How do we resolve your tax debt?
When you get a letter from the IRS or the PA Department of Revenue saying that you owe taxes, it can be very alarming to say the least. Many times, you cannot afford to pay the entire amount at one time or, maybe, not at all. The prospect of trying to resolve your tax debt on your own is intimidating. The attorneys at Steidl and Steinberg Tax Services have experience helping people in all situations with their tax problems. Below are some brief explanations of the tools that we use to help our clients. We will meet with you in person to evaluate your situation and see which options may be right for you.
Both the IRS and the state offer payment plans to allow you to get caught up on your back taxes. Pennsylvania requires you put a 20% down payment toward the back taxes and pay the remaining balance within one year. The IRS is more flexible. If you owe less than $25,000, the IRS will put you on a streamlined payment plan that allows you to pay off the tax debt within five years. This can be done without submitting any financial information.
If you are not able to pay off the debt in five years, you can submit financial information to the IRS in order to prove that. If the IRS feels that paying off the debt in five years would be a hardship, they will give you a longer period of time over which to repay. If you owe more than $25,000 to the IRS, it is not as easy to get put on a payment plan, but the attorneys at Steidl and Steinberg Tax Services are here to help. Give us a call to see if a payment plan may be a good option for you.
You’ve probably seen many TV commercials by out-of-town tax resolution services insisting they can resolve your tax debt for pennies on the dollar. While this can be accomplished in some circumstances, there is a lot more to it than just waving a magic wand. If you owe money to the IRS and are able to prove you legitimately do not have the money to repay the debt, the IRS will agree to take less than the total amount owed. This will also stop interest and penalties through something called an offer-in-compromise.
An offer-in-compromise is not just a matter of simple negotiations but requires the gathering of documents and preparation of paperwork. In order to request an offer-in-compromise, you must fill out IRS Form 433A, on which you will list your assets, income, and expenses. The IRS goes through a four-step process once they have your financial information.
- The IRS will examine your assets to see how much you have in retirement accounts, bank accounts, how much equity that you have in real estate, vehicles etc. The IRS takes a certain percentage of the value of your assets and considers that as money that you should have to pay toward the tax debt.
- The IRS next compares your actual expenses to the expenses the IRS allows. The IRS will not give you credit for certain expenses, like unsecured debt payments and college tuition, at all. For other expenses, the IRS will only give you credit for your expenses up to a certain number. For instance, if you say that you spend $500.00 a month on food for yourself, you will only get credit for $300.00 as that is the amount allowable for food expenses under the IRS National Standards. Your allowable expenses are subtracted from your income to determine how much money you could pay toward your tax debt each month.
- The IRS begins calculating your collection potential, or the amount they feel you can reasonably pay toward the tax debt, by first multiplying the amount of your available monthly income in step 2 by 48 if you plan on paying your offer in a lump sum, 60 if you plan on paying over 24 months, or the number of months that remain for the IRS to collect the debt if you need to spread your payments out over longer than 24 months. That number is then added to the percentage of your assets from step one to arrive at your collection potential.
- The amount of your collection potential from step 3 is compared to the total amount of taxes you owe. If the collection potential is less than the amount owed, you qualify for the offer. If the collection potential is more than the amount owed, you do not qualify.
While an offer-in-compromise is a great program if you get accepted, this simplified explanation shows how difficult it can be to know what the IRS is looking for, have all of the documentation together and know what will be a successful offer. Don’t spend the time preparing an offer just to have it rejected. Have the experienced tax attorneys at Steidl and Steinberg Tax Services prepare a successful offer-in-compromise
Uncollectable status is available for people that owe the IRS money, but do not have the ability to pay anything toward the debt. If you are in uncollectable status, the IRS will continue to add interest and penalties to the amount you owe and will file a lien against you but will not try to collect the money from you. You will have to periodically reapply for uncollectable status. If your financial situation improves, the IRS will take you out of uncollectable status and begin trying to collect from you again. Uncollectable status can be very helpful for those on a fixed income that are unlikely to have their financial situation improve in the future.
For those having a temporary financial hardship, uncollectable status can be a good tool to avoid collections until you are back on your feet.
What will it mean for me?
Most people don’t think of bankruptcy as a tool to help you deal with your tax debt, but depending on your circumstances, bankruptcy can eliminate certain tax debt and restructure other tax debt in a way that may be much more affordable than any option offered by the IRS.
If you have older tax debt for which no lien has been filed and you filed your taxes on time, you could qualify for having the tax debt eliminated in the bankruptcy. If you have tax debt for which a lien has been filed, you can oftentimes pay back less than the total amount owed. If you have more current tax debt that is not liened, you can pay back the amount you owe without interest and penalties. Contact us to learn more about how bankruptcy can help you eliminate or restructure your tax debt.
Disputing the amount you owe
The IRS and the PA Department of Revenue do make mistakes. Sometimes they say you owe taxes when you know you don’t or they say you owe more than you actually do. The attorneys at Steidl and Steinberg Tax Services can assist people that are being audited or have been assessed taxes that they don’t really owe. We will help you gather the necessary documents to prove your case and we’ll cut through the red tape so that you don’t have to pay any more than you rightfully owe.