Tax and Personal Finance Tips

Wage Garnishment and the Non Filing Tax Problems

Here is an actual case of a taxpayer that owed no taxes. Her wages have been garnished. Her telephone has been disconnected. Her special needs child was left in the dark. All was brought upon her by the fact that she did not file the returns. Typically, the issue wage garnishment or a bank levy or both whether you are self-employed or wage earner. 

The standard procedure is to negotiate an installment agreement or an offer in compromise if there is a tax debt owed after filing the unfiled returns. This case was different because the taxpayer ended up not only with zero tax liability, but rather was entitled to a refund. 

Technically the IRS does not know if she was going to owe back taxes or not. But upon close examination we know that the IRS has her w-2 records and they could see that she has paid substantial taxes every year. Should they have given her a break? I think they should. But that would require mercy and a personal treatment which may not be available in the quarter of bureaucracy. Here is my letter to the IRS which would shed light on the case. I am writing to the revenue officer handling her case: 

"I have prepared the tax returns from 01 to 2010 for the taxpayer referenced above.  As a result I found that the total tax liability over those years was only $4,737.  This is because the taxpayer was owed refunds for most of the prepared years. Please see the attached exhibit. 

The total refund that would have been paid to the taxpayer for all those years was $26,476 of which she lost $15,417 barred by the statute.  She is now entitled only to $11,059 that should be available to the taxpayer before payment of any tax liability. 

That refund applied against the total liability of $4,737 would give the taxpayer a final net refund of $6,332 after paying for any taxes due for previous years. 

My calculation does not enter the penalty or interest on the $4,737 nor does it account for any interest due on the refund available to the taxpayer.  Furthermore, the taxpayer will be entitled to the money garnished from her wages because her refund is sufficient to pay for any back taxes owed. 

It is very unfortunate that she had exposed herself to that situation.  I have always advised in my speaking engagements that filing in time is the most crucial thing that taxpayers should adhere to. 

She had suffered needlessly because she was not in compliance. I would have prepared the taxes earlier for her. I could not get a hold of her to sign the returns because her phone was disconnected. All her phones including her children's. 

We could not reach her by email either because the utility was cut off.  This is devastating when you have a child (over eighteen) who is handicapped with special needs wondering why she was in the dark and why the TV which is her only window to life was cut off. 

As the taxpayer explained to me that was the hardest thing for her not, to mention the summer heat without the AC that she left the child in. We had to personally pay her some money for the gas to come to the office to sign the returns and buy some groceries.  She admits that it was all her fault and she learned a lesson to use her own words. 

I hope that the prepared returns will help my client remove the garnishment and restore her life to dignity and some normalcy to pick up where she left off and pay back whoever she relied on for what they have given her in the difficult past weeks." 

This letter is on its way to the IRS officer. Let us hope that she will remove the garnishment with all the evidence that we are providing. They should release it by law. But with the IRS you never know.

Update: the IRS released her wage garnishment. The taxpayer has resumed her normal life again