Tax Relief Alternatives

There are five alternatives for resolving your tax liability:

Payment Agreement – Installment agreements and/or Payment plans

Settlement – Offer in Compromise

Discharge – File Bankruptcy

Expiration – Let the Statute of Limitations expire

Abatement – Adjust the amount owed

There are numerous methods for arranging payment of delinquent tax liability, ranging from payment in full to structuring a long-term payment plan. If you have the ability and financial means to make immediate payment for a tax liability, the primary benefit is that you will avoid any future accretion of interest and fees, which will increase the future amount necessary to pay. Payment will also avoid any future enforcement actions by the IRS, including levy, lien, or other collection harassment.

If you are unable to come up with a lump-sum payment for resolution of your tax debt, the IRS allows “structuring” five primary types of payment plans, or Installment Agreements: Guaranteed Installment Agreements, Streamlined Installment Agreements, In-Business Trust Fund Agreements, Long-Term Installment Agreements, and Installment Agreements on Specified Balance Due Accounts. We will work within your budget to create a payment plan which pays off your taxes in the shortest amount of time that your financial situation can accommodate.

If you would like to discuss any of your Installment Agreement options, please give one of our Tax Specialists a call at: 1-800-455-6829.

An “Offer in Compromise” is an agreement between a taxpayer and the IRS to settle a tax liability for payment of less than the full amount owed. While this amount has varied over time, the last published report by the IRS displayed evidence that the average settlement was for only 12 cents on the dollar (e.g. taxpayers saved 88% of what they owed for accepted OICs). The Offer in Compromise program is available to “provide delinquent taxpayers with a fresh start toward future compliance with the tax laws.”

While, the OIC is still a relatively new IRS instrument created 1992 by Section 7122 of the Tax Code, our team’s Tax Attorneys have extensive expertise with planning, preparing, and negotiating Offers in Compromise (“OIC”). The two primary grounds under which an OIC can be successfully negotiated with the IRS are: “doubt as to collectibility” (e.g. the taxpayer is unable to pay the full burden), or “doubt as to liability” (e.g. the taxpayer contends that they owe the debt). There is a more recent third ground for acceptance, “effective tax administration” (e.g. the IRS wants to get as much as they can, and they may potentially think that 12 cents on the dollar is as good as they can do on a taxpayer). For an Offer in Compromise to be accepted, however, the taxpayer has the burden of proof that they either have no possible means of paying the tax or that they do not actually owe the tax.

The primary determinant on “doubt as to collectibility” is based on a taxpayer’s personal financial profile; including income, expenses, and assets. The IRS sets strict guidelines for income, allowable expenses (categorized as: Living, Housing, Transport), and available equity in owned assets. An additional benefit of submitting an OIC is that IRS Restructuring Act prohibits the IRS from collecting a tax liability by levy during the period in which the Offer is being processed, or 30 days following rejection of an offer, or during the appeal of an OIC. This window of non-collection is frequently a respite for our clients to avoid any IRS collection actions, thereby securing additional time for clients to pay and prevents the IRS from seizing any assets in the interim.

Call us if you have any questions about the IRS guidelines or the process for preparing, submitting, and negotiating an Offer in Compromise at 1-800-455-6829.

Discharging Old Taxes in Bankruptcy

Generally, bankruptcy is a last resort process that affords relief to taxpayers who are unable to alleviate their liability through any other method. Many types of income taxes, subject to severe constraints, are dischargeable in bankruptcy. There are two basic types of bankruptcy available to: Chapter 7 and Chapter 13. Chapter 7 Bankruptcy is a liquidation, or straight bankruptcy, that allows taxpayers to wipe out their obligations (if they are not non-dischargeable). The majority of Chapter 7 Bankruptcy cases are “no-asset” cases because the debtors are able to protect their assets. However, if there exist non-exempt assets, a Chapter 7 Bankruptcy will result in non-exempt assets being liquidated for the benefit of the IRS or other creditors.

Chapter 13 Bankruptcy is a reorganization whereby taxpayers can restructure their debts and protect their assets. Often, debtors use Chapter 13 Bankruptcy to save their homes from foreclosure and their cars from repossession. Chapter 13 repayment plans are typically 3 to 5 years. Often a Chapter 13 Bankruptcy will stop interest and penalties from accruing throughout the repayment period.

In order for a tax liability to qualify for discharge under Chapter 7 of the Bankruptcy code, all of the following criteria must be met:

1. Tax is for a year for which a tax return is due more than 3 years prior to the bankruptcy filing;

2. Tax returns were filed more than two years prior to the bankruptcy filing;

3. The tax liability was assessed more than 240 days prior to filing of the bankruptcy petition;

4. The liability is not due on Trust Fund Tax;

5. The taxpayer did not attempt to evade or defeat the tax, nor was the tax liability due to a fraudulent tax return;

6. The tax was not assessable at the time of the filing of the bankruptcy petition; and

7. The tax was unsecured.

The tax experts at Freedom Tax Relief would be happy to discuss your options, including the possibility of bankruptcy for your situation: 1-800-455-6829.

Expiration

The IRS has 10 years to collect a delinquent tax liability. The statutory period initiates the date the tax is assessed and the statutory required notice letter is sent. If this collection statute date expires, there is a chance that you are free and clear of your IRS tax obligations.

Statute of Limitations on IRS debt can, however, be extended or amended in several instances; including a pending Offer in Compromise, Tax Court proceedings, a taxpayer’s waiver, or numerous other instances.

If you believe that your tax liability is approaching, or over, the 10 year Statute of Limitations period, call one of our tax specialists to discuss your options and if you have possibility of allowing your tax liability to expire.

Abatement

Abatement, or adjustment, of a tax liability means to reduce or change a tax, penalty, or interest. Most frequently, abatement refers to eliminating an assessed tax liability and adjustment references reducing or altering an assessed tax liability.

There are many basis for abating taxes and assessed tax penalties, including “Innocent Spouse” determination. Typically, adjustment/abatement is a means for reducing or deferring a liability which is used in conjunction with another tax relief method to resolve the taxes owed. There are three types of Innocent Spouse relief: traditional Innocent Spouse relief, separation of liability, and equitable relief. Traditional Innocent Spouse relief is granted to join-filers (typically married couples) when one spouse was unaware of the erroneous item which created a tax liability; Separation of liability is primarily for join-filers who are currently separated, and equitable relief is for a spouse who should not be held liable and who fails to meet the two preceding determinations.

In all of the Innocent Spouse adjustments, the IRS’ goal is to provide relief to the spouse who was unaware or not at fault for the creation of a tax liability, hence the IRS rules that it would be inequitable to hold the innocent souse liable for any tax deficiencies. If you think you are have the potential to request Innocent Spouse relief, call our tax specialists for a free consultation at: 1-800-455-6829.