Having a tax debt can feel like a dark cloud is following you everywhere you go. Fear that the IRS could levy your bank accounts, attach liens or worse: Prison. Thankfully, if you are willing to work with the IRS in attempting to resolve your outstanding tax debt, you can keep the collection activity at bay.
The key to resolving a tax liability is to respond to the IRS as quickly as possible when you receive notification that you owe taxes. Today, individuals who have outstanding tax liabilities will begin to receive notices or correspondence by mail (the IRS will never contact you by phone). Unfortunately, many of the clients who contact our office have ignored those letters and do not reach out to the IRS to begin resolving their tax issues until the IRS finally starts to collect the outstanding debt by garnishing wages, levying bank accounts or filing a lien.
A tax professional can help you through the administrative process of working with the IRS and advise on what actions should be taken to succeed in resolving your situation and halting all garnishment and levy activities.
First, the IRS requires that taxpayers are compliant and current with all tax return filings. This means that all missing tax returns must be filed with the IRS before the IRS will even begin to discuss stopping collections for any other year. If a tax return was not filed by the taxpayer, the IRS can file a return on your behalf; this is referred to as a substitute for return. As the IRS does not have complete visibility into your deductions, the tax assessed in a substitute for return usually results in the worst case scenario. Therefore filing your actual tax return can likely reduce the assessed tax liability.
Secondly, the IRS will request copies of your bank statements and request a Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals. This information will report to the IRS all assets, income, debt, and expenses for your household. The purpose of this form is to determine if you have the ability to make payments on your tax liabilities and if so, how much.
Once you are tax filing compliant and you provide your financial information, you and your tax advisor can review your options for resolving your tax debt. The four options are: pay the full tax liability, enter into an installment plan, request an Offer in Compromise, or do nothing.
By paying off the full tax liability, you would put an end to all collection and levies would be released. This is obviously the quickest resolution although for many it is unrealistic depending on the tax liability and the ability to pay.
Doing nothing is the simplest response: you simply allow the IRS to continue to take collection action against you until the statute of limitations period ends on the collection of tax debt (10 years from the date of filing).
Entering into an installment plan is the most common action taken. The IRS will review your income and expenses and request a monthly payment to be made until the taxes are paid or the statute of limitations for collection has expired.
Finally, the option that many people have heard about is the Offer in Compromise. This option allows the taxpayer to offer a lump sum payment in exchange for having the total tax liability released. This is the most attractive option for many when they contact our office as they believe they can obtain a resolution with paying pennies on the dollar. Unfortunately, the IRS is very strict about accepting an Offer and it weighs numerous factors into its decision such as age, health, total assets, total debt and prior compliance.
If you have any questions about resolving a tax liability, please feel free to contact Glick and Trostin, LLC at 312-346-8258. To read more about essential estate planning documents, please click here.
Disclaimer: The materials on this website are provided for informational purposes only and do not constitute legal advice. Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between any attorney and any other person, group or entity. No representations or warranties whatsoever, express or implied are given as to the accuracy or applicability of the information contained herein. No one should rely upon the information contained herein as constituting legal advice. The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances.
