It’s only human nature to want a discount on something if you can get it. Especially when one is faced with large, outrageous amount of interest and penalties. My name is Jason Wiggam and I’m a tax problem resolution attorney with Wiggam & Geer. Today we’re going over the 4 main ways you can legally reduce your tax debt with the IRS.
The IRS has generally 10 years to collect a tax debt from an individual. The first option is to defer and delay and attempt to wait out the 10 year period because once an individual reaches the end of it, the tax debt is written off. Our first step is to delay. We do this until the government threatens to take horrible action against my client (take their property, etc.). Once this becomes the case then we can no longer delay. We first look at placing our clients into hardship, or uncollectible, status if the IRS determines the individual cannot afford to pay them.
The other thing we do after an attempted delay is to place our client into an Installment Agreement. The IRS has a program where they will allow you to pay less than you owe over the 10 year period through an installment agreement. For example, if I’m able to negotiate a $100/month installment agreement for a client who owes $100,000, it would be to their benefit. There is no possible way to pay off the full $100,000 within the 10 year period with these terms. In fact, it creates a pretty significant discount.
The second way to legally reduce IRS debt is to negotiate the acceptance of an Offer in Compromise, a formal process the IRS has to settle a tax debt. Most people have heard TV and radio ads that talk about settling tax debts for “pennies on the dollar.” They’re talking about an Offer in Compromise. I would say those ads make it seem a little easier than it actually is. We have clients all the time who settle for pennies on the dollar, but there is no percentage or amount that the IRS generally accepts. Every Offer in Compromise depends on the person’s specific situation, including their monthly income. The more valuable their assets and liabilities, the higher the settlement offer would be. The IRS uses a formula that effectively dictates this settlement amount.
The third option is to request that the IRS abate assessed penalties. There are two main penalties my clients typically face. The first is a late payment penalty. If you have a tax debt that’s not paid in full by the filing deadline, the IRS charges a half percentage point per month. This penalty is charged until it reaches 25% of the unpaid tax debt. The second charge is a late filing penalty. If an individual files a late tax return then they face the same financial penalty, which also maxes out at 25% of the debt. If you have penalties are maxed out, the total penalty is approximately 50% of the unpaid tax debt. This is a significant amount of money to pay if you don’t hire a tax attorney to negotiate for you. If we are able to have the IRS reduce and abate the penalties, then the savings will be significant.
Additionally, there is a program called the First Time Penalty Abatement. It’s basically a get out of jail free card for first-time offenders. If they owe for multiple years, you can submit a written narrative explaining why the taxes weren’t paid on time, etc. If the IRS determines that you have reasonable cause, the penalties could be abated.
The fourth option is filing for bankruptcy, through which income taxes can be discharged or written off. Other tax types may not qualify; it will depend on your particular case. The key thing to understand is, for an income tax to be eligible for a discharge in bankruptcy, you have to wait out certain time frames to file. You have to wait 3 years from the tax return due date or wait 2 years from when the tax return was filed. It’s important to understand when the time frames are so they can maximize their bankruptcy filing as you can only file for bankruptcy approximately every 8 years.
Wiggam & Geer is dedicated to protecting our clients from the IRS so they can stop worrying and focus on what’s important to them. If you have questions or would like to request additional information, give him a call at 404-233-9800.