Tax Resolution / IRS Representation
Late night cable channels abound with commercials of companies that promise to help taxpayers resolve their tax obligations for pennies on the dollar. Most of these organizations commit fraud by taking client’s money in the form of a retainer and then not completing the work needed to resolve the tax issue. Many of these firms push taxpayers into an Offer-in-Compromise for which the taxpayer or business does not qualify. At best many of these firms over promise and under deliver.
When resolving an individual or business tax issue, there are a number of tools available to the practitioner in addition to an Offer-in-Compromise. Clients should keep in mind that the IRS’ concern is:
Payment Plan – In many cases, a payment plan can be established by the client over the life of the collection statute (10 years from the date of assessment). The payment plan is based on the taxpayer’s ability to pay by evaluating the taxpayer’s current and future income, assets, and living expenses. The taxpayer may end up paying less than the amount of tax owed over the life of the collection statute.
Bankruptcy – Bankruptcy can be a valid option for certain types of income tax. Most common taxes that can be bankrupted are individual income taxes, interest, penalties, and non-trust fund payroll liabilities. A few general rules need to be observed to ensure the taxpayer is eligible for bankruptcy relief.
- Payroll trust fund tax liabilities and excise taxes are not bankruptable. Payroll trust fund taxes are defined as the Federal withholding from employee’s payroll along with the employee withholding of Social Security and Medicare taxes.
- The tax liability must have been from a tax return filed three or more years including extensions from the date of the bankruptcy. Additionally any tax that is assessed must have been assessed at least 240 days prior to the bankruptcy filing. One major exception occurs when the IRS files a return on behalf of a taxpayer. By filing the return on behalf of the delinquent taxpayer, the IRS essentially blocks the taxpayer from being able to bankrupt the tax liability at a future date.
Currently Not Collectible – The IRS can declare you as being currently not collectible after it reviews evidence that you have no ability to pay the tax you owe. As soon as the IRS determines that you cannot afford to pay any of your tax debt due to economic hardship and declares you currently not collectible, the IRS must immediately stop all collection activities including levies and garnishments. While you are in the currently not collectible status, the 10-year statute of limitation on tax debt collection continues to run. If the IRS cannot collect the tax you owe within the 10-year statutory period, then your tax debt will expire and you’ll owe nothing to the IRS.
Penalty Abatement – In many cases a legitimate reason exists in which the taxpayer may obtain penalty abatement. Penalty abatement is on a case by case basis. Cromwell & Company has been successful in abating taxpayer penalties at both the Federal and state levels.
Reduction of Tax Liability – In some cases you may not owe the amount of tax assessed by the taxing authority. This most commonly occurs when the IRS files returns on behalf of taxpayers who are delinquent in filing their returns. In IRS terminology, this is called a substitute for return (SFR). When an SFR is filed on behalf of a taxpayer by the IRS, the IRS files the return in the best interest of the IRS. For example, the IRS does not take into account basis in stock transactions. The IRS will not take into account business expenses offsetting 1099 income placed on Schedule C. The IRS will not take into account charitable donations by the taxpayer. The taxpayer can correct the discrepancy by filing a return. While in many cases, this will reduce the tax liability for the taxpayer, keep in mind, the liability is ineligible for bankruptcy (see bankruptcy above).
The above is only a brief overview of the types of services Cromwell & Company provides to taxpayers facing tax problems at either the Federal or state levels. For a confidential consultation regarding your specific tax issue, please feel free to contact a member of our staff.