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Tax Problem Resolution
Frequently Asked Questions
How do I know if I have a tax problem?
In most cases, your will recognize that you have a tax problem when you receive a collection letter from the IRS. IRS collection letters are computer generated and will spell out what the IRS claims that you owe.
Tax problem arise from many causes. Some of the main sources of tax problems include:
- failure to file your tax return or late filing of tax return;
- failure to report income properly
- improper deductions shown on your tax return
- personal liability for small business payroll tax obligations
If you know that you have a potential tax problem, it is always in your best interest to deal with this problem earlier rather than later. IRS computer systems are getting more and more sophisticated and you should not depend on luck or “slipping through the cracks.” Also, by waiting, the penalties and interest on your underlying tax obligation will grow and grow. I have seen many cases where the penalty and interest is two or three times the underlying tax obligation. Finally, when negotiating with the IRS, your good faith effort in addressing your tax problems before collection starts or early in the process will usually help us work out a better deal for you.
As a tax attorney, it is much harder to deal with an emergency case where assets have been seized or levied. And remember, your conversations with an attorney are subject to the attorney-client priviledge.
When does it make sense to hire a tax lawyer?
You have the right to attorney representation for any tax problem. However, as a practical matter, unless your tax liabilty, penalties and interest exceed $20,000, it may be cost effective to hire me. Tax representation can be very time consuming and paper intensive. Although I strive to keep my fees as low as possible, every tax case I handle requires a certain level of work. It has been my experience that the $20,000 tax liability figure is a fairly good rule of thumb.
There are a number of “do it yourself” tax guides on the market for cases where it is not cost effective to hire a tax lawyer. Here is a link to an
Inexpensive Do-It-Yourself Tax Guide
that you may find helpful.
If you would like me to review your tax situation and offer you my analysis and suggestions about how you might be able to proceed on your own, I would be happy to schedule a consultation. My fee for an hour consultation is $250. Please click here to see what I will need to get started.
Should I try to negotiate with the IRS myself?
I feel very strongly that you should not attempt to negotiate directly with the IRS. IRS collection employees are people, and, as you might imagine, no one is ever happy about talking to them. Imagine working a job where you spend your day trying to collect money on behalf of the most feared institution of the federal government. It is very hard to have a productive conversation with a collection employee when you are the target.
My observation has been that taxpayers who try to negotiate with the IRS either end up in a hostile conversation or they offer to give up far too much. By contrast, a tax attorney representative has no personal stake in the negotiation or conversation. The IRS collection employee can reveal openly his concerns and suspicions. If an impasse is reached, your representative can leave the dialog open for another day.
In addition, as your attorney representative, I have knowledge and experience about legal and procedural options open to you if negotations fail. Also, I will be in a better position to guage the reasonableness of the IRS offer. Most importantly, however, as your attorney representative, I will not be emotionally involved in the negotiations. Remember - the IRS has the power to seize assets and to severely damage your life. You will most likely be offended and upset at the IRS’ position. As your attorney representative, I try to engage the IRS representative in a joint effort to solve a problem.
I just received a letter from the IRS - how long do I have before I should start to worry?
The answer to this question depends on how much you owe and what the notice says. Here are the notices you are likely to see:
- “Request for Payment” notice - sets out the details of the claimed balance and demands payment in 10 days. This notice must be issued before the IRS can file a tax lien;
- Notice 501 - Reminder Notice
- Notice 503 - Urgent, immediate action is required. This notice is sent approx. 5 weeks after Notice 501.
- Notice 504 - Urgent, We intend to levy on certain assets. Please respond NOW. This notice is sent approx. 5 week after Notice 503
- Letter 1508 - FINAL NOTICE, NOTICE OF INTENT TO LEVY AND NOTICE OF YOUR RIGHT TO A HEARING. PLEASE RESPOND IMMEDIATELY. If no payment is made, payment arrangements formalized or appeal rights exercised, a levy can be issued after 30 days.
- Note, however, that if the tax due is large, if the liability arises from payroll taxes or if the taxpayer has a previous history of non-compliance, this process may be accelerated and fewer notices may be issued.
Notice of Levy - usually issued 6 weeks after date on Letter 1508. Levy is a seizure on the taxpayer’s bank accounts, wages, accounts receiveable or other liquid assets. Certain assets and property are exempt from levy. Click here to read about what is protected from IRS levy.
The IRS has contacted me about past years’ taxes. What should I do about current tax obligations?
You should pay your current obligations if at all possible. By showing that you are making an effort to comply with your tax obligations, your leverage for negotiation improves. Also, make sure to prepare and file your tax returns, even if you do not have the money to pay your obligations. Your failure to file tax returns will result in additional penalties.
I have not filed tax returns for several years - is there any hope for me?
Yes, but you have to take action. As a general rule, the IRS looks favorably on individuals who are attempting to return to compliance with the tax system. If you are not filing tax returns, you are outside of the system and are viewed as a tax evader by the IRS.
If you have not filed returns for several years and have not yet been contacted by the IRS, I will advise you to have these returns prepared (I can refer you to a tax preparer who works on past years’ returns). Next, we will calculate what you owe along with likely penalties. Finally, we will examine how the IRS will most likely respond so that we will be prepared for collection notices.
Note that if you have been employed and received a W-2 or a 1099, the IRS will most likely find you. Employers who issue you a 1099 or a W-2 also send these documents to the IRS for cross matching.
What type of programs does the IRS have to settle tax debt?
The IRS has several programs to settle tax debt. Each is described in detail below:
1. Installment Agreement - this is where you agree to pay your tax debt in full, but over an extended period of time
2. Offer in Compromise - this is where you pay less than the full amount of your tax obligations. In order to qualify for an Offer in Compromise, however, you will need to submit a detailed budget and asset disclosure showing that you do not have the income or resources to pay your full tax obligations.
3. Penalty abatement - as noted above, penalties and interest often cause your tax obligations to skyrocket. In many cases, once you have paid the underlying tax, the IRS will consider reducing some or all of the penalties assessed.
Can I file bankruptcy on tax obligations?
In certain circumstances, you can discharge stale tax obligations in bankruptcy. The general rules for income tax discharge are as follows:
1. Tax return was filed timely and liability is for a tax year more than three years prior to the bankruptcy filing
2. The tax return for the year in question must be more than 2 years prior to the bankruptcy filing;
3. The tax must have been assessed more than 240 days prior to the bankruptcy filing.
If you want to learn more about the discharge of tax debt in bankruptcy, I have attached as a link, the written materials I prepared for a recent presentation I made to the Atlanta Tax Council.
If you want to learn more about bankruptcy, click here to go to the bankruptcy section of this web site.
I owe payroll taxes from a failed business - is there any hope for me?
Yes, there is hope, although my experience is that the IRS pursues business tax obligations much more agressively than personal tax obligations. Why? Payroll tax debt is considered “trust fund” money. In other words, if you withheld money from an employee’s pay, you were acting as a “trustee” for the federal govenment. By failing to remint these f unds, you were not only failing to pay your taxes, but you were failing to pay someone else’s (your employee’s) taxes.
Although the IRS will consider tax settlements for 941 payroll tax debts, this type of settlement can be very hard to get. If you have trust f und liability, you should most definately be proactive and deal with these obligations sooner rather than later.
What do you need from me to get started on my case?
As a starting point, I will need you to complete my new client questionnaire. You can download my questionnaire in two different formats: questionnaire in Adobe pdf or questionnaire in Microsoft Word. After you have completed this questionnaire, please fax, mail or deliver it to me prior to your appointment. I find that I can offer you better service if I understand what type of problem you have. Also, I would ask you to make me copies of any tax notices you may have received. If there is information missing that I need, I can advise you prior to our meeting.
I do charge a consultation fee of $250 to meet with you, review your questionnaire and discuss your options. During the course of our meeting, I will advise you in detail as to the tax problems I see and alternatives about how to solve these problems. If we both agree that my involvement makes sense, we will enter into a detailed fee agreement for services to be provided.
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