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Valor Tax Relief Team
Professional Tax Resolution Specialists
Introduction
Wondering how the IRS discovers your income, bank accounts, or property? The answer isn’t surveillance—it’s reporting rules, public records, and powerful data matching. If you owe taxes or recently received a notice, understanding these systems can help you act fast and avoid liens, levies, or wage garnishments.
This guide explains the IRS’s information sources, how mismatches trigger CP2000 notices, the tools the agency can use to collect, and practical relief options like Offer in Compromise, Installment Agreements, and Currently Not Collectible status.
Key Takeaways
- Most IRS intelligence comes from third parties (W‑2s, 1099s, 1098s), not spying.
- Public records (deeds, DMV, licenses) connect assets to your SSN or EIN.
- Automated matching and the AUR program generate CP2000 notices for mismatches.
- In collections, the IRS can file liens and levy bank accounts, wages, and refunds.
- Foreign accounts aren’t hidden—FATCA/FBAR require reporting of overseas holdings.
Where the IRS Gets Information
Much of your financial life is reported to the IRS automatically. Additional details can be obtained during audits or collections. Think of it as layers: baseline forms arrive every year, public records connect assets to your name, and targeted requests fill any gaps when you apply for payment relief or the IRS investigates a balance due.
Third‑Party Reporting
- W‑2: wages and withheld taxes from employers
- 1099‑INT / 1099‑DIV / 1099‑B: interest, dividends, cost basis and proceeds for securities
- 1099‑MISC / 1099‑NEC: contractor pay, rents, prizes and awards
- 1099‑K: third‑party payment networks (marketplaces, payment apps)
- SSA‑1099 / 1099‑R: Social Security and retirement distributions
- 1098: mortgage interest linking you to specific real property
Example: If you sell stock, your broker files Form 1099‑B with proceeds and (often) cost basis. If your return omits the sale or reports a different amount, matching systems flag the discrepancy.
Public Records & Institutions
- Property deeds & title records: show ownership, liens, and transfers
- DMV registrations: vehicles linked to your name or entity
- Business licenses & court filings: signal income potential and assets
- Bank / brokerage summons: targeted requests for statements and balances
- FATCA & FBAR: foreign institutions and taxpayers must report overseas accounts
Foreign Account Rules in Brief
U.S. taxpayers with aggregate foreign accounts over $10,000 at any point in the year must file FBAR. FATCA also requires reporting specified foreign financial assets on Form 8938. Penalties for non‑filing can be severe, and banks report U.S. account holders to the IRS.
Why Small Gaps Still Get Found
Even if a single form is missing, related filings (like mortgage interest or a 1099 from a property manager) can reveal the asset trail. The IRS rarely needs real‑time access; annual forms and cross‑referenced public data paint a complete picture over time.
IRS Matching Systems
Data flows into IRS systems that flag discrepancies between what you report and what others report about you. These programs prioritize accuracy over speed, generating notices after comparing all forms rather than on the day they arrive.
Information Returns Matching
W‑2s and 1099s are matched to your return; mismatches can trigger notices. Common drivers include omitted 1099‑INT, double‑counted 1099‑K with Schedule C, or incorrect cost‑basis reporting for investments.
AUR & CP2000
The Automated Underreporter program issues CP2000 proposals when income appears missing. A CP2000 is not a bill; it’s a proposed change. You can agree, partially agree, or dispute with documentation.
- Verify that income wasn’t already included under a different form
- Attach broker statements to correct basis differences
- Explain duplicate reporting between 1099‑K and 1099‑NEC if applicable
Forms 433 Disclosures
When seeking payment plans or settlements, financial statements list accounts, assets, and expenses. The IRS compares this to third‑party data to validate eligibility and affordability.
433‑A / 433‑F
Individuals: bank accounts, investments, vehicles, real estate, income, and necessary living expenses.
433‑B
Businesses: AR aging, inventory, equipment, notes payable, payroll, and cash flow detail.
Pro Tip
If you receive a CP2000, respond by the deadline even if you need time to gather documents. A timely partial response preserves appeal rights and can prevent assessment.
Collections & Asset Tracing
Unpaid balances move into collections where the IRS uses notices, skip‑tracing, and legal tools to enforce payment. The earlier you contact the IRS or a professional, the easier it is to avoid enforced action.
Notices & Balance‑Due Letters
Balance notices escalate if ignored, increasing penalties and interest. Typical sequence: initial bill, reminder, and a final notice of intent to levy. Final notices include appeal rights—don’t miss the response window.
Skip‑Tracing Techniques
- Credit reports for loans and asset clues
- DMV and professional licenses
- Tracing 1099 flows back to ownership
Federal Tax Liens
A public lien attaches to current and future property until the tax is satisfied, complicating sales and refinancing. Liens typically arise 10 days after demand for payment and can be withdrawn, subordinated, or discharged in specific circumstances.
Real‑World Example
A landlord omits a 1099‑MISC from a property manager. The IRS matches the missing form, issues a CP2000, and the balance goes unpaid after assessment. A Notice of Federal Tax Lien is filed, blocking a refinance until the debt is paid or a subordination is approved. A direct‑debit installment below common thresholds can qualify the taxpayer for lien withdrawal after a track record of on‑time payments.
| Trigger | Possible IRS Action | Typical Response |
|---|---|---|
| Missing 1099‑B sales | CP2000 proposal | Provide basis, broker statements |
| Unpaid assessed balance | Lien filing | Installment, OIC, or withdrawal/subordination |
| Ignored final notice | Levy or garnishment | Emergency plan, hardship, or CNC request |
What the IRS Can Access Directly
Bank Levies
Accounts can be frozen and funds removed after notice. Banks hold funds for a short period before remitting to the IRS. Act quickly to request release based on hardship or to set up a plan.
Wage Garnishment
The IRS can garnish wages without a court judgment and may offset federal or state refunds. Garnishments continue each pay period until the debt is resolved or placed into alternative status.
Property Seizure
In severe cases, real estate and personal property can be seized when taxpayers ignore repeated notices. While rare, this remains a last‑resort enforcement tool.
Refund Offsets
Expected refunds may be applied to past‑due balances automatically.
When the IRS Wants More Details
Audit Inquiry Letters
Expect requests for proof of income, deductions, and bank statements during exams. Keep digital statements, receipts, and mileage logs organized by year to speed responses.
Payment Plan Disclosures
Installment agreements and OICs require detailed financials; inconsistencies delay or deny relief. Expect questions about recurring subscriptions, transfers, and cash deposits.
Summons Authority
If you don’t cooperate, the IRS can obtain records directly from third parties. Responding promptly often avoids escalations and preserves flexibility.
Common Misconceptions
“The IRS can’t see my bank accounts”
Banks report interest; in investigations, summonses reveal additional details.
“They won’t find my property”
Deeds and liens are public records tying assets to your SSN/EIN.
“Foreign accounts are safe”
FATCA and FBAR regimes expose overseas holdings and carry severe penalties if ignored.
How to See What the IRS Knows About You
Wage & Income Transcript
Shows W‑2s, 1099s, and 1098s filed under your SSN. Useful to reconcile unreported income. Request annually to ensure no stray forms are missed before filing.
Tax Account Transcript
Displays balances, interest, penalties, and whether liens have been filed. Helpful to confirm the collections status and statute timelines.
Search Public Lien Records
County/state databases reveal recorded federal tax liens, helpful for planning next steps. A lien on record affects refinancing and may point to withdrawal or subordination strategies.
Internal Links for Next Steps
If a lien is filed or a levy is pending, explore Audit Representation or Penalty Abatement where appropriate.
If You Owe and Can’t Pay
Being proactive protects you from the harshest collection actions. Consider these relief paths:
Installment Agreements
Spread payments over time. Explore monthly plan options.
Offer in Compromise
Settle for less than you owe if you qualify. Learn about OIC eligibility.
Currently Not Collectible
If you cannot pay, request temporary hardship status to halt active collection.
Cooperate Early
Responding to notices and providing accurate financials helps avoid liens/levies and improves outcomes. Even small payments or a pending OIC application can pause enforcement in many cases.
Which Option Fits?
- • Short‑term plan: You can pay within 180 days
- • Streamlined plan: Balance under common thresholds (e.g., $50k)
- • Partial‑pay plan: Reduced payment based on ability
- • OIC: Assets + income show full payment would cause hardship
- • CNC: After basic expenses, nothing remains for IRS payments
Documentation Checklist
- • Last 3–6 months bank statements
- • Pay stubs or profit & loss statements
- • Mortgage/rent, utilities, insurance, transportation
- • Investment and retirement account statements
- • Proof of special circumstances (medical, caregiving)
Frequently Asked Questions
Conclusion
The IRS doesn’t need to guess about your finances—data reporting and public records do the work. If you’re behind on taxes, act before liens or levies occur: request transcripts, reconcile discrepancies, and consider relief like Offer in Compromise or Installment Agreements. Early cooperation leads to better outcomes.
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