Offer In Compromise
The US Treasury Department (IRS) is authorized to settle unpaid taxes for what can be pennies on the dollar. While the amount of a settlement offer is not directly related to the amount of the tax that is due, the IRS does consider your ability to pay the tax and whether or not they can collect in full without causing an unreasonable hardship. Other grounds for settlement, besides your ability to pay the tax, are available in special circumstances. There are situations in which an individual with a large amount of assets can successfully settle an outstanding tax debt for much less than the balance due, even if the taxpayer has the money to pay the tax. To see more information on reasons for making an offer to the IRS click here.
Installment Payment Agreements
One of the most common ways to keep the IRS from using aggressive collection activities is to make an agreement to pay an outstanding tax debt in installments over time. Such an agreement is based on your financial resources and need not necessarily pay the entire tax debt within a reasonable amount of time. Under some circumstances, the IRS will stop collecting a tax debt if we prove to them that all of your income is required to pay necessary living expenses for a person living in your area. This financial analysis is based upon the Bureau of Labor Statistics survey of income and living expenses conducted on a county by county basis nationwide.
While not common, at times the IRS will write off tax penalties that have been assessed. If you made an “honest mistake” or if circumstances beyond your control made it difficult or impossible to prepare and file a correct tax return, penalties can be reduced or eliminated. The “abatement” of penalty must be for good cause and must be correctly documented before it can be approved.
The government considers Payroll Withholding Tax to be a special type of obligation for a taxpayer. Payroll taxes withheld from an employee’s pay check are considered to be a “Trust Fund” held by you for the government. Even if your business is a corporation, the IRS will require the person or persons responsible for payment of these taxes to pay them. Even those people who have authority to sign company checks can be specially assessed personally for payroll tax liabilities.
Unfiled Tax Returns
In most cases, individuals are required to file tax returns if they earn a certain minimum level of income. The minimum amount required before a return must be filed depends on a number of factors and changes every year. However, almost everyone who is regularly employed must file tax returns with the IRS. The intentional failure to file tax returns when they are due is a federal misdemeanor and can lead to a fine or jail sentence or both. Even if no criminal proceeding is brought for failure to file, the civil penalty can be substantial. If required tax returns are not filed when due, the IRS may assess a tax based upon income sent to them from third party sources such as W-2 and 1099 reports. As you can imagine, a non-filing taxpayer is not given many breaks in calculating tax due. Usually, the IRS computes the tax by assuming the taxpayer is single (or if married then as married filing single) with one exemption, using standard deductions and allowing for no dependants. A good accountant may be able to improve this situation by preparing and helping to file a tax return for years in which the government has determined the tax by their Substitute for Return process. While the IRS is not required to accept a late filed return after it has taken the trouble to assess tax by this process, they usually will allow you to correct their records if you do so within a reasonable period of time.
It is not an absolute defense to criminal prosecution to file your returns before the IRS catches on that you have not done so. However, IRS will often look the other way if a taxpayer comes forward with a carefully prepared return and files it before the IRS finds out the returns are due and have not been filed. It costs the government a substantial sum to prosecute a criminal tax case. Taking steps to correct the problem before government action is required will almost always improve the situation.
The IRS has many tools available to use for the collection of past due tax obligations. One of the most powerful tools is the Federal Tax Lien. The lien will attach to all of your property, of any kind and wherever it is located if it is filed correctly by the IRS. The lien can be filed without court approval and needs only the signature of authorized IRS personnel to be effective. Once a notice of tax lien has been filed, a tax lien can make transfer of property difficult or even impossible without full payment of all tax due.
While the tax lien can cause many problems for a taxpayer, there are many things a lawyer can do to assist in removal of the lien or in coming to an agreement with the government about how the lien will be paid.
The Collection Process
Most legislation passed by congress regarding the collection of tax has been aimed at limiting the taxpayer’s rights and increasing the power of the IRS to obtain payment of outstanding tax debt. However, in the last 15 years, congress has found a great deal of political capital in restraining the IRS with additional rules and requirements that must be fulfilled before enforced collection can take place. This has been good news for the taxpayer and the government is even required to give you written notice of some of these rights before acts are taken to disrupt your life.
While an individual taxpayer can take almost any of the available steps to protect assets and limit collection activity, it is recommended that taxpayers contact a tax professional as soon as possible after the first contact by an IRS collection officer. We do not recommend providing any information to the IRS or talking with any government employee about your tax problems without first talking to a lawyer about your rights. If you do so, you may cause damage even tax lawyers cannot repair.
Bankruptcy And Tax
DISCHARGING TAXES AND REMOVING TAX LIENS
Certain types of tax obligations, such as income tax debt, may be discharged under specific circumstances. Many required conditions must be met before any tax can be discharged in a Chapter 7 or Chapter 13 bankruptcy proceeding. In Chapter 7, the minimum requirements for discharging federal or state income taxes are: (1) the bankruptcy is filed more than 3 years since the returns were last DUE (including extensions), (2) the returns were timely filed or it has been at least 2 years since the returns were filed, (3) there was no fraud involved or attempts to evade the tax, AND, (4) the taxes were not assessed within the last 240 days.
If it has been over 3 years since your returns were due for filing and the tax has not been assessed in the last 240 days, BUT you have not yet filed the returns or there was some kind of fraud involved in filing them, you should talk to a professional before contacting the IRS. Again, discharging taxes can be an extremely complicated process, and you should definitely consult with a knowledgeable attorney before you take any further steps with your taxes (such as filing past due returns). Sometimes filing a late return can work against you, delaying your ability to discharge those taxes in a bankruptcy proceeding.
Tax Liens that have already been recorded against your property may be removed under certain circumstances. Your attorney may be able to assist you in acc