In the back of your mind, there is always this sense of worry. You haven’t filed tax returns in years or if you did and you owed, you have not received any notices from the IRS. You wait and you wait, thinking you are in the clear. A year or sometimes years later, you receive a notice stating you owe tax debt….and it has nearly doubled. Do not be surprised.
Unfortunately, the IRS often waits until a tax debt becomes so large, the taxpayer cannot ever expect to pay it off. However, if collection efforts were more timely, they could have done so and avoided all the interest and penalties that accrued over the years. Due to this outcome, in actuality, the IRS is harmed (they cannot collect due to the sizeable tax debt) and the taxpayer is harmed due to IRS collection activity. These types of activities include wage garnishments, federal tax liens (ruining a taxpayer’s credit) and bank levies.
Then what do you do? Many taxpayers tend to hide and hope it will just go away. Eventually, it catches up. Life changes and hiding is no longer a viable option. Something must be done to clean up your IRS tax problems. That is when you go looking for tax relief answers, of which there are many, but you have to know where to look and who to trust for IRS debt help to this devastating problem.
»The IRS collection process
It is important to know what the IRS can do to you if you do not pay off your tax debt. They engage in collection activity, but they have far more extensive powers than any collection agency. They may, without a court order:
- Garnish your wages, social security, pension, retirement. IRS debt help IRS tax relief
- Levy your bank account.
- File a federal tax lien.
- Take your tax refund.
- Seize your property and assets (however, this does require a court order).
»Pay off your tax debt if you have the money
First, if you have the cash to pay off the tax debt, pay if off! This is always the best IRS solution. If you have enough cash available to pay it off, you will not qualify for a settlement for less than the tax debt owed or what is commonly called an offer in compromise (“OIC”). An offer in compromise is generally reserved for taxpayers that are experiencing financial hardship and will never be able to pay off the tax debt.
So what is considered cash to the IRS? It is not limited to having cash in the bank. The IRS looks to cash in the following assets: mutual funds, IRA’s, pensions, house and car equity, whole life insurance policies, voluntary 401k’s and bank accounts. Thus, if you have these assets, they are considered “cash” that may be used to pay off your tax debt. Second, if you have a high income, have discretionary income left over every month, but very little cash in the bank, do not expect to qualify for an offer in compromise. The IRS will want you to get on an IRS payment plan or IRS installment agreement. If you go this route, it will seem like forever to pay it off because interest keeps accruing during the payment plan period. However, it is the best solution if you cannot pay the tax debt off in full or qualify for an offer in compromise. Additionally, the IRS has provided for longer terms to pay off your tax debt and has made it easier to get on a payment plan through its Fresh Start Program.
»Educate yourself on the offer in compromise process (“OIC”)
So, let’s get down to it. It looks as though you can never pay off your federal tax debt. You also have no money left over after each paycheck when all your necessary living expenses are paid to get on a payment plan. You go searching for answers. You may be the perfect candidate for an OIC or settling your tax debt for less than you owe. Just as there is a process to paying your taxes, there is quite a formal process to applying for an OIC.
The best thing you can do is educate yourself. Along with this article, get yourself up to speed with the process by checking out the following helpful websites:
After you have a pretty good understanding of the process, it is always advisable to hire a reputable tax attorney (NOT a tax relief company) to assist you with the best possible outcome of your OIC. They will have knowledge of the best ways to position yourself with the application process and to do it properly to best avoid a rejection of your application.
»Success with your offer in compromise
Follow these steps to a successful offer in compromise:
• Power of attorney with qualified IRS tax attorneys. If you decide to hire an offer in compromise attorney or tax attorney to represent you through the OIC process (and they have qualified you for an OIC), you must sign a power of attorney IRS Form 2848 to allow representation. Once signed, your IRS tax attorney will send it to the appropriate IRS unit.
• Initial call to IRS collections. Call the number on your collection notice and expect to wait a long time…between 30 and 60 minutes. The IRS tax help phone for collections is (800) 829-3903 FREE. If you are not in collections, call (800) 829-1040 FREE for individuals. Have something to do while waiting to make sure you are patient and not completely irate when the IRS representative picks up. There is nothing worse than a hot temper coming through over the phone. You will get nothing accomplished and will likely be transferred to wait another hour. Hire a representative if you cannot hanwpe it. Write down the name and ID number of the collection representative. Here is your checklist of items of basics that you need to find out:
• Your total tax debt broken down by year. This is obvious information to obtain. You should know how much you owe. This changes all the time due to all the penalties and interest that may keep accruing. Also, for investigatory purposes, make sure everything adds up. Check your records against what the IRS says you owe. Gathering all information is important in assessing your tax strategy.
• Whether all your tax returns are considered “filed” by the IRS. If there are any delinquent tax returns, the IRS will not assist in any type of tax resolution for your tax debt until all past returns are filed. File all tax returns as soon as possible. They will hit the IRS system in around 6 weeks. If you are self-employed, all quarterly returns must be filed and quarterly estimated payments made.
• Whether there are any “substitute” returns filed by the IRS on your behalf. The IRS will file a tax return for you sometimes if you do not called a substitute return. This is great and all, but they do not reflect any deductions that may help you. Therefore, you should re-file those years for which substitute returns were filed, generally resulting in a lower overall tax debt. When this is complete, you must allow for the IRS to make these adjustments and to again re-assess your tax debt.
• Request IRS wage and income statements. Make sure you actually owe the tax debt they say you do. Do comparisons. Calculate your interest and penalties. Also, if you have no wage and income information to prepare and file your unfiled tax returns, this IRS wage and income information may assist you.
• Request a hold on the account. In order to give you more time to file your unfiled tax returns or submit an OIC application, be sure to kinwpy request a hold, for 45 days for example. This should be ample time to organize your strategy.
• Fill out the OIC application. There are two financial statement forms that accompany the offer in compromise application. IRS Form 433A is for an individual and IRS Form 433B is for businesses. These forms may seem simple to fill out (deceptively they are not), but you have to know how to do it. For example, it becomes tricky when you live with a roommate or a non-spouse family member. You have to ask yourself, do they bring income to the household? If you live with a roommate, you must include their income on the 433A because their income assists your household (i.e., sharing rent/utilities). The same holds true for a family member, although in that case, they are considered part of the household with certain limitations. As the form requests, you must include:
•3 months of the most recent bank statements,
•a current pay stub or statement for all sources of income, if self-employed, a profit and loss statement &L for the last 6 months
•Copies of the most recent pay stub, earnings statement, etc., from each employer
•Copies of the most recent statement for each investment and retirement account
•Copies of the most recent statement, etc., from all other sources of income such as pensions, Social Security, rental income, interest and dividends (including any received from a related partnership, corporation, LLC, LLP, etc.), court order for child support, alimony, and rent subsidies
•Copies of bank statements for the three most recent months
•Copies of the most recent statement from lender(s) on loans such as mortgages, second mortgages, vehicles, etc., showing monthly payments, loan payoffs, and balances
•List of Notes Receivable, if applicable
•Verification of State/Local Tax Liability, if applicable
•Documentation to support any special circumstances described in the “Explanation of Circumstances” on Form 656, if applicable
•other substantiation if it is over the standard allowable expenses afforded by the IRS. The IRS guideline standards are found at https://www.irs.gov/Individuals/Collection-Financial-Standards.
• IRS Form 656. This is the actual offer in compromise form. You must decide how much you can pay with your offer. The IRS allows a lump sum offer where a 20% deposit is required. The rest of the offer amount may be paid in five or fewer payments. Alternatively, you may opt for an installment payment offer where you pay off your offer in more than five months. The first installment payment must be made when submitting your offer. Lastly, there is an OIC non-refundable application fee of $186.
»After submitting your offer in compromise application
You have submitted your OIC application. Now what? After submitting your OIC to the appropriate address, it will be processed through a special OIC unit where it will be assigned to an OIC officer. After about a month, the OIC officer will call you and request that your file be updated with new paystubs, bank statements and other documents that are outdated due to the passage of time. This OIC officer will make the decision whether to grant or deny your application once they have all documentation. If you receive an approval by the OIC officer and if the tax debt amount in question is significant (such as $500,000), further approval may be required by IRS legal counsel.
The entire OIC process can take anywhere from six months to a year so do not expect it to be “quick.” Be patient and by all means, stay compliant through the OIC process and for five years thereafter. Compliance means paying your selected OIC offer amount on time, timely filing all tax returns, quarterly tax returns and estimated tax payments. If you owe on future tax returns, make sure you pay on time. If you do not stay compliant, your offer will fail or if accepted, can be revoked and the tax debt reinstated. Staying compliant is a small price to pay for receiving an IRS tax debt settlement.
Delia Law San Diego Tax Attorney can assist you with your offer in compromise for IRS tax relief. Please call us for a free consultation at (619) 639-3336. We are located in San Diego at 12707 High Bluff Drive, Suite 200, San Diego, California 92130.
This blog post is not intended as legal advice and should be considered general information only.