IRS Tax Collection Issues
So, the IRS came after you or your business, claiming you owe more in taxes than you paid. You’re done responding to or challenging the IRS audit and tax assessments. Or, less frequently, you’ve taken the IRS to Tax Court and gotten a decision from the court, which includes the Court’s determination of taxes owed (if any). Or maybe you’ve been too overwhelmed by the IRS notices that you’ve simply ignored them, for months. The Assessment division of the IRS now has issued a final figure for what you owe and passed that figure to the Collections division. In short, the time for challenging and changing the amount of tax the IRS says you owe is over. The only thing IRS Collections division employees are interested in is being paid. Accordingly, this section doesn’t look at how to fight what the IRS says you owe (click here for that).
This section focuses on what to do when the IRS has issued the final tax bill, but you can’t possibly pay in full
Don’t panic. Many taxpayers and businesses cannot pay their tax debt in full, so the IRS is used to this. The two most common ways to pay back taxes are with an Installment Agreement, or an Offer-in-Compromise. Installment agreements are easy to obtain, while an Offer-in-Compromise is very rarely granted.
With an Installment Agreement you and the IRS negotiate how much you’ll pay monthly, and for how long. Most installment agreements pay off the taxes owed across six years; some go as long as ten years (because the statute of limitation allows the IRS to collect only for ten years; California law gives the state’s Franchise Tax Board twenty years). The installment agreement is a great way to deal with the IRS: the taxpayer agrees to make regular payments, and the IRS agrees not to take away everything that it has the right to take – so long as the payments keep coming. It’s a negotiated peace between the federal government’s brute force (after all, it has both the legal right to collect immediately and fully what you owe and the power and resources necessary to do so) and the individual’s vulnerability.
I set up lots of Installment Agreements. Together with defending clients under audit, this is a basic task for a tax attorney. But I also advise many clients on how to navigate the process themselves, and act as a kind of coach in the background – it’s a good way for a client to save money on legal fees. However, many people are too busy to deal with the IRS themselves, or too intimidated to do so. After all, the IRS is a daunting bureaucracy, with enormous power, that’s famously hard to navigate.
If you don’t want to deal with the IRS, or you don’t know how to, both are good reasons to hire me
But, first give me a call and let’s chat about your IRS issue. Then we can devise a plan to handle the IRS in a way that gives you what you need – whether that’s information, a playbook on how to navigate the process on your own, or my stepping in on your behalf to deal with the IRS so that you don’t have to. To learn more about the Installment Agreement process and details, please click here.
An Offer-in-Compromise is a contract between the IRS and a taxpayer to settle a tax debt for less than what is owed. Despite a steady barrage of radio ads from bottom-feeding tax lawyers who claim they can eliminate most of what you owe (“pennies on the dollar!!”), the IRS rarely forgives tax debt, not even with an Offer-in-Compromise. To understand why, you must understand that the IRS sees itself first and foremost as a law enforcement agency, not as a collection agency. That means it wants to get as many Americans as possible to pay what they owe. After all, how would you feel if your neighbor got away with not paying what s/he owes, just because s/he was able to butter-up an IRS agent or hire a good attorney, while you did your civic duty and paid what you owe without complaint? Yeah, thought so.
The Offer-in-Compromise program is geared toward a narrow segment of taxpayers — people who will never be able to pay all of the debt with their future income or assets before the IRS runs out of time to collect (which is generally ten years from the date the tax was assessed)
The Offer-in-Compromises that are approved are overwhelmingly for the elderly or disabled people who have no earning power. Almost all able-bodied taxpayers under 70 years have the potential to earn enough money in the next decade (before the IRS’ statute of limitations to collect expires) to repay taxes owed. Which means the IRS is likely to get what it’s owed if it just waits. Thus, for the vast majority of people, there are alternatives to the Offer-in-Compromise that work out much better for their situation.
Call and tell me about the specifics of your tax debt; I’ll give you my best assessment of how to pay IRS. To learn more about the Offers-in-Compromise process details, please click here.
Bankruptcy to Eliminate Tax Debt
Many people don’t know this, but bankruptcy can be used to get rid of most state and federal income tax debt. In fact, this is precisely why I practice both tax and bankruptcy law – two areas that seem unrelated. There are a few exceptions, the most frequent being failure to file a timely tax return. For example, if you owe on your 2015 tax return, but didn’t file your 2015 return, you can never discharge those taxes with bankruptcy. (The government really, really wants you to file your tax returns.) Back payroll taxes, which business owners are personally liable for, also can never be discharged in bankruptcy (because this was employee’s money that the employer kept, rather than turning it over to state or federal tax agencies as is required by law). And there are some very picky and complicated timing issues involved with getting rid of taxes in bankruptcy that are too tedious to summarize here (though I discuss them here and here. But these technical details are critically important to getting rid of tax debt in bankruptcy: miss one of the technical details and the bankruptcy doesn’t work.
Many bankruptcy attorneys don’t understand how and when taxes can be discharged
I receive lots of calls from people who recently filed bankruptcy, then realized their attorney should have waited to file the case and discharge tax debt, and now they want to know if there’s any way to correct this (major) oversight. Quick answer: no. Don’t be one of these unfortunate cases. Educate yourself on bankruptcy before you interview attorneys (you can start here). Better yet, give me a call if you have lots of tax debt, since this is my area of expertise. Also, check out more detailed information on Chapter 7 Bankruptcy here since that is the type of bankruptcy used most often to discharge (eliminate) tax debt.
Tax Liens & Levies
Unfortunately, some people are so scared of IRS notices, or their inability to full pay the taxes they owe, that they shut down and ignore IRS attempts to collect altogether. Ignoring the IRS is always a bad strategy because, if you do not set up an installment agreement with the IRS or otherwise communicate with them on how you plan to pay, they will legally come after your assets to settle your tax debt. The two main tools the IRS has to forcibly extract payment from you are tax levies and tax liens. A federal tax lien notice is a public document telling the world that you, the taxpayer, owe taxes. It creates a debt against your property; if there is a valid tax lien filed, you cannot sell this asset without first paying off the tax lien. An IRS lien can be attached to any of your assets such as houses, vehicles and even business property. A federal tax levy, on the other hand, is the legal seizure by the IRS of your property to pay tax debt. The IRS has the right to levy on property you own or have an interest in, including wages, rental income, dividends, and commissions.
To learn more about tax liens and levies, especially the notices the IRS is legally required to send taxpayers before filing a lien against personal property or garnishing wages, please click here. And, if you’re too overwhelmed to read further, give me a call and let me help you deal with the IRS so that they don’t seize your property or wages (or passport). Even if you do read further, call me after you’ve finished reading. If you have a sense of how you think you’ll handle your matter, just run it by me to ensure you’re not missing anything. After all, I deal with these kinds of issues and the IRS every day; you’ve probably never dealt with them.