Tag Archives: IRS Debt Help

Solve Your Tax Trouble on National Get Out of The Doghouse Day

Time to get out of the dog house!

If you have “tax problems” then there is no better day to start dealing with them than National Get Out of The Doghouse Day! No, this is not some dreamed up holiday to sell greeting cards and it is actually real. Don’t believe us? Then check out this post over at the National Day calendar and you’ll see that it’s on the third Monday of July. So if you’re not sure how to get out of the dog house with the IRS or the state tax authorities, then here are 5 things you can do:

Open your mail.

When clients come to us to tackle their back taxes, many will often have several if not a dozen (or two) unopened letters. These may be from the Internal Revenue Service (IRS) of their state department of revenue. While many feel that not opening the letters keeps the problem at bay, it can actually make things worse. Did you know that many times when the IRS is attempting to assess a tax to someone, that they have to give them a chance to disagree? But there often comes a time where they give you a window, say 90 days, before what they propose becomes reality. If you fail to respond, you can get stuck with something that isn’t actually reality.

So the single best thing you can do to solve your tax problem is open your mail AND read it. What the letter says is actually not as bad as you think. Plus, there is no way that opening your mail is going to make the situation worse!

Address any unfiled tax returns.

One of the biggest tax cases that we worked on involved a taxpayer who had not filed since 1999. It was 2014 when we were getting involved with their matter. That’s 15 years of unfiled taxes! But don’t worry, according to the IRS Data Book SOI Tax Stats, there were over 13.1 million taxpayers with unfiled returns. So if you have unfiled returns, then know that you are not alone.

People fall behind on filing their tax returns for many reasons. Health issues, death of a loved one, fear, procrastination all have a place in keeping people from filing. But the one thing we see come up routinely is “I did’t file because I know I owe and I can’t pay it.” While this may be a true statement, it shouldn’t stop one from filing. Filing on time is best, but filing late is better than not filing. Similarly, not paying your taxes isn’t good, but paying late is better than not paying at all. There are penalties for not filling and not paying, but they are only calculated ONCE YOU FILE. And if you can’t pay what you owe? We’ll the IRS is always willing to set up a payment plan (installment agreement) with you to settle up.

If you have unfiled returns, you might want to talk to a tax advisor (see last point) prior to filing. While it may seem “correct” to file all of the unfiled tax returns, it may not be needed. While the IRS can “technically” ask for the last 10 years of unfiled returns, it often doesn’t. Furthermore, if you are owed a refund on any of those unfiled returns, the IRS will only issue it for the last 3 years. Anything older than that will be refortified due to the statute of limitations. As such, a tax advisor can help you determine what returns need to be filed to help you get back into the good graces of the IRS or the state.

Identify the root cause of your problem and face it head on.

We’ve all heard that insanity is doing the same thing over and over expecting to get a different result. Well, if you keep finding yourself in tax trouble, maybe you should figure out what is not working and change it. For example:

  • Have more taxes withheld from your check by decreasing your withholdings on your W4
  • Don’t claim “exempt” on your W4 unless you ARE actually exempt from paying income taxes (hint – most people aren’t exempt)
  • Start paying estimated taxes if you are self employed or your income is reported to you on a Form 1099-MISC or Form 1099-K
  • Withhold from your retirement income or social security if you are retired and constantly find yourself owing the government
  • Make sure that you are claiming all the deductions and credits you are entitled to
  • Review your filing status and make sure that you are using the one that is most advantageous to your situation (e.g. Head of Household if you are a single parent)

Reach out to the tax authorities.

Putting your head in the sand is not going to solve the issue. If you contact the IRS, they can tell you the current status of your account as well as what they want you to do to solve your tax matter. For example, they can tell you want years they want you to file and even give you copies of the tax records you need to file them if you’ve lost your records (it’s called a Wage & Income Transcript).

To reach out to the IRS, start with the last notice that you’ve received. It will have an address on the top left hand corner and a contact name and/or phone number in the top right hand corner. This will be the best contact to use because the folks at that number will understand what’s going on with your account as of now.

But if you’ve lost the notice or you have other issues, you can call the IRS at 1-800-829-1040, Monday – Friday, 7:00 a.m. – 7:00 p.m. your local time. If you’re calling about a business tax account, call 1-800-829-4933, Monday – Friday, 7:00 a.m. – 7:00 p.m. your local time. If you have a hearing impairment, call 1-800-829-4059 (TDD), Monday – Friday, 7:00 a.m. – 7:00 p.m. your local time.

Find a qualified tax advisor if needed.

Many people (approximately 40%) use software to prepare their tax returns. But if you get into tax trouble, a qualified tax advisor can be well worth their weight in gold. We don’t recommend that you shop for one based on price, but we do recommend that you find a person/firm that is open AFTER April 15th. Remember, the IRS doesn’t typically contact you during tax season and the notices associated with their matching program typically are sent between March and October following the year the return was due (e.g. 2019 for TY 2017 returns that were due in calendar year 2018).

To that end, you want to find someone who:

  • understands tax (i.e. filing returns), tax debt issues and has experience resolving YOUR particular situation
  • has the credentials to represent you before the IRS so you don’t have to ever speak to them (e.g. EA, CPA, JD)
  • has a good personality fit with you as the two of you will have to work closely with one another

Need tax help?

We routinely help taxpayers get current and compliant and enter into resolution options with the IRS or state. Do you need help? Feel free to check out this page of our site then shoot us an email or give us a call. The sooner you do, the sooner you can but your tax nightmares behind you and get out of the doghouse!

The Truth About Settling Taxes for “Pennies On The Dollar”

Every year we here from taxpayers who have IRS debt and are looking for a solution.  Inevitably, they will also make a reference to the possibility of settling their debt for less than what they owe.  What usually follows is a conversation about what this actually means and how most people DON’T qualify for it.  Let us elaborate.

In advertising, you’ll hear companies talk about settling back taxes for 20%, 10%, or even less than the original balance.  What these ads, and the sales people whom you talk to on the phone, are trying to sell you is an Offer in Compromise service package.  This package is a reference to the IRS Offer in Compromise (OIC) program, which allows eligible tax debtors to pay the IRS an amount of money that is less than what they owe in order to wipe out their entire tax liability.

The phrase “pennies on the dollar” was actually determined several years ago by the IRS to be a form of deceptive advertising.  As a result, they explicitly instruct licensed practitioners that using this phrase is a violation of Circular 230, which is the handbook us practitioners must follow when working with the IRS.  However, since the IRS doesn’t always have jurisdiction over firms that just market these services, it comes into the FTC’s purview to look out for these deceptive marketing practices.

Some ads, web sites, and salesmen are out there trying to convince taxpayers that what you settle for is some fixed percentage of your tax debt.  However, this is blatantly incorrect. There is absolutely no provision in the tax code for allowing a taxpayer to pay a set percentage of their tax liability and just calling it good.  This has never existed, and most likely never will.

Instead, the amount of your OIC settlement is calculated using a very, very strict formula.  What’s even better is that this formula is NOT secret — it’s available on a worksheet in IRS publication 656B.

Based on this formula, if you have equity in assets that exceed your tax debt, you simply don’t qualify.  Period.  End of story.  For most individuals, the common thing is going to be equity in your house or rental properties, or perhaps equity in a collection of classic cars, stamps, coins, guns, art, etc.  If the value of ANY of that stuff is greater than your tax debt, you do not qualify for the OIC and cannot settle for “pennies on the dollar” – there is no way around this.

In the same vein, if you are a high income earner, it’s also highly unlikely you will qualify for the OIC.  The reason for this is that the IRS only allows certain amounts of money every month as “eligible expenses” for housing, cars, food, etc.  If your lifestyle exceeds these amounts, the IRS doesn’t care — they will only allow you to claim the National Standard expenses. Any monthly income over those amounts gets multiplied by either 48 or 60, and THAT number goes into your offer amount.

In these circumstances, you may qualify for a period of up to 12 months to make a “lifestyle adjustment” and reduce your living expenses to come into line with IRS standards. This will often involve selling luxury homes and getting rid of toys such as cars and boats.  Keep in mind that these items are all covered by your tax lien, so any proceeds from the sale of these items technically is owned by the IRS, and should be paid over to them. A good tax representative can assist you with structuring these sales so that both you and the IRS get something out of it.

In closing, beware of anybody promising that your tax debt can be settled for some fixed percentage.  That’s not the way it works and a skilled professional can show you if you stand a chance at qualifying for the OIC.  Anybody trying to sell you on the percentage idea might as well be selling you swampland in Florida, and you’ll be best served to seek assistance elsewhere.