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Settling Tax Debt with the IRS

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Settling Tax Debt with the IRS Settling Tax Debt with the IRS This self-study course provides an overview of the major tools that can be used to settle tax debts with the Internal Revenue Service, including Offers in Compromise and Installment Agreements. It also provides an overview of how the IRS enforces payment of federal taxes, including seizing the property of delinquent taxpayers. This basic tax course does not require any prerequisites and may be taken by anyone; however, we recommend this course for existing tax preparers. This course qualifies for 8 CE credits in IRS Federal Tax Law. Settling Tax Debt with the IRS | Page 1 TABLE OF CONTENTS Chapter 1: Introduction To Settling With The IRS ..................................................................... 4 I. Course Overview ................................................................................................................. 4 II. Overview Of IRS Fresh Start Initiative ............................................................................... 6 Chapter 2: The IRS Collection Process ..................................................................................... 10 I. Fresh Start Changes .......................................................................................................... 10 II. Process And Procedures For Appeals, Seizure, And Levy ................................................ 11 Chapter 3: Installment Agreements ......................................................................................... 19 I. Overview ........................................................................................................................... 19 II. Completing Form 9465 .................................................................................................... 20 III. Other Rules ..................................................................................................................... 24 Chapter 4: Grounds For Seeking An Offer In Compromise ...................................................... 28 I. Overview ........................................................................................................................... 28 II. Doubt As To Liability Offer In Compromise ..................................................................... 30 III. Doubt As To Collectibility ............................................................................................... 32 IV. Effective Tax Administration (ETA) And Doubt As To Collectibility With Special Circumstances (DCSC) .......................................................................................................... 35 Chapter 5: Applying For An Offer In Compromise ................................................................... 44 I. Overview ........................................................................................................................... 44 II. Application Process .......................................................................................................... 45 III. Paying For The Offer In Compromise ............................................................................. 47 IV. Returned And Withdrawn Offers ................................................................................... 50 V. Mandatory Acceptance ................................................................................................... 51 VI. Forms 433-A (OIC) and 433-B (OIC) ................................................................................ 51 Chapter 6: Rejecting Offers In Compromise ............................................................................ 54 I. Offers Submitted Solely To Delay Collection .................................................................... 54 II. Frivolous Offers ................................................................................................................ 55 III. Not In The Best Interest Of The Government ................................................................ 56 IV. Other Notes On Rejection Of Offers In Compromise ..................................................... 57 V. Actions On Post-Accepted Offers .................................................................................... 57 Chapter 7: Financial Analysis Of Offers In Compromise .......................................................... 59 I. Calculating The Taxpayer’s Ability To Pay: An Overview .................................................. 59 II. Calculating Equity In Assets ............................................................................................. 61 Settling Tax Debt with the IRS | Page 2 III. Valuing Business Assets .................................................................................................. 62 IV. Dissipation Of Assets ...................................................................................................... 65 V. Valuing An Individual Taxpayer’s Assets ......................................................................... 67 VI. Allowable Expenses ........................................................................................................ 75 Chapter 8: Relief From Liability For Joint Returns ................................................................... 79 I. Overview ........................................................................................................................... 79 II. Requesting Relief ............................................................................................................. 79 III. Community Property Laws ............................................................................................. 82 IV. Innocent Spouse Relief ................................................................................................... 84 V. Separation Of Liability Relief ........................................................................................... 86 VI. Equitable Relief ............................................................................................................... 89 VII. Refunds .......................................................................................................................... 92 Chapter 9: Resolving Delinquent Taxes Via Bankruptcy .......................................................... 95 I. Overview Of Major Bankruptcy Chapters ......................................................................... 95 II. Bankruptcy Court Jurisdiction Over Tax Matters .......................................................... 105 III. Federal Tax Claims ........................................................................................................ 107 APPENDIX ............................................................................................................................... 112 GLOSSARY ............................................................................................................................... 152 FINAL EXAM ........................................................................................................................... 154 Settling Tax Debt with the IRS | Page 3 Chapter 1: Introduction To Settling With The IRS Chapter Objective After completing this chapter, you should be able to: • Recognize the impact of the "fresh start” initiative. I. Course Overview I am sure that most of you have heard the following type of commercials on one of your favorite radio stations: I was tens of thousands of dollars in debt to the IRS. I could not sleep at night and was stressed all of the time. Finally, I called XYZ Tax Resolution Center and they settled my debt for pennies on the dollar. My only regret is that I did not call sooner. Do yourself a favor and call XYZ Tax Resolution Center today. These types of claims and commercials have become so prevalent that both the IRS and the Consumer Financial Protection Bureau are considering oversight of this portion of the financial services industry. Concerns have developed based on requirements of large "up front” fees and frequent failures to settle debts based on promised terms. The Federal Trade Commission and state attorneys general also have won some high-profile cases against tax debt firms in recent years. The fact is that there is an industry dedicated to help taxpayers resolve cases with the IRS. For many taxpayers, hiring a CPA, an enrolled agent (EA), or attorney or resolution company may make sense. For others, it does not. The fact remains, however, that there are a variety of mechanisms in place for taxpayers to resolve disputes, including entering into settlement agreements, appealing IRS assessments and seeking relief as an innocent spouse. There are a variety of problems a taxpayer can have and a variety of ways to try to resolve them. The following is taken verbatim from the website of one company actively involved in resolving claims with the IRS: Back Taxes: Settle Tax Debt and IRS Problems Owe IRS Back Taxes? Whether the IRS is demanding full payment of back taxes up-front or a payment plan that is substantially higher than what you can afford to pay, we can negotiate an offer in compromise settlement on your behalf for a fraction of what is owed or to set up an arrangement for the lowest possible monthly payment with various options for making those payments, if you qualify. Don’t be afraid of the IRS anymore. Get tax relief fast from the nation’s leading expert in resolving back taxes and IRS problems. Even if you can’t afford to pay your back taxes, a Certified Tax Resolution Specialist, tax attorney, enrolled agent,
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