For those that owe back taxes, the IRS can be a daunting and intimidating creditor. The Law Offices of Michael P. Boyle can help individuals and businesses resolve their tax liabilities with individually tailored solutions. The end to your tax problem might be a combination of proceedings and alternatives, including: a collection due process hearing, an Offer in Compromise, an Installment Agreement, filing amended (or original) tax returns, being placed in currently not collectable status, or bankruptcy. Call The Law Offices of Michael P. Boyle today for the professional assistance required to determine which of the following alternatives is best suited for your specific situation.
Collection Due Process Hearing
A Collection Due Process Hearing (CDP) is a statutorily created right granted to taxpayers to have the IRS Office of Appeals review completed (the filing of a Notice of Federal Tax Lien) or proposed (issuance of a levy) IRS collection actions. This right matures and comes into being only after certain notices are provided by the IRS, and then must be exercised by requesting a hearing within a very limited timeframe (30 days from the date of the notice).
By law, the IRS must provide you with notice that they have filed a Notice of Federal Tax Lien, and your rights to a CDP hearing, within 5 days after the lien has been filed. For levies, however, the IRS must give you notice of its intent to issue a levy (and your right to a CDP hearing) at least 30 days before any levy is issued. For more information, read about how Anderson & Jahde can help with IRS notices.
The protections and advantages of the CDP rights are too important to miss, relinquish or ignore. The advantages include:
- Barring exceptional circumstances, the IRS is precluded from levying or seizing any of your assets while the CDP hearing is pending, and for 30 days after;
- You will have an opportunity to propose your plan to a more experienced, and often more neutral, employee of the IRS Office of Appeals, who is also granted greater latitude to fashion a solution that works for everyone;
- In certain circumstances, you can also challenge whether the underlying liability is correct, with the same advantages of having this reviewed, in the first instance, by IRS Appeals; and
- If you are not satisfied with the result, you can have Appeals’ determination reviewed by the Tax Court.
Offers in Compromise
An Offer in Compromise is a binding agreement between a taxpayer and the IRS to compromise the taxpayer’s entire liability for less than the amount actually owed. But don’t be fooled by the late-night TV and radio ads promising that for a mere $5,000, they can compromise your taxes for pennies on the dollar. Unfortunately, it is not that simple of a process.
Determining the amount of an acceptable offer, and even whether you are eligible for one, is a complicated and individual process that starts with the preparation of one, or maybe two, IRS financial information forms (Forms 433-A for individuals and 433-B for businesses). From this information, the taxpayer’s “reasonable collection potential” — what the IRS believes it can collect from you using all of its powers and resources— is established. Conceptually, if you offer something more than this amount, the offer will be accepted. But if the value of your assets and ability to pay from future income exceeds either the amount you owe, or the amount you offer, the Offer in Compromise will be rejected.
For this reason, hiring someone with the skill and experience in presenting your offer in the best possible light (or determining an Offer in Compromise is not a viable option), can save you thousands of dollars. For more information, see the IRS Offers in Compromise Handbook.
An Installment Agreement is a plan to pay the full amount of the liability in monthly installments over time. Again, this process begins by completing and providing to the IRS its financial information form(s). Based on this information, the IRS will determine what you can pay (or should be able to pay) on a monthly basis.
Generally, the analysis consists of subtracting your monthly “allowable” living expenses from the total amount of your monthly income. In most cases, the amount left over will be the amount of the monthly installment payment to the IRS. But many taxpayers are surprised to find out that what they actually pay for such things as housing and utilities, food, clothing, and transportation expenses often exceeds what the IRS will allow. And if the taxpayer’s actual expenses exceed IRS’s allowable, the amount of the monthly installment payment will be increased by the difference.
But the IRS has programs available to taxpayers under which an installment agreement can be negotiated without having to provide any financial information, and without having to justify living expenses that are above the IRS’s allowable amount. Whenever possible, taxpayers should take advantage of these programs because the financial disclosures otherwise required provide the IRS with a roadmap to your assets, maintained by the IRS for years, that it will use to collect the taxes owed if there is ever a default on the installment agreement.
Once an installment agreement is negotiated, the IRS may not levy, seize or garnish any of your assets or income as long as you timely make the required payments, timely file all your tax returns and pay your current taxes (including making Estimated Tax Payments, if required). Any continuing levies (against wages, social security or other forms of regular income) will be released. Notices of Federal Tax Lien, however, may be filed (if not already filed).
Currently Not Collectable
When the taxpayer’s financial statement(s) show that that they do not have the current ability to address their tax debt (i.e.- their allowable expenses equal or exceed their monthly income), the IRS will place the Taxpayer’s account in what is known as “Currently Not Collectible” status (CNC or Status 53). The Taxpayer must prove his/her/or its eligibility for this status, so the IRS’s financial information forms must be completed and submitted to the IRS.
Once placed in CNC status, there is an indefinite hold on the IRS’s collection efforts against the taxpayer (all continuing levies will be released, and no new levies will be issued). Occasionally, however, the taxpayer may be contacted to provide updated financial information to show they still do not have the ability to pay (particularly if a tax return is filed showing a significant increase in income). Generally, however, the taxpayer remains in this status until the statute of limitation on the IRS’s ability to collect a tax (generally, ten years from the date the tax is assessed) expires.
Some taxes can be discharged in bankruptcy, but there are complex rules regarding if and when a taxpayer can do so. Generally, income tax liabilities are dischargeable if the petition in bankruptcy is filed (1) more than 3 years from the date the tax return was due (including extensions); (2) two years after the tax return was actually filed; and (3) 240 days after the tax was assessed. Some other liabilities (for instance, a trust fund recovery penalty) and income tax liabilities associated resulting from fraud, however, are not dischargeable under any circumstances.
For many taxpayers, bankruptcy can be the cheapest and easiest way to resolve their tax liabilities. But for every general rule for discharging taxes, there are a number of exceptions. And in this area, miscalculating your bankruptcy filing by even one day can result in thousands still due, when it could have been zero. We know and understand the rules and exceptions, and, in cooperation with outside bankruptcy counsel, can help you determine whether bankruptcy is a viable option for you, when a Petition can be filed to obtain the optimal results, and work with the IRS to keep it at bay to get you to that date.