I received a Preliminary Assessment, however, I am unable to pay the amount shown due. Can I set up installment payments?
You may make partial payments at any time. However, the Assessment Unit is not authorized to arrange installment payments for taxes assessed either through a preliminary or final assessment. Code Section 40-2A-4(b)(6) does authorize installment payments under certain conditions if a Final Assessment of the tax has been entered. Therefore, if you received a Preliminary Assessment and do not have the money to pay the liability, you may contact the Assessment Unit (334-242-9600) and we will proceed with entry of a Final Assessment. Liens will be entered and the file transferred to the Collections Division within 45 days of the date of entry of the Final Assessment.
I received a Notice of Final Assessment from the Department of Revenue. What does this mean?
If you received a Final Assessment, you either:
The Department has sufficient reason to believe that you owe the tax liability to the State and the assessment was entered to toll the statute of limitations. (Click here to view the flowchart of the Assessment Process.) You must enter a Notice of Appeal with the Alabama Tax Tribunal within 30 days from the date of mailing or delivery by personal service, whichever occurs earlier, if you wish to contest the assessment. (Code Section 40-2A-7(b)(5)) Accompanying the Notice of Final Assessment is a copy of the taxpayer’s rights to appeal the assessment to the Alabama Tax Tribunal or the appropriate Circuit Court. (Code Section 40-2A-4(a)(3))
I received a Final Assessment that I feel is incorrect. What should I do to resolve this matter?
You should file a Notice of Appeal with the Alabama Tax Tribunal or, in the case of appeals to the circuit court, you must file an appeal with the secretary of the department and the clerk of the circuit court in which the appeal is filed. On appeal to the circuit court or the Alabama Tax Tribunal, the Final Assessment shall be prima facie correct, and the burden of proof shall be on the taxpayer to prove the assessment is incorrect. (Section 40-2A-7(b)(5)(a)(b)(c) and (d))
The Department of Revenue recently sent a Notice of Final Assessment to my client who is in bankruptcy. Why? Is this not a violation of the U.S. Bankruptcy Code?
An assessment (either preliminary or final) which is entered by the Department against a bankrupt taxpayer is entered in order to establish the amount of a bankrupt claim with the Bankruptcy Court and it is a notification to the taxpayer of the amount of taxes owed to the state. If the taxpayer feels that the amount assessed is incorrect, the taxpayer should contact the Assessment Unit (334-242-9600) and explain their contentions and also provide any records which will substantiate their claim that the assessment is incorrect. Bear in mind that all jurisdictional time limitations for appeals must be adhered to. The entry of an assessment against a bankrupt taxpayer is not a violation of the Automatic Stay provisions of the U.S. Bankruptcy Code (see U.S.C. Title 11 Section 362(9)(d)). This section provides for the making of an assessment of tax against a bankrupt taxpayer by a governmental unit. Assessments may be entered but the governmental unit cannot act to obtain possession of property of the bankruptcy estate (see U.S.C. Title 11 Section 541 for definition of “property of the estate.”).
How did the Department of Revenue calculate the interest on the Notice of Preliminary Assessment and Notice of Final Assessment?
Interest is added to any tax or other amount due the Department which is not paid by the due date. Interest on any delinquency shall be charged from the due date of the tax. The interest is computed based on the underpayment rate established by the Secretary of the Treasury under the authority of 26 USC 6621 (Code Section 40-1-44(a)).
What is a lien?
A lien is a claim that is usually recorded, against a piece of property or against an owner, in order to satisfy a debt or other obligation. The purpose of the lien is to enable the lienholder or creditor to institute an action to foreclose his lien. This means that the property can be sold by the creditor. The proceeds of the sale will be used to satisfy the debt. The proceeds of the sale, after the debt is satisfied, is paid to the former owner. In the case of a tax lien, the lien is recorded in the county in which the property is located.
What is the duration of a tax lien?
Once the lien has arisen, it will continue until the liability for the amount assessed is satisfied, released or becomes unenforceable by reason of lapse of time (i.e. 10 years from the date the lien is filed) (Code Sections 40-1-2, 40-29-20, and 49-29-21).
My client has received a notice from the Department of Revenue that a lien has been entered in the county probate office real property records. What does this mean?
By filing a Notice of Tax Lien, the Department is notifying the public that the state has a claim against your client’s property, including property that may be acquired after the date the lien is filed. A lien may harm your client’s credit rating. A lien was recorded because your client had neglected or refused to pay taxes owed to the Department of Revenue (See Code Sections 40-1-2 and 40-29-20).
When will the Department of Revenue terminate a tax lien?
The Department may, at any time, release all or any portion of the property subject to the lien from the lien or subordinate the lien to other liens if it determines that the taxes are sufficiently secured by a lien on other property of the taxpayer or that the release or subordination of the lien will not endanger or jeopardize the collection of such taxes. A certificate by the Department to the effect that any property has been released from the lien or that such lien has been subordinated to other liens is conclusive evidence that the property has been released or that the lien has been subordinated as provided in the certificate. If any lien imposed by Sections 40-1-2 and 40-29-20 has been satisfied and a Notice of the Lien had been recorded by the Department pursuant to Section 40-1-2(c), the Department shall issue a release of the lien (40-1-2(d)) to the person against whom the lien was claimed. The Department shall record the lien release in any county where the original lien was recorded and in the office of the Secretary of State if applicable.
When is a tax lien effective against other creditors?
A tax lien is effective against other creditors after a notice thereof has been filed by the Department of Revenue or other agency of the state or county in the office of the Judge of Probate of the county in which such property, real or personal, is located (Section 40-1-2(b)).
Is Alabama sales tax owed to the Department of Revenue dischargeable in bankruptcy?
In Peiffer v. Alabama Department of Revenue, 126 Bankr. 364 (1991), the Bankruptcy Court held that the Alabama sales tax constitutes a “trust fund” tax and as such is not dischargeable in bankruptcy pursuant to 11 U.S.C. Section 507(a)(7)(c). A “trust fund” tax is a tax which is levied directly on the consumer and required to be collected by the merchant and reported to the state.
Is a surety bond required when I receive a Final Assessment?
No. A surety bond is not required at the time you receive the Final Assessment. However, if a sales tax balance remains due at the time the Final Assessment is no longer subject to appeal, you will be deemed non-compliant and be required to purchase and maintain a one-time surety bond for a two-year period. Pursuant to Section 40-23-6(c) (1), Code of Alabama 1975, as amended, the surety bond shall be in the amount of the actual sales tax liability for the three months immediately preceding the non-compliant period, but not less than twenty-five thousand dollars ($25,000). The Sales Tax Surety Bond (S&U:BOND) and Instructions for Executing the Sales Tax Surety Bond (S&U:BOND Inst) may be found on the Department of Revenue website at: revenue.alabama.gov/forms.