If you owe the IRS back taxes, you’re most likely going to end up paying every dime.
Despite what you hear on radio and TV commercials from sketchy companies, very few United States people qualify for the reduced settlement program the IRS offers.
Just for the sake of comparison, consider IRS data for 2020. Last year, the feds accepted a whopping 14,288 reduced settlement applications but set up over 1.8 million payment plans.
That’s a huge difference.
And that was a pandemic year during which the IRS shut down collection activity for several months. In 2019, the IRS set up over 2.8 million payment plans while accepting only 17,890 reduced settlement offers.
While this might disappoint you, it’s simply the reality of the process. If you’re one of the few fortunate souls that qualify for the reduced settlement, called an Offer in Compromise, then we’ll fight on your behalf to get you the best deal possible.
For everybody else, our job is still to get you the best deal possible, but the goal is slightly different. You and I will have a discussion about this, but the vast majority of West Sacramento clients we represent want the lowest possible monthly payment to the IRS.
If you owe the IRS, here’s a brief summary of the process so that you can know what to expect:
- We’ll do an in-depth analysis of your financial situation.
- Based on that financial analysis, we’ll categorize your living expenses into three buckets: Clearly allowable, maybe allowable, and definitely not allowable.
- We’ll do everything we legally can to position the “maybe allowable” expenses as allowable with the IRS in order to minimize your monthly payment.
- We’ll subtract all the allowable expenses from your income to arrive at the monthly payment we propose to the IRS for you.
There are several other steps and considerations, of course, but for the majority of United States people, this is what the process more or less boils down to if you owe the IRS.
The difficulty of this entire process, including the difficulty in getting the IRS to accept the “maybe allowable” expenses as “definitely allowable” expenses depends on several factors. Understanding a few of these factors will better prepare you for dealing with the IRS.
The most important factors are what kind of tax you owe and how much. Business tax debts are a bit more complicated than personal tax debts, and the more you owe, the more complex things get. There are specific inflection points on the spectrum of tax debt complexity, which are:
For example, if you owe the IRS $10,000 or less in personal income tax, it’s a piece of cake. As long as you can afford a large enough payment to wipe out the tax debt within three years, these payment plans are easy peasy to set up. That’s why on many of those radio and TV commercials, you’ll hear the brusk voice tell you to call but only if you owe $10,000 or more. We’re more than happy to help you out with this, though, even if you owe less than $10k since we know you have better things to do with your time.
At the next tier, for tax debts in the $10k to $25k range, things get slightly more complex, but not tremendously so. Past $10k, that 3-year time requirement goes away, and you can do a longer payment plan. As intrusive as it may feel, we’re usually going to recommend letting the IRS take the monthly payment out of your checking account each month via direct debit. Doing this makes the process faster, and in most situations, can help eliminate the potential for a tax lien being filed against you on public record.
As the amount of the tax debt increases from here, your specific facts and circumstances start to play a bigger role in determining how things play out with the IRS. Factors such as whether or not you’ve had tax debt before, whether or not the IRS assigns a field agent to your case, and whether you’ve responded to past IRS notices in a timely manner can start to impact how the IRS treats you and looks at your case.
Now that you know all this, it should be clear that you want to talk to a professional if you owe the IRS money. We’ll be happy to discuss your situation, assess the type of payment plan you’ll qualify for, tell you approximately what the IRS is going to demand for a monthly payment, and how we can reduce that payment amount for you.
To get started, let’s schedule a time to chat:
Let us take care of the tax mess so you can move on with your life.