I receive many calls from taxpayers who owe the IRS that start the conversation with “I want that Fresh Start Agreement I heard the guy on TV say they can get me!” or “I need the Offer in Compromise that the guy on the radio said they can have me pay nothing for my back taxes!” When it comes down to it, you need a tax specialist that will meet your specific tax needs, not the advice of someone on TV.
Let’s get into Fresh Start Agreement — I’ll go more in-depth with Offers in Compromise (and the very strict rules associated with it) a little later.
Approximately 35 million taxpayers owe taxes to the IRS. As a result, the “Fresh Start Program” was initiated in 2011 and is an ongoing part of the IRS installment agreement plan. In the past, the taxpayer had 60 months in which to pay back the taxes owed, plus accrued interest and penalties without having to provide financial statements; this has increased to 72 months.
The limit has also increased from $10,000 to $50,000 before the IRS imposes a mandatory federal tax lien on any property or assets that you hold and freezes your passport. Basically, this is an old program the TV/Radio/Online firms used to make it sound like no one else can assist with your back taxes.
The Bigger Picture
Installment agreements are for one year of taxes, but in certain circumstances, multiple years can be rolled into one agreement if the total is under $50,000. That requires a call to request each time you fail to pay your taxes in full when you file your tax return and is not automatic.
If you happen to have a refund on any year, that refund will not be issued to you but will be placed on the balances owed. In addition, if you owe one year and have an installment agreement, then the following year the IRS will make the installment agreement void and call it in default if you owe again.
A recommended quick fix is to call the IRS to determine a new payment amount. This amount will combine the balance from year one and year two. Anytime you skip a payment or pay less than agreed, you are in default and the IRS moves to place a lien on the property.
Keeping it Simple
If you have a federal tax lien placed on the property and wish to sell, you’ll need to contact a resolution tax specialist such as myself to get the IRS to work with you. The bank and local jurisdiction are also involved before the sale can go through. The process is lengthy and not something that can be taken care of with just a phone call. For this reason, I always recommend that my clients set up a direct pay (draft) monthly so they never miss a payment.
Offers in Compromise
Let’s jump quickly into the Offers in Compromise — in a nutshell, taxpayers can make an agreement with the Internal Revenue Service (IRS) to settle tax liabilities for a lower amount. However, it is a long and arduous process…
Roughly 58% of the offers submitted are rejected by the Service because of what they consider reasonable collection potential. That means if you have assets to sell (not necessarily your home, but it could be) and you are well under retirement age, the Service considers that you will be able to pay the taxes in full.
This is not a plan that is completed quickly as there are financials, proof of income, and expenses to be gathered for specific forms. Fees will be paid and the biggest sticking point for self-employed individuals is to show they are making estimated payments of tax liability every quarter and not planning to pay when they file their return in April.
As an Enrolled Agent, taxes just so happen to be my specialty. Having a tax specialist in your corner to walk you through the process is not only a sigh of relief for you but will ensure that you walk away with solutions instead of more questions.