If you’re looking at a significant IRS balance, you are not alone—and there are ways to resolve your situation. High balances can be scary, but there is a process to get under control. This article will review what is considered “high,” how negotiations play out, and what you can do now to position yourself for an effective resolution.
When Is Debt “High”?
The IRS (Internal Revenue Service – https://en.wikipedia.org/wiki/Internal_Revenue_Service) does not have a specific definition for high debt, but in practical terms, many taxpayers would characterize a balance as “high” around the point where penalties, interest, and collections begin to snowball. More specifically, the pressure from collection will be felt about the time a notice of federal tax lien will be sent to you, or you have received a call from a Revenue Officer.
Many taxpayers would characterize this as occurring at around $50,000 or more, although factors such as delinquent tax returns, previous levies, or payroll taxes may move the line lower. The bigger the number, the bigger the issue—this leads to scrutiny of the situation and why preparation of a sound strategy is invaluable.
IRS Negotiation Process
The IRS plan is very predictable. Knowing the steps leads to expectation and removes surprises. Before any solutions can be concluded, the IRS would expect that all compliance has occurred at this point—meaning all required returns have been filed, and taxes required for the current year has been paid or withdrawn from payroll.
- Notice and Initial Contact:You receive balance due correspondence in the mail. If you do not respond, the case will be assigned to Collections or a Revenue Officer.
- Compliance:You have filed any missing returns, and you have evidence that you are current on withholdings or estimated taxes. This is very important during any installment or offer in compromise.
- Financials:You fill out Form 433. The IRS considers income, necessary living expenses, and equity in assets. Click here to know more about this form.
- Proposal and Review:Options may be a standard installment agreement, a partial-payment installment agreement, currently not collectible, and possibly an offer in compromise.
- Agreement and Compliance:You need to remain current once approved. If you fall behind on current payments and are not complying with the agreement, you will default, and the IRS can immediately pursue enforcement once again.
Will IRS Settle for Less?
Sometimes—if you truly cannot pay the full amount. An offer in compromise will examine your “reasonable collection potential.” That is, the dollar amount the IRS thinks they can secure from your income and assets in time. If that dollar amount is less than the balance owed to the IRS for taxes, a settlement is an option. If you can satisfy your balance over time, but not all at once, a partial payment installment agreement will allow for a reduced amount to ultimately be paid, while waiting out the collection statute. The alternative is to also look for penalty abatement if you sometimes have reasonable cause or a first-time abatement under the circumstances.
While many people look for tax attorney Charlotte while weighing representation, the overarching principles for settlement are national in scope. The most important action remains to have your financials be accurate, and that you are fully in compliance and considering a feasible proposal that meets the IRS standard.
When to Call a Lawyer
You should consider contacting a tax attorney when you experience pressing collections (wage garnishments or bank levies), a Revenue Officer, have payroll tax exposure, or are dealing with complicated assets (home equity, businesses, or retirement accounts). The attorney will aid you in deciding if an installment agreement, offer in compromise, or some type of lien release will be best while being able to present an appeal to the IRS ultimately.
Tax attorney firms, such as Cumberland Law Group, understand how to present the individual’s financial scenario, argue allowable/necessary expenses, and will keep you protected while conducting negotiations.
Steps to Prepare
Preparation is a two-fold benefit: it enhances your negotiation position with the IRS and minimizes your time wasted. Set at least two goals: being compliant and staying organized. You will also want to set yourself up to demonstrate to the IRS that you can remain compliant moving into the future in addition to resolving the historical matter.
- File All Missing Returns:No plan will be approved until you are current.
- Document Your Finances:Pay stubs, lease/mortgage/housing payment, utility expenses and medical pay to show necessary expenses must be gathered.
- Define Cashflow:Adjust withholdings or estimated taxes – to limit adding additional debt. This is especially important in maintaining tax resolution services over a long-term process.
- Protect Essentials:Asset discussion and exemptions should also take place prior to selling or borrowing.
- Define Negotiation Path:Consider installment agreement, offer in compromise, or currently not collectible status – based on actual numbers.
- Respond to IRS Mail:Timeliness matters. Missing windows can also lead to liens being issued, and that limits your options, or trigger levies of a closed account.
You cannot direct all parts of IRS collections, but you can direct how you change preparedness, compliance, and proposal development. With professional support and your preparation, you will go from fear to a discrete plan.
