I am an early bird. I mean real early. I am typically up by 3:00 or 3:30 am every morning. Waking up that early has its advantages. For instance, I can get so much work done between the hours of 4 am and 8 am. There are no emails, no phone calls, and no one else bothering me. I will typically sit on my couch, crack open my laptop, and log into the server at the office. I typically turn on the T.V. and watch the previous night’s baseball games that I taped. I admit, I am a big Cubs and Dodgers fan. The other morning, both teams had the night off the day before, so there were no games to watch. Being used to having background noise, I turned on Bloomberg News. As I was working I saw a commercial. It was from a tax resolution company making the claim that if I owed more than $25,000 in tax debt that I could be eligible to settle with the IRS for less than I actually owed. A few years ago the IRS outlawed the term “pennies on the dollar,” but that was the basic point of the commercial. I thought that it would be best to write an article today regarding what settling with the IRS actually means.
Before we get started let’s talk a second about the business of Tax Resolution for a second. One of my companies Tax Crisis Center®, LLC is in the tax resolution business for one reason. Because there are so many crooks in the business. I wanted to give taxpayers an alternative to the other companies that are out there. Certainly there are some legit companies out there, but for the most part, the business is a nasty business. When you call a Tax Resolution Company, you are typically calling a boiler room type of call center where someone will answer your call and bait you. They will promise you the world, and if you bite, you will be passed onto a closer that will “close the deal.” Will they actually resolve your tax issues? Probably not. What most of them will do is charge you a fee of about $6,000 - $8.000 to file something called an Offer in Compromise, whether you qualify for the program or not. Based on certain circumstances, if you owe the IRS any amount of money, they may be willing to settle for less than what you owe them. Why you ask? Because if your situation is dire, they probably won’t be able to collect the full amount of the taxes due, so they will get what they can. That sounds amazing right? I mean, where do you sign me up for that program? Problem is that if your offer is not excepted (and only 16% of the offers that are filed are accepted) then you have caused yourself some damage.
When you call Tax Crisis Center®, you will only talk to a licensed professional. We aren’t sales people, we are IRS Enrolled Agents that are licensed by the United States Treasury to represent taxpayers before the Internal Revenue Service. We will ask you a bunch of questions and ask you to fill out a form giving us your assets, liabilities, income, and a lot of other sensitive information so that we can figure out if you do qualify for an offer.
Let’s say that you owe the IRS $25,000. You are unemployed, 45 years old, have three children, are married, your home is in foreclosure, and you don’t have any assets. You would be a perfect candidate for an Offer in Compromise. However, if you owe $25,000, are employed and make $45,000 a year, your spouse makes $45,000 a year, you have a 401(k) with $10,000 in it, and you own your home and two cars; the IRS is probably not going to agree to an Offer in Compromise because you have sufficient assets and income to pay the taxes in your lifetime. However, these tax resolution companies will tell you different so that they can collect a big fee from you.
Typically when our firm is doing Tax Resolution, by the time we meet our clients the IRS has placed a lien on their assets. When you owe the IRS money and you ignore them, eventually they will place a lien on you to protect the government’s interest. When a lien is placed against you, it is used as a platform for the IRS to begin collecting the tax debt. They will garnish your wages, levy your bank accounts, seize your assets, or anything else to get the money that you owe them.
There are ways to get the IRS to stop collection actions against you. One would be to simply ask to pay for your taxes over a period of time. This is called an installment arrangement. As long as you can make monthly payments on your tax debt that do not exceed 72 months, then the IRS automatically accepts these Installment Arrangements. In asking for an Installment Arrangement you agree to extend the Statute of Limitations on the time that the IRS can collect the debt by two years. From the time that a tax is assessed the IRS has 10 years to collect the taxes due. Asking to pay in installments will extend this time.
Another way to stop collections actions is to file an Offer in Compromise. Here is the danger with asking for an Offer in Compromise when you are not eligible:
When you fill out the form for an Offer in Compromise you have to give up a lot of personal information. For instance, you have to give the IRS your bank balance, you also have to tell them where you bank and give them the account number of all of your accounts. In addition, you will have to give them the account numbers for all of your retirement accounts, brokerage accounts, and any other account that you have. You will have to list all of your assets. If you have a car you will have to tell the IRS where it is registered with the vehicle identification number. You have to give account numbers for all of your liabilities and how much you owe. The IRS will do a skip trace on you to make sure that the information you gave them is correct, and if it is not they will make you give them the correct information. If you are not eligible for the offer, guess what you have done? You have just told the most notorious collection agency in the world where they can get their hands on all of your assets. When the offer is rejected, the IRS will step up their collections process. They will know EXACTLY where to find your assets. They will know who you work for and how much you make every pay period. You have basically given the IRS a map on how to collect the taxes that you owe from you. By the time this offer has been rejected, that Tax Resolution Company that you paid a lot of money to is long gone, with your money no less. If the offer is accepted, the IRS will place a tax lien on you for five years. In those five years you agree to file and pay your taxes on time. If you don’t do your part then the IRS will negate the offer and the original amount will be due. They will begin collections of that debt immediately.
When it comes to owing the IRS money, be careful of the professional that you hire to negotiate with the IRS on your behalf.
Craig Smalley is the managing partner of CWSEAPA®, LLP, which is an accounting and financial firm located in Delaware, Florida, and Nevada. Craig has been Admitted to Practice Before the Internal Revenue Service, is a Certified Estate Planner™, and is a Certified Tax Resolution Specialist™. Craig specializes in taxation and IRS representation all the way through the United States Tax Court. Form more information visit www.cwseapa.com, call 1-844-CWSEAPA, or email him at firstname.lastname@example.org
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