By Andrew Housser
With tax day, April 15, less than one month away, consumers and business owners who owe the IRS now are entering their highest-stress time of the year. But while death and taxes are the big two inevitabilities, those with serious tax problems should know that it is possible to negotiate with the IRS to reduce past-due tax penalties and payments.
Americans, carrying more debt than ever, are also more likely to have tax problems than in the past. In 2004, the total of uncollected IRS taxes reached upwards of $250 billion. The number of levies (a key enforcement tool in which the IRS takes possession of assets to collect on unpaid taxes) topped 2 million during fiscal year 2004 - a 21 percent increase from 2003 and triple the 2001 number.
When their tax debts are under $10,000, taxpayers usually can find a way to manage the payment on their own or via an installment plan arranged with the IRS. Tax problems merit professional help when individuals cannot pay tax liabilities of $10,000 or more. At that point, specialists can negotiate directly with the IRS on behalf of these consumers, helping them obtain settlements.
Tax relief specialists usually are attorneys or certified public accountants with special training and experience. These experts can navigate the intricacies of IRS forms and calculations. They can help consumers understand the criteria the IRS imposes, and then help them get back into good standing with the IRS. Depending on the severity of an individual's situation, these advisors can work to obtain one of two types of IRS settlement:
* An offer in compromise reduces the principal amount owed to the IRS.
* An installment agreement is a payment plan for the amount due and often includes reduced penalties.
Remember that you cannot let overdue taxes languish. The IRS is serious -- and increasingly aggressive -- about tax collection and evasion. Tax debt can result in a lien on a house or garnished wages. As soon as you realize you cannot pay your full tax bill, seek out an advisor to help you with the following steps:
1. Evaluate your situation and determine the amount of taxes owed to the IRS.
2. Ascertain whether you meet IRS standards for "doubt as to collectability" (i.e., you are unable to pay the full tax burden), "doubt as to liability" (i.e., you do not believe you owe the tax), or "economic hardship."
3. Establish the full amount you owe, including taxes, penalties and accumulated interest, and understand whether collection limitations or penalty cancellations are possible for your situation.
4. Determine the best method for managing and eliminating your tax debt.
5. Negotiate with the IRS to settle on an agreed course of action and resolve your debt.
While facing and handling tax debt can be painful, last year's bankruptcy reform legislation made it even more crucial to take action. Historically, consumers in severe IRS debt might file for Chapter 7 bankruptcy protection or wait for the 10-year statute of limitations on tax liability to expire. Now, people are much more limited in the ability to obtain Chapter 7 filings. The bill's new "means test" leads many consumers instead to file Chapter 13 bankruptcy, which establishes a repayment plan, rather than wiping out all debt.
Consumers with tax debt may find it much less costly and simpler to work with a debt resolution firm's tax relief service, which allows individuals to set up tax payment plans while avoiding court fees, attorney fees and bankruptcy judgments on their records. Whatever means you choose, tax season means it's time to face the inevitable and manage your tax burdens. Fortunately, experts are available to help you along the way.
Andrew Housser is co-CEO of Freedom Financial Network, LLC, a national consumer debt resolution firm serving more than 4,000 clients and managing more than $120 million in consumer debt. Housser holds a master of business administration degree from Stanford University and bachelor of arts degree from Dartmouth University.
