Don’t show your hand too early in IRS dealings

On Behalf of | Jun 27, 2016 | Back Taxes or Tax Debt

Settlement negotiations are a cornerstone of the American legal system. In fact, one doesn’t have to be in court proceedings to benefit from this type of advocacy. When responding to administrative actions from the Internal Revenue Service, a taxpayer could benefit from the negotiating skills of an attorney that focuses on tax law.

Of course, a taxpayer also has the right to self-representation. However, beware of making a strategic misstep. For example, our law firm would caution against making a full disclosure of one’s assets and sources of income and expenses prematurely when discussing a tax dispute with IRS officials. Such a disclosure is required only for certain items, such as offers in compromise, which are granted infrequently and often only when the IRS believes that other collection methods are unavailable.

True, the IRS presumably has a copy of one’s federal income tax return and attachments, but even those documents may not reflect changed circumstances or the gross value of all securities and assets. Unfortunately, the IRS may not be as receptive to settlement offers if it believes it has a means of collecting against newly disclosed assets and/or income streams.

The IRS has quite an arsenal at its disposal for collecting tax debts, and it can afford the patience to pursue collection activities over several years. A federal tax lien on real estate, for example, lasts up to ten years against the encumbered property. The IRS can also hold on to future refunds, garnish one’s wages, put a lien on a bank account, and even collect up to 15 percent of Social Security payments.

Source: NerdWallet, “Debt Forgiveness Always Has a Catch,” Liz Weston, June 6, 2016