Seven Solutions to Overwhelming Tax Debt
If you owe a substantial debt to federal, state or local taxing authorities you have options. Finding the right lawyer who will advise you in pursuing the most effective course of action to relieve your tax debt is the best way to ensure your interests are protected.
The Law Office of William F. Kunofsky in Dallas offers sound legal guidance for individuals and businesses in need of immediate and reliable tax, debt and bankruptcy solutions.
- Pay in Full ImmediatelyIf you agree the debt is owed and you have assets, the least expensive method of repaying the tax debt is simply to pay in full. This method avoids increased penalties and interest for failing to pay the tax. Paying in full may be the only realistic option when the overall liability is relatively small. It can cost more in the long run to fight the IRS over tax debt.
- Make Payments Over TimeThis method is usually called an installment agreement. The advantage of an installment agreement is that the Internal Revenue Service will frequently agree to allow the Taxpayer to repay over time. A small administrative fee is charged by the IRS when it accepts an installment agreement. Interest and penalties will be added to the balance. A lien may be filed by the Internal Revenue Service. The payments are applied to older liabilities first. The IRS is free to renegotiate if income changes. The disadvantage of this method is that some of the payments made in an installment agreement may be wasted when compared with the results sometimes obtained in bankruptcy. Comparison with bankruptcy may prove in your case that the installment agreement costs more over time.
- Settlement Based Upon Doubt as to CollectabilityThe taxpayer may propose paying less than is owed because the taxpayer does not have the resources to repay the taxes. This is commonly called an “Offer in Compromise”. An offer in compromise may be accepted if the IRS or other tax agency determines the full tax debt can not be paid by the taxpayer.Frequently, you will see a reference or advertisement to settle your IRS liability for “pennies on the dollar.” Don’t be misled. A settlement that requires you to pay 99 percent of the tax debt could still be described as “pennies on the dollar”. The vast majority of all offers are rejected by the IRS because the taxpayer has the ability to repay the tax debt over time. This method is constantly advertised to people that are desperate.
An offer in compromise requires disclosure of the financial assets and future income of the taxpayer. The offer must be at least the amount the IRS can collect on its own initiative. An offer is very time consuming and there are many factors to consider that may extend the time the Internal Revenue Service or other taxing authority has to collect the taxes, commonly called the statute of limitations for collection.
The IRS normally has 10 years to collect the tax after it is assessed. Not all offers are accepted. Most are rejected. The offer must be at least the minimum shown in the offer in compromise worksheets. A successful offer will result in a contract between the taxpayer and the taxing authority that when completed resolves the debt and liens. We will try to determine if this is the right solution.
- Settlement Based Upon Doubt as to LiabilityThe taxpayer may propose paying less than is claimed to be owed because there is doubt that the liability is correct. The basis of the offer in compromise is doubt as to liability. This is a fairly rare method. Normally, the IRS will audit the offer to determine if the settlement has merit.
- File for Bankruptcy Under Chapter 7The requirements to discharge the tax liability in a Chapter 7 bankruptcy are that the debtor file a Chapter 7 and obtain a discharge from the U.S. Bankruptcy Court. The taxes must be more than three years old at the time of filing the bankruptcy plus any extensions of time, the taxes must have been filed for two years prior to the filing of the bankruptcy, and any additional tax must be assessed for more than 240 days. Additionally, the taxes can not be secured under a properly filed federal tax lien. Additionally, the tax liability must be a dischargeable tax and not incurred by fraud or evasion. The determination of the dischargeability of tax is very complex and there are many exceptions to the general rules.
- Seek Bankruptcy Protection Under Chapter 11 or Chapter 13These are bankruptcies allowing you to restructure your tax debt in a court supervised repayment plan. If the taxes have aged sufficiently they may be partially or fully dischargeable in a Chapter 11 or Chapter 13 bankruptcy. This is an excellent method of handling unpaid taxes as well as late mortgage payments, medical bills, and unpaid credit card debt. These bankruptcies must be evaluated by an experienced attorney to determine if the taxpayer can benefit.Rarely will there only be tax debt. Usually, tax debt is the tip of the iceberg. The entire financial picture should be considered. Failure to consider the entire financial situation may result in the loss of property to other creditors, lawsuits, and pressure from creditors not being paid.
- Contact the Law Office of William F. KunofskyI am an experienced tax attorney and bankruptcy attorney. I have extensive financial training to help you examine your options.Call my office in Dallas today at (214) 369-1040 to schedule a consultation to discuss your legal options and determine the right solutions for you to repay your tax debt.