We often meet with clients that haven’t filed their taxes and are being garnished by the IRS or the state government. When this happens, we immediately contact a revenue officer to get the case out of the automated collection process. We also often work with a revenue officer to start a dialogue with the tax authority before the garnishment begins, and we work with a bookkeeper or a CPA to complete a client’s tax filings as soon as possible. In these instances, we are able to stop the collection actions and begin the tax resolution process.
When developing a tax resolution plan, we look to the taxpayer’s income to determine whether an offer in compromise is the best solution. If the client has a large income, then an installment plan may be the best option. If the client has a modest income and few assets, however, then an offer in compromise may be a better option. There are scenarios where an offer in compromise may be appropriate for someone with significant assets as well. This occurs when a client has a family member who provides them with money to be used for an offer in compromise. This allows the client to make an offer in compromise without liquidating their assets because the funds used to pay the offer come from a third party.
When creating an installment plan, we calculate our clients’ regular and ordinary living expenses to determine what monthly payment the client should be making to the IRS. Then we often negotiate a payment plan with a revenue officer for 72 months, 84 months, or some other time period, allowing them to pay the tax over a significant period of time. For example, a recent client has a house with equity in it and makes payments of $2,500 a month. This has allowed him to keep his house and pay off his past debts.
The third broad category is that the tax debt is uncollectible. If there is a taxpayer who has no assets but has tax liability and has a medical disability or has someone with a medical disability in their household, then we may convince the IRS that the supported family member is no longer collectible.
The other issue that we often see is self-employed individuals or small business owners who do not pay their withholding taxes to the IRS. In these cases, the employer has the personal obligation of paying the withholding taxes on a specified basis. If these taxes are not paid by the employer, then it becomes a personal obligation and a personal tax liability that has penalties associated with it. This issue also often applies to small businesses who have payroll taxes. It is quite common, and the IRS may still compromise on payments on these payroll taxes.