One of my major areas of practice deals with tax law and controversies as well as how to tailor solutions for my clients facing these dilemmas. Typically, if you are looking to speak to an attorney about tax issues you likely fall into one of these two categories.
1. You have unexpected income or assets and need to know the tax ramifications.
You are likely very optimistic because you’ve come into some sort of major income or assets and need guidance on how to navigate the complex system of tax laws and, tax planning strategies.
2. You have outstanding tax debt and have received a notice from the IRS.
This type of tax issue is more common. You have received some sort of notice from the IRS that you owe an outstanding amount of back tax debt. The notice usually comes in the form of a letter to you detailing the debt that you owe.
AVOID TAX SCAMS
If you have gotten suspect phone calls from an individual identifying themselves as an IRS agent and asking for immediate payment, it’s a scam.
How to Identify a Tax Scam
- IRS agents typically only call if you are being audited. They will identify themselves as a Revenue Agent with their badge number.
- The IRS does not ask for payments over the phone.
- If you owe back taxes you will be notified through the mail.
If you have received suspicious phone calls from “IRS agents” please remember not to give out any personal information.
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OPTIONS FOR DEALING WITH TAX DEBT
If you are dealing with legitimate tax debt, we know it can be extremely stressful and in some cases you may be worried about losing your property or having your wages garnished. There are a number of options that may be available to you depending on your situation. Remember that everyone’s story is different and the facts vary from case to case. There isn’t a blanket answer for each type of situation and instead a solution needs to be tailored to your circumstances. But, let’s talk about a few of those potential options if you’re saddled with a large amount of tax debt.
1. Pay the debt
The first option, and easiest, is simply to pay the debt. The IRS notice will provide you with an address where you can send a certified check or money order. However, this option may not feasible to most depending on your financial situation.
2. Installment Plan
The installment payment plan allows you to pay off your tax debt with monthly payments to the IRS until the debt is paid in full. There are a few restrictions, however. You must be current on all your tax filings and you must meet the payment dates. Additionally, the IRS will apply any future tax refunds to your outstanding debt. This seems unfortunate but if you are to receive any future tax refunds, it will help to pay down the debt at a faster pace.
3. Offer in Compromise
The Offer in Compromise program was established by Congress and allows qualifying taxpayers to settle their outstanding IRS debt for less than what is owed. There are a number of qualifying factors: your income, assets, and expenses. How much you end up offering the IRS to satisfy your outstanding debts is a function of those factors. There’s a lot of time and energy that goes into an Offer in Compromise so you want to be sure your attorney is well versed in preparing the necessary forms with sufficient back-up documentation.
The IRS allows individuals to pay their total offer amount, if accepted, in one of two ways:
- Lump-sum payments over a five-month period of time
- Installment like payments over a 6 to 24-month period of time. The 6-to-24-month period of time tends to be a little costlier in the long run, but reduces your monthly payments.
If you qualify for the Offer in Compromise program and your qualified offer is accepted, this is a great way to eliminate your outstanding tax debt.
The last potential solution, and a worse-case scenario, is to look towards bankruptcy. Bankruptcy offers some great options with regard to tax debt, contrary to popular belief. Certain tax debts can be wiped away in either a Chapter 7 or Chapter 13 bankruptcy and for those that can’t, a Chapter 13 allows you a 3 to 5-year period of time to pay off those debts with some flexibility. The upside of a bankruptcy is that your creditors cannot come after you while you are in it.
As you can see, there are a number of options to settle your outstanding tax debt. I’d highly recommend speaking with an attorney if you’re dealing with the IRS and preferably, one with experience to understand your options. Our office offers free initial consultations and we’d be happy to assist with all your IRS problems.