Which Option Should You Use to Settle Your Tax Debt?
Choosing the wrong option to settle your tax debt can be a very costly error. If you apply for an installment agreement, when you could have eliminated some of your debt with an Offer in Compromise, it could end up costing you thousands, and you can’t expect the IRS to notify you of your alternative settlement options. They will simply accept your payments, while you are forced to take on debt or deal with other financial difficulties in order to pay off your tax debt.

There are several options available to settle your tax debt. While this is by no means an exhaustive list, many taxpayers will be able to use one or more of these methods to reach a tax debt settlement.

Installment Agreements

How the IRS Pursues Payroll Tax Collections
Payroll taxes represent both the employer and employee portions of Social Security and Medicare taxes, along with Federal income taxes that are withheld from an employee’s paycheck. The IRS takes an especially hard stance on the failure to remit payroll taxes, and uses aggressive collection efforts when pursuing these delinquent taxes.

The Trust Fund Recovery Penalty for Delinquent Payroll Taxes

The Trust Fund Recovery Penalty (TFRP) is a “penalty” equal to the trust fund portion of corporate unpaid payroll taxes..

Actions to Take Before You Can Pursue an IRS Tax Settlement
Before attempting to settle your IRS tax debt, there are a few things that every taxpayer should do. While some tax settlement cases can be fairly straightforward, there may be more advanced settlement options available for certain taxpayers, and missing out on these opportunities may prevent you from eliminating significant back taxes, penalties, or interest.

Follow these steps before attempting to settle you tax debt:

File Back Tax Returns

Swiss Banker Pleads Guilty to Defrauding the United States with Tax Scheme
A former employee of Credit Suisse bank has pleaded guilty to conspiring to defraud the United States. Susanne D. Rüegg Meier admitted to a tax scheme that allowed U.S. taxpayers to hide their assets in Swiss bank accounts. The plea agreement states that Credit Suisse went to great lengths to assist their clients in evading their U.S. tax obligations, including reporting their foreign income on their tax return and filing accurate FBARs.

Some components of the scheme include the following:

  • all mail related to the accounts were retained in Switzerland

Do I Need a Tax Audit Defense Lawyer?
The IRS conducts tax audits—referred to as examinations—by mail or in-person. Taxpayers are usually selected either randomly, by computer screening or due to a referral or an audit of a business partner or investor. Taxpayers have the option of working with the examiner directly, or with the assistance of a representative such as a tax audit defense lawyer.

Taxpayers who “have nothing to hide” may think that it will be easier to work with the examiner themselves. However, there are several reasons to consider retaining a tax attorney if you are being audited.

First, you should have a trained eye review all the information you give to the IRS. The IRS will request documentation in the form of receipts, bills, loan agreements, canceled checks, or many other types of documents. Before you hand everything over to the IRS, it’s a good idea to have an experienced tax attorney review everything. Some issues may not be easy to spot for a lay person without extensive tax knowledge or experience with IRS tax audits. If you give the IRS information that indicates that you have committed tax fraud or other tax violations, you may end up facing criminal tax charges and giving the IRS valuable evidence that incriminates you.

What to Do When You Can’t Pay Your Taxes
If you have an upcoming tax payment that you can’t pay, or have delinquent tax debt that is continuing to accrue, you may be tempted to delay filing your taxes. You may also want to avoid responding to any IRS notices you receive because you can’t pay off the tax debt listed on the notice. The desire to hide from your tax problems is understandable, but it is actually the worst thing you can do when you are unable to pay your tax liability.

Instead, you should file your taxes on time, respond to all IRS communications, and consider talking to a tax attorney about your options. Taking this proactive approach has several benefits, including the possibility of substantially reducing the amount of penalties and interest you owe and preventing any IRS collection actions.

Do Not Put Off Filing Your Taxes

California Resident Indicted for Hiding Foreign Accounts
A Beverly Hills resident has been indicted on several charges for failing to disclose foreign accounts and then allegedly lying to the IRS Criminal Investigation (CI) unit. The charges faced by Teymour Khoubian include the following:

  • corruptly endeavoring to impede the internal revenue laws
  • filing false tax returns

The Options for Resolving a Disagreement With Your IRS Examiner
After an IRS examiner receives your documentation and makes a decision regarding proposed changes to your return, you have several options. You can sign the letter stating that you agree with the proposed changes, and then decide what payment method you would prefer to use, whether paying in full, applying for an installment agreement, or seeking an Offer in Compromise. If you don’t agree with the proposed changes, you should first try to negotiate further with the IRS examiner.

You may be able to persuade the IRS examiner of their mistake by providing additional documentation. You can also request a telephone conference with the examiner, where you or your tax attorney can explain your arguments.

If neither of these methods are successful, you may request an informal conference with the examiner’s manager. You may instead request that your case is sent to IRS appeals, which has the advantage of being an entirely separate department within the IRS. The appeals officers can evaluate the likelihood that the IRS will win your case if you end up filing a petition in Tax Court, and may decide to settle if it seems probable that you could bring a successful case.

Why Offers in Compromise Get Rejected
The Offer in Compromise (OIC) is an excellent program for potentially eliminating tens of thousands of dollars in tax debt, but first, your offer must be accepted by the IRS. Taxpayers may have seen advertisements promising that their tax debt can be settled for pennies on the dollar with an OIC, but not everyone is eligible for an OIC, and those that are eligible must follow the program’s guidelines carefully. For some taxpayers, an OIC will only be accepted after negotiations and possibly appealing an OIC rejection.

Determining Your Collection Potential

The IRS accepts an OIC when it determines that the offer is the most that they can reasonably expect to collect from you based on your financial information. If you receive a rejection letter from an offer specialist, it will often be because the IRS believes that your offer does not represent the most that they can get from you.

How the Franchise Tax Board Collects Delinquent Tax Debt
The California Franchise Tax Board (FTB) has many of the same weapons at its disposal as the IRS when collecting delinquent tax debt, and also has the ability to use information received from the IRS to assess additional tax against you. If the IRS audits your tax return, and the audit results in an increase in tax, the FTB will most likely use this information to increase your state income tax as well.

Franchise Tax Board Collection Methods

Some of the methods the FTB can use to collect past due tax bills include: