Delinquent tax debt won’t simply go away. At some point, the IRS will act, and you could face serious financial and legal problems, including asset seizures, wage garnishments and even criminal prosecution.
But no matter how far behind you are, you can improve your situation by taking action now.
The tax debt relief legal process…
If you have received a notice from the Internal Revenue Service, it’s best to take immediate action. This preserves your rights and generally reduces the amount you will owe in the long run.
- Get help for your tax debt. Contact an experienced and qualified tax attorney, like Acadia Law Group.
- Gather all records. Complete and accurate records will be invaluable in helping you reduce your tax liability. Chances are good you don’t really owe as much as the IRS says you do. But you will need to gather records to prove it.
- Act fast. The IRS generally imposes tight deadlines on taxpayer responses. Note any deadlines on your notice from the IRS. If you receive a Notice of Deficiency (CP3219N), you will generally have 90 days to file a back tax return, or file a petition in U.S. Tax Court. If you receive a notice of a pending lien, levy or garnishment from the IRS, you may have to act even faster.
- File back tax returns, even if you cannot pay. Unless you file back tax returns, you won’t have any options to settle, make an offer in compromise, declare bankruptcy or make an installment plan.
- Stop collection actions. Your tax attorney may be able to halt or suspend IRS collections actions while you are preparing your delinquent tax returns or negotiating with the IRS.
- Prepare an offer in compromise. Pay the back taxes as soon as possible. If you cannot afford to pay, your tax attorney can help you prepare an offer in compromise.
- Pay the taxes owed. Continue to make all scheduled payments under the IRS-approved offer in compromise.
How do tax debt relief companies work?
In general, tax debt relief companies and attorneys work by advising you, advocating for you and helping you to navigate the complicated tax debt relief process. Once the IRS notifies you that they have a problem, it’s important to go through the following tax debt collection and negotiation process:
Get help for your tax debt
You can try to take on the IRS yourself, of course – but this is almost always a terrible option. In all but the simplest cases, you may benefit from contacting a tax attorney right away.
Tax attorneys are lawyers with the specialized education, background, training and experience to handle complex tax cases and help you reduce your tax liability. They are admitted to practice in the U.S. Tax Court, and unlike CPAs and enrolled agents, can also potentially represent you in other courts as well, such as bankruptcy court. A good tax attorney is a specialist, and is highly knowledgeable about the vast, complex provisions of U.S. tax law and IRS regulations, policies and practices.
During your initial consultation, a tax attorney will go over your case with you and help you define the problem. He or she will help you determine what records you will need to find for yourself as you work with your attorney to prepare your defense.
Meanwhile, your tax attorney can take over communications with the IRS on your behalf. This is important because many people who attempt to represent themselves before the IRS inadvertently say or do things that compromise their case, and even give the IRS information that they can later use against them. Even more commonly, they miss opportunities to reduce their tax liability.
Your attorney can be present with you in audits or investigatory interviews, handle correspondence and phone calls, preserve your rights under the law and work to potentially block or delay enforcement actions such as a tax lien, levy and garnishment.
Tax attorneys have key advantages over accountants and enrolled agents. One such advantage is attorney-client privilege. Even though certified public accountants and enrolled agents are authorized to represent taxpayers before the IRS, by law, only attorneys have attorney-client privilege. This means the IRS can subpoena your accountant or enrolled agent in court and force them to testify against you. They cannot do this with a tax attorney.
Tax attorneys can also help advise you on asset protection issues and the legal consequences of filing for bankruptcy. Enrolled agents and certified public accountants have expertise limited to the tax consequences of such a decision.
Also, unlike accountants and enrolled agents, tax attorneys are skilled and trained in helping you mount a criminal defense. If the IRS accuses you of criminal tax evasion, your tax attorney may well be instrumental in keeping you out of jail.
Don’t think that just because you’re innocent, or you never deliberately tried to cheat on your taxes, the government can’t charge you with criminal tax evasion and other crimes. They do it all the time.
Gather all records
Good recordkeeping is an important part of mounting a defense and ultimately lowering your tax liability. Your tax attorney can help you identify the specific records you need, but here are some examples of records taxpayers must commonly look for in the process of preparing their defense:
- W-2 and 1099 forms from prior years
- Receipts for potentially deductible expenses
- Business expenses
- Unreimbursed work expenses
- Bank and credit card statements
- Medical expense records
- Mileage driven for business, medical and charitable purposes
- Prior year tax returns
- Property and casualty losses
- Gambling wins and losses
- Capital losses
- Self-employment and payroll tax records
- Records of retirement plan contributions
- Marriage, adoption and birth records (to verify dependents)
Your tax attorney and other tax professionals will need these records in order to help you prepare or amend prior year or delinquent tax returns, and prove to the IRS that you owe less money than they claim.
Note: While many of these records are likely to be in your possession at the beginning of this process, a tax attorney may be able to get the IRS to send helpful records that you didn’t even know they had.
To preserve your rights under the law, it’s vital to meet all the IRS’s deadlines for filing documents and appeals. Your IRS notice will spell out the deadlines by which you must respond.
If you receive a Notice of Deficiency (CP3219N), also known as a 90-day letter, you will generally have 90 days to file a back tax return, or file a petition in U.S. Tax Court. Don’t ignore these, because they may be warning you of a pending levy or garnishment.
Furthermore, don’t wait until the last minute. The more time you give your tax attorney before the deadline, the more effectively he or she can help you.
File your delinquent tax returns
The IRS charges severe penalties for late or delinquent tax returns. The penalties for failing to file a return are often more severe than the penalties for failure to pay the actual taxes themselves!
The longer you wait, the more the late charges and penalties accrue, and the greater your ultimate tax liability is likely to be.
Even if you cannot afford to pay the actual taxes your returns say you owe, it’s important to file a completed return anyway. Your tax attorney has specialized software that makes it much easier to file delinquent tax returns, even for prior years.
Don’t rely on the IRS to file your tax returns for you. If the IRS files a “substitute return,” they will omit nearly all the deductions and credits you are entitled to receive. For example, if you are married, the IRS will calculate your tax liability based on a single filer return. As a result, the IRS nearly always claims thousands of dollars per year more than you actually owe. Even if you can’t afford to pay the taxes due, always file your own return.
Note: If you are owed a refund, you must file within three years of the due date in order to receive it.
Stop collection actions
Once the IRS begins its collections process, they can be relentless. The IRS has tremendous power to place liens on your property, disrupt your income, seize your assets, retirement accounts and even your home – all without having to file a formal lawsuit or get a judgment. This sets them apart from other creditors.
Many times, a tax attorney can get the IRS to halt or suspend their collection actions while you gather records, file any delinquent returns and otherwise prepare your case.
Prepare an offer in compromise
In most cases, a skilled tax attorney can show the IRS that your actual tax liability is much less than they claim. If you can afford to pay this reduced amount, do so promptly to avoid further penalties and interest.
In some cases, offering to settle your case under an installment plan may be appropriate. The IRS recently expanded its Fresh Start Initiative and now will generally accept reasonable installment payment offers on delinquent tax liability of up to $50,000. The maximum repayment time allowed has also recently been expanded from five years to six years. Your tax attorney can help you prepare your offer and help ensure it has a good chance of being accepted.
If you cannot afford to pay the amount owed, even after filing your own tax returns showing a much lower tax liability than the IRS’s substitute returns indicated, then the next step is to work with your tax attorney to prepare an offer in compromise.
An offer in compromise is essentially an offer to settle your tax debt for less than the total amount you owe. But you need to meet several qualifications first:
- You must not have any tax returns still delinquent.
- You must not currently be in bankruptcy proceedings.
- Business owners and independent contractors must be current on all quarterly payroll tax deposits.
- You must not be facing any pending Department of Justice investigations. If you have already been referred to the DOJ by the IRS because they believe they have evidence to charge you with a tax-related crime, you are ineligible to file an offer in compromise.
Be aware, typically the IRS only accepts an offer in compromise if it is doubtful they can do any better within a reasonable amount of time by continuing their normal collections process.
To file an offer in compromise, you and your tax attorney must prepare a detailed packet to send to the IRS. Again, a tax attorney’s experience and professional knowledge may be essential in getting your offer in compromise packet approved on the first try.
The offer in compromise packet includes the following items:
- A completed IRS Form 656, Offer In Compromise;
- Form 433-A(OIC) (personal financial statement) or 433-B(OIC) (business financial statement) and supporting attachments;
- A check for the offer-in-compromise application fee of $186 (as of 2018).
- A non-refundable check for either 20 percent of the offer-in-compromise amount, or for the first month’s payment in a proposed monthly installment arrangement.
If your offer involves monthly installment payments, you must continue to make these monthly installment payments while your offer in compromise is being considered.
Note: The application fee and monthly installments may be waived while your application is being considered if you meet certain low-income requirements.
Pay the taxes owed
Obviously, if you are capable of paying your delinquent tax liability, it’s best to pay it right away to avoid further accumulating interest and penalties. If you can’t, and you need to make installment payments or an offer in compromise instead, then make payments according to the terms of your offer.
Fees and non-refundable payments are applied to your tax liability, but you can determine which year’s tax debts you want to apply them to. Your tax attorney or CPA can advise you on the optimal strategy. Meanwhile:
- The IRS may continue holding liens on property.
- Other collection activities, such as garnishments, levies and property seizures are suspended.
- The IRS will extend collection periods as appropriate.
- If you don’t hear back in two years, your offer is automatically accepted. Continue to make all scheduled payments until your tax debt is eliminated, and file all future tax returns on time.
If the IRS rejects your offer in compromise, your tax attorney can help you file an appeal, using IRS Form 13711. Be sure to meet the 30-day deadline for appeals.
Again, good record-keeping and skilled representation are keys to appeal success. The IRS will require you to specify what items in its decision you are contesting, and to attach supporting documentation.
Frequently Asked Questions
How do I know when I need a tax debt relief attorney?
You should definitely consider hiring a tax attorney if any of these circumstances apply:
- You are thinking of filing a lawsuit against the IRS;
- The IRS is suing you;
- You are being charged with a crime related to your taxes;
- There is any possibility you will need to appear in tax court;
- Your tax issue potentially involves other parties, such as business partners or employees, who may potentially testify against you in court;
- You want to receive professional advice without the possibility your tax professional will be compelled to testify against you in court;
- You actually committed, or may be accused of committing, a tax crime;
- You are contemplating business or personal bankruptcy due to tax issues;
- You are being audited.
Can a tax debt relief attorney stop a wage garnishment, levy or seizure?
Yes, in many cases, we have been able to get the IRS to halt or suspend wage garnishments, liens and levies. We understand how crippling a wage garnishment can be for working families. Every case is different, but the IRS will frequently suspend garnishments while we are working on your case.
What should I look for in a tax debt relief attorney?
Look for a tax attorney who has been in practice for a number of years, specifically focusing on tax law, and who has handled many cases very similar to yours in the past. Ideally, the attorney or firm should be a member of a professional legal association such as the Tax Law association, and your attorney should have completed substantial continuing education courses on tax law along the way.
How does my tax attorney get paid?
In most cases, tax attorneys charge by the hour, or reach an agreement with you on a flat fee to take on your case. In the vast majority of cases, tax attorneys are able to save taxpayers much more than enough to justify their fees. No matter your financial situation, the best course of action is to contact a tax attorney early in the process.
Why should I call a tax debt relief attorney rather than my CPA?
Unlike CPAs, tax attorneys have attorney-client privilege. They cannot be compelled to testify against you in court.
Furthermore, if the IRS is going after you because of a return your CPA prepared for you, then the CPA is already compromised: When pressed, they are likely to defend themselves and their own work, rather than defend you. When you hire a tax attorney to represent you, you can be confident that he or she is representing you alone.
If your CPA or enrolled agent made a mistake on a prior year tax return, or gave you bad advice that resulted in a tax problem, a tax attorney may be able to use that to help defend you. This can potentially reduce penalties or even keep you out of jail if you are being accused of a crime.
You may even have a malpractice/professional liability claim against your CPA, and you may be able to collect damages from their professional liability insurance carrier. However, if you relied on your CPA exclusively for representation or advice, you may never even learn about the mistake. Involving a tax attorney helps protect you.
Can I reduce my delinquent tax liability?
Yes, in many cases, an experienced tax attorney can help you reduce your delinquent tax liability. We can do so by helping you file delinquent returns, override the IRS’s unrealistic substitute tax returns, and help identify tax deductions, credits and errors that you cannot spot on your own.
If you are unable to pay your total tax liability even after we have been able to help you reduce it, we can help you prepare an offer in compromise or payment plan.
Can bankruptcy help reduce my tax liability?
Bankruptcy may be a viable solution to a serious tax debt problem. But bankruptcy may also have far-reaching consequences in other areas of your life, affecting your family members and other creditors. It’s not an option to be undertaken lightly.
Not all tax debts are dischargeable in bankruptcy. For bankruptcy to work, the specific tax liability must be three or more years old, and a tax return must have been filed for that year at least two years prior to the bankruptcy filing. Finally, the IRS must have assessed the tax liability at least 240 days before the bankruptcy filing.
Bankruptcy is not generally an effective solution for tax liability. This is especially true if you are indeed solvent, or if you have significant assets that are not protected under your state law and are subject to forfeiture in a bankruptcy proceeding.
How long does a decision on an offer in compromise take?
Frequently, the IRS takes about a year to decide whether to accept an offer in compromise. Meanwhile, your payments are applied to your tax liability.
Can I settle my tax debt for “pennies on the dollar?”
If someone promised you they can make your tax liability go away for “pennies on the dollar” without first having reviewed your case, be extremely cautious. The IRS has strict guidelines about settlements, and while many people have resolved their tax issues at a small fraction of their total actual tax liability, this is usually only possible in cases of extreme hardship.
The IRS and Federal Trade Commission have both issued consumer warnings, cautioning taxpayers not to fall for unrealistic promises from unethical or irresponsible tax relief companies.
Acadia Law Group is reputable and professional, and we will always level with you about your prospects for a reasonable debt settlement.
Acadia Law Group can help
If you have received a notice from the IRS, or if you believe you may have a tax problem, call the experienced tax attorneys at Acadia Law Group today at 801-816-2525. Or fill out our brief form and we will contact you promptly.
Even if you feel hopelessly behind, or you have years of unfiled returns, we can help. The attorneys of Acadia Law Group are experienced, able to answer your questions, and eager to represent you.