If you are struggling because of taxes you can’t pay, the weight of the IRS looming over your shoulder can be heavy. Before you let tax problems get you down, you need to know that you have options. Below is a non-exhaustive list of tax relief options. With one of these tax relief options, you can make that tax debt manageable.
File an Offer in Compromise
One of the ways I help my clients overcome tax debt is by helping them file an offer in compromise. The IRS may accept less than what you owe on one of several grounds: (1) doubt as to liability; (2) doubt as to ability to collectibility; or (3) to promote effective tax administration in exceptional circumstances or to avoid an economic hardship.
(1) Doubt as to Liability
With a doubt as to the liability offer, you are questioning the validity of the amount owed. When filing your doubt as to liability offer, you must disclose evidence in support of your position. The amount of your offer would depend upon the degree of doubt found in your particular case. Other alternatives to a Doubt as to Liability offer include the following: applying for an audit reconsideration, amending your tax return, applying for innocent spouse relief, or filing a claim for refund and request for penalty abatement.
(2) Doubt as to Collectability
The doubt as to collectability offer in compromise (OIC) is what tax relief companies are promoting. The doubt as to collectability offer in compromise is based on your ability to pay and not what you owe. The IRS will review your personal and business balance sheet (assets and liabilities) and your personal and business monthly income and expenses (income statement). Based on your balance sheet and income statement, the IRS will determine your reasonable collection potential. If the IRS believes that it will not be able to collect the back taxes owed in full, then it may settle for an amount that is less than what is owed. Therefore, you can owe a lot in taxes, but if your reasonable collection potential is a little, then the IRS may settle your tax debt.
While the IRS reviews the OIC, you’re required to make partial payments to IRS. If you make a lump-sum offer (which include single payments as well as payments made in five or fewer installments upon acceptance of the offer), then you must make a down payment of 20% of the amount of the offer with the application. For periodic payment offers, you must comply with your proposed payment schedule while the offer is being considered.
(3) Effective Tax Administration
With an Effective Tax Administration (ETA) offer, you are acknowledging to the IRS that you owe the tax and have the ability to pay, but if you pay, then you will face a hardship. The ETA offer is the most subjective and difficult offer in compromise to get approved.
The offer in compromise is not a one size fits all option. For example, an offer in compromise can provide the IRS with additional time to collect a back tax. If you plan on filing a tax motivated bankruptcy, then prematurely filing an offer in compromise can lengthen the time that taxes are considered a priority claim. Priority claims must be paid in full in a bankruptcy plan and are considered non-dischargeable.
The other problem I see with offer in compromises is that individuals and businesses offer too much to the IRS. There are various techniques that can lower the amount in a tax settlement.
Tax relief companies make it sound like filing an offer is easy, but it’s not. Sure completing any tax form is easy, but there is an analysis that must occur before filing the tax return. If everyone was capable of settling their taxes for less than what was owed, then there would be no incentive to timely pay your taxes.
If you feel that an Offer in Compromise is the best solution for your tax debt problem, I can help you determine the amount to offer and help improve your chances of approval.
Suspending IRS Collection Due to Economic and Other Hardships
Many tax relief companies have been advertising for CNC status (also known as currently not collectible and Status 53) which is advantageous in a limited number of circumstances. Typically, I do not recommend CNC because it won’t eliminate your tax problem. Rather, if the IRS grants CNC, then your account would be placed in forbearance and the IRS would cease all collection activity. Although your account is temporarily closed, interest and penalties will continue to accrue. Furthermore, IRS enforcement action such as, levies, garnishments, seizures, etc., can begin at any time before the expiration of the 10-year limitations period to collect. Therefore, the IRS will monitor your account and may request that you provide an updated financial disclosure.
Another problem with currently not collectible status is that the IRS will file a tax lien. A tax lien can spell disaster for certain occupations, bankers, stock brokers, financial planners etc. Additionally, if you are planning to borrow money in the future, i.e. buy a home, business loan, etc., then the filing of a tax lien can destroy your chances.
In order to apply for CNC status, a financial disclosure is necessary. If you do not have assets with equity or an ability to pay, then the IRS will consider temporarily closing your file.
I can help you determine if currently not collectible is the right option or if a better option is available. Most of the time, there is a better option than CNC.
Set up an Affordable Payment Plans
If you just need a little more time to pay your tax debt, I can help you set up an affordable monthly payment plan with the IRS. An IRS payment plan can help stop wage garnishments, bank levies, or seizing assets. As long as you make your payments as agreed, the IRS will sit back and happily collect their money.
The key to setting up a payment plan is making the monthly amount large enough to satisfy the IRS, but small enough to fit into your budget. I can help you determine what amount this is, then help you set up that payment plan, so that you can stop the IRS from collecting.
Innocent Spouse Relief
When you file a joint return, you are jointly and severally liable for all of the tax, additions to tax, interest, and penalties associated with the return. When applying for innocent spouse relief, you are asking the government to let you off the hook from the liability. There are three different types of relief: 1) innocent spouse relief, 2) separation of liability relief, and 3) equitable relief. Each type of relief has requirements that must be satisfied to receive relief from joint and several liability.
Having the IRS grant innocent spouse relief is not easy. The application requires a thorough investigation of the facts and law. I help you with filing a claim for innocent spouse relief and appealing the IRS’s denial of innocent relief administratively and in US Tax Court. My representation includes helping both the requesting and non-requesting spouse.
Eliminating Tax Penalties
The IRS will assess penalties on taxpayers, but what many taxpayers don’t know is that the IRS also has an extensive list of reasons that those penalties can be abated. Before you assume that you have no choice, consider whether or not you are eligible for penalty relief.
The IRS will abate penalties upon showing reasonable cause and not willful neglect. The IRS provides examples of reasonable cause such as ignorance of the law, mistake, forgetfulness or undue hardship, natural disasters, casualty, fire, death, serious illness or the inability to obtain records. You can even qualify for abatement if you were given poor written or oral advice from your tax adviser or directly from the IRS. I like to view reasonable cause as meaning anything that impaired your ability to timely file and timely pay your taxes.
Other tax penalties such as civil tax fraud have a different standard such as proving that you did not intentional evade taxes at the time of filing the return. Unlike a failure to file or failure to pay penalty (non-intentional), civil fraud has criminal implications. The moment that an IRS agent is considering civil fraud, you must seek counsel or, if you are a CPA or EA, seek counsel from a tax attorney. .
If you are facing a tax penalty, talk to me. You may be surprised that you qualify for a tax penalty abatement. Don’t assume that you have no choice before you pursue legal help.
Bankruptcy and Tax Debt Relief
As a last resort, you may want to consider bankruptcy as an option to resolve your back taxes. Filing a bankruptcy petition serves to place a “stay” on further IRS collection actions. Certain taxes that cannot be paid from the bankruptcy estate may be discharged. There are specific time periods that determine if you can discharge your taxes. Generally speaking, you can discharge income taxes, not payroll trust fund taxes or excises taxes, that came due 3 years before filing for bankruptcy, as long as it has been at least 2 years since you filed, and 240 days since the taxes were assessed. These rules become incredibly complicated based on provisions that toll, extend the period of limitations, whether or not the government has filed a federal tax lien, and each financial circumstance to determine how the rules would be applied in bankruptcy.
I can help determine if bankruptcy is a viable option and, if so, assist you with the timing of when to file a bankruptcy petition. In some cases, dealing with the IRS administratively and in bankruptcy is necessary.
If you are a bankruptcy attorney, certified public accountant, or enrolled agent that requires assisting your client with a tax motivated bankruptcy or are an individual or business that is need of counsel to deal with tax debts, I can help.
Tax problems should not take over your life. As an experienced tax relief attorney, my goal is to help you manage and resolve your tax problems. Contact me, attorney Todd S. Unger, today to begin taking steps towards true tax relief. You can eliminate the weight of the IRS on your shoulders with the right advice.