IRS / State Tax Resolutions
Many people currently face serious problems with Federal and/or state past due tax obligations whether due to job loss, home foreclosure, or other reasons. These generally do not go away without remedial action.
The first step is to pinpoint the problem and ensure all tax return filings are up to date. After that, arrangements can be made with the taxing authorities to structure payment of the past due taxes in installments and/or in a reduced amount, based upon your ability to pay. (Prior to the return filings, temporary arrangements can be made.)
- Offers in Compromise
- Payment Plan/Installment Agreements
- Wage/Bank Levys
What is an Offer in Compromise?
An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles the taxpayer’s tax liabilities for less than the full amount owed. Absent special circumstances, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement.
In most cases, the IRS will not accept an OIC unless the amount offered by the taxpayer is equal to or greater than the reasonable collection potential (RCP). The RCP is how the IRS measures the taxpayer’s ability to pay and includes the value that can be realized from the taxpayer’s assets, such as real property, automobiles, bank accounts, and other property. The RCP also includes anticipated future income, less certain amounts allowed for basic living expenses. For that reason, it is central to the process that the related financial analysis be very carefully prepared and presented to the taxpayers greatest advantage.
CAUTION: Taxpayers should beware of promoters’ claims that tax debts can be settled through the offer in compromise program for “pennies on the dollar”. Although this could be the case, it would be based on the reasonable collection potential arrived at through the aforementioned financial analysis, and not “horsetrading.”
Payment Plans, Installment Agreements
Whether you call it an installment agreement, payment agreement, payment option or a payment plan, the idea is the same — you make payments on the tax you owe. That sounds like a good deal, but you can save money by paying the full amount you owe as quickly as possible to minimize the interest and penalties you’ll be charged. For those who cannot resolve their tax debt immediately, however, an installment agreement can be a reasonable payment option. Installment agreements allow for the full payment of the tax debt in smaller, more manageable amounts.
Wage or Bank Levys
If arrangements of some kind are not made with the Federal or state taxing authorities, they will proceed with collection actions, which can include wage levy’s (garnishments) or bank account levys. Even if things have progressed to where a wage or bank levy has been issued, one may still get a complete or partial release with appropriate and timely action.
What is a POA (Power-of-Attorney) and when is it necessary?
- A POA is a legal instrument authorizing an individual to act as a representative for either an individual or entity. Subject to the authority granted, a representative can generally perform any acts the individual or entity can perform
- To protect taxpayer privacy, some form of authorization is necessary for disclosure purposes before an IRS employee can provide information to any third party (certified public account, attorney, enrolled agent, family, friend or employee)
- IRS cannot disclose details of a tax return unless the practitioner has a valid POA or has filed a Form 8821 which specifically authorizes such disclosure