By: Matthew J. Schiller, Esq.
“If we command our wealth, we shall be rich and free. If our wealth commands us, we are poor indeed.”
—Edmund Burke (1729-1797)
If you owe taxes to the Internal Revenue Service as millions of your fellow Americans do, you may feel like you have lost command of your wealth or potential wealth. It doesn’t have to be that way. Why not be proactive and work out a solution that fits your budget and current circumstances? If your circumstances change in the future, you can always pursue another type of resolution.
First, ensure that the IRS cannot take your assets through a bank levy, account receivable levy, wage garnishment, or worse. Do not lose command of your wealth. Keeping command of your wealth and future wealth involves establishing a formal resolution with the IRS. In doing this, you will want to take advantage of any possible ways to reduce your total tax bill. The most common ways to save money on your tax bill are as follows:
Offer In Compromise
An accepted Offer in Compromise (OIC) can be an excellent way to save money on your tax bill. If you are a good OIC candidate, it can be a wise path to follow.
If you have significant home equity, substantial monthly net income, or operate a profitable business, an Offer in Compromise may not be the preferred strategy. But if you do not have significant personal assets or net monthly income, you should strongly consider submitting an Offer in Compromise. An experienced attorney will give you an honest and objective assessment of whether it would be worthwhile to pursue an OIC in your case.
Penalty Abatement
You should almost always pursue penalty abatement. A taxpayer with no prior penalties in the past three years can qualify for First Time Abate (FTA), or the IRS’s version of a “get out of jail free card.” If you do not qualify for First Time Abate, you must show “reasonable cause” to abate penalties. If you have a valid reason why you could not file and pay your taxes on time, a good attorney will formulate a cogent argument on your behalf.
You have your best chance with a representative who has achieved penalty abatement before, who has extensive experience resolving cases with IRS Appeals, and who will not string you along with false promises or inaccurate advice. Unless and until they are removed, penalties accrue interest daily, and for collection purposes, are treated the same as the principal tax that you owe. It is by no means a foregone conclusion that the IRS will abate, remove, or compromise a single dime of your penalties. Let us discuss the reasons behind your current tax liability, whether you qualify for FTA, and whether we can show reasonable cause, so we can stop the penalty snowball from engulfing your command of your own wealth and future.
Audit Representation or Reconsideration
If you are being audited, you do not need to blindly accept the initial results proposed by the Internal Revenue Service. You have a right to provide information, documents, and correct any errors in any proposed assessment against you. You might be surprised how often the IRS makes mistakes and/or collects taxes that could feasibly be reduced or eliminated. The same holds true even after an audit has been completed and the tax has already been assessed. Many times (for example in stock transactions) the IRS simply does not have complete information (such as your correct basis in the stocks) that could reduce or eliminate a proposed additional tax assessment. Self-employed individuals should ensure that they are claiming and proving all business expenses, to offset gross income and minimize the ultimate tax burden.
In short, a cooperative yet contested audit response can help prevent inflated liabilities. If you believe you did not provide all relevant proof of income, expenses, or deductions during your IRS audit or correspondence examination, then you may be able to reduce the total tax bill the IRS is claiming or has assessed against you. Each case is different and in a different stage of the process, so please call us to discuss your current situation.
Partial Pay Installment Agreement
If you work out a payment plan with the IRS that will not fully pay the balance due by the Collection Statute Expiration Date (CSED), you are in a Partial Payment Installment Agreement (PPIA). This can result in overall savings on your total tax bill akin to an Offer in Compromise, if the circumstances allow. A Partial Pay Installment Agreement is typically reviewed every two years, and you will need to provide a financial statement to show your ability to pay. Taxpayers have relatively few rights within the Internal Revenue Manual, and it is important to utilize them when they can benefit you and your family’s finances.
Filing Amended or Actual Returns
If your balance due comes from a return that you did not file, but rather was filed for you by the IRS, then you may be able to benefit from filing an actual return. When filing a Substitute For Return (SFR), the IRS prepares a return based on the (sometimes limited) information it has received, and the result is often not in your best interest. Similarly, if you have already filed a return but it did not include complete information or take advantage of all available taxpayer rights, you may benefit from filing an amended return. It is important to take a close look at any SFR or incomplete return issues and determine whether action is necessary.
Take command of your taxpayer rights by requesting relief for which you may qualify, such as an accepted Offer in Compromise, penalty abatement, audit reconsideration, a Partial Pay Installment Agreement, or filing amended or actual returns, where appropriate. You should make a realistic and well-informed decision regarding the strategy to resolve your tax debt.
For questions or issues regarding tax matters, contact [email protected]
