Monday, May 17, 2010

More Hard Truths on Tax Debt

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.

The Facts:

  • 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 ($150, minimum in most cases), and it will not save you money if you are not approved.

"You can just call the IRS and pay them a little each month"...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 can't even pull off $5.00 a month with your aggressive creditors, why the hell do you think the IRS would take $5.00 per month for your tax debt?

The Facts:

  • The IRS DOES accept monthly payments, this is known as an "Installment Agreement"
  • Installment Agreements are binding contracts, you MUST pay monthly. Or else!
  • The IRS chooses the amount you pay based on your disposable income- how much money you have left over at the end of the month after all expenses are accounted for.
  • Interest and Penalties continue to accrue on the account durring the Agreement.

"The IRS will automatically stop collecting on your Tax Debt once the statutes are up"...

From personal experience, I can tell you that the IRS has continued collection actions on accounts that the statutes are supposed to be expired on. 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

Watch Out: 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 accoutn details. Be careful when selecting a company to work with.


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