You’ve fallen behind on your tax obligations. The IRS has sent you notices, which you didn’t open ― after all, who needs the aggravation. You’ve just received a notice of levy from your bank. It’s that time, it’s Miller time. No, wait; that’s not the right commercial. It’s tax debt resolution time!
What can you do to resolve your problems with the IRS? Ben Franklin is reputed to have written, “In this world nothing can be said to be certain, except death and taxes.” If you can’t pay that certain tax debt, you could turn to the other side of Franklin’s quote and commit suicide, but that’s not a great choice. Or you could move to a country with no extradition treaty with the U.S. Unfortunately, most of those countries are run by psychopathic tyrants, so again, not a great choice.
There are four main ways to resolve tax obligations: (1) pay them in full right away; (2) discharge them in bankruptcy (if possible); (3) enter an offer in compromise; and (4) enter an installment agreement. Which one should you use? As you might have guessed, the answer is simple to state: It depends. “On what?” you ask impatiently. To answer that second question we need some background.
First a couple of important facts:
The Return Filing Requirement
One thing is certain no matter which approach you use: To resolve your tax problems you must first file a return for the year(s) in question. If you haven’t filed a return, you are ineligible for any relief.
The Collection Statute
26 U.S.C. § 6502(a) has a ten-year statute of limitations on IRS collections, measured from the day the tax is assessed by the IRS. A tax is assessed when the IRS enters the assessment into its internal system. The ten-year limitation is specific to the IRS. Other taxing authorities have different limitations periods. For example, according to Cal. Rev. & Tax. Code §19255(a), the California Franchise Tax Board has a twenty-year statute of limitations on collections. Jerry Brown wants your pound of flesh to pay for his train set).
With these truisms out of the way, let’s look at the four aforementioned approaches in seriatim. Today’s blog covers the first two: pay in full and discharge your tax debts in bankruptcy. The next blog will cover the third and fourth approaches: Offer in Compromise and Installment Agreements. Continue Reading Dealing With Tax Debts: Part 1