tax debt

Thanks for Entering a Payment Plan, but We’re Still Going to Charge You Penalties and Interest

One of the worst things about owing the IRS money is that it continues to grow. Not only do you have the actual tax debt that you owe, but the IRS charges interest and it also can charge two different types of penalties. After many years, 25% of your total tax debt can be penalties. You may have entered into a payment plan and filed all missing returns, but the penalties and interest continue to grow. Let’s go through some common questions about this bad situation:

What stops interest and penalties from accruing?

The only thing that stops interest and penalties from accruing on your tax debt is to not have tax debt. That means it must be paid in full, either through a one-time payment, making multiple payments over years, or by having an offer in compromise settlement accepted and then paid in full. Beyond this, those interest and penalties will continue to enlarge your debt to the IRS.

Can you have the interest accrued waived?

Unfortunately, the answer is no. The IRS will not remove interest unless there is an extreme unique situation. However, if you have an offer in compromise accepted, it can indirectly remove the interest as that is part of the settlement. Beyond that, you will be paying back all interest accrued on the debt.

Can you have the penalties accrued waived?

Yes! Penalties accrued for failure to pay in full and penalties for failure to file can be removed. This can be done through what the IRS calls Penalty Abatement. Your penalties are there for two purposes, failure to file and/or failure to pay in full. In order to get these penalties removed, you have to show reasonable cause to the IRS of why you failed to file on time or why you failed to pay it in full.

My favorite answer to these questions is when people tell me “well…we just didn’t have the money.” Unfortunately, that is not reasonable to the IRS. The IRS is not friendly or kind, their job is to collect tax revenue for the country and if they cannot do that, they will penalize you for it. However, if there was a natural disaster, if there was a death in the family, if there was a period of sickness, then the IRS would say…”well…that’s reasonable, we’ll waive your penalties, but you’re still paying interest!”

If you are paying on your tax debt, and its been years of paying but the debt is staying solid, and you have a reason of why you owed, it may be worth your while to attempt a penalty abatement request. Give us a call at 619-352-4188 to see what our professionals think your options are.
Tax Debt Services
www.taxdebtservices.net

Owe Tax Debt but Have a Nest Egg? Currently Not Collectible is your Key to Peace

While an offer in compromise is the goldmine for those who owe tax debt, obtaining one with equity in assets is hard to come by.  However, if you have a nest of equity, but are cash broke, there are other options at the IRS that may better suit your needs.

Why don’t I qualify for a settlement?

The Offer in Compromise is the settlement program that allows people to settle their tax debt for less than what they actually owe.  To qualify for a settlement, there is a formula used that looks at disposable income and equity in assets.  While you may not be able to afford a monthly payment to the IRS, because you have equity in assets, the value of those assets may be too high to make a settlement practical.  Therefore, the taxpayer is stuck in a position between an inability to settle and an inability to enter a payment plan.  Rather than suffer through garnishments, levies, and property seizures, the taxpayer has another option: Currently Not Collectible status. 

What is a Currently Not Collectible Program?

The financial hardship status with the IRS known as Currently Not Collectible was established for the taxpayer that at this time could not enter into a payment plan.  Under the 8th Amendment’s cruel and unusual punishment and excessive fees and fines clause, the government has come up with a status for taxpayers to enter in which the taxpayer’s constitutional rights are protected.  In this status, no collection actions will occur and no payments to the IRS are necessary.  Therefore, the taxpayer can protect their nest egg, and not have to enter a financial hardship of which they cannot afford.  So whether it be a 401k account, equity in a home, tied up stocks and bonds, or vehicle values, the IRS will leave your property alone.  The one caveat is that the IRS will place a lien against your overall property in order to secure its interest in obtaining any assets that you may later plan to liquidate.

How to Qualify

1.  Taxpayer is compliant with tax returns for last six years. 

2. Taxpayer is compliant with tax withholding and/or quarterly estimated tax deposit requirements.

3. Taxpayer fully discloses all financials

What happens to the debt?

The IRS will not collect nor require payments on the debt, so what happens to it? Federal tax debt expires 10 years from the date of assessment.  By entering this program, the clock still ticks and potentially may expire while under this program.  For example, a taxpayer that is on social security and no has ability to make monthly payments to the IRS, but has accessible equity in their home owes the IRS $20,000.  This debt comes from a tax return filed in 2010.  The tax debt is set to expire in 2020, so by entering this currently not collectible program, the taxpayer does not have to make payments, is not collected upon, and as long as there are no dramatic changes to their finances, the taxpayer remains in this status until the tax debt expires in 2020.  

Do I qualify?

Some companies will charge you to see if you qualify, other companies will tell you that you qualify without actually gathering enough information to do the two part test.  Contact us at Tax Debt Services at 619-887-4881 and we can determine if you qualify for free. 

www.taxdebtservices.net 

 

Today’s IRS Offer in Compromise is the Most Generous Program to Date

The recent rule changes brought out under the IRS’ fresh start program has allowed thousands of Americans to now be eligible for tax relief where before they wouldn’t even qualify for a settlement.  So, how does the program work?

What is an Offer in Compromise?

The Offer in Compromise is a program that allows people to settle their tax debt for less than what they actually owe.  There are two main type of offer settlements 1) Doubt to Collectability and 2) Doubt to Liability.  While Doubt to Liability seems like an obvious choice for many, the hard truth is that most people that owe tax debt, truly do owe the tax debt, but just struggle with paying that debt off.  Therefore, the fresh start program implemented by the IRS is focused on the Doubt to Collectible offer in compromise.

What Amount Can I Settle For?

Doubt to Collectability can mean a lot of things.  There are hundreds of court cases, legislation, and directives that build the definitions to that term.  However, it can be simplified into a two part test.

Test 1) Given the disposable income per month, if the taxpayer paid that amount per month every month until the tax debt expired, would the debt be paid in full?

Test 2) If the amount would not be paid in full, then an equation is used:

DISPOSABLE MONTHLY INCOME (MULTIPLIER) + AVAILABLE EQUITY IN ASSETS =

OFFER SETTLMENT AMOUNT.

Tax Debt settlements are very different from other types of settlements where the debtor cannot just offer the creditor money as a percentage of the debt and expect success.  If the two tests fail or show a settlement amount higher than the actual debt, then the Offer program is not right for you.

How to Qualify

1.  Taxpayer is compliant with tax returns for last six years.

2. Taxpayer is compliant with tax withholding and/or quarterly estimated tax deposit requirements.

3. Taxpayer is protected from collection actions.

Why would the IRS do this?

The IRS would rather ensure that you are a good taxpayer from this point forward than destroy your life because of some past mistakes. They are willing to forgive your old debt in exchange for future compliance and a promise to not owe taxes again for at least the next five years.

Do I qualify?

Some companies will charge you to see if you qualify, other companies will tell you that you qualify without actually gathering enough information to do the two part test.  Contact us at Tax Debt Services at 619-887-4881 and we can determine if you qualify for free.

If I do qualify, why would I need to hire a professional?Image

Criminal court cases, lawsuits, corporate mergers, vehicle repair, bankruptcies are all examples of situations where anyone can do things by themselves.  People can represent themselves in court, repair their own engines, and file the lengthy paperwork of bankruptcies by themselves.  How does this normally work out for the person who isn’t a professional? Normally not so swell.

Hire a company that has professionals who do this for a living.  This is tax debt and should be thought of as a serious and urgent concern.  Why would you not want to get it done right?

 www.taxdebtservices.net