|
INCOME TAX ABATEMENT - THE TRUTH AND THE
LIES
**NOTE: THE ARTICLE BELOW IS PROVIDED FREE OF CHARGE FOR INFORMATION PURPOSES
ONLY. NO REPRESENTATIONS ARE MADE AS TO THE TIMLINESS OF ANY POSTED ARTICLE.
Ads proposing to eliminate your tax liability for pennies on the dollar are
frequently misleading. They often show individuals on luxury yachts, sipping
wine and smiling at their ability to cheat the IRS out of tax money otherwise
due. The image portrayed in TV ads should also show the taxpayer facing jail
time for tax fraud because it is simply not the case that the IRS will allow a
delinquent taxpayer to eliminate a tax debt and keep all of life’s luxuries.
That having been said, The IRS understands that people make mistakes. That is
why there are various options for individuals who have found themselves in tax
trouble.
One option is to request the abatement of penalties and interest on the
penalties. This is often appropriate when the taxpayer is able to pay his or her
tax but should not be held responsible for errors which have occurred invoking
heavy penalties. This may be a good option for individuals who have had problems
with a tax underpayment or failure to file for a short period of time due to
depression or other circumstances beyond their control. I have also successfully
represented businesses with huge penalty and interest liability arising from an
employee’s error in paying employment taxes on behalf of his or her employer.
When it is impossible to fully pay a tax liability, an Offer in Compromise may
help eliminate the tax for less than the full amount of the liability. This
option is not free, however, and you will not be able to keep extra assets and
make your tax liability disappear.
The IRS Restructuring and Reform Act of 1998, along with the negative publicity
on the IRS coming out of the Congressional hearings that preceded the new law,
has created an unprecedented opportunity for taxpayers with tax liability
problems. At no time in the history of tax collection has the IRS been more
willing to compromise on tax liability rather than to go through collection
procedures that might create bad press for an agency already on the outs by many
in Congress. Although the IRS is still not willing to "give away the store" to
anyone with an outstanding tax liability, those who have genuine trouble paying
now have a better chance than ever of striking some sort of compromise with the
IRS if certain procedures are followed.
Often, the compromise that the IRS is willing to make takes the form of
installment payments to pay off the tax liability over time. This is
particularly useful because it prevents the IRS from liquidating major assets,
such as a home or a retirement fund, which can be devastating, both financially
and emotionally, to the taxpayer. Terms can be rather generous.
If a taxpayer can't afford an installment deal with the IRS, his or her
financial situation may be such that an "offer in compromise" may prove to be an
even better alternative. An offer in compromise actually lowers the total amount
of liability outstanding, usually in return for a commitment to pay this reduced
amount over a period of years. In addition, offers in compromise have also
become a preferred way for the IRS to avoid litigation expenses when a taxpayer
has at least some argument under the tax law as to why a tax liability is not
owed, in part or in full. Whether an offer in compromise is based on "doubt as
to collectibility" and "doubt as to liability," the rationale behind the IRS's
seemingly generous spirit is that, under the new rules on collection, it may be
better off accepting something now than risking getting nothing in the future.
Further, the IRS is now under a Congressional mandate to make offers in
compromise generally more accessible to taxpayers.
If you decide to make an offer through the IRS's Offers in Compromise program
and the IRS accepts, you end up paying the lesser amount in full satisfaction of
your tax liability. The IRS cannot collect the additional tax from you. It can
accept an offer only if there is doubt whether the tax liability exists or doubt
whether the tax can be collected. A doubt as to collectibility must be supported
by a Collection Information Statement (IRS Forms 433-A or B) which requires
disclosure of a taxpayer's assets. The offer in compromise itself is made on a
separate form.
The IRS Restructuring and Reform Act of 1998, in addition to putting the heat on
the IRS to tone down its collection tactics, requires the IRS to develop
employee guidelines for determining whether a proposed offer in compromise is
adequate and should be accepted to resolve a dispute. These guidelines form the
official rules of conduct for IRS agents in offers in compromise situations.
They include rules for the consistent application of national and local
allowances under which IRS employees may determine the basic living expenses of
a taxpayer entering into a compromise. Moreover, an IRS agent is now prohibited
from rejecting an offer from a low-income employee, and others, solely on the
basis of the amount of the offer.
A preliminary consideration for someone making an offer is whether to use assets
to make estimated tax payments that are due rather than holding the assets to
increase an offer. This is because the IRS cannot accept an offer in compromise
if tax returns are not current or if tax liabilities aren't being paid as they
accrue.
In addition, offers in compromise have also become a preferred way for the IRS
to avoid litigation expenses when a taxpayer has at least some argument under
the tax law as to why a tax liability is not owed, in part or in full. Whether
an offer in compromise is based on "doubt as to collectibility" and "doubt as to
liability," the rationale behind the IRS's seemingly generous spirit is that,
under the new rules on collection, it may be better off accepting something now
than risking getting nothing in the future. Further, the IRS is now under a
Congressional mandate to make offers in compromise generally more accessible to
taxpayers.
If you decide to make an offer through the IRS's Offers in Compromise program
and the IRS accepts, you end up paying the lesser amount in full satisfaction of
your tax liability. The IRS cannot collect the additional tax from you. It can
accept an offer only if there is doubt whether the tax liability exists or doubt
whether the tax can be collected. A doubt as to collectibility must be supported
by a Collection Information Statement (IRS Forms 433-A or B) which requires
disclosure of a taxpayer's assets. The offer in compromise itself is made on a
separate form.
The IRS Restructuring and Reform Act of 1998, in addition to putting the heat on
the IRS to tone down its collection tactics, requires the IRS to develop
employee guidelines for determining whether a proposed offer in compromise is
adequate and should be accepted to resolve a dispute. These guidelines form the
official rules of conduct for IRS agents in offers in compromise situations.
They include rules for the consistent application of national and local
allowances under which IRS employees may determine the basic living expenses of
a taxpayer entering into a compromise. Moreover, an IRS agent is now prohibited
from rejecting an offer from a low-income employee, and others, solely on the
basis of the amount of the offer.
A preliminary consideration for someone making an offer is whether to use assets
to make estimated tax payments that are due rather than holding the assets to
increase an offer. This is because the IRS cannot accept an offer in compromise
if tax returns are not current or if tax liabilities aren't being paid as they
accrue.
Of course there are some disadvantages to making an offer. For example, you make
it easier for the IRS to identify property that it can seize and levy upon
(although the 1998 legislation prohibits the IRS from levying against property
while a compromise offer is pending). Further, the offer usually operates to
extend the statute of limitations. Still, in many situations, the offer in
compromise route may be the only way to go.
We can figure what amount to offer and explain how to go about doing it. Please
do not hesitate to call if we can assist you.
| 
Zarcone
Associates, PLLC
