It’s that time of year again.
When I get the dreaded phone call….
“The IRS says I owe a quarter million. Can you help me make it go away?”
No, I will not lie like those folks who advertise on TV, promising that they can deflate your IRS debt to pennies on the dollar. But…
First, you should know that if you FAILED to file your taxes, the IRS will pick an extravagant number to bill you. Because they want YOUR attention. The IRS system relies on what they love to term as “voluntary” compliance. (Yes, you can go to jail for not paying your taxes- just ask Wesley Snipes.)
But, the system is designed for us to voluntarily proffer our data to the IRS and pay our obligations. Of course, our employers, our stock brokers, and our pension providers (among others) are all required to submit our data- so the IRS does know [roughly] what we owe.
[Please note: These guys seem legit. And, their advice is SPOT ON! ]
Now, if you really can’t afford to pay your bill…
(Hmm. Answer me this folks. That money you made, took, spent- where did it all go? How come you can’t pay the bill? I’m not trying to be harsh, just honest. Of course, I can give you some instances where this happens- solopreneurs who barely make ends meet and then find out they owe Medicare and Social Security taxes. [Hello, Uber and Lyft drivers!]. Folks who had high medical bills and withdrew their funds from their IRA or 401(k) plans- it’s not just the tax, but the 10% penalty on top of it.)
You (and we) can try to settle our tax debts for less than we owe. Don’t expect it to be pennies on the dollar. We’ll all be lucky if it’s dimes on the dollar. 2 bits on the dollar is something to which we could aspire.
The law does authorize the IRS to compromise on tax bills. When does this work well? When the amounts legally due are way beyond what the IRS can expect to collect within a reasonable (that’s usually read as 6 y) period.
This ain’t a simple process, though. There’s an application to complete, which includes a full disclosure of our income, our assets (bank accounts, stock holdings, automobiles, homes, etc.), and our monthly obligations. And, should you elect to try this on your own, don’t be surprised if you forgot to include all the necessary information and documentation.
Critics say the IRS could make the program more user-friendly, including responding more quickly to offers and being less stingy. The IRS has said that determining someone’s “reasonable collection potential” is a “complex and nuanced topic,” and that it has made improvements, including posting more information on its website. Officials also say the IRS is reviewing the subject and will consider changes based on the findings.
Last fiscal year (the one that ended on 30 September 2018), 59000 completed (who knows how many were incomplete?) Offers-In-Compromise (OIC) were submitted to the IRS. (These are all taxpayers- be they individuals or businesses.) Of this volume, the IRS agreed to 24,000 of them. It also doesn’t say how many of the requests became the basis of installment agreements. (If the IRS computes that we can pay off the debt in 6 years, you can bet that’s the ‘compromise’ they will accept. And, since we so carefully detailed our cash, stocks, property, etc- they have an excellent idea of what we can really afford- even if it means we have to adjust our lifestyles.)
(By the way, the IRS doesn’t list the total amount of debt covered by these 59000 OIC’s, but they accepted a little more than a quarter billion dollars.)
From start to finish (assuming we’ve submitted a complete application), we can expect the process to consume about 11 months- but many have waited a full year.
Want to know how to guarantee NOT get your OIC accepted? Let’s see… If we haven’t kept up with our estimated tax payments and all our required tax filings- then the OIC [or a payment plan] will not even be considered. Another impediment? Filing for bankruptcy. (Once we are out of the throes of the Bankruptcy courts, then we are, once again, eligible.)
One more caveat. If you (notice it’s no longer a we- I would never do this) prevaricated (or, worse yet, outright lied) on the OIC forms? The case now becomes criminal.
And, now you will find yourself on the wrong side of civil and criminal penalties.
Informative post. Well, I loved the way you have asked about “not getting bills”! Though we are from different countries basics of taxes remain same.
Yes, the bite may be different, but the obligation is universal. Thanks for the comment, Shrilekha!
I really can’t understand the logic of trying to evade taxes. In India, thankfully, it’s become harder and harder to evade paying income tax.
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I’m with you, Corinne. But, it often isn’t evading- too many folks (especially the self-employed) don’t understand the burden (the percentage of their income) that the tax imposes, so they spend ‘their money’ without realizing a good portion of that isn’t theirs.
In India- tax evasion was second nature until about a decade ago.
Meanwhile, we are still waiting for a crackdown on the ‘services ‘ for reducing our taxes. I see those commercials all the time.
The IRS does take them on- but many of them morph into another entity. So, now the IRS goes after the entity AND the principals (precluding them from joining another or starting a different one).
The one I didn’t like was the self employment tax, but for 52 years in business, we always filed and paid on time.
The self-employment tax is one of those taxes that involves criminal issues when it is unpaid, Martha. That’s the one the government jumps on first. Glad you paid your taxes on time- it’s never fun to have an agency on your back.
This process seems very much user unfriendly. In addition, it seems like a lot of work for a small amount of savings. Still, I suppose a little savings could make the nightmare worthwhile.
Well, Alice- trying to make a deal with any agency- especially when the facts of the matter are that you are in the wrong- is never going to be easy. Yet, the fact that when the burden may be untenable- there is a potential resolution- is significant, in my mind.