Now that tax season is over, it may be spring time, but the Internal Revenue Service is like the post office, it never sleeps. And like the mob, it wants its money. Now. So, notices are flying.
Recently we’ve discussed what to do when you think you cannot pay your personal or payroll taxes and/or are severely underfunded. You need to pay back some of the money you owe — or didn’t pay to begin with — as a sign of good faith, because the notices will come and you should respond in kind.
Types of Notices
There are many types of notices. For our purposes, there are three:
Normal notice. These are the run-of-the-mill notices, from everything concerning a need for a missing form to ones claiming you owe money. These are the first cut, and if not treated and addressed immediately, they will fester and become…
Notice of lien. A notice of lien is sent to a property owner as an alert that some other person has made a financial claim against his/her property. The property cannot be sold without satisfying the lien judgment. This is the next step in the IRS’ movements to take your stuff. This puts you and your creditors on notice. You owe money. And you need to pay the government. If ignored, they send you a…
Notice of levy. An IRS levy permits the legal seizure of your property to satisfy the debt. It can garnish wages, take money from your bank account, seize and sell your vehicle(s), real estate and other personal property. In short, it’s the notice that they are taking your stuff.
Answering the Notices
You can slow the inevitable march of the jackbooted thugs through communication. You can’t forestall the inevitable, but you can land instead of crash the plane.
Collections Due Process
Our goal is to avoid litigation with the IRS and resolve any tax discrepancies. One of your best bets is to request a Collection Due Process Hearing, by completing Form 12153. These are used after notice of lien or levy that somehow can be argued you were denied. What is due process? Think: “It has to be fair.” This will provide the forum to ask for an installment agreement, an offer in compromise (OIC) or another collection alternative. Here you’d collaborate with your lawyer or tax representative and attempt to negotiate paying a lesser amount than what you actually owe.
Offer In Compromise
I often advise clients to opt for the OIC. If you do it, the amount you present needs to be greater than or equal to the IRS-calculated reasonable collection potential (RCP). The IRS will reject your offer if it doesn’t meet the criteria and then we’re back to square one. My associates and I are a numbers-oriented group that will make sure the figure we present will meet the expectations of the IRS.
But we’re pragmatic. That RCP is the IRS’ estimation of your current and future financial status — if you owe $100,000 you will likely not get away with only paying $5,000. You’re expected to bounce back at some point in your career and cannot expect to leave the feds holding that much of the bill.
If you’ve been receiving notices, contact us and we’ll help you plan the best course of action.
Next Thursday we’ll continue the OIC discussion by exploring some legally defensible positions.