What are your IRS debt settlement program options for when you can’t afford to pay?

In an earlier post, I gave an overview over how IRS debt settlement works. And in this article, I will go over the IRS debt settlement programs available to you when you agree to what you owe, but still can’t afford to pay the debt in full to the IRS.

Can’t afford to pay the IRS?

Can’t afford to pay the IRS? Well, you are in good company. Something like 1,000,000 taxpayers are in the same situation as you, unable to pay their IRS tax debts in full. Because this represents such a huge amount of taxpayers, the IRS and Congress have developed these IRS debt settlement programs when you agree to what you owe the IRS, but can’t afford to pay them in full.

Installment Agreement (Full pay)

This type of installment agreement will pay back the IRS in full within the remaining collection period (Click here to learn what the IRS collection period is). There is a streamlined Installment Agreement which doesn’t require financial information. And for larger installment agreements, the IRS will require full financial information, so that they can collect as much from you as possible

What to watch out for: Nearly anyone can get into an Installment Agreement. But the question is, will this actually settle your tax debt? Is it an amount you can actually afford? If you pay the IRS your installment agreement, what is the chance of you running up a new debt? The last thing you want to do is agree to the IRS’ numbers even though you have doubts that you will be able to make every payment. Don’t agree to anything just to make the IRS go away.  Because all that will happen is you will increase your tax debt and have to deal with a more aggressive IRS who doesn’t like the fact that you defaulted your Installment Agreement (when you run up a new tax debt, it automatically defaults any agreement you have in place with the IRS, even if you are still paying your installment agreement in full).

Partial Payment Installment Agreement (PPIA)

A partial payment installment agreement is an installment agreement that won’t pay back your entire tax debt over the remaining collection period. These are a bit tougher to negotiate. And the IRS may only give you a limited amount of time to pay the reduced amount.

What to watch out for: The IRS can revisit your financials to see if an increase in your partial payment installment agreement is warranted. So you do not have final resolution until the collection period has expired or you paid the debt in full. Any tax lien filed against you, you can not get withdrawn like you can when you full pay your tax debt.

Currently non-collectible/hardship status

In “CNC” status  you pay the IRS nothing each month! All you need to do is make sure you aren’t running up new tax debts. And like the partial payment installment agreement, once the collection period expires, the tax debt goes away.

What to watch for: As your IRS tax debt gets closer to being wiped out by the passage of time, the IRS knows this as well. So like with the Partial payment installment agreement, the IRS may become much more aggressive near the end. If you qualify for a partial payment installment agreement or non-collectible status, changes are you should really investigate whether or no an Offer in Compromise would be the right IRS tax debt program for you as it settles your tax debts quicker.

Offer in Compromise

With an Offer in Compromise,  you pay the IRS an amount lower than what you owe. Why would the IRS accept less? Because hopefully, you demonstrated that your ability to pay — after taking into account all necessary personal and business expenses — is as low as possible.

What to look out for: Do not low-ball the IRS, you won’t be taken seriously. Do not give the IRS 20% down  payment (there is a better way to do this). And here is a big one: You must be a good taxpayer for then next 5 years after an Offer in Compromise is accepted or all of your tax debts will come back. 

Chapter 7 Bankruptcy

Chapter 7 Bankruptcy can completely discharge old personal tax debts. 100%

What to watch out for: Timing is big. Be sure to calculate the correct time to file bankruptcy. My friend, Attorney Larry Hienkel of Tampa, FL has developed the bankruptcy tax discharge determinator to help bankruptcy attorneys calculate the right time to file bankruptcy.  Chapter 13 is available, but I have yet to see a repayment plan that was more favorable than something we could have negotiated with the IRS. The other thing is tax liens. If there is one area of law more confusing is what happens to a tax lien when Chapter 7 is filed? I have seen cases where they have been released and where they haven’t. It mainly depends on if we are successful in convincing the IRS insolvency unit that there is no equity the liens secure (but not always). You can not get rid of Trust Fund taxes with bankruptcy (although you can lower them with an Offer in Compromise).

For when you dispute the amount you owe

The are other IRS debt settlement programs available for when actually  dispute the amount you owe the IRS, these include penalty abatement, audit reconsideration, amended returns, innocent/injured spouse relief, Claim for Refunds and will be covered in a future article. So just to make it clear, these are your options when you can’t afford to repay the IRS.

Conclusion: “Why can’t I just do this on my own?”

One question we deal with all the time when we speak with someone who wants to know if they can save money and represent themselves in front of the IRS (or gamble on a a low-cost resolution company) is: “Why can’t I just do it on my own?”

Well, you can do it on your own. You can even represent yourself in a trial. But the question is, should you face the IRS unprotected?

To help you answer that question, I’d like to share some facts about the IRS with you.

Did you know that many IRS employees are members of an employee union? And that when an IRS employee is given low marks or faces discipline, union representatives are called in to protect the IRS employee facing punishment by the IRS. (Some feel the union actually doesn’t even represent them well enough, and don’t belong. h/t Martha De la chaussee)  This is all true, I assure you.

So here’s my question for you: If IRS employees need protection from the IRS, shouldn’t you get protection from the IRS?

Eight IRS settlement options that could save your skin

I think we’ll have to be honest here. Tax settlement companies have a pretty bad rap. The reason? Perhaps they don’t know exactly what they are doing, perhaps they are ethically challenged, and perhaps they prey on people emotions with fear-based marketing instead of empowering taxpayers with real information.

Well, in this article we will go over Eight IRS settlement options you have to negotiate your IRS tax debt based upon what you can pay and based upon if the IRS assessed your tax correctly.

No matter which tax settlement option you chose, for the IRS to find favorably for you, you must package up your proposal nicely.

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What to do if your medical practice can’t keep up with tax payments.

In an article today on CNNMoney,  Doctors driven to bankruptcy , Parija Kavilanz, writes:

As many doctors struggle to keep their practices financially sound, some are buckling under money woes and being pushed into bankruptcy.

It’s a trend that’s accelerated in recent years, industry experts say, with potentially serious consequences for doctors and patients. Some physicians are still able to keep practicing after bankruptcy, but for others, it’s a career-ending event. And when a practice shuts its doors, patients can find it harder to get the health care they need nearby.

This doctor is probably writing an S.O.S.

Kavilanz notes the story of one Florida doctor who has a solo practice in Broward County:

As the economy worsened in the wake of the recession, fewer patients could afford to come in. Cash payments and reimbursements dropped. To come up with money to keep the practice going, she took a second job at a hospital. Still, her debt ballooned. She fell behind on state tax payments.

Two years ago, Florida tax officials showed up at her door to shut the clinic down. She quickly called Langley and he was able to file an emergency bankruptcy for her online while the officials were still in the waiting room. He gave them the bankruptcy case number, and they left without closing the clinic. Langley eventually helped the doctor restructure her debt and the clinic is still open, he said.

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How to get an OVDI or FBAR penalty payment plan you can live with

For many US taxpayers considering whether or not to enter in to the IRS Offshore Voluntary Disclosure Initiative/Program (OVDI/OVDP), one of the biggest concerns is — what if I am forced to accept a 27.5% FBAR-equivalent offshore penalty? What if I am stuck with a bill that I can’t afford to pay?

We’ve written extensively about why the 27.5% offshore penalty is unlikely for the majority of OVDI participants, but for the purposes of putting the potentially millions of ex pats, dual citizens and visa holders who need to use some form of the IRS Voluntary Disclosure (standard 2012 rules, streamlined OVDI, or just late FBAR filing) at ease, this article is for you.

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Can I file an Offer in Compromise when I am unemployed?

Or why settling back taxes is nothing like settling credit card debt

BY: THOMAS S. GROTH, ESQ (find Thomas on twitter! @tsgESQ)

So, you hear an ad on the radio, the voice is telling you that you can settle your credit card debt for less than what you owe.  You think, “I’m unemployed, and I can’t pay, I should be able to get a pretty good deal on my own.”  So you call your credit card company  and you work out a deal!  The bank will settle your debt of $19,566.00 for a one-time payment of $7,500.00!  That’s less than 40% of what you owe.  Well, who would pass up a deal like that?  So you ask family and friends to borrow some money, and you cash out your 401k, and now you have one less thing to worry about once you become gainfully employed again. Success!

Then you start thinking, “I’ve been getting a lot of mail from the IRS, I wonder if I can work something out with them as well.”  You’ve done your research, and you are aware that the debt settlement process with the IRS has a funny name, something called an “offer in compromise.”  And so, now you’re wondering – “Is IRS Debt like credit card debt?  Can I file an Offer in Compromise when  I am unemployed?”

Do you want the quick answer or the complete answer?  The quick answer is yes, nothing actually prevents you from submitting an offer in compromise when you are unemployed.  But should you submit one? Well that’s a bit more complicated. Let me explain.

Solving an IRS tax debt is nothing like settling credit card debt — credit card purchases are voluntary. The IRS is not.

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BY: MICHELLE L. PALMERI

What to do when you can’t make your IRS installment agreement payment on time

If you are in an Installment Agreement with the IRS and find yourself unable to make your payments, if you act quickly enough, you may be able to get the IRS to reinstate your Installment Agreement. But before you do so, you must ask yourself a question: Can you honestly afford this repayment? If you have to miss a payment, if you skipped a payment, if your payments are late, there is a good reason: the payment is too high and needs to be renegotiated. 

If you are struggling too hard to make your monthly IRS installment agreement payments, either you need to change, the IRS needs to change, or both.

In this article I will discuss the top seven reasons why taxpayers get into IRS Installment Agreements that they can’t afford.

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What is the IRS tax debt statute of limitations?

The IRS tax debt statute of limitation is ten years. Yes, it is true. So does that mean all that someone needs to do is wait ten years, and voila, the IRS tax debt goes away? Read this article to find out the difficulties of waiting the IRS out, and why it is critical to know when the IRS can no longer collect on a tax debt.

In order for the clock to run, the clock must be started with an IRS assessment; if there has been no assessment, the clock can’t run.

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Optima Tax Relief LLC changes their website

UPDATED 2-6-2013

This blog previously mentioned business practices of Optima Tax Relief LLC that I, and many other Tax Professionals, thought were misleading and perhaps even the unauthorized practice of law. In particular, in its marketing material, OptimaTax Relief made this claim:  “Even through bankruptcy, unpaid taxes can stay with you. Bankruptcy is not a solution to your unresolved tax issues.”“

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When we think of evil handlebar-mustached twirling villains, typically it is the taxman. Sure as good be and even I may have fanned those flames a bit. But the truth is, next to student loan creditors, the IRS tax collectors are patron saints of kindness, understanding, harmony, set to the tune of Danny Boy with smells of lilacs, jasmine, and fried chicken. This article discuss three ways in which the IRS is vastly less barbaric, and dare I say, even reasonable, when it comes to the settlement of past taxes as compared to the vampires of student debt industry.

If this delicate flower was anymore lovely, it would be called the IRS.

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IRS Tax Settlement Myths

Congress created the IRS…and IRS tax settlement programs

 

 

 

 

I’ve been focusing a lot on offshore tax problems and so it is about time to update with what I see as the top 10 IRS tax settlement myths floating around for 2012. These are things that I am told all the time — not just by prospective clients, but by other tax professionals and other attorneys. So if you owe or know someone who owes back taxes to the IRS, do everyone a favor and read these top 10 IRS tax settlement myths.

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