Taxpayers can often feel overwhelmed and helpless when they learn that they owe the Internal Revenue Service (“IRS”) or the California Franchise Tax Board (“FTB”). Some taxpayers feel like they can simply bury their head in the sand and ignore their problems; however, they soon learn that this only makes matters worst. Both the IRS and FTB have far-reaching powers that they can use to collect debt. They can levy bank accounts, garnish income, and place liens against property. However, there is hope. The IRS is willing to work with taxpayers to resolve their debt by offering them payment plans, placing them in a hardship, or even settling their debt with an offer in compromise. As an attorney, I can sit down with you to review your budget and discuss your options with you.
Offer in Compromise
Probably the most well-known resolution is the offer in compromise. While many firms advertise that they can settle tax debts for “pennies on the dollar”, getting an offer in compromise accepted is not that simple. An offer in compromise is a legitimate program offered by the IRS, but on average the IRS accepts about 35% of the offer in compromises that are submitted. Additionally, an offer in compromise is not a quick solution. On average, it takes about 6-12 months for the IRS to investigate an offer in compromise, and if a taxpayer decides to appeal a rejection of their offer, that can take another 6-9 months. In sum, it can take a total of 12-18 months for an offer in compromise to be accepted or ultimately rejected. And there is a lot of paperwork. As you can probably tell, submitting an offer in compromise can be a complicated process which can be eased by hiring a professional.
Installment Agreement
An installment agreement is a payment plan set up with the IRS. The benefits of an installment agreement include stopping collection action by the IRS, such as wage garnishments and bank levies. The amount of a monthly payment depends upon a number of factors, such as how much debt is owed to the IRS, when the statute of limitation for collections expires, and/or the difference between a taxpayer’s income and allowable expenses.
Currently Uncollectible
If a taxpayer cannot pay their debt because of an economic hardship, then the IRS will place the debt in currently uncollectible status. While a taxpayer is in this status, the IRS will not take any collection activity against them. While penalties and interest continue to accrue during the duration of this status, this can be a great option for low-income taxpayers, especially where the statute of limitation for the IRS to collect the debt is about to expire.
California Franchise Tax Board (FTB)
Often if you owe the IRS, you also owe the FTB. While they offer all three of the tax resolution solutions listed above, the criteria for each can differ from those of the IRS. Additionally, the FTB is known to be more aggressive than the IRS when it comes taking collection action, and it makes it almost impossible to get an offer in compromise accepted.
Whether you are contacting the IRS or FTB, there are a lot of pitfalls that can prevent you from getting the best results. Contact my office at (916) 538-0115 for your free consultation today.