Here first is a cautionary tale on how not to fight the IRS on the matter of tax debts. That would be the story of tax protestors, Ed and Elaine Brown from New Hampshire. They are now residing in rent-free housing provided for by the U.S. Government. It’s just not the kind of housing that you’d ever want. Their story is one of protest against the IRS and the Federal Government, and not only tax evasion, but later, after their convictions, armed resistance to the Federal Marshals who were summoned to take them to jail.
I was recently struck by the plight of their 100-acre New Hampshire residence that cannot be auctioned off by the U.S. Marshals due to the claim of Mr. Brown that the property is extensively booby-trapped with explosives. (that would make for an entertaining Seller’s Disclosure Statement).
Alright, now that we’ve discussed the way not to approach your IRS tax problems, what are some better solutions?
1) we contact the IRS to get all tax account transcripts to see the status of each tax return for each year in question;
2) after reviewing the transcripts, we can see if there are any un-filed tax returns;
3) for those returns that are un-filed, we obtain from the IRS all the wage and income information (W-2s and 1099-s, for example) for each tax year;
4) prepare the returns and file them as soon as possible to minimize late filing penalties, and to get the taxes assessed by the IRS;
5) once the returns are all filed, make sure that the current taxes are being properly withheld or that estimated tax payments are being made; remember that any Offer-in-Compromise or Installment Agreement can be rejected if someone falls behind on their current tax obligations;
I’ve outlined the requisite steps for achieving “IRS tax compliance”. Once you’ve gotten to this point, then you can move forward on the best strategy, such as an Installment Agreement, an Offer-in-Compromise, or applying for Uncollectible Status.
But any strategies can be changed at some point in the future due to your financial circumstances changing. Let’s say that you have $50,000 in income tax debt, but you have a very healthy salary. As a result, maybe you’re not a good candidate (due to your good income) for an Offer in Compromise. Therefore, you start off on an Installment Agreement (this is a plan to repay the IRS taxes over a 72 month period). But maybe 2 years into your Installment Agreement, you fall ill and can no longer work. At that point, perhaps you’ve become a good candidate for an Offer in Compromise, and can then settle the tax debts for pennies on the dollar.
Your circumstances can change, but the IRS will first insist upon tax compliance before it will consider any payment alternatives.
If you have questions, please leave them in the comments section below. Thanks.