One of the main options taxpayers have in delaying making a payment to the IRS is currently not collectable status. This is one of the options such as an installment agreement or an offer in compromise.
A basic definition of currently not collectable status is that the taxpayer does not have any money left over after paying allowable expenses each month to pay anything towards their IRS tax liability. The outcome is very desirable to the taxpayer. You do not have to make any payments to the IRS during the period of time you are in currently not collectable (or "uncollectable") status. During the time you are in uncollectable status, the IRS will not be able to actively pursue you at all. That means you should not receive any threatening collection letters or calls from the IRS regarding your taxes. You can think of uncollectable status as a gift from the IRS allowing you a little more time to "get back on your feet."
Before you begin to jump for joy, there are a few things you should know. This is not a permanent solution. Typically, the IRS will set up uncollectable status for one or two years. At the end of that time, they will come back and re-evaluate your financial situation to see if anything has changed for the better and you are now able to make some sort of payment to the IRS.
Many times, a taxpayer will "luck out" because the IRS will simply forget about them once they have been placed in uncollectable status - especially if the statute of limitation is about to expire on their tax. If that happens, you may be able to ride out the uncollectable wave and not have to pay back the total amount of taxes you owe.
The IRS does request, however, that even though you are not required to make payments on your back taxes, if you are able to you should, and you should keep your current taxes paid and current as time progresses. You will want to do this anyway, becasue common sense tells us, if the IRS comes back and determines you are now financially able to pay your tax, you don’t want a lot of new taxes dumped on your plate.
Did you ever notice that when you put the words "The" and "IRS" together it spells "Theirs?"
- Author Unknown
Unfortunately, when you owe the IRS money, their tax collectors seem to come after you as if you had taken their money. Over the years, you can see that the IRS goes in cycles with how they collect and their willingness to settle their cases. Over the past year or so, the IRS has been much stingier in their settlements with taxpayers.
On the positive side, the money we pay towards taxes each year provide (in some part) for the freedoms that we enjoy as Americans. If you are having problems because the share that is "theirs"is more than you can afford to pay, I would encourage you to read through this web site because there is a lot of helpful "free" information that may answer a lot of your questions about the different options you may have when dealing with the IRS. If you still feel lost, I would be glad to discuss your case with you at your convenience. Please visit our contact page and fill out the short form with your contact information and a few details to let me know what your case is about and I will contact you to discuss how we can help you and take the weight off of your shoulders.
I was recently reading an article online that listed some of the most common tax return "goof ups" that caused taxpayers problems. Among some of those were claiming the wrong filing status, abusing or omitting your earned income credit, putting the incorrect social security number on the tax return, not reporting all of your income (see my recent post), and bad math errors.
I know most people say to themselves, who in the world would put the mess up their social security number? But much to your surprise, people make mistakes all the time on their tax return. Recently, I had a client who filed head of household status when he was, in fact, married. Therefore he did not qualify to file head of household status and had to amend his tax returns prior to the IRS considering his offer in compromise. Luckily, we were able to get those returns fixed and save his offer in compromise. These mistakes can cause you to owe more money than you thought and can make settling your tax liability more expensive or just more of a hassle. I would recommend seeing a qualified tax return professional about preparing and filing your tax returns because of all of the constant changes and nuances in the tax code.
In the coming weeks, I am writing a post in the "Do You Make These Mistakes" series asking, "do you file your own income tax returns?" This is probably a mistake on many levels. It’s kind of like the tax software commercial where the wife tells the husband who is "stuck" in his tax return preparation and she tells him he ought to "ask the box what to do." The Taxgirl wrote a post about this several weeks ago with some helpful tips about finding a tax preparer.
We are wrapping up another busy week at our office. This week we have been working with the IRS trying to negotiate a discharge of a tax lien so a client can sell their home to avoid foreclosure and pay some of their tax liability to the IRS. Sometimes I get really upset when the IRS seems to hold on too tight and cause serious problems for a client when there is a solution that benefits all parties (read: the IRS) even though it isn’t the full extent of the benefit the IRS feels they are entitled to. Oh well.
I wanted to tell those people who have contributed to my next writing project thank you for taking the time to fill out the survey. Your answers are proving to be very helpful as I try to determine a price point and how to offer the product (e-book versus a physical book or binder). If you haven’t filled out that survey yet, I would appreciate your help with that. Everyone who fills out a survey will be given a great discount on the "file your own offer in compromise step by step guide" once it is complete. So please, fill out that quick survey. I promise it will only take you about two minutes.
This week on the blog we talked about when the IRS will forgive penalties and why they will not negotiate with anyone about knocking off any interest that has accrued over time.
We also touched on what you need to do prior to filing an offer in compromise. This was a basic list on how to get your income taxes current this year, paying your quarterly income taxes if you are self-employed, getting your tax returns filed, and some other tips and things you will need to take care of before the IRS will accept your offer in compromise for review.
Yesterday, we hit on underreported income and the potential problems and pitfalls that may come from negligent and intentional underreporting of income.
Stay tuned next week as things look to get busier and busier during tax time in the U.S. We will try to talk more about what you can do to negotiate with the IRS to save yourself a lot of money and get the IRS off of your back.
So many of my clients find themselves in trouble with the IRS because of unreported income. Generally, these are the self-employed clients or those who are employees, but do some "work on the side." What I have found is that most of the time, these taxpayers do not intentionally under-report their income. They simply believe they have some business expenses that they cannot back-up, or they forgot to record some money they earned in their books.
Large corporations usually don’t run into the "forgot" reasoning because they have more advanced accounting and bookkeeping methods, but small business owners who work out of a pick-up truck don’t always have the best accounting methods.
Anyway, the IRS usually catches up with these folks because there are some inconsistencies on their income tax returns, or some extremely large deductions that just don’t fit. And like I said before, they generally can’t back up these expenses when the IRS comes to town for their audit and the IRS lays some more tax on them thick.
When you underreport your income, it may be negligent or it may be intentional. If you fall into the intentional bucket, you may have more issues than you think and you will be looking at potential criminal charges and…gasp, jail time. When you’re negligent, the IRS will just want you to "get right." Most of the posts on this blog talk about the different options you have to "get right" and help to get you through some of the speed bumps you may run into.
If you would like more information on submitting an offer in compromise yourself, please help me by answering the questions on this short survey. My blog readers who help with this survey will receive a discount off the final product once it becomes available in the next couple of months.
We return to our "back to the basics" series and look at what you need to do prior to filing your offer in compromise. This post won’t be a full step-by-step instructional manual telling you everything to do prior to filing your offer in compromise, but it will give you the major things that need to take place before the IRS can accept an offer in compromise.
The first thing you need to do is "get current." Well, what do I mean by get current, you ask? You have to be current with all of your income tax filings for the last six years, meaning you need to go out and file those returns if they are not filed yet.
Second, you need to be current with the current year’s income taxes. So, if you owed money last year, you need to be making quarterly estimated tax payments. If you have specific questions regarding whether you should be paying estimated tax payments, I encourage you to speak with your accountant.
The next thing you will want to be doing is "getting organized." When you file your offer in compromise, you will be sending in a financial form and a lot of "back-up" data. Start getting organized now by keeping all of your current bills for living expenses such as mortgage statements, leases, car payment notices, utility bills, bank statements, etc. This is generally the most tedious and time-consuming part of applying for an offer in compromise so I encourage you to go ahead keep that stuff organized. You will need it when you submit the offer, and you will need to keep them updated during the offer in compromise review process because the offer examiner may ask for updated information at any time.
If you are interested in a full-blown step-by-step guide to filing an offer in compromise, I encourage you to visit this page and fill out the short survey. The information you provide will be very helpful as I try to determine the best format for a new offer in compromise guide, and on top of that, I am giving away a great discount on the product when it comes out to those who take the few minutes to fill out the survey. Thanks!