Assessing Your Tax Situation
The first step in a successful tax settlement is to properly
assess your situation. If you have received several notices
from the IRS, pull them out and review them. Is the IRS clear
on what they are trying to collect for? Next get a copy of
the tax return involved. Check it to get a handle on if you
really owe the tax. Sometimes taxpayers make mistakes on their
tax returns and really owe the money.
as frequently, many times the mistake is made by the IRS and
not the taxpayer. I remember an interesting study done by
the Government Accounting Office several years ago. The government’s
own accountants studied a sample of IRS notices and found
an alarming percentage either contained errors; or attempted
to collect penalties and interest that were not owed. Of course
if you are working with an inexperienced tax advisor (who
is more scarred of the IRS than you are) the advice you are
likely to get is to just pay the tax.
if you don’t owe the tax? Or even worse, what if you
don’t have the money?
the first step in any tax settlement is to assess what is
really owed and if there is a legitimate basis to argue the
tax is assessed in error.
an IRS Strategy
Once you have reviewed
the IRS’s notices and your tax records one of two situations
will exist. Either you agree you owe the money or you disagree
with what the IRS is claiming. If you disagree with the IRS,
your strategy should be to challenge the tax they are attempting
to collect. How this is best done, depends on the amount owed
and how old the tax debt is.
If the IRS claims
you owe a couple of hundred dollars, generally this type of
situation can be resolved by correspondence. If you have good
records you can provide the IRS to prove you don’t owe
them money. Always send photocopies and keep your originals
safe in your files.
On the other hand,
if the IRS claims you owe thousands of dollars; your strategy
will probably need to be different. In this type of situation
it can take some face to face time with an IRS Collections
Officer to clean up the mess. For example, you may need to
file some past due tax returns that the IRS has “estimated
tax” on. Or you may need to provide documentation for
why you do not owe the tax.
Even if you agree
you owe the tax the IRS is attempting to collect, you may
have a reasonable cause to reduce the penalties and interest,
or to negotiate a discounted lump sum payoff. This can be
done either with an installment agreement (in the case of
paying over time and sometimes reducing penalties and interest)
or with a process called “Offer in Compromise”
in the case of a discounted lump sum payoff.
If you owe several
thousand dollars, your strategy should really be designed
by a tax professional. Assuming you are not related to an
IRS tax accountant, you can call our office at 713-661-1040
to hire us to assess your situation and to develop a custom
strategy for you.
the IRS Tax Settlement Deal
The final step
in the process is to make the deal. The method of doing can
vary depending on how much is owed (or the IRS claims is owed).
For very small
tax debts, as I have already noted, you can usually resolve
the deal typically by correspondence.
For mid sized tax
debts where you make full payment via monthly installments
over 12 to 24 months, we can normally make this deal with
the IRS by telephone conference.
For large tax debts,
anywhere from $10,000 to several million dollars, we will
often need to have a live conference or series on conferences
with an IRS collection officer or appeals group. If you need
this service, our CPA firm can help and we can do this for
clients who live in all 50 States.