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3 Critical Things to Know Before Trying To Deal With the IRS On Your Own

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3 Critical Things to Know Before Trying To Deal With the IRS On Your Own

3 Critical Things to Know Before Trying To Deal With the IRS On Your Own

Knowledge is power!  Understanding what you are getting yourself into is absolutely critical, when is comes to dealing with the IRS. The best approach to solving IRS problems is careful consideration of your situation as a whole before jumping in.

Before considering resolving any IRS problem on your own, here are three things that I recommend that you carefully consider;

(1) Understand Your Options and Which One is Likely the Best Solution for Your Situation!

The best approach is to perform a financial analysis of your financial situation to determine your best solution.  The IRS offers several resolution options such as an Installment Agreement, Innocent or Injured Spouse, Penalty Abatement, Offer in Compromise and Bankruptcy.  You need to understand in advance how the IRS will apply their guidelines to your situation and which is the best option.  Taxpayers often have difficulty determining the best solution because they lack understanding of all the available options and which is the best based upon their unique set of circumstances.

 (2) Understand Your Collection Risks?

Any dealings with the IRS should always involve an understanding your risk of levy and property seizure.  Know that IRS seizures of real and personal property are serious, but actually quite rare. It is important when entering a conversation with the IRS to have a realistic understanding of the risks.

Some assets are protected- like everyday household goods are exempt, up to a certain level, from IRS seizure.  Additionally, the IRS cannot take property if its seizure and sale will not produce an economic recovery.  For example if you own a home valued at $150,000 with a loan of $165,000, they cannot seize and sell the home because it will not provide for any reduction in your IRS debt.  The same holds true for other assets such as vehicles where the sale will not produce an economic benefit.  Assets with no equity should not be seized by the IRS.

Other assets are at extreme risk-The IRS prefers assets such as the cash in your bank account or a garnishment of your wages. To seize assets, IRS must first provide you with notice  and information about your right to appeal.  Appeal offers you an opportunity dispute the levy or seek alternative resolution options.  Note: You only have 30 days from the Final Notice of Intent to Levy to appeal.  Please understand, the IRS is only required to send notice to the last known address listed on your last filed return.  If the IRS sent the notice to your last known address and you did not get it, they have met their requirement for notification.

(3) How much time is left on the statute of limitations on collection?

In most situations, the IRS has 10 years to collect an unpaid tax liability. The 10 years starts when the IRS assesses the debt.  For most people, this should be when you file your return. If you failed to file a return, the IRS may have filed a Substitute Form Return (SFR).  If this is your situation, the statute of limitations started on the date of determination.  The statute of limitations on collections provides an end date to collections.

But what you do during the 10 years can impact your end date. For that reason, it is important to look before you leap.  There are things that you may have done that would toll, or extend the statute of limitation, such as an Offer in Compromise.

An offer in compromise extends the time the IRS has to collect by the time period that the offer was pending. Most offers can take up to a year. If your offer was not successful, the IRS now has additional time to collect.

If the IRS only has one or two years left to collect from you, pursuing an offer in compromise may not be in your best interest. It would likely be better to hold the IRS off with an installment agreement or a currently not collectible status, especially since the compromise can take a year to investigate and finalize.

It is important to review all three of the above points; your goals/options, your collection risk and the end date under the statute of limitations on collections.  The best approach to solving IRS problems is careful consideration of your situation as a whole before jumping in.

How Long Will An IRS "Currently Not Collectible" Status Stay In Place?

Can Bankruptcy Eliminate IRS Taxes?

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