Tax Resolution 101
According to the IRS, in 2015 the IRS had 8.1 million open collections cases related to unpaid taxes totaling $137 billion dollars. That’s more than the entire annual budget for the US Department of Education. The new mission statement of the softer, gentler, tax payer friendly IRS is to “provide America’s taxpayers with top quality service by helping them understand and meet their tax responsibilities and by applying tax law with integrity and fairness to all.”
Many taxpayers think if they owe money to the IRS or have a tax lien, they need to hire a tax attorney. The truth is, all you need is a really good CPA with the knowledge and experience in tax resolution to help you solve your tax problems.
Step 1 in this process is to select a qualified licensed professional. You always have the option of representing yourself in front of the IRS, but dealing with the IRS can be frustrating, time consuming, intimidating, or all of the above. So how do you select the best tax consulting firm? When dealing with a firm that will represent you before the IRS, it’s important to choose someone you know to be a professional, and is well versed in tax law and IRS procedures. I always suggest you choose someone local and you ask them a few key questions before getting started.
- How many years has the firm been in business?
- Will a licensed professional be working on my case?
- Does the firm discuss all options available to resolve the tax problem?
- What is the firm’s success rate?
- What is the firm’s rating with the Better Business Bureau?
Here are some key areas to be aware of:
- Beware of unlicensed telemarketers. They are paid on an incentive basis, usually have little to no tax experience, and are often from large out-of-state corporations.
- Beware of unrealistic promises. If it sounds too good to be true, it usually is.
- Beware of firms that charge a “fee” based on the amount of money you owe the IRS. Ask for a breakdown of exactly what you are getting for a flat-fee based service.
- Do not decide based on emotion. You should feel you are being properly taken care of and your tax debt is being settled for the lowest amount of money allowed by law.
Step 2 requires that you have all tax returns filed with the IRS. This may be hard to believe, but the IRS wants you to file past due tax returns more than they want your money! The IRS will then provide you with your total tax liability due including penalties and interest. Did you know that penalties and interest start to accrue the next day after the filing due date? Penalties and interest can add a whopping 65% to your total tax bill. The lesson here is: don’t put your head in the sand and think the problem will just go away, it won’t.
Step 3 is where it is important you have selected the right tax professional to represent you. Your tax professional will help you determine which tax resolution is best for your unique situation. We take into consideration many factors and there is no one cookie-cutter resolution. Each case is unique. So what are your tax resolution options? There are actually 10 different tax resolution options, which include:
- Full pay the tax owed
- Filing unfiled tax returns and replacing “Substitute for Returns”
- Dispute the tax on technical grounds
- Being placed in “Currently Not Collectible Status”
- Installment Agreements (most popular)
- Offer in Compromise
- Penalty Abatements
- Discharging taxes in bankruptcy
- Innocent Spouse Relief
- Expiration of the Collection Statue (yes your tax liability can expire)
A note on Offers in Compromise: This is the most commonly known tax resolution strategy. This is what you hear about on TV, commercials and radio ads, especially when you hear the phrase “Settle your tax debt for pennies on the dollar.” Although, this is the most commonly known, the truth is very few people qualify for this type of tax resolution, let alone get approved if they do qualify.
Step 4 is where the magic happens. Your tax professional will work directly with the IRS on your behalf with a Revenue Officer. They will pull transcripts, make phone calls, submit paperwork, have more phone calls, talk with your Revenue Officer a lot, all until your case is closed. Some cases take two weeks, some cases take a year or more.
The most important thing you can do is get started today. Don’t let the IRS charge you another day of penalties and interest. It may seem scary at first, but your tax professional should be your most trusted advisor.