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What is a Notice of Deficiency?

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It is the last letter that the IRS must send to all taxpayers before the IRS can begin collecting tax (after it has determined that tax is owed – usually as a result of an audit).  Once the notice is sent, the taxpayer has 90 days to file a Petition in Tax Court.  For this reason, it is also commonly called the 90 day letter.

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What is a Collection Due Process Hearing?

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After the IRS sends a Notice of Intent to Levy, the taxpayer has 30 days to request a Collection Due Process Hearing (or CDP Hearing).  This is often the last chance for a taxpayer to resolve the issue before heading to litigation.  At the hearing, the taxpayer will often argue liability and may choose to request an installment agreement or offer in compromise.

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What is the difference between a lien and a levy?

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A lien is a document (typically filed at the Recorder’s Office in which you reside) that states the amount of taxes owed and says that if you sell certain property, the proceeds must be used to pay the lien.  In contrast if the IRS places a levy on one of your assets, such as a bank account, all monies inside that account will be sent to the IRS.  Just remember: lien = encumbrance; levy = seizure.

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What is an Offer in Compromise (OIC)?

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OIC is an IRS program that attempts to help taxpayers with financial difficulties to settle their tax debts (and interest and penalties) for a lump sum less than the total amount owed.  This lump sum can be paid in installments over two years (deferred OICs allow for longer payoff times).  Unfortunately, OICs have disadvantages: (1) they are not guaranteed (the IRS does not have to accept an OIC); (2) you must stay current on your taxes while the OIC is being considered by the IRS, a period that often takes between 6 months and one year; and (3) at the time you submit the OIC, you must make a deposit of 20% of the OIC (unless you qualify for the hardship exemption).

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How long will my offer in compromise take to complete?

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There is no clear answer to this, but it can take upwards of one year (or even more in certain circumstances).  Because of the uncertainty, long time periods and not insignificant costs of OICs, the best course is often bankruptcy.

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What is the Taxpayer Advocate?

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Due to IRS abuses in the past, the Taxpayer Advocate’s office was created by Congress to help taxpayers ensure that the IRS worked with them properly and in accordance with IRS policies to prevent taxpayer abuse.

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