The filing of a bankruptcy creates what is known as an automatic stay against your creditors, including the IRS.   As its name implies, the automatic stay is indeed automatic – the filing of bankruptcy puts a “stay” on the IRS and requires immediate release of a levy or seizure of your property.

The purpose of the stay is to stop the pursuit of you and your property while you seek a fresh start from bankruptcy.

Bankruptcy takes away IRS discretion in releasing a levy or seizure – Section 362(a) of the bankruptcy code requires it.  In most cases, after a bankruptcy has been filed, a levy or seizure should be released within 24 hours.  Bankruptcy also prevents the IRS from filing Federal tax liens.

Relief from IRS collection enforcement is powerful part of our bankruptcy laws, but it is not the limit on what bankruptcy can do.  For example, if you cannot afford to repay the IRS, Chapter 7 bankruptcy can eliminate your taxes.  If you have some ability to make payments back to the IRS, a Chapter 13 bankruptcy can stop the IRS from charging additional interest and penalties on your payments, shorten the length of how long you will be making payments, and lower the amount of your payment.

If you are in a bind with the IRS, and when all else fails, bankruptcy may be the answer to stopping the IRS and reducing your debt load.

1. Automatic Extensions
Although we all rush to get our tax returns filed before the April 15th filing deadline ever year, the IRS actually provides you with an easy way to get an extra six months to file your return. By requesting an automatic extension using IRS Form 4868, you can get a few extra months to file your return. In many cases, it is often better to request an extension then to file a flawed return that will result in an audit or back tax liability.

In addition, filing for an extension alone carries no penalty with it. Rather, it is the failure to pay on time that will result in interest and penalties. An automatic extension does not extend the deadline to pay taxes to the IRS. Therefore, if you anticipate having an outstanding tax liability, you will still need to pay the IRS by April 15th to avoid penalties and interest. On the other hand, if you are expecting a refund, then you need not worry about being penalized for requesting an extension.

2. The IRS Wants To Settle Quickly
It may not seem like it when you are dealing with them, but the IRS actually wants to settle your delinquent account as quickly as possible because pursuing collections against you can be expensive. In some cases, the IRS can even be convinced to settle your account for less than what you owe. However, you will need to convince the IRS that because of your financial circumstances it is better for them to accept your offer to pay a reduced amount.

3. The IRS Does Not Want to Seize Your Assets
One common misconception is that the IRS prefers to seize your personal property and liquidate it to satisfy your tax debt. However, the process of identifying, locating, seizing, and selling your assets is a very difficult and labor-intensive process for the IRS. As such, the IRS would much rather settle with you then go down this path. Additionally, issuing a wage garnishment or bank levy is much easier and cheaper for the IRS to obtain. If you ignore your tax debts, then the IRS will likely try to use a wage garnishment or bank levy to try to collect from you as opposed to seizing your assets.

4. The Fear Tactic
One of the IRS’s most common tactics to collect from you is the use of fear. The IRS will often remind you of their power to garnish your wages, issue liens, seize assets, etc. And they will leave it up to you to find out about your rights and options. This is enough to leave most people feeling a little fearful such that you will divulge harmful information about your tax situation or will agree to enter into a less than beneficial resolution for your particular financial circumstances.

5. The Streamlined Installment Agreement
One of the IRS’ biggest secrets is the Streamlined Installment Agreement (SIA). Unlike the traditional Installment Agreement, you can get an SIA accepted by the IRS without providing a full financial disclosure so long as your tax debt is less than $25,000 and you agree to repay your entire tax debt in five years or less.

6. The IRS Can Waive Your Application Fees
When you submit an Offer in Compromise (OIC) or another tax debt resolution application, the IRS will require you to pay a small fee as well as some type of deposit. With an OIC, the IRS requires that you pay a $150 fee and a 20% deposit on your tax debt before the IRS will review your application. However, if you meet certain income restrictions, the IRS will waive both the fee and deposit.

7. The TAS Is Part Of The IRS
The Taxpayer Advocate Service (TAS) promotes helping taxpayers with their IRS problems, but they are actually part of the IRS. Although the TAS is supposed to be an independent organization within the IRS, who would you rather have fighting the IRS on your behalf – an experienced tax attorney or another IRS employee? Keep this in mind when you are thinking of requesting help from the TAS.

8. Statute Of Limitations On Tax Debts
If your tax debt stems from a tax return that was filed over a decade ago, then the IRS might not be able to collect on your account because there is a 10-year statute of limitations on tax debts. There are several instances where the IRS can extend this deadline. One way is to get you to unwittingly and “voluntarily” agree to extend the limitations period. Don’t be fooled. The IRS cannot force you to extend the limitations period, so avoid agreeing to an extension as part of any agreement you enter into with them.

9. You Can Appeal Collection Activities
After the IRS notifies you that they intend to begin collection activities, usually through an intent to levy letter, you will have 30 days to file an appeal. Through the Collection Due Process hearing, you can have a senior technical advisor for the IRS review your case and issue a decision. Alternatively, if you believe the IRS erroneously rejected your request for an IRS tax debt resolution (e.g. Installment Agreement, Currently Not Collectible status, or an Offer in Compromise), you can appeal that rejection. However, be diligent since you only have a limited amount of time to do so.

10. You Are Not Required To Meet With The IRS
Oftentimes, the IRS will call or send letters requesting that you meet with them to discuss your tax return or unpaid balance due. So many of our clients contact our law firm scared by these requests and feel like they will are required to attend. The truth is, very rarely will you be required to meet with the IRS. You are only required to meet with the IRS upon being served with Summons or if you are being audited. In both instances, you still have the right to be represented, and can also request for the meeting to be rescheduled to a more convenient date, time, or location.

1. In order to qualify to file an OIC, you must have filed all of the tax returns you are required to file; however, you do not have to make payment on those filed returns.  In the case of self-employed individuals, “compliance” means filing and full payment for two consecutive quarters.
2. The settlement procedures depend on how much is collectible from you.  It has nothing to do with how much you owe to the IRS .  For example, a $4 million tax liability could be settled for $1,000 if you are only collectible for $1,000.
3. For collectibility, the IRS looks at both assets and income.
4. In analyzing income, the IRS is required to allow you to offset your income with reasonable and necessary living expenses (e.g., housing, food, transportation, heath care, court ordered payments, child care, etc.).
5. The IRS will discount assets to their “quick sale” value.  In the case of real estate, cars and other fixed assets, the IRS discount is at least 20% in almost all cases.
6. If you disagree with an IRS determination by an Offer Specialist, the offer can be appealed to an IRS Office of Appeals.  The appeal conference is informal.
7. If the IRS is actively pursuing a collection action against you (either a levy, lien or garnishment of wages) , you can appeal that collection action in what is called a Collection Due Process Appeal.  During that Appeal hearing, you can offer an Offer in Compromise or an Installment Agreement as an alternative to the collection action.
8. All tax liabilities of individuals and corporations can be compromised, including payroll tax liabilities and tax liabilities for tax fraud, and any tax liability not dischargeable in bankruptcy.
9. The Congress requires the IRS to have a “liberal acceptance” policy for offers in compromise.  The legislative tax policy for offers-in-compromise is to give taxpayers a “fresh start.”  The IRS adopts that tax policy.
10. A tax liability can be settled, even if you are collectible for the full amount of that tax liability, if you can demonstrate “special circumstances” for those assets or income.  This can be done if the settlement is important for “effective tax administration.”

Many taxpayers find themselves in a position where they can never pay off the IRS. It’s financially impossible with all the penalties and interest the IRS continues to add every month. However, you may qualify to settle for a lesser amount and resolve your back tax debt for good!

The IRS Offer in Compromise program allows you to pay the IRS a lump sum to settle your tax burden. Lothamer has an excellent acceptance rate for Offers in Compromise- please see Actual Offer in Compromise Settlements to view results we’ve achieved for our clients. Upon acceptance and payment of your Offer, all Federal Tax Liens are removed, and you can move on with your life.

Currently the State of Michigan does not have an Offer in Compromise program.

Stop the complaints and Wage Garnishments now. Hire IRS Tax Help today and get the Back Tax Help you need!

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