10 Things You Need to Know to be Successfully in Negotiating Your IRS Tax Debt
If you are one of many taxpayers who owe money to the IRS, you are not alone in feeling totally overwhelmed. Most likely, you are receiving notices demanding you pay X amount within the next 30 days or another round of penalties and interest will be applied to your already mounding debt.
Now is the time to get organized. Before you call the IRS out of panic or frustration, review these 10 steps to gain some knowledge and an edge in how to successfully negotiate your IRS tax debt:
1. Know Your Balance Due
To begin to understand any other steps, you need to know your balance due with the IRS. This means, your tax due, penalties and interest. Without knowing this, you won’t know what is expected of you moving forward or the consequences of entering yourself into an incorrect resolution.
2. File Your Returns
Before you can begin any negotiations, you must file any and all outstanding returns. Has the IRS filed a Substitute for Return on your behalf? File an original return as soon as possible as it will most likely result in a lower balance due, or a refund. Not sure if you should file a return? Obtain your wage and income transcripts from the IRS website to determine if a return should be filed. Telling yourself you can’t afford for someone to assist in preparing your tax returns? There are many options out there depending on your income, such as IRS Free File, Volunteer Income Tax Assistance Centers listed on the IRS website, Turbo Tax, etc. The bottom line is, this needs to be a priority, so get this step done right away.
3. Know Your Current Financial Condition
If you called the IRS right now and they asked you what you could afford to pay per month, would you know the answer? If yes, great. If no, it’s time to start a budget. The reason being the IRS will ask you about your current finances, expenses, and income. Typically, a Form 433-A, Collection Statement for Individuals, should be completed as they will ask you questions directly off that form. What is your current income? What are your current expenses, such as food and clothing, housing and utilities, vehicle loans, vehicle insurance, health care, life insurance, etc. Yes, it does sound like a lot and very intrusive, but the more prepared your are before answering their questions the better off you’ll be.
4. Rules of Bankruptcy
Maybe filing bankruptcy is your best option. With this one, it is best to know all the rules before heading down this path. In addition, you may wish to seek the advice of a Bankruptcy Attorney before filing.
There are three primary timing rules when it comes to filing bankruptcy and the Dischargeability of IRS debts.
The first, timing rule requires that your Bankruptcy must be filed more than three years after your tax return was due to be filed. This is known as the Three-Year Rule.
The second Bankruptcy timing rule involves the date you actually filed your tax return. The bankruptcy must also be filed more than two years after the return was filed. We call this the Two-Year Rule.
The third rule is that Bankruptcy must also be filed more than 240 days after the IRS placed your tax debt on its books (also known as assessed”).
5. Know When Your Balances Due Expire
The IRS has a Statute of Limitations on how long they can collect on a balance due. CSED’s (Collection Statute End Dates) are the amount of time the IRS typically has to collect an assessed tax liability is 10 years from the date of assessment. Once that 10 years runs out, the IRS’s right to pursue the liability ends.
For example, you filed your 2010 tax return on time on April 15, 2011. If you did not delay collections in any way by filing an Offer in Compromise, Installment Agreement, Appeal, etc. your balance due on that 2010 return would expire on April 15, 2021. It’s important to know this date because that will change depending on your resolution.
To give you an idea, an Offer in Compromise will extend your CSED by at least 18 months. As you can see from the example above, that may not be the best option as it’s going to expire in less time. An Installment Agreement, however, will extend the statute by 30-45 days.
6. Know Your Due Dates to Protect Your Rights
The IRS has a due date for everything. When to file a return, when a balance due will accrue more penalties and interest, etc. On those notices you are receiving you will find they give you 30 days to pay or additional penalties and interest will be added to the balance. Specifically, on a Letter 1058 or Letter 11 they give you 30 days to file an Appeal in order to prevent collections from issuing a wage garnishment or bank levy or other seizure of property. It’s important to know and pay attention to those due dates. Unfortunately, the IRS does not give you additional days because you forgot, or the mail didn’t arrive on time. If you fail to meet these due dates, you lose some of your rights in the Appeals process and there’s no going back to fix it.
What you also need to know is the 30 days, or other due date given, starts from the date shown on the letter, not from when you receive the notice. In addition, it’s calendar days, not business days.
7. Know What Forms to Complete
The IRS has forms for just about anything you would need to request or file and it’s important to know what form needs to be filed by the due date. On a Letter 1058 or Letter 11, they need a specific form filed to request an Appeals hearing. Knowing the difference between requesting a hearing and withdrawing a hearing could mean the difference between the IRS issuing a levy to your bank account or stopping a levy as you requested to speak with an Appeal Officer.
8. Know Your Options
As a taxpayer, you have options when it comes to resolving your tax debt. For example, if you have a balance due of less than $50,000 you could enter into a Streamlined Installment Agreement for X amount paid over 60 months and you don’t need to provide any financial information. If you owe $25,000 or less and enter into a Direct Debit Installment Agreement you could avoid a Tax Lien being filed, or after three successful payments you could request the Tax Lien be released. If you are in a hardship and just can’t pay anything right now, you could request a Currently Not Collectible status. Depending on the above answers to 1 through 7, would depend on what resolution option is right for you. Knowing your options can make a big difference in knowing if you MUST provide your personal financial documents to the IRS, or if you can avoid that all together.
9. Pay If You Can
If you have the funds to pay the IRS; DO IT! The IRS is the worst creditor to be going after your money. Sure, you may be thinking, gosh they send me a lot of notices, but nothing happens. In fact, I haven’t heard from them in quite some time. Don’t get too comfortable with your money as that is when the IRS is more likely to come after you for repayment of the money you owe. This is when wage garnishments and bank levies are going to happen. Whatever money was in your bank account has now been seized by the IRS. From here, you only have 21 days to ask for it back. Again, that’s calendar days. If you can borrow the money from a friend, parent or personal loan, that would be a better option as typically the interest amounts are less and there won’t be any penalties.
10. Hire a Certified Tax Resolution Specialist
If you are unsure about speaking with the IRS, it’s best to hire a professional. CTRS’ are experienced in speaking with IRS agents and knowing what to say and when. They are specifically trained to know your financial condition before moving forward, they will know when your balances due expire and what steps to take next, they understand the deadlines put forth by the IRS and what forms needs to be filed and they will know what options are best for you. Best of all, you don’t need to speak or deal with the IRS going forward as they will handle all the details, both big and small!