IRS is relentless when you owe a debt to them. The IRS has the power to freeze bank accounts, garnish wages, seize and sell your property, put liens on your properties and add more penalties and interest on top of what you already owe, leaving you feeling forever indebted to the federal government. There are programs available to you to stop this endless spiral of owing the IRS. In this article, I am going to discuss why it is important to communicate with the IRS and ways to settle your debt for less than you owe depending on your ability to pay.
First, owing the IRS a large bill is intimidating and when you receive that letter from the IRS, the first thing you want to do is crawl under a rock or sweep it under the rug and forget about it. Avoiding the letter and not taking action is one of the worst things you can do. You might be saying to yourself, “If I pretend, I didn’t see the letter and don’t ever respond to them, they are going to forget, and I won’t actually owe it.” The IRS is relentless and if you owe a large amount of money, they will assign an agent to your case to put the screws to you, to get the amount owed. If they don’t hear from you; they will take the steps to put liens on your property, take any tax refunds that are due to you, then garnish wages, after all that they take you United States Tax Court to memorialize the debt and your stuck holding the bags, penalties and all.
Communication with the IRS is your first step to increase your ability to reach a deal with the IRS. If communicating with the IRS terrifies you, reach out to a tax professional who specializes in tax resolution and ask to get a Power of Attorney with the Department of the Treasury. This allows all IRS communication to go through your tax representative instead of yourself. When looking to get a tax representative, you will need someone with the credentials to represent you. Only a limited amount of people can represent you in front of the IRS. Those individuals include, but are not limited to, attorneys, CPAs, Enrolled Agents, unenrolled return preparers (very limited in scope to the year they prepared your return), and Annual Filing Season Program Record of Completion preparer (limited to the year they prepared your return). To get a Power of Attorney you will need to fill out IRS Form 2848 and have the professional you have selected to add their credentials, sign and fax in the form to the CAF Unit at the IRS.
By opening the lines of communication with the IRS, you will have time to address the situation and have multiple avenues to take to try and resolve you case. If you don’t communicate with the IRS, you will find yourself with a notice to petition the United States Tax Court. Once this process has begun, you know have very limited amount of time to resolve your situation. The short amount of time to address your situation balloons the cost for you to receive tax resolution help because your case will be billed on a high priority rate. If your case goes to tax court and you don’t respond you will also find your course to rectify the situation is limited and the professionals you will need to rectify will be limited to attorneys and highly experience enrolled agents with staggering costs associated with their service.
It is important for you to try and address your tax situation right away because if the first strategy to find you tax relief doesn’t work there are appeal processes available and those revenue officers and other individuals are more willing to make a deal and listen to your particular situation, then the IRS Agent who was assigned to get your money.
Once you have made the decision to communicate with the IRS to settle your tax debt, there are several options available. The first option you have probably heard of is the, “Fresh Start Program.” The IRS calls this an Offer in Compromise. An Offer in Compromise is where you make an offer to the IRS to pay debt for an amount less than you originally owed and the IRS in return forgives the rest of your debt. So, you might have heard of commercials stating, “Pay the IRS pennies on the dollar to what you owe,” this is what they are talking about. An Offer In Compromise is not a simple as it sounds though, it is not like you go the IRS and say, “I can only afford to pay $1000 on a $25,000 tax debt because I am broke now” and they go, “No worries, we will take your offer and you are off the hook.” The process of the Offer in Compromise starts with you demonstrating your ability to pay your debt. The IRS will have you complete IRS Form 433-A (individuals) or 433-B (businesses) to prove your ability to pay. The IRS Form 433-A or 433-B is form where you state your income, monthly expenses, and all of your assets. From this there is a formula used to calculate how much you can pay each month. Calculating how much you can pay is complicated because you also must provide documentation to prove the facts on the form. On top of that, your expenses are not taken at the value at which you paid for them, they are taken at the lessor of what you paid or the national or local standard. What that means, if you spend $1000 a month for groceries on two people, you would not be able to use that amount. You would have to use the national standard of $685 a month for two people. This means that IRS will only allow expenses up to how much the average person spends on that item. In addition, listing your assets is complicated because there are different formulas to use when calculating their value and want to make sure you are not including assets that are income generating, understating your assets or legally overstating the value of your assets. These forms are under penalty of perjury, so it is important to make sure you are truthful or you find your offer rejected or even find yourself in jail.
I recommend hiring a professional to help you navigate the Offer In Compromise because a seasoned tax professional will help you calculate your ability to pay. At Taxes Made EZ, we will only submit an Offer in Compromise if we determine this is the best avenue for you and will be accepted by the IRS. In some cases, we might determine the best avenue for you is to put the status of your case into Currently Not Collectible. This means the IRS will not seek payment and stop collection activity because you have demonstrated your expenses are more than your income. Currently Not Collectible could be a valuable strategy because this allows the statute of limitation to continue running. If your financial situation is not going to be changing, this allows your debt to be discharged after 10 years after it was assessed by the IRS.
In both situations I have mentioned above, I highly recommend hiring a seasoned professional to help you navigate the form to make sure they are accurately filled out and calculated properly to make sure you are getting the best deal. Click the link here to sign up for a free consultation or call our office at (856)232-0958 to setup an appointment.