10th Feb 2015
The State of Alabama Department of Revenue (“ADOR”) is responsible for the assessment and collection of taxes in the State of Alabama. When you owe taxes due to filing a return without paying the taxes owed or because of an audit result (and you failed to pay the tax owed), ADOR with enter a preliminary assessment. You usually have a short period of time to appeal the preliminary assessment (usually 30 days). If you fail to exercise your preliminary assessment appeal rights ADOR will issue a final assessment. You may appeal the final assessment to the Alabama Tax Tribunal or to Circuit Court by exercising your final assessment appeal rights. Should you not appeal the final assessment, ADOR may proceed to collect the tax owed as the tax liability already has the full force and effect of a court judgment.
Note: A request for waiver of penalties can only be considered prior to the time the assessment is made final. There is no provision in law for interest to be waived, abated, or for the rate to be reduced. Once an assessment reaches the Collection Services Division, the amount due is as final as a judgment entered by a circuit court, and cannot be changed.
Collection Methods and Procedures
Upon the assessment becoming a final assessment and the expiration of the appeal time, it will be transferred to the ADOR’s Collection Services Division which will send a “Final Notice Before Seizure.” This notice warns that further collection action will be necessary if full payment is not made within ten days. If payment is not made, the Collections Services Division may employ several different methods for collecting the tax owed.
Lien on Property
If a final assessment is not paid in full or appealed following entry of the Final Assessment, a lien will be recorded in the probate courts where you own property, even if the taxpayer has made payment arrangements. The lien encumbers property and must be satisfied prior to the property being transferred. Tax liens will often be reported on your credit report and may negatively impact your ability to obtain loans. The lien will be released when the tax liability is paid in full.
ADOR may also garnish wages, salaries, bonuses, commissions, and any other type of money owed by employer. The employer is required to withhold 25% of your gross income.
Financial Institution Garnishments
A garnishment may also be issued to any bank, credit union, or other financial institution. The amount garnished will be the full amount of money in the account at the time the garnishment is served, but should not exceed the amount of the tax owed.
Writs of Execution
A writ of execution is a court order that orders a sheriff to seize possession of property. The property will then be sold in a sheriff’s sale and the proceeds paid to ADOR to satisfy the tax obligation. The property may be either personal property (e.g. cars, trucks, jewelry, or furniture) or real property (e.g. real estate or houses).
In the case of real property, it would be sold prior to any prior encumbrances, such as a mortgage. The taxpayer will have one year to redeem the property from the Department or the highest bidder by paying the costs of the sale, the total tax liability, and the accrued interest.
Whenever personal property is sold, there is no redemption period.
Seizing Income Tax Refunds
ADOR may collect taxes owed by seizing a taxpayer’s federal income tax refund through the Treasury Offset Program. ADOR may also seize a state tax refund to reduce a tax liability.
How long does ADOR have to collect a tax assessment?
A minimum of ten years. This statutory period is extended by certain actions such as the filing of a bankruptcy or moving outside the state.
Tax Debts and Ex-Spouses – What happens if I am no longer married to the person with whom I filed an individual income tax return?
Ex-spouses remain individually liable on a final assessment entered on a joint tax return. Divorce agreements and judgments are not binding on ADOR and the Department may proceed with collections against either or both taxpayers.
Can I file bankruptcy on my taxes?
ADOR will be barred from making attempts to collect during the bankruptcy. This includes stopping any garnishments that are in place. Unless the tax is discharged or paid, collection action will resume when the case is closed.
Discharge in Bankruptcy
Your taxes may be dischargeable in bankruptcy (Chapter 7, Chapter 13 or Chapter 11) as well as the penalties and interest. Determining if you can discharge taxes in bankruptcy can be complex. However, it is possible to discharge significant income tax debt in bankruptcy if your tax debt came due 3 years before filing for bankruptcy, as long as it has been at least 2 years since you filed the tax forms and it has been 240 days since the taxes were assessed.
Additional discharge issues may arise if there are business taxes involved, including trust fund taxes and 100% penalties assessed for business taxes.
Payment Through Bankruptcy
Even if the taxes are not dischargeable, you may be able to repay them through a Chapter 13 Bankruptcy. If the tax liability is paid in full through the bankruptcy, there will be no collection after the completion of the bankruptcy case.
We can help – Contact us Today!
If you’re interested in learning more about discharge taxes in bankruptcy or have other questions about bankruptcy options, contact the bankruptcy law attorney at the Semmes Law Firm and let us guide the way.