The Federal budget deficit is big and getting bigger. As you may be aware, our political leadership in both parties is not fond of cutting spending despite what they may say to voters from time to time. Since raising taxes is not popular, a decision has been made to get tough on the taxes that are owed to Uncle Sam. The IRS is now getting very tough on collecting tax debts. Enforcement Action is up and Offer-in-Compromise settlements are way down over the last few years.
If you or a client of yours owes delinquent Federal taxes, be prepared for a financial proctology if you want to set up a payment plan or settle with IRS for less than what is owed. An IRS Form 433A or 433F may be required for individuals and a 433B for business taxpayers. Many expenses claimed are subject to limits known as the “IRS National Standards.” Get the current IRS standards from their website.
If more than $25K is due, the following documented proof may be required by IRS to set up a payment plan:
1. Three months of all bank account statements the taxpayer has in their name;
2. 401k Statements;
3. Three months of pay stubs or proof of year-to-date earnings and deductions;
4. Proof of monthly bills (rent, mortgage, utilities, childcare, etc.);
5. Paid medical bills and prescription drugs; and
6. Car note, car valuation, mortgage balance, insurance costs.
If you own property, IRS may require that you apply for a loan before they will grant you an Installment Agreement or Temporary Hardship. A loan denial letter might be required to be submitted to the Revenue Officer (RO) or to the Automated Collection System (ACS) representative working the case.
The best thing that you can do if you want to avoid being put through the ringer on providing financial data is to pay your balance in full or get it below $25,000 before it gets to an IRS collector. If you can get it below $25K, chances are you can get a “streamlined” installment agreement and only have to meet requirements to pay off the debt in less than 60 months.
Don’t ignore any letters you get from IRS! Wishing the IRS will go away won’t make it so. The good news is that IRS is still allowing folks a 120 day grace period to full pay. You must ask for it and all delinquent tax returns must be filed. In addition, no enforcement action can be in place at the time you make the request.
Ignoring the IRS or missing an IRS deadline will likely result in enforcement action. If the IRS garnishes your wages, the levy will likely not be released until a full financial statement is given, all delinquent returns are filed, and a resolution is agreed to by the RO or ACS. If your bank account is seized: barring an extreme hardship that can be proven…kiss the money good bye.
If you owe a large tax debt, get professional help. Hire a Certified Public Accountant (CPA), Enrolled Agent (EA), or a Tax Attorney who is familiar with collection cases. Don’t hire some company that promises you that they can “wipe out” all your taxes, penalty, and interest just by signing their Power-of-Attorney. Make sure whomever you hire takes a complete financial statement from you. Without it, promises of what kind of IRS deal they can get you are probably bogus.
The IRS has a program to settle tax debts for less than what is owed, but only for those people who qualify. It is called the Offer-in-Compromise. Very few will ever qualify for an OIC. IRS is currently rejecting over 80% of the OICs it is getting.
Even getting a payment plan is difficult if you have a large tax debt.
If you are dealing with a serious IRS problem, stay focused and don’t get depressed. If you let a tax problem overwhelm you, then you are doing a disservice to yourself and your family. After all, it is only money. Before you call IRS: get your documentation together; prepare an IRS Form 433A, 433B or 433F and double check your figures. When dealing with IRS employees, stay calm and polite no matter how cold they might be to you. They have a tough job to do and have to follow the procedures they are given by IRS management. They are not bad people and neither are you. Good luck!
You can find help at the following websites:
http://www.irs.gov (Internal Revenue service)
www.naea.org (National Association of Enrolled Agents)
www.ascpa.com (American Society of CPAs)
www.nsacct.org (National Society of Accountants)