Everyone has seen on television, or heard on the radio, advertisments for assistance with owing the IRS back taxes. Turn on the TV late at night to watch reruns of your favorite show and you're bound to see at least one. But they all have that caveat, saying that you must owe the IRS over $10,000 for them to help you, but why?
The fact of the matter is that you don’t need to owe a certain amount to have representation to assist with your tax debt - at least not from our firm. If you listen to the television or radio you would think that there is no way to help someone who owes less than this amount. Most of the businesses that advertise in this way are looking to submit a settlement proposal, known as an Offer in Compromise, to the IRS on your behalf. This may or may not be possible, but generally that is the only service these businesses provide. What they know is that due to the manner in which the IRS settles debt, it is nearly impossible to settle a small tax debt. However, here are several situations that our office sees frequently where taxpayers have a small tax debt, but still need help sorting through their options to come into compliance:
- Sometimes a client may owe the government a small amount, but has unfiled returns and is preparing to file bankruptcy to discharge health care debt or other obligations. The bankruptcy code requires the taxpayer to file their last three returns in order to qualify for the bankruptcy. After filing, the client anticipates owing more. Perhaps that is a small amount or a large amount. Regardless, this client needs help with those taxes because they will not be discharged in the bankruptcy.
- A client may owe a small amount based on a return filed by the government - known as a Substitute for Return (SFR). However, the client will owe much more later when a proper return is filed. This can happen when a client is self-employed and receives a few 1099's that comprise a small amount of the taxpayer’s overall revenue. Once the return is properly completed, there may be a different picture.
- Sometimes a client owes tax debt that their spouse created and it is simply unfair for them to be held responsible for the debt. That client may want to be relieved from the obligation - no matter how small - through the Innocent Spouse Relief process. Alternatively, a spouse may be harmed because his or her refund was offset to their spouses tax debt. In this instance, this client may need assistance filing an Injured Spouse claim.
- A client may have a few thousand dollar tax debt created by automated Exam at the IRS, but if the client merely pays it or sets up a payment agreement to resolve the balance, the taxpayer may be setting himself or herself up for problems with future tax return positions. If your expense or other deduction is valid and the IRS disallowed it, it may be worth fighting to substantiate it so you do not create a record showing you agreed with the claim or deduction being disallowed. Therefore, your representative could make arguments to assist in your exam and protect your position for later.
- Some clients owe less than $10,000 and are interested in relieving themselves from the burdens of a tax lien. It is now possible to establish a Direct Debit Installment Agreement and apply for a withdrawal of the tax lien. There are specific procedures for this doing this must be met to qualify, but it is possible. As a matter of fact, it is now possible to accomplish this if you owe up to $25,000.
- A client may owe a small tax debt which was originally much larger and triggered the filing of a tax lien. Though the debt is paid down, it is preventing the sale of a piece of real estate because there is not enough equity to retire the tax debt at closing. These clients need assistance with a request to Discharge Property from Federal Tax Lien. This will clear title to the property and allow for the closing, even though the entire tax debt is not being paid off in full.
- Some of our clients only owe a couple of thousand dollars, but have many years of unfiled tax returns and anticipate owing much more. A settlement proposal, Offer in Compromise, may be appropriate. However, it is impossible to know if that is the case until the taxpayer knows the total owed and a financial analysis is performed which includes a review of income, expenses and equity in assets.
- A client may need assistance when a wage levy is in place, but the balance on their total tax debt is not larger than $10,000. In those instance, it is very likely that the taxpayer can be moved to a voluntary payment agreement if all returns are filed. Even if all returns are not filed, substantiation to the IRS of income and expenses could likely result in a partial levy release to relieve the client of some, or all of the wage levy.
If any of the above is similar to your situation, or you have some other tax problem, we will be happy to help you, regardless of the size of your debt. Just give us a call.