If you owe the IRS or your local or state taxing authority, Brandon Keim can assess your situation, and help you determine the best solution to resolving your tax liabilities. There is no cookie cutter approach to collection issues. Each client's financial situation, long-term financial goals, personal concerns, and liabilities must be considered before the best solution may be determined.
If you are temporarily unable to pay your tax liabilities, you have two payment extension options:
- Short-Term Payment Extension. The IRS may grant you up to 120 days to pay your liability. There is no fee for this request, and you can do it online through the IRS's website. The IRS will usually confirm the extension within 10 days of your request.
- Six-Month Payment Extension. If 120 days is not enough time to pay your liability, you may be able to request a longer extension. The IRS has authority to grant you up to a six month extension, and even longer if you are abroad.
Installment Agreements (IA)
If 120 days or 6 months is not enough time for you to pay your tax liabilities, you may be able to make monthly installments. Be aware, however, that you will be charged interest, and you may be charged a late payment penalty on any tax not paid by its due date. There are several types of installment agreements, and the eligibility requirements change frequently.
Guaranteed Agreements. The IRS is required to accept an installment agreement if:
- You owe $10,000 or less
- You have filed and paid all tax returns during the five years prior to the year of liability
- You can fully pay the liability within three years
- You file and pay all tax returns during the agreement
- You have not had an installment agreement within the last five years preceding the year of liability
- If you obtain a guaranteed agreement, the IRS generally will not file a lien.
Even if you don't meet these requirements, you still are likely to obtain an installment agreement with a little bit more work.
Streamlined Agreements. You can apply for a streamlined agreement without providing extensive financial information to the IRS if your liability (including tax, penalties, and interest) is $50,000 or less and you can fully pay the liability within 72 months. If your liability exceeds $50,000, you can pay down the liability to become eligible. The IRS generally does not file a lien to secure the agreement.
Standard Agreements. If you do not qualify for guaranteed or streamlined agreements, all hope is not lost, but it will require more work to get you into an installment agreement. You will need to provide extensive financial disclosures, and the IRS will conduct a financial analysis to determine the amount and duration of any payment plan. Your disclosures will be under penalties of perjury, and a tax attorney can help ensure that you disclose only the information required by the law, in a manner that is truthful and most favorably presents your financial picture.
As of January 1, 2017, there is a $225 fee for entering into an installment agreement unless you qualify for a reduced fee. The fee is reduced to $149 if you enter into an online payment agreement, and it is reduced to $107 if paid by direct debit from your bank account. The reduced fee for an installment agreement is $43 if you meet low-income guidelines. Regardless of income, the fee is only $31 if you enter into an online payment agreement and pay via direct debit from your bank account. The fee for restructuring or reinstating an installment agreement is $89, and it is reduced to $43 for low income taxpayers.
Offers in Compromise (OIC)
The offer in compromise is the most commonly known collection alternative, but it also is the most commonly misunderstood collection alternative. Yes, the IRS will agree to accept far less than your potential tax liability, but the reality is that in most instances a mathematical equation will determine the amount that the IRS is willing to accept. Offers require extensive financial disclosures, and the IRS will conduct a financial analysis to determine whether the offer is acceptable. Your disclosures will be under penalties of perjury, and a tax attorney can help ensure that you disclose only the information required by the law, in a manner that is truthful and most favorably presents your financial picture. The presentation of an offer is key to its acceptance.
There are three grounds on which the IRS can accept your offer:
- Doubt as to liability for the amount owed. This is used when the liabilities, despite being assessed, are not correct.
- Doubt as to ability to make full payment of the amount owed. This is the most common ground for an offer, and we use it when the taxpayer, after conducting a financial analysis, does not have the ability to pay the full amount owed within the collection statute.
- Promoting effective tax administration in exceptional circumstances or to avoid economic hardship. This ground is used when the other two grounds do not apply, but the taxpayer has special circumstances to warrant an offer.
There are different methods of calculating an offer amount. All offers account for (1) the taxpayer's equity in assets, and (2) the taxpayer's future income streams. Offers require not only an analysis to determine the appropriate offer amount, but also an analysis to determine whether the liabilities may be full paid when consider the taxpayer's assets, future income streams, and the remaining collection statute.
The IRS charges a $186 nonrefundable filing fee, and unless low-income guidelines are met, the taxpayer must pay 20% of the offer amount as a nonrefundable payment OR agree to pay the offer amount within 24 months. If the taxpayer prefers to make payments over 24 months, the offer amount will be higher than if the taxpayer can pay 20% of the offer amount upfront.
Currently Not Collectible Status (CNC)
If you can show that you do not have the means to pay any amount toward your liability, the IRS may temporarily delay collection and place you in Currently Not Collectible (CNC) status. The IRS will review your financial status in approximately one year and determine whether a hardship continues to exist. Although the collection statute continues to run when your account is placed in CNC status, penalties and interest continue to accrue.
Depending on your long-term financial goals, and personal concerns, you may consider bankruptcy. Bankruptcy will generally place a stay on IRS collection activities (unless the IRS seeks to lift the stay). The IRS can file a claim, as a creditor, for the unpaid taxes with the bankruptcy court. The court will determine whether and when the taxes will be paid. If the taxes cannot be paid as part of the bankruptcy, they may be discharged. Not all taxes may be discharged. You generally must meet all of the following requirements for Chapter 7 bankruptcy:
- Unpaid liabilities are income taxes. If the taxes are payroll taxes or fraud penalties, they cannot be discharged in bankruptcy.
- No fraud or willful evasion. If you filed a fraudulent tax return or attempted to evade paying taxes, the liabilities will not be discharged.
- Three year rule. The tax return with which the liabilities relate must have been due at least three years before you filed for bankruptcy.
- You filed a return. You must have filed a return at least two years before filing for bankruptcy. The rules differ slightly here depending on the court. In some courts, if you filed a late return, you have not filed a "return" and cannot discharge the tax. In other courts, the tax can be discharged as long as you meet the other criteria.
- 240-day rule. The income tax liabilities must have been assessed by the IRS 240 days before you file your bankruptcy petition, or they must not have been assessed yet. The 240 days may be extended if the IRS suspends collection activity because of an offer in compromise or a previous bankruptcy filing.
Liens, Levies, and Seizures
If you do not pay your tax liabilities, and you do not enter into a collection alternative, expect the IRS to use its many powers to enforce collection. Before the IRS can begin collection activities, it must (1) make an assessment, (2) give "notice and demand," and (3) wait 10 days. Once it begins collection activities, the IRS may file a Notice of Federal Tax Lien, serve a Final Notice of Intent to Levy, and/or the seizure and sale of your property.
The IRS will generally send a series of notices requesting that you voluntary pay the liabilities before it begins enforcement actions. If you still do not contact the IRS, it will send you a notice of intent to levy by certified mail. The letter will allow you with 30 days to request an Appeals hearing, called a Collection Due Process hearing, to consider collection alternatives. Do not ignore this letter! You are only provided one opportunity to appeal per tax period per levy or lien. If you ignore this letter, you may be precluded from having an appeals hearing that is subject to judicial review.
A tax lien arises after the IRS has given notice and demand, and it relates back to the date of assessment. The IRS will file a Notice of Federal Tax Lien to put other creditors on notice and establish its priority, but the lien arises after notice and demand, not when the notice of the lien is filed! A tax lien attaches to all of a taxpayer's property and interest in property. Your credit may be affected by the filing of a Notice of Federal Tax Lien, and if you wish to sell property, you may need to seek a lien release before doing so.
The IRS may seize your property. If may levy property held in the hands of third parties, like your bank accounts and paychecks, or property in your possession, like automobiles and houses. The IRS cannot levy on a certain amount of your personal belongings, clothing, furniture, business tools, unemployment, worker's compensation, and small portion of wages. The IRS must obtain court approval to seize your personal residence.
After the IRS seizes property, it can sell the property to satisfy the tax bill. The IRS will give you notice before the sale, and you may redeem the property before the sale, or make other arrangements to pay the tax bill. If you redeem the property, but still have an outstanding liability, be aware that the IRS may seize the exact same property again!