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Question: What is an essential component to resolving or negotiating a Tax Settlement with the IRS?

Answer: Tax Compliance, Tax Compliance, Tax Compliance.  My answer is a play on the slogan “location, location, location” which emphasizes the importance of location in real estate.  Similar to the importance of location in real estate, there is nothing more important than tax compliance in resolving your back taxes.

Ask any IRS Revenue Officer or an employee in the automated collection system (ACS), and they will echo my sentiment.  Whether you want to negotiate an installment agreement or settle your tax debt for less than what is owed through an offer in compromise, the first thing that must be accomplished is present and future tax compliance.  Tax compliance means that you must timely file all of your tax returns and pay all of your future tax obligations.

Before any negotiation with the IRS can occur, a taxpayer, either business or individual, must file all of his/her tax returns and get current with tax obligations. That means, if you are self-employed, you must have remitted all estimated tax payments to apply for an IRS installment agreement or offer in compromise (“OIC”).  If you your business has payroll, then you must have remitted all federal tax deposits and filed all tax returns (Form 941, 940 etc.)  The failure to remain compliant will cause your installment agreement proposal or offer in compromise to be returned which may result in IRS bank levies, garnishments, seizures, etc.

If you successfully executed an IRS payment plan and fail to timely file and pay your taxes in the future, then you will breach the installment agreement. The IRS adds a boilerplate provision to all installment agreements that requires that the taxpayer maintain future compliance.  The IRS then states that the failure to remain compliant will result in it taking enforcement which may include, but is not limited to, a bank account levy, placing a lien on assets, garnishing wages and social security, etc.

As part of the OIC contract, the IRS adds a boilerplate provision that calls for the timely filing and payment of taxes for five years following the acceptance date of an offer.  The failure to stay compliant would result in the offer in compromise being in default and the IRS reinstating the original back tax liability plus interest and penalties.  As a tax attorney, there is nothing more frustrating than negotiating a deal with the IRS and having your client call you for help with the same liability that the IRS forgave.  I explain to my clients that a successful tax offer is like hitting the lottery and the failure to remain compliance is similar to blowing all of your money.  If you are a business or individual that has successfully negotiated a back tax liability with the IRS, then you should meet periodically with your tax attorney to maintain checks on compliance.

If you are trying to negotiate an IRS tax lien being withdrawn, the IRS will also require compliance for the past three years.  That means all tax returns, information returns, and timely estimated tax payments and federal tax deposits must have been made three years before making an application for a lien withdrawal under the IRS Fresh Start Initiative.

As a tax attorney whose practice focuses exclusively on IRS tax audits and tax collection, I can tell you that there is nothing more important in resolving or negotiating a tax settlement than tax compliance. While negotiating with the IRS, you must maintain a series of checks and balances to ensure that you do not accrue additional tax liabilities.  At the Law Offices of Todd S. Unger, Esq. LLC, we can help you set up a system to ensure adequate tax compliance which is essential to the resolution of a back tax problem.

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