Duvall & Associates, Inc.
BUSINESS ADVISOR NEWSLETTER
 

Handle tax debt issues

- by Alan Duvall 

Published in Dayton Daily News September 25, 2005

Many American taxpayers recoil from invocation of the words Internal Revenue Service.

Horror stories abound of cash poor taxpayers drug off to debtors prison for non-payment of taxes.  After all, the infamous Al Capone was locked up for tax fraud when all other FBI efforts failed. 

The truth: Simple non-payment of taxes is not a crime punishable by shackles in prison. The possible exception is for employer non-payment of payroll and sales taxes.  

Fearing IRS prosecution, many cash-strapped taxpayers elect not to file federal returns with taxes due.  Or they may file falsified returns to reduce owed taxes - omitting or mischaracterizing income items, creating fictional deductions.  These are all avoidable criminal acts.

Instead, financially troubled taxpayer should file honest returns with Form 9465 affixed in front of the tax package.  This form allows taxpayers to request installment payment of taxes for periods up to 60 months and will typically be accepted if the total amount due is less than $10,000.  Such extensions do come with a price, but at least some breathing room can be achieved.

More serious federal tax debt issues can be handled by use of Offers in Compromise (Form 656).  Taxpayers can even use such Offer Forms to propose a reduction in taxes which may be granted if the taxpayer proves sufficient economic hardship.  The IRS has broad acceptance authority and may negotiate revised payment structures.

Actual notice of acceptance may take time - the IRS is bludgeoned with the deluge of national requests.  Until receipt of IRS response, simply adhere to the payment plan as originally submitted.

The IRS is willing to make a deal to collect taxes.  Literally hundreds of billions dollars are owed on unpaid tax liabilities.  But the agency will not simply roll over to unreasonable requests if it finds taxpayers have misrepresented financial abilities to meet lawful obligations.

In desperation, the IRS has begun to outsource tax collection to hired gun private debt collectors.  As compensation, such agencies  receive bounties up to 25% of tax debts collected and performance bonuses if designated goals are met.

Critics fear such agencies lack appropriate sensitivity training and tend to prefer billy club collection tactics.  Concerns also exist regarding security procedures for private taxpayer records. 

To avoid severe consequences, taxpayers who owe taxes should emerge from hiding and assertively pursue reasonable payment plans with the government.  Honesty and forthright dialogue are much preferable to Capone’s failed path.

Contact Alan Duvall at alan@duvallcpa.com.