Archive for the ‘Tax Forum’ Category

Dealing with the IRS. What works? Part 1.

Saturday, October 27th, 2007

There are eight ways to handle the IRS when you have an outstanding tax debt.  The first, pay the tax, is probably not of great interest to those reading this blog.  If you could pay the tax you wouldn’t be researching ways to avoid part or all of the debt.  This entry will focus on the first two. 

  1. Bankruptcy
  2. Offers in compromise
  3. Not currently collectible
  4. Partial payment installment agreements,
  5. Installment agreements
  6. Statute of limitations expiration
  7. Litigation

Bankruptcy will stop collection actions by the IRS and all other creditors.  The typical client will declare either a chapter 7 or chapter 13 bankruptcy.  A chapter 7 is called a liquidation,” ( i.e., the sale of a debtor’s nonexempt property and the distribution of the proceeds to creditors.)   A Chapter 13 allows a debtor to keep property and pay debts over time, usually three to five years.   Bankruptcy will typically allow the stripping of penalties from the tax owed. 

There are certain types of taxes that are not dischargeable in bankruptcy.  Trust Fund Recovery Penalties, fraud penalties and tax from non-filed returns are all non dischargeable in bankruptcy. 

The Offer in Compromise program is an excellent choice for clients that do not qualify for discharge of taxes bankruptcy or who want to avoid filing a bankruptcy.  The program involves filing a form 433a or 433b and a form 656 along with supporting documentation for the previous three months.  The entire OIC process can take 6 to 9 months or longer, but the IRS will not attempt to collect while the Offer is under review.

An Offer in Compromise can be very effective if it is properly prepared.  There are many nuances with the OIC program that are best handled by attorneys that specialize in representing clients with tax problems.  Typically tax attorneys charge about the same as the nationwide companies offering “OIC services”, but only the attorneys can offer clients the full range of legal services that many clients require.  There are competent enrolled agents that can provide adequate representation for simple tax problems at a reasonable cost. 

For more complex tax issues you should hire a local C.P.A or attorney.  Local tax professionals will be much more concerned about their reputation and will provide much better service to clients.  National tax resolution firms do not have similar concerns and are primarily interested in maximizing the volume of clients.  Frequently clients of large national tax resolution firms do not have Certified Public Accountants or attorneys handling their tax issues.  

You should also be wary of individuals who claim they can prepare old years tax returns without requesting all of your relevant information.  Remember, licensed C.P.A.’s and Attorneys have strict codes of ethics they must follow and have significant education, training and continuing education requirements.  You can easily check the complaint history of C.P.A.’s and attorneys in your area by contacting your state’s professional licensing bodies.  It would be very difficult to do the same for national tax resolution firms.

The IRS issued a consumer alert for consumers to beware of promoters’ claims to settle debts for “pennies on the dollar” through the OIC program.  The warning addresses companies charging high fees to consumers who may not be eligible for the program.  For more information on the scams perpetrated by the OIC mills, see The Ripoff Report.

In the next entry I will discuss the next strategies. 

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Saturday, October 27th, 2007

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Welcome to the Reitz Law Tax Forum

Saturday, October 27th, 2007

Welcome to the Reitz Tax Forum.  This section will focus on tax issues including offer in compromise, tax return and compliance issues, lien and levy issues, audit representation, tax planning, installment agreements, tax litigation, and related matters.

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