An offer in compromise may spare you from IRS collection tactics

On Behalf of | Jun 5, 2017 | Back Taxes or Tax Debt

If you can’t pay your past taxes, don’t wait for the IRS to assign a third party to the task of private debt collection. Such third parties may utilize aggressive techniques that border on harassment.

Taxpayer Strategies for Avoiding Private Debt Collection

Fortunately, the IRS affords taxpayers various procedures before resorting to private debt collectors. In a typical tax controversy, the IRS will send multiple written letters to the taxpayer. That correspondence generally explains how a taxpayer may administratively challenge a proposed assessment or tax liability. Notably, the program prohibits the IRS from using private debt collectors when a taxpayer is pursing an installment agreement, an offer in compromise, or innocent spouse relief.

Although the IRS will deal directly with a taxpayer, our law firm recommends consulting with a tax attorney even during the IRS administrative process. Our tax law firm has experience with administratively resolving many different types of IRS tax controversies.

IRS administrative negotiations require extensive documentation

Consider the example of offer in compromise, a deal where the IRS accepts a lower amount in full satisfaction of the alleged tax debt. The process is not initiated simply by making an offer. Rather, an OIC is the culmination of extensive paperwork and procedures.

First, a taxpayer must complete IRS Form 656, Offer in Compromise and pay the application fee. If a taxpayer’s monthly income is below poverty guidelines, he or she may seek a poverty guideline exemption. A taxpayer must also provide detailed financial information using Form 433-A for individuals or Form 433-B for businesses. If a taxpayer is married, he or she may also need to include spousal financial information. Needless to say, the disclosures made on this form may have a lasting impact on a taxpayer’s chances for obtaining an OIC.

Source: Accounting Web, “New Bill Would Slam the Door on Private Tax Collections,” Ken Berry, May 8, 2017