October 15, 2016 • By Dennis Beaver
Listeners of AM, Sirius or XM Satellite radio have heard commercials for “Tax Resolution” companies claiming to make the big bad IRS go away for cents on the dollar. For readers who are or know someone in trouble with the IRS, today’s story should provide some peace of mind and help you avoid getting ripped off.
Many of these advertisements suggest that IRS Recovery Agents are seizing thousands of people’s homes, household furnishings, cars, literally, everything they own to satisfy a tax obligation.
“Owing the IRS is serious, but many fears just aren’t correct,” Cincinnati-based, former IRS Trial Attorney Howard Levy states. “People worry about what the government will do because of a failure to pay taxes. Will they shut down my business, seize our house, or take my income so I cannot provide for my family? Will they take my retirement account and put me in jail?
“Most is more myth than reality. By law, they will not take your child support, social security, workers compensation, and many more assets are exempt from levy.
“Actual seizures of property run only around 500 a year for the entire country, in part because the IRS can only take property with equity. Many household items — as in a bankruptcy filing — are also exempt.
“They are not looking to take your personal residence, but it can happen in egregious situations. Wages and bank accounts are most at risk.”
If you owe the IRS, fear is usually larger than reality, and is the basis for many settlement resolution companies to scam the public, advertising that by hiring them your tax debts will go away.
“Many claim they can settle all your tax debts for pennies on the dollar and do this quickly with an offer in compromise, where the IRS settles a debt for less than what is owed.
“They make it sound simple, but it is not and there are specific criteria which a taxpayer must satisfy to settle with the IRS. It is not a handshake deal — just call and they will slash your tax bill,” Levy cautions.
We called a number of tax resolution companies, gave them a fictitious $50,000 debt, asked how much would be eliminated, how long it would take and what they would charge.
Without seeing a single sheet of paper, we were quoted anywhere from $2,500 to over $9,000, promised complete resolution of the tax issues in less than 90 days, and only having to pay 10 percent of what the IRS wanted. The only way to see their contract was by signing up right then, over the phone with a credit card.
To Levy, these are the hallmarks of trouble. “An offer in compromise is a narrow doorway and can take anywhere from 9 months to a year to investigate; after that, the IRS allows up to 24 months to pay them the settlement.
“They have guidelines — a budget — which is imposed on taxpayers, limiting how much can be spent monthly. One of the reasons you do not ever want to get in hot water with the IRS is that your reality — what you need to live — is not the same as theirs.
And what does the IRS look at before entering into an offer in compromise, reducing your tax obligation?
“Let’s say you owe $50,000. Looking at what you earn and applying their budget standard, they will ask, ‘Can this be paid back if there were reasonable living expenses?’ Someone who has an excessive lifestyle, such as luxury car payments or a huge house payment could find it difficult to settle with the IRS.
As the IRS has 10 years to collect most back taxes, Levy points out that few people, under stringent belt-tightening conditions will quality. “They look at cash flow, applying their budget standard to what you make. If they feel over time you can pay the bill in full, the compromise will be rejected. If they feel that you cannot pay the debt, then it could be reduced and settled.”
There are only three groups of tax professionals who are authorized by the IRS to represent taxpayers. “In most cases, you want to call a tax attorney, a CPA or an Enrolled Agent. These are the people who are authorized to represent you before the IRS. And be careful of what is advertised,” Levy concludes.
Of course, no one wants to get into hot water with the IRS, and by following some common sense rules, you never will. And that’s our subject, next week.
Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.