FAQ's
Do You Owe The IRS Money And Can't Pay?
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No question about it. When the IRS begins sending those dreaded collection letters, as much as you would like to send in payment and get this nightmare behind you, you don’t have the money.
Life happens, and this unwanted attention from the IRS could result from an oversight on your part. You may not have had enough withheld from your paycheck.
Or you could have come into a large amount of cash and spent it without knowing it was taxable.
This situation occurs more often than most people realize. It’s overwhelming. It’s stressful. Worse, you may not know how to proceed and become frozen and stuck since the problem seems insurmountable.
That’s right. Suppose you try an ostrich imitation and bury your head in the sand by moving the IRS letter to the bottom of your stack of unopened mail. In that case, the letters from the IRS will continue…with the penalties and interest piling up, making a bad situation worse.
The reality is this: the IRS is serious…very serious about collecting what they have determined you owe. Once they are locked in, ignoring them leads to all types of unfortunate consequences: frozen bank accounts, a lien on your assets that allows the IRS to file a levy and seize your assets, garnish your paycheck, and restrict your passport. All of this and more will happen if you don’t respond!
Despite their fearsome reputation and incredible power, the IRS does not want to destroy you. The IRS wants to get you into tax compliance, meaning that you have filed tax returns for the past six years. If you are not current in your filings, the IRS will refuse to negotiate any settlement or payment plan.
Therefore, step one is to get you into tax compliance regardless of your ability to pay your balance due in full.
There are several options available for delinquent taxpayers. Let’s take a look at the most common one’s:
- Installment plan. An Installment Plan is a payment agreement with the IRS. There are several types of arrangements: regular, partial payment, and streamlined. Which one of these options is best depends on your current financial situation and the amount you owe.
- Offer in Compromise (OIC). An offer in compromise is where the IRS will agree to accept less than the total amount you owe. Why would they do this? Because the IRS understands that if you can’t possibly pay the total amount of what you owe, they may accept a lesser amount as long as it falls within their guidelines. This will allow you to have a fresh start since one of the rules is to stay in tax compliance for the next several years. By accepting your OIC offer, the IRS will succeed in getting you back into tax compliance for both the past, the present, and the future. A true “win-win” for both you and them! Remember that the IRS is under no obligation to accept just any OIC. There is a strict protocol that you must follow in crafting your offer. That is where the services of an experienced tax professional are crucial.
- Currently “Not Collectible” status. This status buys time by allowing you to delay paying your debt. The debt is still there, but at least you will be able to function as a normal human being since the IRS will temporarily halt all collection efforts like seizing your bank account and garnishing your paycheck. Once your financial situation improves, the IRS will re-evaluate your status.
- Bankruptcy. A common misconception is that “there is no way you can bankrupt your way out of taxes.” While this is true in most tax situations, bankruptcy might be an option for some taxpayers. However, the key here is the two words “might be.” Bankruptcy is a highly complex scenario that usually requires several professionals – an accountant, an attorney specializing in bankruptcy issues, and a tax resolution specialist.
Owing the IRS is, as mentioned earlier, an extraordinarily challenging and stress-filled time. You need an experienced professional to guide you through these treacherous waters.
Innocent Spouse
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It happens. It happens more often than you may think. In today’s hectic, fast-paced, 24/7 connected society, we have never been busier and distracted than we are now.
You might be distracted by several things. A death in the family. Divorce. A dramatic increase in your job responsibilities and the resultant stress. A loss of your job. Illness.
You may feel overwhelmed by feeling that your return is too complex, or you have a balance due and can’t pay what you owe.
Or your spouse neglected their promise to file, or perhaps we could say “life happens.”
That’s right. The Internal Revenue Service is very aggressive concerning non-filers and non-payers of the tax they owe. As far as they are concerned, pay up or watch the penalties and interest pile up.
The absolute worst thing you can do is continue to ignore those letters from the IRS that keep showing up in your mailbox.
The stress of having that “Sword of Damocles” hanging over your head will not go away until you take action to address the issue. Ulcers, sleepless nights, inability to focus, stress on your relationships, and a broad range of other problems add to your tax problem misery.
Consider this: In addition to the failure to file penalty, the interest on taxes that are late add to the burden of the initial amount you owed. The failure to file penalty can balloon up to as much as 25 percent, and that is something you don’t need!
If you don’t take action, this nightmare will continue and lead to liens placed on your property, ruined credit, and eventually a levy that gives the IRS the right to seize your bank account, personal property, assets, and business if you are self-employed.
The number one thing to remember concerning back taxes is this: Get your returns filed as soon as possible (ASAP), even if you can’t pay your balance due! Here’s why.
To repeat, the IRS will not consider working with you to obtain a settlement until you are in tax compliance. Tax compliance means that you must have filed all of your tax returns for the past six years. The IRS could demand tax returns even further back, but six years is usually sufficient.
If the returns are not filed, the IRS can do a Substitute for Return (SFR). An SFR is not a good idea for several reasons. It is far better to hire a tax professional to complete and file your returns and have that pro represent you before the IRS.
As mentioned earlier, there are settlement options such as an Installment Agreement (IA) and an Offer-in-Compromise (OIC) that can get you into tax compliance without bankrupting you or leave you financially devastated.
What if my spouse owes the IRS? What should I do?
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Does your spouse always prepare your tax returns? Have you received a letter from the IRS saying you owe taxes? Were you confused and surprised? Were you aware of an unexpected income windfall, but your spouse didn’t tell you the exact amount?
If you answered “YES” to any of these questions, you might be entitled to relief from the tax due from your spouse, along with any penalties and interest. This relief will prevent your credit from being destroyed, and you can move forward with your financial life.
Many taxpayers find themselves receiving that surprising letter from the IRS through no fault of their own. After all, their spouse has years of experience working in the financial industry, so why shouldn’t they handle the tax return? Most taxpayers consider it a done deal when the return is filed and accepted.
Imagine their shock when they discover an additional $50,000 of income that their spouse did not report. Now the IRS is demanding $20,000 for back taxes, penalties, and interest!
There are two possible courses of action to obtain relief in that unfortunate circumstance: innocent spouse and injured spouse.
Before we go any further, let’s look at the distinction between an innocent spouse and an injured spouse.
An injured spouse is the most common of the two. To qualify for an injured spouse, the non-owing spouse usually knows about the other spouse’s debt when filing a joint return. They are shifting responsibility for the debt.
This type of debt could be student loans or child support, or a few other reasons. The key here is that this is not a 50-50 split of the refund but is an allocation based on an IRS formula.
An innocent spouse often comes into play following a divorce, and the innocent spouse did not know whatsoever of the debt owed by the other/former spouse. Again, this is only an issue when a joint return is filed.
I will review your situation to see if there was unreported income that you were unaware of. Your spouse may have hidden this from you, or it might not be fair to hold you responsible for the added tax.
Once your application for innocent spouse relief is submitted, the IRS will determine if any of these circumstances apply:
- There was a deduction claimed by your spouse that was not allowed
- You did not know about this erroneous deduction when you signed the return
- It would be unfair to hold you liable for the added tax once the facts are known
- You have not transferred or received property from your spouse to avoid payment to a third party or to pay taxes
I know this is a challenging time for you, and there seems to be a bewildering mountain of things to consider. I’m here to guide you through this minefield and see if you qualify for innocent spouse.
I will review your situation to see if there was unreported income that you were unaware of. Your spouse may have hidden this from you, or it might not be fair to hold you responsible for the added tax.
Once your application for innocent spouse relief is submitted, the IRS will determine if any of these circumstances apply:
- There was a deduction claimed by your spouse that was not allowed
- You did not know about this erroneous deduction when you signed the return
- It would be unfair to hold you liable for the added tax once the facts are known
- You have not transferred or received property from your spouse to avoid payment to a third party or to pay taxes
I know this is a challenging time for you, and there seems to be a bewildering mountain of things to consider. I’m here to guide you through this minefield and see if you qualify for innocent spouse.
Payroll Tax Payments
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Your business usually runs smooth, but at times your cash flow dries up, and your payroll tax deposit is late. Or perhaps you were swamped and missed your quarterly payroll tax return filings.
You may think that being behind in your trust fund payments is no big deal. After all, you are just borrowing the money from the Internal Revenue Service (IRS) until you get your business back on track.
Being late on payroll taxes is serious very serious. Here’s why. When your employees file their tax returns, they use the amounts in boxes 2, 4, and 6 from their W-2’s. The amount in box 2 determines their refund or credited toward their balance due.
The amounts in boxes 4 and 6 are credited to their social security retirement and their medicare contributions. The IRS assumes that their employer has made those payments to the trust fund, and the employee is fully credited for those contributions.
Think about this. If the IRS has not received those payments, the effect is that the government has been ripped off twice! First, from the missing money from the employer, and second from the money paid out or credited to the innocent employee.
Hopefully, now you can see the severity of the situation. The IRS is giving its full attention to late trust fund payments, and there are real teeth behind their enforcement efforts.
The penalties for late paying or not paying trust fund taxes mushroom with astonishing speed. There is the failure to file penalty, the Trust Fund Recovery Penalty, interest on the delinquent taxes, and the taxes themselves.
Before you know it, your balance due is staggering. The IRS, state tax agencies, and municipal tax agencies will send a letter if any of the following occurs:
- You miss a payment deadline for payroll taxes due
- You miss a deadline for filing payroll tax
- The amount you paid is short or over what the tax agency calculates as due
- The agency notices a discrepancy on your payroll tax returns and needs an explanation
- You are being audited
- You ignored previous correspondence
If you continue to ignore the IRS correspondence, the stakes dramatically escalate. The IRS can attach liens to your property, making it impossible to sell, garnish your wages, and obtain a levy which gives the IRS the right to seize and sell your assets.
A tax lien is a court filing and a matter of public record, which means that your credit score will crater by as much as 100 points immediately and stay on your record for at least seven years.
If all of this weren’t bad enough, there is also the possibility of criminal indictments if you continue to not respond to the IRS. To put it bluntly, this is an issue that will not go away on its own…you must take action!
If your employer did not file their payroll tax returns or pay their payroll taxes on time, the IRS might designate you as a “responsible person.” This nightmare scenario means that even if you are not the business owner, but you have a relationship with the business with a specific type of status, duty, or authority, the IRS may consider you accountable for not paying payroll taxes.
The sad, grim irony of people caught in this circumstance is that they are considered guilty, and the burden is on them to prove their innocence.
An experienced tax professional can represent you to the IRS, argue your case, and get your “responsible person” status dropped.
An experienced tax professional can help you:
- Respond professionally to IRS correspondence
- Get you in tax compliance by filing back late tax returns
- Understand the IRS collection process
- Negotiate penalties, interest, and taxes to lower the amount you owe
- Work out a payment plan for any money you owe to the IRS
- Fight for you on any issues that arise, like a “responsible person” situation
- Protect your assets by removing levies and liens
Contact me at no obligation so I can understand your specific payroll situation and give you advice on your available options. As always, I will handle your tax matters with the uttermost privacy and confidentiality.
Are you being audited?
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Let’s be honest. There is nothing quite as chilling and intimidating as opening a certified letter from the Internal Revenue Service (IRS) with trembling hands and pounding heartbeat and seeing that you are being audited.
You’re confused.
You’re worried or just plain fearful.
You don’t know what to do or where to go.
Did you know:
- The IRS is the only federal agency that can freeze your bank account without a court order… entirely at their discretion.
- The number of taxpayer accounts in collection has tripled in the past 15 years.
- Due to the COVID-19 virus, the IRS has relaxed tax enforcement. But that was merely a short-term occurrence, and now the gloves have come off.
- You can’t be safe from an audit, regardless of whether your return is complex or simple – it doesn’t matter to an IRS computer.
- The average audit costs the taxpayer several thousand dollars…and that doesn’t include the missed work, stress-filled days, and sleepless nights.
Also, this is not the “warm and fuzzy; I feel your pain” IRS of recent years. The Roth congressional hearings over IRS abuses in the late 1990’s caused such outcry that the IRS was temporarily less aggressive…but no more!
Remember the ancient cliché: “that was then, and this is now.” That neatly sums up the IRS’s current attitude towards collections and audits. It is now a brand-new ballgame.
Faced with the most massive, spiraling, out-of-control budget deficit in the history of this nation and a new presidential administration promising to pump up government spending to dizzying heights, the IRS has the green light to “go get ’em.”
More grim facts. The IRS will be aggressively auditing Earned Income Tax Credit (EITC) far more than recent years. There are several other “red flags” that can trigger an audit…self-employment, travel expenses, home office deductions…all legitimate and legal deductions that could cause a host of complications for you.
Other situations are not particularly severe such as:
- The IRS notices a discrepancy on any of your tax returns and needs an explanation
- An amount paid is more or less than what the IRS or another state or municipal tax agency calculates as due
- You have missed a payment deadline for taxes due
- You have missed a tax deadline for filing your tax return
- You failed to respond to previous correspondence
Even if these incidents are not severe, they can become very serious if you ignore them. Never, ever put your correspondence from a tax agency in the pile of unopened letters that you will “get to when I find the time.” NO! The time to deal with these issues is NOW!
A friendly reminder: The IRS, or for that matter any other tax agency, will never initiate contact with you by email for any of the above situations. Remember this mantra: email = scam.
Just stop to think about how stressful and time-consuming an audit can be. There is difficulty finding all of your receipts, documenting names, dates, times, and places, then researching the relevant tax codes.
Also, there is the intimidating face-to-face audit. A team of experienced, professional, and highly trained aggressive IRS agents will be pouring over your tax return with a magnifying glass…and all other aspects of your personal and financial life in intimate detail.
The IRS could also decide to conduct a dreaded “Root-canal” audit. This nightmare means they will demand verification of every single deposit and withdrawal into and out of your bank account for the entire year. This audit happens far more often than can be imagined.
Finally, think of the mental stress that an audit can trigger. The dread of impending seizures…a lien and levy of your house…cars…business…bank account…ruined credit…the deep financial holes that may take years to recover from…if you can ever recover.
I have represented taxpayers with audits before the IRS, and I am confident that I can help you as well. I will:
- Review the correspondence you have received from the IRS
- Determine a course of action depending on the circumstances
- Contact the IRS on your behalf, so you don’t have to deal with them directly.
- Represent your case to the IRS
- Contest any issues from your tax return that the IRS is questioning
- Initiate appeals or other remedies if we cannot come to an equitable settlement or if the IRS has made a decision that feels unfair or extreme.
Contact me for a no-obligation discussion about how we can proceed to a satisfactory outcome of your tax issue.