In seeking to effect “voluntary compliance,” the IRS has a substitute return program, in which they themselves file unfiled tax returns based on the income information documents provided to them as required by law. The notices regarding these returns are often ignored until a tax levy, tax lien or garnishment has been issued. Many of these notices carry astronomically high balances due to the IRS.
Meanwhile, some taxpayers look to various professionals for assistance, only to get lost when they are told to get the returns completed and come back. That is the problem—getting the returns completed. The taxpayers no longer have the records and do not know how to obtain or reconstruct them.
Professionals specializing in IRS collection resolutions do not always specialize in tax preparation. Further, not all tax preparers have sufficient accounting and/or tax examination knowledge to assist a given taxpayer in reconstructing business or personal records.
Prepare the Tax Returns to Determine the True Liabilities
Depending on the taxpayer’s profile (whether self-employed or a wage earner), considerable information regarding the records can be obtained directly from the IRS. For individuals without self-employment income, this information is generally more than sufficient to accurately complete a tax return that will replace the substitute return prepared by the IRS.
The information supplied by the IRS files will usually include home mortgage interest, real estate taxes, interest income, tuition payments, student loan interest paid, unemployment compensation amounts, and W-2 sources and totals. Add to this information the spouse’s income (if any), the taxpayer’s correct filing status, correct numbers, names and social security numbers of its spouse and dependents (if either existed for that tax year), verifiable charitable contributions and other deductible expenses and complete the tax return. If a huge balance is still owing, it’s time to return to that professional specializing in collection activities.
IRS Offer in Compromise Program
The Offer in Compromise Program is the only program through which IRS debt might be settled for “pennies on the dollar.” Generally, IRS debt includes penalty and interest. Penalties can sometimes be abated or even eliminated, but not interest and tax liability. These restrictions do not apply to the the Offer in Compromise program.
The “Fresh Start” implicit in the Offer in Compromise Program is meant to help people that otherwise cannot pay their entire debt get back into “voluntary compliance.” Voluntary compliance means completing and paying taxes on time, including making quarterly estimated tax payments on time, if applicable.
Anyone pondering an making an Offer in Compromise is advised to seek the assistance or at least the input of tax or IRS collection resolution professional. Offers can be complicated to complete. Forms need to be completed and documentation of the numbers and assets listed on those forms needs to be provided to the IRS. Attorneys, CPAs, Enrolled Agents and other tax professionals can assist and even negotiate with the IRS on a taxpayer’s behalf, but the taxpayer needs to supply them the information needed in a timely and thorough manner.
The National Association of Enrolled Agents maintains a listing of Enrolled Agents who are members of that organization.
Don’t Make “I Owe, I Owe, to the IRS I Go” Your Slogan
Not all taxpayers can qualify for an Offer in Compromise. Identifying a taxpayer’s true liabilities is the place to start. If the liabilities indicate a need for debt settlement with the IRS, then the taxpayer needs to identify his or her assets, complete the forms required, and submit the Offer. Along the way, the taxpayer should seek the assistance of a professional , even if only to consult with them or have them review the contemplated offer.
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