Dec 1, 2007

Tax Debt - A Realistic Solution - “There is no such thing as a free lunch”

I am often reminded of my grade school economics education and some basic principles of capitalism and allocation of resources from the late economist Milton Friedman- “There is no such thing as a free lunch.” In essence, it means that someone is going to foot the bill. I do not say this to be a scrooge on settling or reducing your tax debt- in fact I am in favor of lower taxes and less burden on the taxpaying citizen. However, I say this to remind all of the reality of settling their tax debt: if the solution sounds too good to be true, it is too good to be true. Consider this: The IRS Collection Statute of Limitations (CSED) is at least ten years from the date of assessment. Why would the IRS want to settle their debt for “pennies on the dollar”?

I recently attended a CPA forum of fellow professionals who deal with IRS matters. The panelists all agreed that there are only three situations in which an Offer in Compromise, Doubt as to Collectibility, is appropriate:

1. The taxpayer is disabled and their income is equivalent to their expenses, now and in the foreseeable future
2. The taxpayer is elderly, on a fixed income, and their income is equivalent to their expenses, now and in the foreseeable future. Also, the taxpayer has no equity in assets.
3. The taxpayer is incarcerated for a considerable period of time

I agree with their assessment on the OIC program. But there are other, more realistic options, that may get you peace of mind. These solutions are tailored to the taxpayer’s financial situation. These solutions include, but are not limited to:

Tax Abatement programs
1. Offer-in-Compromise: Doubt as to Liability
2. Offer-in-Compromise: Doubt as to Collectibility
3. Offer-in Compromise: Effective Tax Administration
4. Offer-in Compromise: The Partial Pay Installment Agreement
5. Innocent or Injured Spouse Relief
6. Amended tax returns to reduce liability
7. Audit Representation
8. Civil Penalty Trust Fund Negotiation
9. Collection Appeals Program
10. Collection Due Process Appeal
11. Audit Reconsideration

Affordable payment plans
12. 60 month payment terms
13. Ability to pay payment terms
14. Use of net realizable equity to pay-down liability- lien subordination

Deferral programs
15. Currently Not collectible Status (CNC-Status 53)
16. Negotiated 30 to 120 day extension to pay
17. Negotiated 12 month payment plan for the lifestyle adjustment

Penalty Abatement programs
18. Penalty Abatement request for reasonable cause
19. Penalty Abatement request for IRS error

Tax Expiration Programs
20. Statute of Limitations
21. Defunct Business

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