Tax Frequently Asked Questions
1What is an Offer in Compromise (OIC)?
An offer-in-compromise is, in essence, a settlement with the IRS for an amount that is less than you owe for your tax debt. It is based on your future reasonable collection potential - the amount the IRS thinks they will be able to collect from you based on your current income and assets. The IRS will also analyze whether you will have a future ability to earn income, i.e. age, education, etc.
2Can I really get a “pennies on the dollar” settlement?
Unfortunately, there are too many tax companies that advertise a “pennies on the dollar” settlement potential with the IRS. This is just not true and you should be wary of any company that promises you an OIC. An OIC can be difficult to achieve and based on the amount of work and time they require, should only be utilized if a successful outcome is realistic. We will work with you and determine whether an OIC will be in your best interests before we recommend this path.
3Can I set up an Installment Agreement with the IRS?
Yes, an installment agreement is a fairly simple process to implement. It entails detailing your income and expenses and offering a monthly amount that is fair to both you and the IRS.
4Will an Installment Agreement lengthen the amount of time the IRS has to collect on the debt?
Normally, the IRS has 10 years to collect on the tax liability (assuming a tax return was filed) that they are owed. However, in most cases, signing an installment agreement does waive this statute of limitation and the IRS can continue to collect until the debt is paid (i.e. with your installment agreement).
5What if I haven’t filed taxes?
The best thing you can do is to file all the tax returns that have not been filed. The ten-year collection period does not start running until the tax returns have been filed. It also prevents you from entering into any sort of agreement with the IRS for any tax liability that you owe.
6I received a notice from the IRS saying that I didn’t report all my income. Now what?
The IRS receives information from everyone that pays you any money. They match up these numbers with what you report on your tax return. If the numbers don’t match, the IRS will send you a notice alerting you of the discrepancy and allowing you time to respond. It is very important to pay attention to all deadlines on all correspondence received from the IRS. If you don’t believe that you owe the additional tax on the income, your best path is to send in documentation and a letter explaining why you don’t believe you owe the tax. Speaking with a tax attorney at this point is probably a good idea to help you construct the letter and lay out the arguments needed to win your point.
7I have a Notice of Deficiency, what should I do with it?
If you have received a Notice of Deficiency (NOD), this means that your next step is to petition the US Tax Court. This is the step that allows you your chance to contest your liability for the tax. It also means that your tax matter was not resolved administratively (i.e with Appeals office or with examination personnel) and this is your “ticket” to Tax Court. At this point, you have 90 days to file a petition with the court in order to have your case heard. The deadline to file will be on your notice. It is extremely important to meet this deadline as there are no extensions. If the petition is not filed, you have essentially lost your chance to argue your case and it will be sent to collections. The retention of a tax attorney at this point is crucial in order to draft a petition that outline all the point and preserves your arguments for your case.
8What is an Innocent Spouse?
The Innocent Spouse defense is used in order to relieve a spouse from liability for taxes incurred during marriage (if you are no longer married now). There are a variety of factors and issues that play into an innocent spouse defense that are beyond the scope of these questions. If you think you have an innocent spouse defense, please call us to determine your eligibility.
9I’ve received a notice of the filing of a lien or levy. Is there anything I can do now?
When the IRS files a notice of tax lien and before a levy, your rights to a hearing are triggered. This hearing is called a Collection Due Process (CDP) hearing and allows administrative and judicial consideration. An IRS appeals officer who has not been previously involved in your case will meet with you (or your attorney) and confirm that the IRS has taken the required steps in the collection process. You may also raise any defenses to the lien or levy (i.e. offer-in-compromise, innocent spouse, installment agreement, etc), but you may only contest the actual tax if you have not received a notice of deficiency.
10The IRS has a lien on my property. How can I get it released?
If you have a tax liability and you have not paid it, a lien arises automatically. The amount of the lien will equal the unpaid tax plus any interest, penalties, and costs. The lien dates back to the date of assessment and attaches to all current and future property until it is either paid or the statute of limitations on collections has expired. It is possible to have the lien released especially if it is impeding financing for your business or the sale of your home, but it is extremely difficult and usually requires substantial payment.
11Can the IRS levy on my paycheck and bank account?
The simple answer is yes. The IRS can not only levy on your paycheck (garnish), but they can garnish an amount much higher than the 25% limit imposed by state law. It is important to respond to their notices of intent to levy in order to halt the actual levy. Levies can be stopped, but again, it usually takes some payment or payment arrangements.
12I know I owe the tax, but do I really have to pay the interest and penalties?
The interest cannot be reduced or removed if you do owe the tax. However, it is possible to remove (abate) the penalties in some circumstances. It depends on each person’s situation in order to determine if abatement is realistic.