The Truth hurts. But somebody has to say it. Every day when I check my inbox I have to dispell more and more IRS Myths. Here's a quick run-down of the common myths I hear, and the harsh realities.
"Settling your Tax Debt is a simple process"...This goes along with all of the other "Pennies on the Dollar" Tax Debt Settlement nonsense. An IRS Tax Debt Settlement is known as an Offer in Compromise. There is no quick and easy way to apply for an Offer in Compromise with the IRS.
"You can just call the IRS and pay them a little each month"...
- Only a small percentage of people qualify for an Offer in Compromise. There are a strict set of guidelines to adhere to.
- It can sometimes take up to 3 years for a Tax Debt Settlement to be approved.
- The IRS advises taxpayers not to submit an Offer in Compromise until other Tax Debt payment options were considered. The Offer in Compromise should be a last resort option.
- The Offer in Compromise is expensive to apply for (non-refundable payments of $150 and 20% of your offer).
Here's a verbatim quote I heard from a friend, "Don't worry about the IRS, just agree to pay them $5.00 per month and they'll just leave you alone." HA! That's a good one, friend. You need to be in an official agreement with the IRS in order for collections to stop. And, the only way you are getting a payment plan that low is if you prove you ONLY have $5 extra a month. If you have credit card bills or eat out once a month, there's not a chance you'll wind up paying $5 a month.
"The IRS will automatically stop collecting on your Tax Debt once the statutes are up"...
If your Tax Debt is 10 years old or older, it's illegal for the IRS to collect on it. But beware, the following actions can extend the amount of time the IRS can collect on your Tax Debt.
- Filing for Bankruptcy
- Submitting an Application for an Offer in Compromise
A lot of so-called Tax Resolution companies might tell you that you can settle your tax debt for "pennies on the dollar" or pay the IRS practically nothing to the IRS. These are bogus statements, especially if they can tell you this without knowing your account details. Be careful when selecting a company to work with.