A client who has unpaid IRS or State taxes is not without defenses to the IRS or State collection process of his or her outstanding income tax liability. In determining which defenses are available for their tax case, the taxpayer and adviser will analyze many options to determine the best course of action.
- Determine whether the income tax was properly assessed. While the IRS does not ordinarily does not assess an incorrect tax by not processing a tax return correctly, the IRS frequently will determine the tax owed of a taxpayer who has not filed an income tax return. In these cases, the IRS often computes an incorrect tax since they were not aware of any of the particulars of the taxpayer, such as the number of child they have, whether they are married, or if they had business expenses (which would offset business income).
- Make sure that the statute of limitations (SOL) on collection of the tax debt has not expired. Normally the IRS has 10 years from when they assessed the tax to collect it. This period of time can be increased if you file an offer in compromise, or pending payment plan. Therefore, it makes sense to double check the IRS on the dates your tax debt expires since they sometimes miscalculate the date.
- Determine whether a claim as an innocent spouse is available. If you were married, and are not now, and the other person did not include all their income on the tax return, you are a prime candidate for this relief.
- Go the Taxpayer Advocate is the collection action is causing a hardship. This is hard to accomplish, but worth trying to slow the IRS down.
- Request a audit reconsideration is you did not know or knowingly did not participate in the audit. This happens a lot. A IRS audit can be very overwhelming and sometimes people freeze and do not participate in their own audit. This leads to a situation where the IRS overstates your income, or does not allow of your deductions to count since they did not see the receipts. The technical term for this is called an audit reconsideration.
- File an offer in compromise to settle the tax debt. This should only be done if you have the resources to offer a legitimate amount to settle the tax debt. In very rare cases the IRS settles for pennies on the dollar, so be aware of TV and radio ad scams. That said, this can be a very useful solution and it should be analyzed fully if it’s the best solution.
- Contact the tax department and negotiate an installment payment agreement. This option offers many possibilities, since the IRS often enters into payment plan where the total debt will never be paid off. They call this type of payment plan a part pay installment agreement., and
- As a final option, file a petition in the bankruptcy Court.
These “defenses” may not stop the IRS cold, but it will slow them down to make the situation much more manageable.