Tax Audits, Liens & Levies Law

The US has a Tax Audits, Liens & Levies Law in place to ensure that individuals and businesses pay taxes correctly.

Tax Audits

According to this law, the IRS or a state tax authority can conduct a tax audit, that is, examine a tax return filed by an individual or a business. The objective of the audit is to ensure accuracy of the information submitted to the tax authorities. People and businesses are selected for audit by 3 different methods.

Third party Documentation

The law requires that all employers, financial institutions and some other organizations send the required documents relating to client and transaction information to the IRS. This data should match with the return filed by the taxpayer. If it is not, an order for tax audit is passed and his accounts are examined.

DIF Score

The DIF software, when run through the tax returns, identifies odd entries or any errors made. A DIF score is then assigned to the return. If it is high, the return is selected for audit.

Random Selection

As per the Tax Audits, Liens & Levies Law, every year, a certain percentage of total tax returns are randomly selected for tax audit.

Tax Liens

When the law has a lien on the property to obtain tax payment, it is called a tax lien. This could be for a shortfall in taxes paid or simply failure to pay taxes. The federal government can impose a tax lien for several kinds of taxes including income tax, gift tax or estate tax. This lien will be released only when the tax is paid in full or when the IRS is no longer interested in pursuing the claim. The IRS will then issue a Certificate of Release of Federal Tax Lien.

Tax Levies

The federal law of the United States provides for tax levies. This means that the IRS can seize property to make good the tax liability of individuals or businesses without obtaining court permission. However, the process of law has to be followed. According to the Tax Audits, Liens & Levies Law, the taxpayer must be given at least a 30 day prior notice of the levy and given the chance to present his case. The levies can be on bank accounts, salaries, social security, insurance amounts and real estate. Also, the levies can be on assets in the possession of the defaulter, like his house, or those in the possession of a third party like a bank, say fixed deposits.

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