One of the common questions in our office is how to pay one’s tax bill. There are several possible answers, but before we can answer, we have to gather some key information.
One of the most important questions a tax professional must ask is: how much do you owe? Generally, if a taxpayer owes less than $10,000 and cannot pay in full, the easiest solution is to set up a payment plan with the Internal Revenue Service. Typically, the interest rate in this situation is lower than paying with a credit card or a personal loan. It is best to begin this quickly, as any balance owed will continue to accrue interest and penalties until that balance is paid.
Some tax offices will set up a payment plan for you. This is called a simple payment plan, and it can be accomplished without submitting financial documentation to the Internal Revenue Service. Many people are not fond of talking to the Internal Revenue Service, but most tax professionals expect to do it regularly.
Some people are in a situation where they owe over $10,000. Again, a tax professional must ask many questions to figure out how to solve the problem. Many people in this situation want to know if there is a possibility of getting the Internal Revenue Service to settle for less than they owe. The answer to this is that it is sometimes possible. This is an area of the law where a taxpayer wants to be very careful – we all see the commercials that promise to settle your tax debt for pennies on the dollar, but whether this is possible is specific to the case. Settling with the IRS for pennies on the dollar is possible, depending upon the financial circumstances of the case, but it must be treated with care. This is called an Offer In Compromise.
In order for an offer in compromise to work, one must prove to the Internal Revenue Service is unlikely to collect the full amount of the debt over the period of the collection statute on the case. Generally a rule of thumb is that the Internal Revenue Service has 10 years from the date of filing of the return to collect any taxes due on that return.
Many people believe that if they do an offer in compromise, it is a one-time thing. That is not the case. This is a case of “if at first you do not succeed, try, try again.” Of course, you should have a reason to keep trying, as you do not want to file frivolous offers. If that occurs frequently enough, there can be criminal consequences.
People who are successful with offers in compromise are often individuals who have struggled with tax debt for many years. In one case that I recently solved, the tax debts had been accumulating for over 10 years. It was a payroll case. The total debt in the case was over $300,000. We were able to solve this for about $40,000. This settlement saved this business – literally. If we had not been able to get an offer on this tax debt, this business would have failed. Instead, the business is beginning to thrive and is likely going to be very successful going forward. It may even have the chance to be sold for over $1,000,000.
There are other possible solutions to your collections case, but it is very important to contact a tax professional, as this is a very complex area of the tax law. These cases can take taxpayers in many different directions that are difficult to navigate alone. Hire a guide to get you through the maze. FBN
Written by Jeff Augenstein, Northern Arizona Financial Services 928-526-3999