Tax issues are our specialty. We hear a lot of crazy tax myths from prospective clients, other tax professionals and attorneys. These are the the top 10 IRS tax settlement myths floating around.
1. You can not file bankruptcy to obtain an IRS tax settlement.
Yes, you can. Of course there are many rules and exceptions. But generally, old personal 1040 tax returns that have been filed may be discharged — completely wiped out — in Chapter 7 Bankruptcy. This is true even if there are federal tax liens against your property.
2. Tax resolution attorneys can wave a magic wand and reduce taxes and penalties and interest for an IRS tax settlement.
People meet with us and figure that because we are so successful and have such satisfied clients, it must be that we are magicians and can — as a matter of fact — lower anyone taxes. It's simply not true. If it were true, I would certainly hire myself so I could get a lower tax bill.
This is what you need to know: If you have the financial ability to pay your IRS taxes that you agree you owe, and you have no good excuse for not paying, chances are you will be paying your taxes in full. And beware people who say they can automatically reduce your penalties and interest. First, while there is a penalty abatement program, there is no interest abatement program (although if penalties are abated, the interest that accrued on those penalties is also abated — I hope that makes sense). Second, the IRS does not automatically nor quickly abate penalties.
I've actually talked with a so-called tax resolution company in Colorado who claimed they can reduce one of my client's tax bills within 45-90 days by 50% by doing a penalty abatement. They are a total scam outfit. First, my client's penalties were already abated. There was nothing left to reduce. And it took 9 months. And the amount of the abatement was only 10% of the tax debt. So these Colorado people were promising something that was factually impossible. Yet they guaranteed to do so.
3. IRS tax settlement is a total scam.
On the opposite side of the spectrum, there are people who believe that all IRS tax settlement outfits are a scam. They feel that there is nothing legitimate that can be done regarding an IRS tax settlement. People are often surprised to find out that you can negotiate with the IRS.
This is a very common fact pattern: Someone comes in for a consultation. We say yes — with no specific guarantee — that they would receive tremendous value if they hired us. We give them our fee quote to do the job correctly. They then go home and talk it over. Someone then mentions to them they could get it done cheaper, or can do it themselves, or have their regular CPA handle it, or hire one of these scam outfits mentioned above. Either way, one of the alternatives that involves not hiring us is selected. About a year later, the person comes back and says "well, I just wasted a year and thousands of dollars not hiring you…. can you still help me?" And we always succeed were others have failed before. It is important to hire a professional firm where IRS tax settlement is not a hobby.
4. If you owe money to the IRS, don't file your tax return.
There are other reasons (besides it being illegal), but there are two critical points not typically mentioned. Not filing interferes with getting the 10-year statute of limitations that the IRS has to collect on your tax debt. Also, it can hinder your chances at discharging your IRS tax debt in bankruptcy.
5. Get rid of the IRS as soon as you can.
Dealing with the IRS is an incredibly stressful time. Therefore, many people are prone to tell or promise the IRS anything just to make they go away. But before you do so, ask yourself, is the plan the IRS demands actually viable? Or are you just punting the issue down the road to a point where it will get larger and explode?
The problem with agreeing to a repayment schedule you can't make is that once you default by not making payment or running up a new debt, the IRS comes back at you more and more aggressively. You have to stand and fight for the best deal. Of course the IRS doesn't tell you how and when to do that. Which is why tax resolution attorneys like ourselves can be absolutely critical to achieve the best IRS tax settlement.
6. If I don't open or pick up certified letters from the IRS nothing will happen to me.
This is classic head-in-the-sand denial behavior. Whether you open the letters or not, the IRS will take enforced collection action (liens and levies). It's important you open letters, else you may lose important appeal rights and the right to tax court.
7. My house in in my spouses name, but the IRS filed a tax lien against it.
One of the strange things about tax liens is that they are filed against any property you own. Unlike judgment liens, the IRS does not need a court order to file a Notice of Federal Tax Lien. The lien is addressed to wherever you live. So just because a tax lien is addressed to your spouse's property, does not mean there is a lien against the property (unless your spouse also has an IRS tax debt).
Here's an example to show you how it works: If you are renting a house, the IRS will address the federal tax lien to your apartment's address, but that does not mean your landlord has the lien against his apartment that you rent from him.
8. I'll go to jail if I don't pay my IRS taxes.
As long as you file and aren't taking intentional steps to make it impossible for the IRS to collect from you, there is no risk of going to jail.
9. The IRS has to get a court order to levy my wages or bank account.
Not true. The IRS just needs to send you three letters. After the third letter is mailed (which is known as a Final Notice of Intent to Levy), all the IRS has to do is wait 30 days and then you can be levied at will.
10. If I just get rid of my assets by gifting them to my family and friends, the IRS can't touch me or the assets.
You're not the only one who has thought about doing this. It is actually really self-defeating. Why? Because the IRS will treat the conveyance as fraudulent and the IRS is allowed by law to disregard the gift. Second, it does take additional work on the IRS to undo the fraudulent conveyance. This rather angers the IRS.
There are legitimate ways to structure assets so that basic living expenses are taken care of. But one thing that will absolutely frustrate the IRS is if you are dishonest and this will negate any possibility of an IRS tax settlement.
If you have a tax issue that you need assistance with, contact us. We can help. Call us at 888-727-8796 or email firstname.lastname@example.org.