Resolving Your Tax Debt – An Introduction
A major focus of my practice is resolving tax debts for clients. Therefore, each month I will be writing on a topic related to that specialized area of tax practice. My objective in this first article is to provide you with the basics.
I am constantly receiving phone calls from people requesting help in getting rid of or mitigating their nagging tax debt problems. These calls are either from the affected taxpayers or from other accountants and attorneys requesting my assistance on behalf of their clients. The story line is the same. They are intimidated and threatened by the IRS and/or state tax agencies, and their general health and well-being, relationships, and financial condition are under severe duress.
There are many reasons why taxpayers can owe money to the IRS. To name a few, they had difficulty paying the taxes when due, they received bills for erroneously assessed taxes, they owe interest and penalties on late filing or paying, or they were non-filers. The latter I find more prevalent now, most likely due to the economy. These people all need someone to go to bat for them and call off the dogs, and I mean “attack” dogs, as the IRS is under great pressure from Congress to expedite collection of delinquent taxes and narrow the huge tax gap. Therefore, you can call me a dog catcher.
Generally there are five basic methods to resolve a tax liability:
1. Pay It – Taxpayers have a number of available payment options. They include immediate payment, various installment arrangements, and submission of a bond or collateral agreement to defer payment.
2. Compromise It – This is a “fresh start” option to taxpayers who can qualify, but qualifying is tough. There must be little or no equity in assets and no reasonable potential for the IRS to collect the debt in full.
3. Discharge It –A range of possibilities exist for discharging tax liabilities in a bankruptcy proceeding, provided the debtor can satisfy the more rigid requirements under the bankruptcy law that became effective in 2005.
4. Let It Expire – Fat chance, you say? Well, it’s happened to a few of my clients. The IRS has ten years from the date of assessment to collect an assessed tax, otherwise it expires. However, there are events that will extend or suspend the Statute of Limitations.
5. Adjust or Abate It – These words are not interchangeable. “Adjustment” means to reduce or change a tax, penalty or interest. “Abatement” means to remove a tax, penalty, or interest from the assessment record. I have found that there are many overlooked opportunities to get interest and particularly taxes and penalties abated.
I get heavily involved in all of the above except for the bankruptcy alternative. I leave that to the attorneys, but I may be asked to render assistance to them in some aspects of the case.
I will be discussing each of the above methods in more detail in upcoming Tax Resolution articles. I should mention that, while tax audit representation is actually a pre-debt action, I get very involved in client audits in an effort to eliminate or minimize what could eventually become a tax debt. So, more accurately, I should say I resolve tax debts and tax audit problems for clients.
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