What Can the IRS Do?

• To begin, if you owe the IRS money, it can go to your employer and have payments taken right off the top of your weekly paycheck until the debt is satisfied. If you have money in a bank account, the IRS can take that, too. Boats, houses, pensions, IRAs and just about anything of value can be either garnished or seized. If you own farm animals, you can keep them up to a $6,780 limit. Also, tools of the trade are also protected up to $3,390. If you owe state taxes, they are governed by rules particular to the state. Massachusetts, for example, is limited to garnishing a bank account for only six months. The IRS can garnish wages for failure to pay child support, as well.
  
  

Garnish-proof

• Basically, money you receive from the government itself can't be garnished. The most cited exempt sources are Social Security and Railroad benefits, Workers' Compensation, military disability and court-ordered payments you receive for child support. There are few other assets that are protected.
  
  

Offers in Compromise

• The IRS is sometimes not the ogre it is made out to be and will take special situations in consideration as part of a process known as Offers in Compromise. There may be an honest dispute involved in the amount of taxes you owe. Generally, for the IRS to consider negotiating your outstanding tax amount you need to meet at least one of three conditions. The first is that there could be an honest disagreement over the correct amount of the tax that you owe. The second condition, probably the most unenviable, is that the amount you owe is so great there is serious doubt that you could pay the entire amount no matter how hard you work or what assets you own. The final area is to show that an economic hardship exists.
  
  

Installments

• If your financial situation is sound and even if it is not, the IRS may be willing to negotiate a repayment plan. Sometimes, as an inducement, some of the penalties can be waived, lessening the burden and increasing the likelihood that the principal and some of the penalties will be recovered. Financial hardships often help in negotiating such payments in lieu of having wages garnished or assets seized.
  
  

Audits

• The way the IRS suspects you owe more in taxes than you have been paying is through audits of tax returns. To help avoid audits and disputes over owing back taxes and risking garnishment, tax advisers recommend some tips to avoid getting into a bad tax situation in the first place. The first is deductions for charitable contributions. Until recently, the IRS was fairly lax about charitable contributions but the IRS now requires receipts for everything. So keep meticulous records. Especially large, unusual and regular donations as a deduction raise a big red flag. Those who work for cash like waitresses or barbers are susceptible to closer scrutiny. A few other groups more likely to face audits and possible garnishments include those who are self-employed, those making large medical and casualty claims, and those earning income that fluctuate widely from year to year. Best advice from tax experts: Take only legitimate deductions, document everything and pay what you honestly owe.