Typical Solutions

Typical Solutions


Collection problems arise as a result of an IRS assessment of taxes, either from a taxpayer filed return that shows an amount due (deficiency), a return prepared by the IRS that shows an amount due, or an assessment as a result of an IRS audit or a penalty assessment related to employment taxes, among others. IRS collection problems are typically solved by one of the following methods:

Installment Agreement

An installment agreement is a contractual agreement to make monthly payments to the IRS. The amount of the payment is a negotiated amount based on the taxpayer's ability to pay. The ability to pay is determined by analyzing the taxpayer's financial statement and banking records. The financial information is recorded on Form 433-A (for financial individuals) or Form 433-B (For businesses). The appropriate form is given to the IRS with copies of bank statement and various supporting documents and the negotiations begin. It is critical that the financial statement forms be prepared correctly in order to obtain the best possible result. For more details, see the post entitled "Deskbook - IRS Procedures - Collection."

Currently not Collectible

Currently uncollectible means that based on the analysis of the taxpayer's financial statements (see preceding paragraph) the taxpayer does not have an ability to pay any amount without causing him or her an undue hardship. In this case, the IRS simply suspends collection activity for a period of time. The IRS will periodically ask for updates of the financial statements in order to determine if the taxpayer should be removed from the uncollectible category. If that decision is made, then normal collection activity will resume and one of the other solutions on this page will have to be looked at. For this reason, currently uncollectible is usually not a solution but rather a technique to give the taxpayer some time to improve his or her financial situation before normal collection activity resumes. An exception occurs when the ten-year statute of limitation for collection expires during the time an account is in uncollectible status.

Offer in Compromise

An offer in compromise opportunity arises when a taxpayer is willing to pay the IRS an amount in cash or installment payments over a short period in order to fully settle the tax debt once and for all. The offer amount must equal the value of the taxpayer’s net assets, plus the sum of his or hers monthly ability to pay times 60 months. This figure is derived at by analyzing the taxpayer’s financial statements in the same way as described above under Installment Agreement. The derived-at figure must be less than the total IRS liability, or this approach will not work. Moreover, the taxpayer must promise to stay current for 60 months or the agreement will be rescinded and he or she will be back where they began. For more detail, see the post entitled "Deskbook - IRS Procedures - Collection".

Bankruptcy

Bankruptcy can be useful in certain cases. Income taxes that are over three years old for which returns have been filed for over two years, and where there have been no IRS changes to the returns within 240 days, can be discharged in a bankruptcy. On the other hand, assessments related to employment taxes cannot be discharged in a bankruptcy, although they can be compromised, as discussed in the proceeding paragraph. Therefore, careful, thoughtful analysis and planning is needed when the bankruptcy approach is being contemplated. For more detail, see the post entitled "Deskbook - IRS Procedures - Collection".

Summary

Many, many factors have to be looked at in order to arrive at the optimum strategy for a client. Each situation is different and must be handled that way. That is not to say that it takes an inordinate amount of time to arrive at an overall plan. However, it would be improper to try to impose a "cookie cutter" approach on every case. The financial statements discussed above are of utmost importance, as are the type of tax involved and the statutes of limitation, among other things.

We hope you will call us today to schedule your free half-hour consultation. At that time, we can determine ore precisely what can be done for you and your Company. You can reach Mr. Adamson at 713 386-5236 or email him at ricadamson@yahoo.com.