“Settle your tax debt for pennies on the dollar!” Not! These late-night commercials were targeting vulnerable taxpayers. Who wouldn’t like to pay pennies on the dollar on their tax liability? Unfortunately, it doesn’t work that way. Some of the tax resolution companies that run the “too good to be true” are just that.

The Texas Attorney General has filed suit against tax resolution companies running such ads and making “hollow promises.” Be careful if you are considering hiring a tax resolution company. Be particularly cautious if they don’t have a local office where you can go in and meet the professional who is going to help you resolve your tax problems. Owing taxes scares people, but don’t let fear make you spend thousands of dollars hiring someone online or on the phone who makes promises they can’t deliver on.

You should consider both bankruptcy and non-bankruptcy options for dealing with tax debt. Most people have to pay some or all of the tax debt. Depending on the particulars of your tax situation, bankruptcy may not be the best option for addressing your tax debt. If the tax is large and is also dischargeable, bankruptcy may help. For a small amount of tax debt or if the tax debt is not dischargeable, non-bankruptcy options may be best. Before taking any action, you should consult a qualified bankruptcy attorney who will advise you what your options are both in and out of bankruptcy.

I Don’t Want to File Bankruptcy. I Just Want Help With My Tax Debt.

  • Installment agreements – you may be able to enter into an installment agreement by simply filling out the online form if your tax debt is under $25,000 and you can pay it off in 5 years. The IRS guarantees acceptance if you meet certain criteria and the tax debt, excluding penalties and interest, is under $10,000 and you pay it off in less than 3 years. If the tax debt is larger than $25,000, you may still be able to do an installment agreement, but not a “streamlined” agreement where you don’t have to provide financial statements and lots of information.
  • Offer in Compromise – depending on your income/assets.

Noncollectible status

The IRS may agree that at the current time, you don’t have the income or the assets to satisfy your tax liability. They switch the coding on the account to non-collectible and stop trying to collect it. Don’t be lulled into a sense of security though because this non-collectible status means that the IRS won’t be trying to levy or garnish for now, but they can in the future. Generally, the statute of limitations on collection of taxes by the IRS is 10 years from the date of assessment. So, if the account continues in non-collectible status for over 10 years from the date of assessment, the taxes may be barred from collection by the statute of limitations.

Wait for the collection statute expiration date to expire

The Collection Statute Expiration Date is 10 years from when the tax is assessed. If a taxpayer is close to this expiration date, sometimes it is prudent to just wait until the Statute runs. This would mean that the tax debt would no longer be collectible by the IRS. An Installment Agreement is one way to accomplish this, although a taxpayer must be careful as to what type of Installment Agreement they request. A Partial Pay Installment Agreement may actually extend the statutory collection period, which essentially defeats the purpose.

The statute of limitations can be automatically extended if you take certain actions. These are called “Tolling” Events. The primary time periods of concern are the dischargeability date (which actually contains three separate time periods), the Collection Statute Expiration Date, and the Audit Statute Expiration Date. Tolling events are in the top-10 of most complicated parts of a bankruptcy discharge analysis. A few examples of tolling events include:

  • Prior Bankruptcy
  • Offer-in-Compromise
  • Request for Due Process Hearing
  • Extension to File Tax Return
  • Audit, amended return, or additional assessment
  • Substitute for Return
  • Agreed tolling, signed OIC, or stipulation, etc.

I Don’t Want to File Bankruptcy. and I Don’t Want to Try to Deal With These Taxes on My Own. I Don’t Have the Money to Pay a Tax Attorney. What Should I Do?

If you cannot afford an attorney, here are two free agencies that may help:

IRS Taxpayer Advocate

Lone Star Legal Aid

I Am Not Sure if I Want to File Bankruptcy. I Need Help Deciding.

Cross Stone Law does not currently handle tax resolution cases other than bankruptcy. We can help you file for bankruptcy. But bankruptcy is not always the best solution. Taxes and bankruptcy are very complicated. You should consult with an experienced bankruptcy attorney with knowledge regarding the dischargeability of your taxes in bankruptcy. Carol will let you know whether or not bankruptcy is recommended for you. If bankruptcy is not a good solution for you, we can refer you to another attorney.