How do IRS tax relief programs actually work?
So how does this work exactly? You run up a huge tax debt with the IRS, wave a magic wand and then voila — you can settle your IRS debt for pennies on the dollar? Let s get real. there s no way that IRS tax relief actually works like that.
Sure, the late-night TV commercials and tax resolution firms make it seem easy: Just hire us for $2,500 and we can settle your tax bill for pennies on the dollar! It all seems so easy and/or unbelievable. So what gives?
The truth about getting IRS tax relief on your back taxes lies somewhere in between. Settling tax debts with the IRS isn t easy, but it isn t a scam. In this article we want to tell the story of how IRS tax debt relief programs work in real life, and one of our favorite clients, Ethel.
We don t need easy, we just need possible
We represented Ethel, a retired woman who was suffering from thyroid cancer. Her prognosis was good, but treatment had to be ongoing. Ethel could no longer drive to the doctor, and because there was no public transportation where she lived she had to get a taxi to go to her treatment once a week.
As we looked at Ethel s financial situation and $49,000 tax bill, we determined that she qualified for three different types of tax relief. Option one: Because she had old debts, her tax returns were filed, and she had other credit card debt, she could file Chapter 7 bankruptcy and wipe out all of the tax debts. Ethel didn t want to file bankruptcy; she liked her credit cards and didn t want to have to rely on anyone to sign for loans in the future. Even though bankruptcy would result in a net payment to the IRS of $0, this option wasn t all that palatable to her.
We then went over option two: The IRS has a limited amount of time to collect on an assessed tax. Typically, with some exceptions, it is ten years. Ethel s debt was 5 year old from the date of assessment. Which meant in five years, the debts would be written off. Based on Ethel s financials we believe that she could be placed in hardship status with the IRS. This means the IRS wouldn t try to collect anything from her, and she wouldn t have to pay the IRS anything (except tax refunds the IRS would intercept). Getting into hardship status was more or less a sure thing. However, Ethel didn t want this tax bill hanging over her for 5 more years.
She wanted to know if there was a quicker way to get rid of it. And there is. Using the Offer in Compromise Doubt as to Collectability tax settlement program, we calculated that Ethel could submit $2,000 to settle a tax bill of $49,000. We submitted Ethel s Offer in Compromise package and hoped for a quick resolution.
Unbelievably, the IRS disallowed Ethel s taxi expenses — they said it was not a reasonable or necessary expense . I explained that Ethel would die without her cancer treatment, so I disagreed. let s say somewhat passionately.
But this is the way government works. What makes sense to you and me, doesn t make sense to a bureaucrat. Luckily, they weren t the last word.
I filed an appeal of the Offer in Compromise rejection, and expected an easy win. But still, the IRS appeals officer was giving me a hard time about Ethel s taxi fare. WTF.
I used some of our negotiations techniques (sorry I can t share them publicly — they re too valuable for our clients) and there was a pause by the Appeals Officer. Finally he said you bring up a good point. Your $2,000 offer is more than the IRS could expect to collect, so I am going to recommend its acceptance.
The lesson of Ethel
Even easy IRS tax relief may not be easy. Sometimes the most persuasive negotiation techniques in the world must be used to get the IRS to act in a way that is humane. Everything ended well for Ethel! She finished up her chemotherapy, and is cancer free. And now she is back to driving!
If you have a tax debt hanging over your head, now is the time to take care of it. Contact us to schedule a free consultation. To learn about our services and fees, click here .