Don’t Pay Your Past Due Tax Bill...

Coral Springs, Fla , November 13, 2013

Because you really can, at least big chunk of it. And it's totally legal. I know you would ask how is that possible. How is that possible when Internal Revenue Service had 44.6 billion dollars in unpaid tax assessments in 2012 and number of delinquent accounts rose to 11.5 million? How is that legally possible when IRS served almost 3 million levies to the banks and employers in 2012 alone? 

It's very simple. Like all other collection agencies, IRS does have the authority to forgive your tax debt entirely or settle for less than what you owe. Like all these credit card collectors calling you to offer settlement for less than you spent on your credit card, just to close the case and remove it from their inventory of outstanding cases. Unlike credit card collectors though, IRS never calls or mails you their offer to settle for less. It's the other way around, you only get notices that demand payment, and the amount of tax due is increasing every month because of accrued interest and penalties. The IRS collection machine perfected this process to the T. 

So how on earth you can avoid paying or reduce your past due tax bill? There are 2 IRS programs that allow you to pay less or pay nothing, without a federal tax payment plan. The first one is called Offer in Compromise and the latter is called Currently Not-Collectible Status (also known as Status 53). Both programs are designed for financially challenged taxpayers to help them start fresh and remove the tax burden in exchange for tax compliance, read “a promise to not get into the same situation again”. You would say “Who in our current economy is not financially challenged”? Almost everyone, of course. However, IRS uses detailed guidelines and standards that tell you exactly how much you can spend on food, housing and vehicle expenses, for instance, to be qualified for a settlement or to be classified as Currently Not Collectible account.

Let me tell you right off the bat, not everyone is falling under these guidelines to find themselves in a tax haven. But a good chunk of people, yes! In 2012 IRS accepted 37.5% of  filed Offer in Compromise applications in comparison to 33.89% acceptance rate in 2011. The dollar amount of all accepted offers in 2012 has also increased by 27% in comparison to 2011. Besides financial ability to pay your tax debt IRS considers many other important factors when reviewing submitted offers, like health issues, lost jobs, death in the family, age and ability to work amongst many others.

I am sure you've heard many TV commercials or radio miracle workers promising to settle tax debts for less running so called “pennies-on-the-dollar” campaigns. But most people who buy into it don't even realize that they never deal with IRS Representatives, but rather sales people who have no knowledge of tax law whatsoever. The tax haven promised is so bright and nice, that taxpayers end up with “where do I sign” kind of thing. And sign they do… thousands of dollars check for legal representation before the IRS. Just few months later they get rejection letter from the IRS and another notice with tax due, but now significantly increased. Why? Because taxpayers were not eligible in the first place to apply for a settlement, a.k.a. Offer in Compromise.

The next logical question is “How do I know if I am eligible for an Offer in Compromise?” Continue reading for an answer. Like I mentioned earlier, IRS uses sets of rules and standards in order to determine Reasonable Collection Potential (RCP) of each taxpayer. Based on the RCP they know how much you can possibly shed out of your pockets to settle the bill.

So, don't pay your past due tax bill… until you know you can pay less taxes or nothing at all.

About the author

Irina N Bobrova, MST, EA, CAA, NTPI Fellow is a tax professional authorized to represent taxpayers before the IRS, co-creator and COO at PitBullTax Software. She spent years researching IRS regulations and procedures on collection issues and advising tax professionals nationwide on how to prepare successful resolution cases. In her own tax practice she offers help with the IRS and already helped many taxpayers to resolve their IRS problems and obtain peace of mind once again.