Mistake #1: Borrowing money to pay the IRS.
The IRS may suggest that you just "borrow money from family or friends" to pay off your tax debt. Simply throwing money at the IRS does not mean that your tax issues will go away. You need to get to the root of the problem – how did you get into tax trouble to begin with? Once you identify that, you can:
1) Look at different tax settlement options, such as an Offer in Compromise or Installment Agreement, then
2) Go back to the root of the problem to make sure you are set up for future sucess. The last thing you want to do is settle your tax debt and then run up a new one!
Mistake #2: Not being current
If you have not made your current estimated taxes or your withholding is not correct, negotiating with the IRS can be a fool-hardy exercise. Why? Because the IRS demands current compliance when making tax settlement deals, but often don't tell you until after months of negotiations have occurred! Being current means two quarters of making the correct payments, and it also means all of your filings are up to date.
Mistake #3: believing the IRS has your best interest at heart
IRS employees represent the IRS. They do not have your best interest at heart. Regardless of how nice they may seem (seriously, the most effective ones are nice, and there are a lot of effective ones), their interest is to collect as much money from you in the quickest amount of time. Believing a revenue officer is out to help you can be a huge mistake.
Mistake #4: Not using the best alternative
We love the IRS Offer in Compromise program, but it is not always the best solution. There are other options like partial payment installment agreements, and first time penalty abatement. Also, Chapter 7 bankruptcy can be an incredibly valuable tool.
Mistake #5 : Not documenting true financial condition properly
If the IRS is going to accept less than full payment, you bet they are going to scrutinize your ability to pay. They are going to analyze all of your assets and expenses. You'll want to ensure you include every write off available to you. Also, don't try to hid assets by moving money around (say, by gifting $10,000 to your cat Eugene). This will shine a very bad light on you.
Mistake #6: Not standing and fighting for the best solution
Many times IRS employees make mistakes, and there are valuable IRS appeals rights. Many of them are time sensitive, so it is critical to know what to appeal, when to appeal and how to best address your claim.
If you need assistance getting a handle on your tax debt, contact us for a free consultation. We can help.
