You Got My IRS Debt Reduced By HOW Much?

by Tom Buck

crowIt’s time to crow a little. As you know if you have read earlier postings, helping taxpayers resolve their IRS problems and also get their lives and financial futures back is what lights my fire. In the past three days we have brought the following issues to positive conclusions.

Last week we had contact from a taxpayer who just learned that the paycheck had been levied by the State. Just so you know, many of the states are starting aggressive collection actions even before the IRS has gotten around to it. I’ve seen this numerous times in my own practice.

And one more aside, if the IRS decides that you owe more taxes, they also notify your state(s). Most states have a law that you, the taxpayer, are responsible to file an amended state return and fess up about how much more you owe them. They could even penalize you if you fail to do so. This just gets better and better, doesn’t it?

At times our office has to get involved in a sort of triage. When someone comes in with a paycheck or bank account levy, the case gets booted to the front of the line. This one took me longer that I had expected (meaning I made less than I should have, but once I give a cost estimate, I stick to it) because the State had made a mistake, but it took several phone calls to even find that out.

In any event, after three days and many phones calls with several different people, this is what we had accomplished. We got the paycheck levy removed. We got the State to recognize that it had erred and agreed that we would dig into the matter at a later date (it is tax season, after all). Prior to the State issuing its paycheck levy, the taxpayer had been making monthly payments against another tax debt he had with the State.

So we also got the State to reduce that amount of the monthly payment by almost 60%. This case is still open and a number of other issues will need our attention. However, we did what HAD to be done first. We got the paycheck levy released and got the monthly payment reduced significantly.

This happy outcome will be complete when we get 100% of the tax problems resolved AND try to help the taxpayer understand how to do things right in the future.

The second case that finalized this week had been going on for about nine months. The taxpayer owed well over $100,000 in tax, penalties and interest. He decided he wanted to get his problem resolved and found us. To make the long story reasonably short, we prepared an Offer-In-Compromise (OIC) on his behalf.

After it was received by the IRS we had more than a half dozen requests for more information or clarifications. Responding to these kinds of IRS requests is all part of the service we perform once we get involved on a taxpayer’s behalf.

Just a few days ago we finalized the deal with the IRS. In return for the taxpayer making a payment of a little over $3500, the IRS would forgive the entire $100,000+ debt. This amounts to about three cents on a dollar. As you would expect, the taxpayer is elated to have the IRS off his back for about 3% of what was owed. Yes, it is possible to get this kind of result, but only IF your circumstances qualify. Call us if you’d like to check into your own situation.

The other thing to know about an OIC that has been accepted by the IRS is this: for the next five years you must file a timely tax return AND have enough withheld or otherwise paid in so that you don’t owe when you file. After you successfully complete this “probation” the debt is completely and forever forgiven.

My take on OIC’s is this: once the taxpayer has bared his financial soul to the IRS and has paid the agreed upon amount, and also does what is required by law in regard to taxes for another five years, there is a pretty good likelihood of him continuing to be in compliance.

In this instance, everyone wins, very uncommon when dealing with the government.  The taxpayer gets a huge break at the beginning (forgiveness of a major tax bill) and the peace of mind that comes from knowing that  he is now doing it right and has nothing to fear from the IRS in the future. The IRS wins because there is one less “tax-cheat” that they have to deal with, and, the tax money owed gets paid on time.

Remember: we defend our fellow citizens against their government by making sure the IRS obeys the rules.