Owe money to the IRS or State? Navigating Tax Debt Notices

With new funding and new hires, the IRS Collection Division has been in full swing this year. After receiving your first collection notice, the IRS has certain deadlines it has to follow with respect to these notices. Worse, if you received notices before the pandemic, those notices still apply 4 years later allowing the IRS to just move on to the next collection notice. Additionally from experience, many clients come to us with unopened mail from the IRS because they did not just want to deal with reading it.
What do you do if you can’t pay?
When faced with back taxes that exceed your current financial ability, it is important to seek out a resolution before you find your bank account has been wiped out by the IRS or your employer received a notice to start garnishing your wages. There are 4 basic ways to resolve back taxes so that you are not faced with collection.
Offer in Compromise (OIC): The Offer in Compromise also known as the Fresh Start program allows you to settle your taxes for less than the total amount owed. This is what most of the commercials refer to when they say settle your case for pennies on dollar. It is important to understand that very few taxpayers qualify for this program. The IRS will assess your assets and available funds after paying monthly bills to determine the settlement amount. While the OIC can result in substantial savings, it’s advisable to seek the expertise of a licensed tax professional to navigate the process effectively and who can argue for you why the IRS should allow certain expenses to lower your payment.
until you can pay taxes. If your assets have minimal cash equity and your income is solely used for living expenses, the IRS may determine that your tax liability is currently not collectible. However, it’s important to note that you may be required to make payments if your income increases in the future or if you come into assets that have value.
Partial Payment Installment Agreement (PPIA): A Partial Payment Installment Agreement is suitable when the statute of limitations expires before the full tax liability is paid. In this case, you make payments until the expiration date, potentially resulting in a reduced total payment to the IRS. Consulting a tax professional can help you maximize the benefits of a PPIA.
Installment Agreement (IA): An Installment Agreement involves paying the entire tax liability over a period of time. This option allows you to break down the payment into manageable installments, reducing the financial burden. There are many different types of installment agreements that can be negotiated in terms of number of months, step up payments and step down payments depending on your financial situation.
At Tomes Law Firm, we evaluate each situation for you and assist you in determining which will result in the lowest payment by law. Not every taxpayer qualifies for every program the IRS has, despite the television advertisements. In fact, only a small percentage of taxpayers qualify for the “pennies on the dollar” commercial that is broadcast everywhere as a sales tactic. However, there are other programs that can result in reducing your debt or at least structing your payments so you can live without fear of you bank account being draining and your debit card rejected at the grocery store.
While many think the IRS will just work with the taxpayer and tell them which programs are relevant, that is not the job of the IRS. The IRS revenue officers are required to collect as much tax as quickly as possible. Talking to the IRS or State Tax Division alone is like talking the police without a criminal defense attorney. The agents will try to get more information than they are entitled to and not tell you of your rights under the IRS Code or the IRS Manual.
Currently Not Collectible (CNC) Status: The CNC program suspends collection activity