IRS Tax Problems - The Tax Man Cometh
The authors explain the possibilities of tax relief for an average client as he seeks tax help from the IRS. He is single and owes the IRS $80,000 in back taxes for tax years 2000 through 2003. He thinks he probably owes some money to the State of Ohio and he currently makes $40,000 per year. He just received a Notice of Levy, which states that the IRS plans to garnish his wages. He knows he will be fired, if his employer finds out. What can he do?
The Tax Man Cometh
"I am single and I owe the IRS $80,000 in back taxes for tax years 2000 through 2003. I think I probably owe some money to the State of Ohio and I currently make $40,000 per year. I just received a Notice of Levy, which states that the IRS plans to garnish my wages. I know I will be fired, if my employer finds out. What can I do?"
The foregoing is a prime example of the types of tax problems Jones & Ryan encounters on a daily basis. People faced with tax problems and impending levies and/or garnishments are often emotionally distraught - believing that they will lose their homes, their jobs, their marriages. Many are concerned that they will even be sent to jail. Unfortunately, many of their concerns are valid. In this new age of aggressive tax enforcement, losing your home is a real possibility and being sent to jail is not entirely out of the question.
Fortunately, this tax problem does not have to ruin our client's life. Those of us who turn on the television even just once a week for 15 minutes are aware of the Infamous Offer in Compromise program. This program solves your tax problems for "pennies on the dollar." Unfortunately, despite what you hear on television, you really have to be in dire straits to qualify for this program. Our $40,000 per year single tax client might, but probably won't, qualify. It he has any money left over from his paycheck, he can be sure the IRS wants it.
However, many tax clients do qualify for an Installment Agreement, either partial or full. A $40,000 per year single tax client cannot possibly payoff an $80,000 tax debt, especially when penalties and interest continue to accrue. Under these circumstances, a Partial Pay Installment Agreement is likely the best option. This plan allows our tax client to pay the IRS a reasonable sum every month. Many times, the IRS will agree to accept less than the total amount due and forego penalties and interest.
Of course, if our tax client's income increases, the IRS will likely discover this new-found money and will seek to renegotiate the payment plan. The IRS does realize that everyone needs a place to sleep, as well as certain other basic necessities. In order to negotiate the best payment plan possible, our tax client will need to account for these necessities in agonizing detail. The more money he needs to pay his monthly mortgage, the less money he has in his pocket to pay the IRS. Keep in mind though, the IRS has established national averages for the basic necessities. With an income of $40,000 per year, our single tax client shouldn't count on being able to remain in his $250,000 home.
The good news is that the IRS has a statute of limitations. The IRS cannot continue to collect from our tax client more than ten years after the tax was assessed without suing him for an extension, which is very rare. In the case of our $40,000 per year tax client, the taxes owing for 2000 were likely assessed sometime around 2002. The IRS has a "drop dead date" in 2012. If it hasn't collected by that time, our tax client can likely rest easy that the tax debt for that year is gone.
As always, with the good news comes the bad. The State of Ohio does not have a statute of limitations. They can and will pursue our tax client forever. We recently had a client who owned a car dealership over 20 years ago. He failed to pay sales tax in 1982. More than 25 years later, the State of Ohio levied him for the unpaid sales tax. Of course, he no longer had any documentation to dispute the amount they claimed he owed. However, he did have photographs of the dealership, which were taken back in 1982. We were able to produce these photographs to the State of Ohio, in order to document the number of vehicles he really had in his inventory at the time. We were able to reduce his tax debt by over $100,000.
Similar to our car dealer, our tax client who makes $40,000 per year is not without hope. With quick involvement on our part and cooperation from our client, the wage garnishment can be stopped, before the employer has any knowledge of it. The key is immediate action. If the IRS knows that a tax professional will be submitting a proposed resolution to the problem, any impending levy and/or garnishment will likely be stayed until a mutually-agreeable resolution is put in place. It is imperative that tax problems be handled as quickly and efficiently as possible. Otherwise, our tax client may find himself unable to pay his mortgage or make his car payment, as the IRS has taken nearly all of his $770 per week paycheck.
ABOUT THE AUTHOR: Cheryl L. Ryan & Grey W. Jones
Grey W. Jones, Attorney at Law, has handled over 220 tax files focused almost exclusively on "problem tax cases" such as liens, levies, audits, or enforcement action by the government and IRS.
Cheryl L. Ryan, Attorney at Law, concentrates her practice primarily in the areas of defense litigation and tax problem resolution.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.