IRS Collection Alternatives

The Internal Revenue Service may take collection action against you, such as filing liens or levies against your assets, if you do not:

  1. Pay the taxes you owe in full;
  2. Pay the taxes you owe on time; or
  3. Make arrangements with the IRS to develop a tax payment plan.

It is in your best interest to pay any taxes you owe as soon as possible, because the IRS will continue to charge you penalties and interest while the debt remains outstanding.  If you cannot pay the full amount of taxes you owe by the deadline, you should still file your tax return and pay as much as you can to reduce penalties and interest.  Taxpayers who find they are unable to pay the taxes and their associated penalties should know that the single worst course of action is inaction.  Rather, taxpayers need to understand their collection alternatives.  The attorneys at Nardone Limited have the expertise to guide taxpayers through these collection alternatives, including (i) Offer-in-Compromise; (ii) Installment Agreement; (iii) currently not collectible status; and (iv) discharge of income taxes in bankruptcy, as well as a combination of several of those alternatives.

Services

  • Representing taxpayers as part of a Revenue Officer interview, and submission of financial information to either the Revenue Officer or the IRS’ Automated Collection Services section
  • Representing individuals and businesses in tax collection matters – with a focus on Internal Revenue Service administrative collection matters, including successfully obtaining Offer-in-Compromises, Installment Agreements, and other collection alternatives on behalf of clients
  • Assisting individuals and businesses in preventing or removing tax liens and levies;
  • Representing individuals and complying with the Internal Revenue Service Offshore Voluntary Disclosure Program, as well as other voluntary disclosure programs authorized under federal law
  • Assisting taxpayers and complying with state voluntary disclosure programs, including sales and use tax amnesty
  • Representing individuals, estates, and businesses in audits, appeals, and substantive civil tax litigation matters
  • Assessing individuals’ and businesses’ financial circumstances and determine viable collection alternatives
  • Representing individuals in bankruptcy court as part of discharging their qualified federal, state, and local income tax liabilities
  • Representing troubled businesses with their federal, state, and local tax obligations and negotiations with the various taxing authorities
 

Questions

What types of collection actions might I face if I do not make voluntary payments on my tax debts?

ANSWER:  If you do not pay your tax bill, or make arrangements to pay it, the IRS, including a Revenue Officer with the IRS, may file a Notice of Federal Tax Lien against you.  A lien is a claim against your property that will appear on your credit report.  After filing a lien, the IRS will likely serve a Notice of Intent to Levy as to certain assets or property you own.  A levy enables the IRS to seize the amount you owe in tax debt from your accounts, Social Security benefits or wages, and/or from a sale of your tangible assets, such as your home or vehicle.  The IRS may also garnish any state or federal tax refunds to recover the amount owed.

What if I can’t pay the full amount of tax debt I owe?

ANSWER:  Depending on your circumstances, you may qualify to enter into an Offer-in-Compromise with the IRS.  An Offer-in-Compromise is an agreement between the IRS and a taxpayer, by which the IRS agrees to accept less than the full amount of the tax and penalties in full repayment of the outstanding tax debt.  The IRS determines a taxpayer’s eligibility for an Offer-in-Compromise by evaluating the taxpayer’s financial situation and circumstances. 

How does an Offer-in-Compromise work?

ANSWER:  The IRS prefers a partial payment to no payment at all. Thus, the IRS is sometimes willing to settle a tax liability for less than the full amount if (a) the taxpayer is unable to pay the full amount, (b) there is doubt as to how much the tax liability is, (c) collection of the liability would create economic hardship for the taxpayer (such as where the taxpayer is out of work due to health problems, or where sale of assets to pay the tax would leave the taxpayer without enough money to meet basic living expenses), or (d) compelling public policy or equity considerations exist, and due to the exceptional circumstances IRS’s collection of the full liability would undermine public confidence that the tax laws are being fairly and equitably administered. Exceptional circumstances for this purpose might include situations where a taxpayer relies on erroneous advice from the IRS, or a medical condition prevents a taxpayer from managing his financial affairs

The taxpayer starts the settlement process by submitting an Offer-in-Compromise. If the offer is grounded on any reason other than doubt as to how much the tax liability is, financial information must be submitted along with the offer. If it is grounded on doubt as to the liability, IRS does not generally request a financial statement.

Except where the offer is based only on doubt as to liability, the taxpayer must agree to comply with all tax law rules on filing returns and paying taxes for five years or until the offered amount is paid, whichever period is longer. If these requirements are not met, the compromise terminates and IRS can seek collection of the original liability amount.

It is also important to note that notwithstanding the unwieldy amount of paper required to process a successful Offer-in-Compromise, the odds of acceptance are weighted against the taxpayer from the beginning. The IRS will reject an Offer-in-Compromise if: (1) all of the documents are not properly submitted; (2) the taxpayer fails to submit any additional requested documents; (3) the amount offered is less than what the IRS could expect to collect; or (4) if there is a public policy reason to reject it.

Are there other collection alternatives if I do not qualify for an Offer-in Compromise?

ANSWER:  Yes.  Another way to defer your tax payments is to request that the IRS enter into a payment plan with you—called an Installment Agreement.  Under an Installment Agreement, the taxpayer repays the entire tax liability over a period of time in monthly installments.  A taxpayer makes a request for an Installment Agreement on Form 9465.  The IRS charges a $43 fee for Installment Agreements, which will be deducted from your first payment if your request is approved.  Form 9465 requires less information than the hardship extension application.  Under certain circumstances, if your outstanding tax liability is under $50,000, you will not be required to submit financial statements. Even if the IRS grants your request to pay in installments, you will be charged interest on any tax not paid by its due date.  But the IRS will impose the late payment penalty at only half the usual rate (1/4% instead of 1/2%), if you file your return by the due date (including extensions).

I have heard others indicated that I may be able to discharge my income taxes in bankruptcy, is that true?

ANSWER:  Yes.  There are circumstances where an individual may discharge their federal income tax liabilities in a Chapter 7 bankruptcy.  The rules are complicated and cumbersome, but there are instances where individuals can avail themselves of the bankruptcy court as part of discharging their overall debts, including their income tax liabilities.  The idea is that taxpayers deserve a fresh start no differently than any other debtors.  Thus, the bankruptcy laws are available and taxpayers should avail themselves of those laws, to the extent those taxpayers qualify under the law.