The IRS set new policies that intend to help those with back taxes or tax debt. Here is a review of these policy changes:

Tax Lien Changes

The IRS announced a few major policy changes in regards to tax liens.

• The IRS will increase the tax debt threshold in which tax liens are generally issued from  $5k to $10k. This can help those having trouble paying taxes at lower amounts prevent their financial situation from deteriorating so that they can get back on their feet or into compliance. As a result, less tax liens will be filed. The IRS will revisit lien threshold changes next year to see the effects of this specific policy change.
• The IRS will also make it easier to obtain tax lien withdrawals. This means once a taxpayer has come into compliance (e.g. paid off the tax debts and or setup acceptable arrangements with the IRS such as an IRS Installment Agreement), the IRS will make it easier to get the lien expunged from a taxpayer’s record. Normally, even when back taxes are paid, a person’s record or credit report will show the lien as being “released,” which still does harm to the taxpayer. Now the IRS, once the taxpayer requests it, will get the lien completely withdrawn from public records.
• The IRS will make it easier for taxpayers owing $25k or less, to get a tax lien withdrawn through direct debit installment agreement arrangement. The IRS has stated that taxpayers who enter into a Installment Agreement via direct debit (DDIA), or if taxpayers in a normal installment agreement already move to Direct Debit Installment Agreement (DDIA), the IRS will withdraw a tax lien. If a taxpayer already has a DDIA, then they will need to make an IRS request to have the lien withdrawn.

The financial benefits taxpayers with these tax lien changes is that less tax liens will be filed, and many other existing tax liens will be withdrawn. This will most likely allow taxpayers to get back on their feet or prevent credit deterioration as a smeared credit report with a tax lien can hurt Americans in terms of obtaining a job, mortgage, car loan, or even renting a home. This is turn should help taxpayers get into compliance and help the IRS increase their Collection Potential for taxpayers that owe. Moreover, DDIAs have a lower user fee and the normally result in higher compliance rates with taxpayers making automatic monthly tax payments.

Offer in Compromise Changes

• The IRS is expanding a new streamlined Offer In Compromise (OIC) program – With the economy taking  a toll on taxpayers, the IRS intends to make it easier for taxpayers to obtain an OIC by allowing taxpayers who owe  $50,000 or less and who make up to $100k to qualify for an OIC (previously was $25,000 or less).  The IRS look at a taxpayers financial situation to make sure they cannot pay the tax liabilities over time or in one payment before the taxpayer can settle for less.

The financial benefits here again just like the other policy changes across IAs and tax liens it that many more taxpayers who are facing financial difficulties will be able to settle for less than they owe as long as their financial situation qualifies. This in turn should lead to more OICs being accepted and the IRS collecting  tax revenue that most likely would not have been collected through normal enforcement actions.

Installment Agreement Changes

• The IRS will provide incentives for taxpayers who convert and existing non-direct debt Installment Agreemnet or setup a DDIA. This is bit of redundant as it is discussed above, but the benefits here now with an Installment Agreement is that a tax lien can be negated if the taxpayer elects to have the monthly tax payment deducted directly from their bank checking account. This will also increase compliance for many more taxpayers preventing defaults or missed payments.
• The IRS is making it easier for small businesses to obtain Streamlined Installment Agreements. A Streamlined Installment Agreement does not require a collection information statement (form 433-B for businesses), that is why they are “streamlined.”  Now that a small company is not required to verify of assets, liabilities, and revenues, if they owe between $10,000 and $25,000 (previously small business had to owe $10,000 or less). However, small businesses in order to qualify will need to setup the Streamlined Installment Agreement as direct debit and be willing to pay back tax liabilities over 24 months.

The financial benefits again are that individual taxpayers can avoid tax liens or have tax liens expunged if they setup a direct debt installment agreement. This will help taxpayers regain financial strength by preventing their credit reports from being negatively impacted. Moreover, small businesses can qualify for Streamlined Installment Agreements, and both businesses and individuals will benefit from DDIAs lower user fees. However, the IRS will need to see a period of compliance with direct debit before tax liens will be withdrawn.

Overall, it seems that the IRS has listened, especially to the National Taxpayer Advocate report that was released last month. These changes will benefit the taxpayer, the IRS and the Federal government revenues overall. It will be a win win situation for all parties involved most likely.

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Anyone who has been unfortunate enough to have experience with debt collectors can attest to the stress and anxiety that accompanies the collection process. Some consumers might even be familiar with the Statue of Limitations or amount of time allowed by law to collect a debt. Unfortunately the IRS is not the average debt collector nor do all the same rules apply to their collection efforts. While many debts may become “un”collectible after the set number of years have passed (per each states Statute of Limitations), the IRS can collect on unpaid taxes for up to ten years without special circumstances. If you owe back taxes from 10 years ago or longer, you might feel you are safe from the long arm of the IRS collection department. That would be an inaccurate assumption and one that could cost you dearly. Here are a few reasons why the Statue of Limitations for the IRS may go beyond the standard ten year rule.

• Filing an Offer in Compromise (IRS tax settlement)
• Filing for Bankruptcy
• Taxpayer is out of the United States
• Collection Due Process Hearing request
• Taxpayer in litigation with the IRS
• IRS sues taxpayer in Federal Court
• Taxpayer signs a Waiver form (often required for Installment Agreements)

When certain conditions like those listed above are met, the IRS may extend the length of time allowed to legally collect on back taxes. For this reason it is important to fully understand your rights and obligations when it comes to money owed to the IRS. Other incentives to satisfy your tax liabilities include the following:

• Levy- When the IRS decides to take aggressive collection actions, you may find yourself on the receiving end of an IRS levy. This occurs when the IRS places a federal lien on your bank account, basically freezing you out of your own bank accounts.
• Lien- The IRS can also place a lien on your property and credit. This can lead to the seizure of assets that will then be sold in order to satisfy your debt to the IRS.
• Wage garnishment- The IRS may decide to hit you where it hurts immediately, your paycheck. Your employer will be contacted and required to withhold a percentage of your paycheck (up to 80%) to be used to pay off your tax liability.

For the average person, any of these collection actions will result in an extreme financial hardship. Avoid finding yourself on the receiving end of IRS collection actions by taking the necessary steps to satisfy your tax liabilities. When it comes to the IRS and tax laws, most people will benefit greatly by consulting an IRS tax lawyer or tax professional to help guide them through the process.

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That being said, make sure to act quickly in informing the IRS of your situation and inability to pay. The worst thing that one can do when unable to taxes would be to do nothing, and unfortunately this seems to be the case time and time again. While it may be easier to ignore the problem and withhold payments for the time being, just one missed payment can begin a slew of unpleasant events with the IRS. It’s likely that the IRS will immediately detect the defaulted agreement and take action much quicker than you expect. And, once they begin, garnished wages, tax levies, and other forced collections, all become likely scenarios- causing you to owe even more money.

Sound appealing? We didn’t think so, either. And, even though contacting the IRS to let them know that you cannot make your payments on your tax installment agreement may not be the most enjoyable thing to do, it’ll sure save you a lot of unnecessary stress and trouble. Be sure to explain your situation carefully, capitalizing on any details you deem important. Also, prepare for the call before hand with proper dates and documents to back up your assertion. If your case appears valid, the IRS will likely understand- they are human, too. In most cases they’ll work with you to adjust the installment agreement- either reducing the payments or even deferring them for a later time.

However, the IRS may not be so understanding if they investigate and consider your monetary actions and inability to pay unwarranted. Be advised that the IRS will study each situation carefully; even requesting income and expense documents, in order to make sure that an individual is truly unable to pay because of ill circumstances rather than unwise monetary actions- like gambling in Vegas or making extravagant purchases. But, even if this is this case, contact the IRS anyway, because defaulting on a tax installment agreement with no explanation can yield far worse consequences, as previously discussed.

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• Do you qualify for OIC- Debt settlement is a popular method of debt elimination, however dealing with the IRS and owed taxes is an entirely different ballgame. In order to be eligible for an OIC, you must meet certain criteria which you can learn more about by visiting the IRS website. If you feel you are eligible per their guidelines, then you can consider working with a company that offers tax settlement services. By educating yourself first before moving forward you can reduce the chances of being scammed by a company that is not forthcoming with all the facts regarding the process.
• Company offers guaranteed results without questioning your situation- Be on the lookout for companies that promise guaranteed results, fast without even bothering to ask you some basic questions. Does the tax lawyer or “expert” confirm why you owe the taxes? Do they question your ability to repay the taxes in a traditional method? If they are not asking you the right questions, but are instead pushing for an OIC without considering other options, they are more than likely not interested in resolving your problem with the IRS. In order to truly help you with your tax problems they must understand the background information. Secondly, no one is able to predict how the IRS will respond, therefore anyone promising fast results without even meeting the taxpayer to learn more, is selling results they can’t possibly predict.
• Confirm physical locations- Telephones, fax machines and email have made it possible for most business transactions to require little or no physical meetings. This makes it possible for “dummy” companies to scam people without ever meeting them face to face. A legitimate company will have a physical address whereas con artists will set up locations that do not exist or they will not disclose their address. If you can’t meet with the people who are helping you resolve your tax problems, they are probably not conducting legitimate business services.
• Amount of cash deposit required- Tax attorneys, like other attorneys generally require some sort of cash deposit before they begin working on your case. This in itself is not a sign of a scam, however honest attorneys will estimate how much your case will cost and determine a fair deposit amount based on that figure. If you have already discussed your case with a tax attorney and shared how much cash you have available to work with, and the deposit matches that amount….proceed with caution. In general, it is best to avoid companies with retainer fees (if possible) in order to limit your risk.
• Unresponsive or changing representatives- You are dealing with a serious financial problem and need to have the ability to communicate with the person handling your case on a regular basis. If you find you are often waiting for replies or are dealing with company representatives that are constantly changing, the chances your case is being handled with the care and focus necessary to be successful are slim.

When it comes down to it, you have to use a bit of common sense and follow your instincts when considering a tax settlement company or attorney. Research the company prior to exchanging information and if you see red flags that just don’t seem right, continue searching until you find a company or person who you feel is competent in representing your case.

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Below are four types of tax professionals and when you should consider using each one:

1. Tax preparer. Generally speaking, a tax preparer is who you want to see if you simply need help with filing your return. Most of them can help with both individual and company returns. Of course, this is something you want to check on if you are in need of somebody to help with your corporation. Many tax preparers are seasonal workers. For this reason they do not often times know as much as some other professionals.
2. Certified Public Accountant (CPA). To become a CPA a person must have a college degree in accounting or a related field, or take the proper educational courses – this is not the case to become a tax preparer. Additionally, a CPA must pass a state exam for the ability to practice. There are many things that a CPA can help with including tax return preparation, representing clients during an audit, and certifying audit statements. Also, they are a good choice for corporations in addition to individuals.
3. Enrolled agent. To become an enrolled agent a person must pass an exam that is administered by the IRS. When it comes knowledge of tax code and related laws there are not too many people who know more than enrolled agents. While an enrolled agent cannot perform audit reports, they have the ability to represent clients during the audit process. This is the type of tax professional that you want on your side if you are audited – many of them worked for the IRS in the past.
4. Tax attorney/Tax Lawyer. If you are in serious trouble with the IRS a tax attorney can assist you. For instance, income tax evasion cases need to be handled by a qualified attorney. Along with this, tax attorneys can also prepare returns, represent clients during an audit, and defend them in the court room.

Overall, there is more than one type of tax professional. The four above are most common. Again, they include: tax preparer, certified public accountant, enrolled agent, and tax attorney. All tax professionals have something to offer. The one you choose should be based on your tax situation. The services we offer are from a tax team that is composed of all of the above tax professionals to handle simple tax filings to the most complex ones while ensuring the most efficient and cost effective solutions for our clients. So if you are unsure of what professional would be best for you, it doesn’t matter, we can handle all tax problems.

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The IRS is pretty particular as to what methods they allow certain people qualify for. There are some methods that just about anyone can qualify for and then there are methods that you need to prove your financial situation through various complex form filings and detailed financial statements. Below are three common methods used by individuals that do not have enough money to pay the IRS in full for the taxes they owe.

1. Installment Agreement: An installment agreement is the most common method used by taxpayers to pay back their taxes when they cannot pay in full. An installment agreement is fairly easy to qualify for and does not require a very detailed filing like other methods. An installment agreement allows the taxpayer to pay back the taxes they owe in monthly increments until the balance is paid off. There are various forms of installment agreements and the one you use is dependent upon how much you owe in taxes. If you owe under $10,000 and can pay off the amount in a period less than 3 then a guaranteed installment agreement should be used. If you owe less than $25,000 in taxes and can pay off the entire tax balance in a period of less than 5 years then it is best to file for a streamlined installment agreement. If you owe over $25,000 in taxes you will be required to file for a financially verified installment agreement which requires a bit more paper work to show you will financially be able to make the minimum payments required.
2. IRS Financial Hardship: If your financial situation is to the point where you cannot pay your taxes and you can’t even make the minimum payments required with an installment agreement then proving financial hardship to the IRS could be an option. When someone proves financial hardship they are declared temporarily uncollectible. When they receive this status the IRS does not pursue collections on the individual for a time being. This is only a temporary tax relief method but it does allow the taxpayer some time, often years, to try to improve their financial situation. When one’s financial situation has been improved enough then the IRS will require the taxpayer to pay back the taxes they owe.
3. Offer in Compromise: If your financial situation is to the point where you cannot pay your taxes owed and don’t think you will ever be able to pay the taxes owed then an offer in compromise may be for you. With an offer in compromise the taxes owed can be negotiated for less. The amount that they are negotiated for should be equal to or greater than the amount the IRS would ever expect to collect from you, even through forced collection mechanisms. This is a very detailed filing with a low acceptance rate. It is suggested that you hire a tax professional to help you with this kind of filing if you feel you meet the requirements.

If you know you will not be able to pay your taxes it is a good idea to work with the IRS as soon as possible on order to come up with a resolution. If you do not put in place a resolution you will be charged with various penalties and interest after the due date for taxes. If you are unsure of what resolution method to use it is a good idea to talk with a tax relief professional.

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Let’s first discuss the debt settlement or debt management companies in general. Many from the mortgage industry moved over to debt settlement and debt relief companies during this economic downturn. They work by charging someone in debt typically 10-15% of what they owe in fees for their”debt relief services.”  These services often entail negotiation and the settlement of your debts with your creditors (creditors could be credit card companies, health care providers, banks etc).  Many charge other lavish fees and often times leave you with more debt than when you started. Furthermore, these debt reduction companies will often times settle with one creditor but leave the other creditors unrestrained in calling and bothering you for their money. Whether you have worked with a good company that followed through with promises or you haven’t, they are not best positioned to help you with major tax problems such as IRS back taxes.

Working with a debt settlement company to settle or resolve your tax problems is like using a stock broker to manage your finances.  Why?  Dealing with the IRS is very different than dealing with a credit card creditor or bank. The IRS has more powerful collection mechanisms, takes priority in collecting on debts, and has a set of formal procedures and mechanisms to be followed. Debt settlement companies have experience in working with everyone but the IRS and their “debt consultants” most likely haven’t even gone to school to resolve these financial issues.

At least with a tax resolution company, or a good one, professionals on staff range from tax attorneys, CPAs, tax accountants, Enrolled Agents, to former IRS agents.  CPAs, tax attorneys, and Enrolled Agents are licensed professionals. There are many new “tax relief” firms out there who have tax consultants who will qualify you and document the problems you are having with the IRS or state — then if you qualify they will put you in the hands of a licensed tax professional who can help you file, pay, and settle IRS taxes. When selecting a tax resolution firm make sure they have a diversified set of tax professionals, a money back guarantee, and reasonable fees ($3000 is the industry standard fee depending on the service). Ask them what their success rates are for certain types of tax mechanisms (Installment Agreements, OICs, Partial Payment Installment Agreements, filing unfiled tax returns etc) Furthermore, make sure they don’t charge these sticky retainer fees (deposits before service), and at least offer a free consultation before committing to anything.

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The IRS has been more active than ever recently taking on UBS and forcing them to hand over 4,450 names, and pay over $780 million in penalties and back taxes.

The IRS, more specifically, their Commissioner Doug Shulman, stated that those who come forward now and voluntarily report wrongdoing or unreported foreign accounts will be treated much better by avoiding criminal prosecution and higher penalties.  Doug States in a letter on IRS.gov: “People who come in voluntarily will get a fair settlement.”

Realize, if you are one of these individuals that has not come forward even as the IRS extends this amnesty period, you could be prosecuted and experience jail time if you are caught so it is in your best interests to fess up and deal with the issue before it becomes a bigger problem. UBS is notifying their US account holders if their is a problem and the Swiss government is then expected to report their names to the IRS over the next few months. Appealing to the Swiss government is not really an option unless you want to admit to the IRS that you have unreported foreign accounts.

One thing to note, is that federal back taxes, penalties, and interest will still be waiting for no matter what tax evaders decide to do so so working with a tax resolution firm is a wise decision. Currently, each tax evader will be liable for six years of back taxes and interest as well as be liable for delinquency penalties.

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Small tax firms are typically better for establishing a long standing relationship to file taxes and maintain accounting records. If you own a business and you need someone to help maintain your books and do normal tax filings that every business needs to make, it is a good idea to go with a local company since this will be an ongoing relationship. Even if you are looking for a professional to help with tax returns and general accounting a local tax firm would be the way to go. Small firms are not better for handling complex tax debt and back taxes issues. Small, local tax companies tend to focus on the normal tax filings and don’t have the manpower and expertise needed to efficiently and effectively handle the complex tax issues that are not seen as frequently.

Large tax firms that serve individuals nationwide have a great advantage over the small tax firms that tend to serve local communities. These large tax firms are able to achieve efficiencies on more complex tax issues. Many of the large firms will hire a variety of different tax professionals (Tax attorneys, CPAs, Enrolled Agents, CPAs & Ex IRS Agents) to handle complex tax issues such as unfiled tax returns, large amounts of tax debts, tax levies, tax liens etc on a daily basis. A tax professional that handles tax levies every day is going to be more efficient and effective than a tax professional that handles them occasionally. Most small firms only see these types of cases occasionally, so it would be a wiser choice to go with a large firm in these cases. Large firms are typically cheaper as well because they know how to navigate IRS issues quicker and more efficient, therefore billing out less total hours on your case. Below are some instances where it would be a good choice to hire a large tax firm that helps individuals nationwide:

• Offer in Compromise Help
• Tax Levy Help
• Tax Lien Help
• Wage Garnishment Help
• Bank Levy Help
• Installment Agreement Help
• Payment Plan Help
• Penalty Abatement Help
• Audit Help
• Innocent Spouse Relief Help
• Back Taxes Help
• Unfiled Tax Help
• Tax Settlement Help

Most people have an apprehension to using a large tax firm that they cannot sit down with directly because they are not local, they shouldn’t. Tax cases are slow moving and are all done by mail and email and there is no need to use a local firm. Everything can be done more efficiently over the phone and through email. Hiring a large nationwide tax firm is a great idea to resolve complex tax issues because you have all the best resources and professionals in one central location to help you with your problem.

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Most recently, UBS in cooperation with the Swiss government, announced that it would hand over 4,450 names to the IRS in a civil tax settlement. This is a new light for the IRS, as they can clearly pursue  foreign accounts and foreign institutions.  It shows the IRS will go to no limits to find tax evaders and individuals who owe money to the them or the federal government. Many will argue this is an invasion of privacy and and abuse of power, other contend that the Swiss were only trying to comply with the US and help the IRS get the money it is owed.

Also reported today, is the fact that the Swiss agreed to allow the IRS to probe other banks suspect of harboring tax evaders. If you currently have a foreign account, it is best to come forward to the IRS as many if you can get a lesser sentence or leniency on penalties.  If you have a tax lien, the IRS, state and local authorities will eventually get their money. With a tax lien, it will damage your credit and prevent you from getting a car loan, mortgage, selling your house, and the like. It is in your best interest to get into compliance with the IRS as soon as possible, remove the lien, and settle with the IRS.

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