the person performing the work.

Employee Fringe Benefits: A fringe benefit is a form of pay for the performance of services. i.e. benefits such as insurance coverage, company car or child care, etc. that are provided by employers tax free to employees but not to independent contractors.

Reimbursed Business Expenses: e.g. reimbursement for taking a client to lunch, purchasing office supplies: which requires a written business expense plan. I.E. You must have paid or incurred expenses that are deductible while performing services as an employee. You must adequately account to your employer for these expenses within a reasonable time period, and you must return any excess reimbursement or allowance within a reasonable time period.

Compensation of Owners who are also employees of the company, whereby unpaid taxes may result in personal liability for the employer.

It has been reported that the IRS has already commenced with the process of selecting entities for audit of their employment taxes now that the employment tax audit Initiative has begun. Severe consequences wait for employers who are in noncompliance with the employment tax laws. Businesses are highly encouraged to make sure procedures are set to adhere to the applicable tax laws. Doing so can thwart much headache, and the loss of money and productive office time in the event of an audit.

For example, the Internal Revenue Code requires a written reimbursement plan in order to take advantage of the tax benefits of legitimate business expenses. Employers should consider consulting with experienced counsel in preparation for the Initiative and in the event of an audit of their employment taxes.



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