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Promising Pennies from Heaven

Summer is the time when many of us think about vacations, sitting by the pool, hanging out with friends, maybe a trip to the river. It’s not a time when most of us are thinking about taxes and tax returns. But then, the letter hits your mailbox. Whether it was overlooked income or something you thought would never come back to haunt you, the IRS says you owe more taxes. And penalties. And interest. You don’t have the money, so you ignore the letter. Never really a good choice, but many people do ignore these notices and think the IRS will just go away if you don’t acknowledge them. While it’s not true that the IRS will just go away, normally not much happens for a while. Sure, you get the letters on a regular basis, but you still have your house, you still have your job, your bank account, maybe your business.

There are notices of intent to levy, which you ignore, until the IRS seizes your bank account. Then, you remember you saw a commercial where shiny, happy people eagerly share how they settled for pennies on the dollar with the IRS. Or, you saw the commercial that is nothing but a cartoon man running across your screen. You think one of these companies can help. Maybe they can, maybe they can’t. Many of these companies are offering pennies on the dollar settlements and don’t adequately explain what they are doing, how they can settle your debt with the IRS, or how long the process really takes. Or, even if it’s the right thing for you to do.

There are a number of different ways an outstanding tax bill can be resolved. Many of the firms running commercials about owing $10,000 or more in taxes normally are only looking at one option, the Offer in Compromise. While it can be one solution, it should not be the first – or only – solution that you discuss with a firm that you are considering hiring to assist with your tax liability.

Michael Estrin wrote an article on Vox.com about his short stint in the tax settlement business titled “I helped scam people who owed taxes. It was the most dishonest time of my life.” In the article, he describes a firm that didn’t actually take care of any issues, but did collect plenty of money in fees. While there are many qualified preparers, and many more who are credentialed but choose not to do the work, there are still firms out there (we call them offer mills in the industry) whose sole purpose is to collect fees from clients. For as many firms as you will see on TV, just as many have closed up shop without helping very many people at all.

If you engage our firm, we can talk about the options that are available to you including payment plans, penalty abatement or, if warranted, an Offer in Compromise. We will typically want to collect a power of attorney form so we can speak to the IRS on your behalf, collect any forms you have filed and any other income that has been reported to the IRS on your behalf. We may look at your filings to determine that a return was prepared incorrectly and prepare an amended return to correct a mistake or to claim overlooked expenses.

If Offer in Compromise is decided upon, we will collect information on your financial status and holding to calculate a compromise amount. You have to be prepared for the long haul, offers don’t move very quickly through the system and 18 months could be considered a “fast” result. Of course, you will continue to receive IRS letters during this time, just preparing and filing the paperwork doesn’t stop the automated letters. While anyone can file these forms for themselves, having a firm that works on IRS and state tax issues year-round can make the process easier. Just don’t expect to only pay pennies on the dollar. FBN

By Patrick Fleming, EA

 

 

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