How your Tax Attorney Can Help with IRS Collections

Posted by spswriter on May 28, 2014

Tax Time Gives the ChoiceMore than a few Americans will eventually have trouble paying their taxes and wonder, “what happens now?” Taxpayers can be unfamiliar with their options and IRS collection process. It’s possible for you or your tax attorney to negotiate with the IRS. You may be able to postpone the deadline or set up a payment plan, but you, the taxpayer, need to be as proactive as possible. If you have not reached out to the IRS, the first thing they will do is send a written notice in the mail for the balance you owe and any penalties and interest. Any unpaid portion of your tax bill will be assessed interest compounded daily and a monthly penalty. The IRS recommends finding a method of financing your tax liability since loans and credit cards will typically have a lower interest rate than the IRS.

If a taxpayer cannot establish a new deadline or is unable to finance the tax liability, you or your tax attorney can submit an Offer in Compromise (OIC). This is an agreement between you and the IRS to settle your tax liability for less than the full amount. As good as this sounds, this is a potentially challenging course of action.  In order to be eligible for an OIC, you must have filed all your tax returns. In addition, the IRS won’t accept an OIC unless the amount offered by the taxpayer is equal to or greater than the Reasonable Collection Potential (RCP).  The RCP is a measurement used by the IRS to determine your ability to pay. It includes the value of your assets such as real estate, cars, bank accounts or other property, future income, and minus certain living expenses.

The IRS will accept an OIC based on three criteria. First, if there is doubt as to liability. In other words, if there are legitimate grounds for a dispute between you and the IRS as to the amount of tax you might owe. Second, if there is doubt as to collectability. The third is something the IRS calls “effective tax administration”.  The IRS might be willing to give you a break under this criterion if you can show exceptional circumstances.

If you or your tax attorney notify the IRS of a financial hardship, the IRS may suspend collection actions, however, the IRS will likely file a Notice of Federal Tax Lien while your account is suspended, and interest and penalties continue to accrue.

If you have not arranged to pay the tax the IRS could file a Federal Tax Lien, Serve a Notice of Levy, or offset a refund to which you are entitled.

Liens are public notices of failure to pay taxes and will impact your relationship with creditors, and your credit score. Once a lien is in place it generally will not be lifted until your account with the IRS has been resolved. A levy empowers the IRS to garnish wages, bank accounts, Social Security, and retirement income, or seize property including car, boat, real estate or other properties. But you have rights. To learn more about our services call: 913-735-4829