Understanding how IRS Tax Debt Forgiveness Programs work


Transcript from the video:


Hi, this is Anthony Parent of Parent, Parent & Wynn LLP, the IRS Medic, and thank you for joining us today. We’ll be discussing how IRS Tax Debt Forgiveness Program occur, and we’re not really going to go over how to file one but just sort of how the IRS thinks. So we’re going to talk about the pressures the IRS has to settle back tax debts, why the IRS has these tax settlement programs in place and we’ll just sort of go over the features and benefits of some of the programs as well.



Now, one of the biggest pressures the IRS has is they have a limited amount of time to collect on a tax debt. Now, one of the things is your taxes have to be filed in order for that clock to be running. So it’s critical that any back taxes you have are running, otherwise that pressure to settle a back debt don’t exist of the IRS. So can you see why it’s important that you’re not running up any new debts? Because if you’re running up new debts, that clock it’s sort of continuously running, you can never get outside your problem. So it’s really why you want to focus on getting today right with the IRS, make your current tax problem a back tax problem and then you can settle it.

The second pressure that exists is bankruptcy. For personal tax debts, you can file a bankruptcy at least three years go by from the date of the tax return was original due. Now, some people do get themselves – they do frustrate themselves from filing bankruptcy because in some jurisdictions, if you don’t file a return and the IRS files one for you that counts as return and you can’t discharge it. So that is something you always want to file your taxes on time even when you owe debt and actually especially when you owe debt, these bankruptcy is an option. It’s important note for trust fund taxes, for those who have paid back several taxes who have been personally assessed that trust fund portion, bankruptcy cannot wipe out the debt but still that time to collect is still 10 years and so that pressure still exists.

The third pressure is an old adage “you cannot get the blood from a stone.” You know, ask yourself this question, what other unsecured debt can go over $100,000 for normal Americans? And we see that all the time. People maybe they owe $10,000, $15,000 a year and you add up six years with some penalties and interests, you’re over $100,000, and can you imagine if all these taxes that’s stuck around forever, how many tens of millions of taxpayers do you think would be hopeless arrears for the IRS? And so that’s really one of the pressures that exists. The IRS wants taxes to go away and by the way, this is nothing new. There is some research that even Egyptians forgave back taxes, and so it’s just sort of political reality. Tax amnesty has always existed since the beginning of time.

Now, let’s go over some of the particular programs. There is currently non-collectible status, there is partial payment installment agreement, and offer in compromise and then there are some other things where really no forgiveness of debt but you’ll stop any enforced collections, so that’s an installment agreement and also with penalty abatements. You’re not going to give you the savings that you might think they’re going to give you, and by the way it’s not automatic. So the first one I want to talk about is currently non-collectible or hardship status or uncollectible status or status 53, they are the same thing. This is again blood from a stone. The IRS doesn’t want to put people on the street, the IRS put everyone on the street who owed back taxes, there would be a revolt, no question about it. So they want to give people a break. So what they do is they say, “Okay. All you need to do is don’t run up anymore tax debts and we just won’t take any money from you each month. You will take your refunds if you have any, but with this, we’re not going to bother you. We will probably file tax against you if you are a non-collectible status.” Now, this is temporary. Typically it’s temporary. Sometimes we can get it – it’s put in play for four or five years review, so it’s temporary.

But again, that statute of limitations is running. So sometimes people in currently non-collectible status could pay zero dollars for the entire the statute of limitations are running, that statute of limitations expires that debt is gone, so they actually pay nothing on their back taxes, and so that always makes me laugh a little bit. You hear people say, “You can settle your back taxes for a pennies on the dollar.” And say, “Well, maybe you can settle for nothing on the dollar. Your only problem is you have to wait for that period to expire. So that’s why an offer in compromise might be a little bit better there. Also sometimes when we are filing an offer in compromise and an appeal agent won’t grant it, they’ll give currently non-collectible as a consolation prize. There is no requirement on the IRS grants, no offer in compromise is, you can’t say purely discretionary but fairly discretionary.

Also we see currently non-collectible status is granted on an inconsistent basis. We’ve had cancer patients who have had extremely expensive medicines and not granted currently non-collectible status when it was clear, that they had no ability where the choice was either you pay IRS or you cancer medication and we’ve had to fight tooth and nail just to sort of get the IRS to be a little human there. We’ve ultimately prevailed. But sometimes, you can really have a battle on your side for something that seems rather obvious to you.

And a hidden one, this is one of my favorite ones because it's very hidden, most people don’t understand how it works but if you just think about how that currently non-collectible work, you were paying nothing each month and that time period is expiring. Well, partial payment, installment payment is sort of the same thing except you’re paying something each month and that something each month is determined on what you monthly ability to pay is based on your real estate collection potential as we argue with the IRS.

Now this is something the partial payment installment agreement can be reviewed just like currently non-collectible status and we have people who do owe over a million dollars and there we are looking at a yearly review but the IRS wants to verify that the financials have not changed. Of course the offer in compromise dealt as collectability. This is where you do not have the ability to full pay your debt within the remaining statute of limitations and the IRS is going to take this and actually the thing is, you could actually pay – end up paying more money. If you do an offer in compromise down as collectability. If you do that instead of CNC, PPIA, or file bankruptcy. The benefit for you is you have nothing on your credit report and it’s gone, and also those will come off. If you are in CNC or PPIA and the statute expires, guess what, those things are going stay on and it becomes stale-dated but that record is still there. If you file and offer in compromise and get accepted in full, you can seek that those names be released or even withdrawn which is an incredible bonus. So while you might pay more, it’s really to say but you’re able to wrap it up quicker. Another thing you have to be careful of, you have to be good for five years as you file everything on time and you don’t run up any new debts. The IRS is required to send you notice. If you failed to meet that, just make sure though they have the right address just in case something happens. Also the rules can be different if you have special circumstances, the equation might change if there’s a disability or a pending retirement where you actually might be able to give them lower. Right now, the rules are pretty beneficial. We are getting offers in compromise accepted for a very, very reasonable amount. These are really good time. The IRS is very aware of the financial situation of the country, also their inventory is stacked and right now they are down 20% of employees.

Actually, you know, here is something interesting, the IRS actually has reduced the amount of notices it sends to taxpayers, you know why? Because if you got a notice, what are you going to do? You’re going to call them. They don’t have the staff to handle the calls and so really they’re stacked up with a huge inventory of back taxes. Now, the other side of it they actually have moves, they’re offering compromise and procedures, moving very, very quickly so we’ve been seeing offers least expected to take well over a year before getting a sum within 10 months, accepted, approved, and done. So this is a really a good time if you’re thinking about an offer in compromise to put one in.

Now, if you have a regular installment agreement that’s where you’re going to full pay liability in the remaining statute time. Now, while it’s not forgiving your debt, you are laying off any of enforced collections that is, levies. We don’t want that right? You know, there are people who’ll say, “What about penalty abatement?” Let me go for a penalty abatement, and then people looking for that, since it’s there, we’ll do it. First thing is penalties are not amount that you might think they are and also it’s not a magic wand, we just don’t get to say, “Hey IRS, waive penalties because we want it.” They can actually be kind of hard about it, so only in situations that warrant it. Well, we actually go for a penalty abatement. Now, there is a first time penalty abatement but for a lot of our clients, this is not their first go-around with the IRS, hopefully it’s their last.

So we thank you for joining me on this how IRS Tax Debt Forgiveness Programs work. Thank you for watching. Comments, please send at info@irsmedic.com or if you’re having a tough tax problem that need a little hand with, shoot us email. This is Anthony Parent of Parent & Parent LLP, the IRS Medic and thanks for watching.