Category Archives: Tax Debt Settlements

The Road to Tax Lien Relief

chicago tax lawyerIf a tax lien is imposed for failing to file a tax return or failing to pay income taxes that are due, the IRS offers tax lien relief through its Fresh Start Program.

Tax Liens

If an individual owes federal taxes and fails to pay them on time, the IRS can file a tax lien as a way to collect the debt. When a tax lien is initially imposed, it’s only between the IRS and the taxpayer, but it becomes public record if the taxpayer doesn’t attempt to resolve it within 30 days. Once the tax lien becomes public, it can create a variety of problems for the taxpayer because it becomes visible to employers, banks, and creditors. A tax lien can impact a person’s ability to find a job, acquire housing, and get loans and credit cards. It can lower a person’s FICO score by as much as 100 points. As long as a tax lien remains, it can attach to all existing assets including personal and business real estate, personal property, motor vehicles, bank accounts and securities, and assets acquired in the future.

The Fresh Start Program

The IRS can impose a tax lien on any taxpayer who owes more than $10,000 in unpaid taxes, and they have up to 10 years to collect on the debt. In 2011, the IRS established its Fresh Start Program to help individuals and businesses with tax debt. The program raises the minimum tax debt for tax liens to $10,000, provides ways to pay off tax debts for $50,000 or less, and helps taxpayers remove tax liens. When a taxpayer owes unpaid or delinquent taxes, the Fresh Start Program helps qualifying taxpayers pay off their tax debt through installment payments or settle their debt for less than the total amount owed. The program also provides a way to withdraw a filed Notice of Federal Tax Lien by filing a one-page form (Form 12277), if certain conditions exist:

If you have a tax lien, contact an attorney at Gordon Law to discuss options for removal.

Requirements of an Offer in Compromise

Offers in Compromise Chicago Tax LawThe IRS allows individuals who meet qualification and eligibility requirements to settle their federal tax liability with an offer in compromise. An attorney who specializes in tax law can explain federal regulations and necessary qualifications.

What is an Offer in Compromise?

An offer in compromise (OIC) is an agreement between the Internal Revenue Service and a taxpayer that allows the taxpayer to settle his/her tax liabilities for less than they owe. In most cases, a taxpayer will not be granted an offer in compromise unless the proposed payment is at least equal to or more than the amount that’s reasonably collectible. The IRS measures a taxpayer’s ability to pay the settlement amount by evaluating his/her assets, such as real property, other property, automobiles, and bank accounts. The IRS may also evaluate the taxpayer’s anticipated future income, then deduct certain amounts allowed for basic living expenses.

What are the Qualifications?

To qualify for an OIC, a taxpayer must meet specific requirements:

Typically, an application fee must be submitted for the amount listed on Form 656. If the offer in compromise is based on doubt of liability, or an individual taxpayer qualifies for low-income under federal poverty guidelines, the application fee is waived.

Regulations for Acceptance

If a taxpayer qualifies for an OIC, three regulations govern acceptance:

If the IRS accepts an offer in compromise, the taxpayer must fully comply with tax laws and avoid further tax delinquencies. If acceptance terms are not met, the IRS can place the OIC in default, consider the agreement null and void, and collect the entire amount of the tax liability, fewer payments made, plus interest and penalties. The IRS can also apply current tax refunds to the tax liability. If an offer is accepted based on doubt of collectibility or effective tax administration, the taxpayer must file timely tax returns and pay taxes owed in a timely manner for five years from the date of the OIC acceptance.

Are Payment Terms Accepted?

In most cases, taxpayers will not qualify for an offer in compromise if they have the ability to pay the tax liability in full or through an installment agreement. Individuals who do qualify have two payment options:

Lump Sum Cash Offer

If a taxpayer selects the lump sum cash option, he/she may pay the tax amount owed per the OIC agreement in a lump sum or installment payments. When paid in installments, the total tax liability must be paid within five months after the offer is accepted by the IRS. A non-refundable payment equal to 20 percent of the tax liability must be paid with the OIC application.

Periodic Payment Offer

If the taxpayer chooses the periodic payment option, the tax liability can be paid in six or more monthly installments, but not to exceed a 24 month period after the offer is accepted by the IRS. The first installment payment must be paid with the application and is non-refundable. If the taxpayer is still being evaluated for a periodic payment offer, non-refundable installment payments must continue during the evaluation period.

What if the OIC is Rejected?

If the IRS rejects an offer in compromise, the taxpayer has the right to appeal through the IRS Office of Appeals. When an offer is rejected, the IRS notifies the taxpayer by mail. The letter explains the reason for OIC rejection and steps to take to file an appeal. The appeal must be made within 30 days from the date of the letter.

In certain cases, an OIC may be returned to the taxpayer rather than rejected. This can occur if the taxpayer fails to submit necessary information; fails to include the required application fee or first payment with the application; has not filed required tax returns; has not paid current tax liabilities; or files for bankruptcy. If the IRS returns an OIC to the taxpayer, there is no right to appeal, but the taxpayer can submit another offer.

Should I Hire An Attorney To Help Me With An IRS Tax Settlement Or Can I Do It On My Own?

When facing an IRS audit or settling a tax debt, a tax attorney can provide guidance and assistance on complex tax issues and settlement negotiations to achieve the best outcome.

Settling a Tax Debt

Determining the proper course of action when dealing with the IRS depends on a variety of factors. Many tax issues are complex because of complicated IRS rules and regulations and sensitive timelines. For taxpayers who are unfamiliar with the legal language and complexity of tax laws, it can be difficult to settle tax issues on their own. When trying to settle a tax debt, small mistakes can result in steep fines and penalties, even criminal charges that can land a taxpayer in jail.

When negotiating an IRS tax settlement, taxpayers should consider the advantages and disadvantages of hiring a tax attorney vs. self-representation. Although taxpayers can handle their own tax settlements, it’s not recommended if the tax debt exceeds $10,000, or if there’s a possibility of criminal charges for tax evasion or fraud. The IRS offers special programs to help taxpayers with tax settlements.

Hiring a Tax Attorney

The cost of hiring a tax attorney can vary significantly, based on location and complexity of tax issues. Some attorneys charge an hourly fee, while others require a prepaid retainer or charge a flat fee for basic services like creating hardship paperwork, submitting an offer in compromise, or establishing a payment plan. If a case goes to trial, fees are generally much more expensive, since reaching an agreement or settlement can take months in court. Although hiring a tax attorney may seem like a more expensive way to settle a tax debt, taxpayers must consider the alternatives of representing themselves. If there is a criminal investigation in a tax matter, the criminal investigation division with the IRS typically wins 80 percent of their cases, and the average sentence for convictions is three years and four months in jail.

How Long Does It Take To Settle With The IRS?

offer in compromiseIf the IRS accepts an offer in compromise, settling a tax debt takes 6 to 8 months. If the agency rejects the offer, then accepts it on appeal, the process takes 8 to 12 months.

The IRS Offer in Compromise Program

The Offer in Compromise Program is a way to settle the federal tax debt, but the IRS must first accept your offer. Once accepted, taxpayers can settle their tax debt for less than the amount owed. When taxpayers owe unpaid taxes to the IRS, they have up to 10 years to settle the debt. Although penalties and interest start accruing the day after taxes are due, the IRS may temporarily suspended collection during an offer in compromise request. If the offer is denied, collection efforts will be suspended for another 30 days during an appeal.

From start to finish, it may take up to 12 months or longer to settle a tax debt through an offer in compromise program, because the process must be completed in steps:

Step 1 – Deeming the Offer Processable

Step 1 takes approximately 3 to 6 weeks. Taxpayers submit an Income Certification for Offer in Compromise Application Fee and Payment, along with an installment payment equal to 20% of the offer. The taxpayer must also prove that he/she is not in an open bankruptcy proceeding.

Step 2 – Assignment of an IRS Examiner

Step 2 takes approximately 4 to 8 weeks. After authorities deem the offer processable, an IRS examiner will be assigned to the case. The agency will mails letters with the name of the examiner and contact information indicating that the IRS received the offer.

Step 3 – Examination

Step 3 can take from 1 to 8 months, depending on the complexity of the examination. During this process, the examiner acts as an auditor. He/she will go through all submitted documents and determine the taxpayer’s total worth, including income and assets.

Step 4 – Acceptance or Denial of Offer

If the IRS accepts your offer, step 4 can take from 6 to 8 months. During this step, the examiner will accept or deny the taxpayer’s offer. If agents reject the offer, the examiner may present an opportunity for the taxpayer to increase his/her offer or file an appeal.

Does The IRS File Liens?

When a taxpayer owes federal taxes and fails to pay them on time, the IRS can file tax liens and levies against the taxpayer. Every year, millions of Americans face federal tax liens and levies imposed by the IRS for delinquent and unpaid taxes. In 2012, the IRS issued almost three million levies to taxpayers to collect unpaid federal taxes.

IRS Tax Liens and Levies

Tax liens are different than tax levies. A lien imposes a legal claim against real property to secure payment of a tax debt, while a levy allows actual seizure of property to satisfy a tax debt.

In the United States, millions of Americans file their tax returns in April each year. If taxes are owed, they must be paid either before the April 15th deadline or paid with the submitted tax return. If money owed is not paid, the IRS will begin an official process to collect the tax debt. If a taxpayer owes a tax balance, based on an accurate tax return, it’s important to make some type of payment agreement or IRS tax settlement to satisfy the debt before a tax lien or levy is assessed. Once a tax lien or tax levy is imposed, it can have significant consequences on an individual’s finances and credit.

The Collection Process

If taxes owed are not paid in full with a tax return, the IRS issues a bill to the taxpayer for the debt. This bill starts the IRS collection process, which continues until the account is satisfied or until the legal time to collect the tax expires. The first notice is a letter that explains the balance due and demands payment in full. It includes the amount of the tax due, plus any penalties and interest accrued on the unpaid balance from the date the tax became due.

The unpaid balance is subject to interest that compounds daily as well as a monthly late payment penalty. To minimize penalty and interest charges, it’s best to pay the tax liability in full as soon as possible. If it’s not possible to pay the balance in full right away, the IRS has available payment options that include monthly installment payments and IRS tax settlement plans. For taxpayers with substantial tax liabilities, the IRS may be willing to work out an offer in compromise (OIC), that allows a taxpayer to settle his/her tax debt for less than the full amount owed. However, taxpayers who are in bankruptcy or are able to pay the tax liability in full through an installment agreement will typically not qualify for an OIC.

If a tax debt is not paid after the first letter, the IRS will send out four more letters, typically one each month for the next four months. If a taxpayer does not respond or does not pay the debt, the next step is a tax lien assessment.

IRS Tax Liens

The IRS can formally file a Notice of Federal Tax Lien if payment is not received within 10 days of a notice, but usually, tax liens are not filed until all five notices in the notice stream are sent out without any resolution of the tax debt. A Notice of Federal Tax Lien is usually filed at a local courthouse, and it becomes a matter of public record.

Tax liens can have a significant negative impact on a taxpayer’s assets, finances, and credit:

The IRS has the right to file a Notice of Federal Tax Lien against any taxpayer, business or individual, who owes the IRS more than $10,000 in unpaid taxes. Once a tax lien is filed, the IRS has up to 10 years to collect the debt. A tax lien doesn’t mean that the IRS will seize assets or garnish wages, it only ensures that they get first right to the money owed over other creditors. A tax levy is a much harsher penalty which allows the IRS to seize assets and property, money in bank accounts, employment wages, and tax refunds. A tax levy should be avoided at all costs to avoid significant financial hardships.



Is my IRS tax debt public?

Whether a tax debt becomes public depends on whether the IRS has instituted collection procedures, such as filing a lien or an order to garnish wages. The Internal Revenue Service (“IRS”) is a public agency therefore when it files a lien against a taxpayer’s property; it is required to publish a notice of lien to alert other potential creditors that the IRS has a claim against this particular property. However, not every type of IRS debt is publicly available.

The IRS has two primary tools to collect unpaid taxes: garnishing wages and imposing liens. Both of these tools can become public knowledge due to the way they function. However, not every debt that the IRS has a right to collect is necessarily public knowledge. For instance, the IRS has billions of dollars of debt that is currently not collectible because the taxpayer lacks the income prospects to repay the debt. Furthermore, debts that are being processed are not public knowledge (until the IRS institutes collection procedure).

IRS Processing of Tax Debts

Before an IRS debt becomes public, it goes through the full examination and ruling phase. In the examination phase, a tax return is audited, and the IRS sends letters to the taxpayer explaining what is disallowed or what tax deduction or credit for which the IRS needs paperwork to substantiate it. Once the letters are ignored or responded to, but it is unable to reach a compromise with the taxpayer, the controversy proceeds to the hearing phase.

During a hearing, the taxpayer may present arguments to the Administrative Law Judge (“ALJ”) and the IRS may counter. The ALJ will issue a ruling granting the IRS the authority to collect on the debt. Finally, the IRS can begin collection procedures (assuming the taxpayers doesn’t appeal the decision to the District Court – i.e. federal court). It also bears mentioning that the taxpayer may settle with the IRS at any point in this process.

Collection Tools: The Debt Becomes Public

As discussed above, the IRS has two tools to recover debts (1) liens and (2) garnishment. Another favorite technique includes intercepting the past and future tax refunds until the debt is satisfied. A lien is a legal claim against the taxpayer’s current and future property. Once the taxpayer refuses to satisfy the debt, the lien is created and attached to the property by operation of law – it is usually recorded in the County Office in which the taxpayer resides.

Once a lien is issued, the IRS publishes a “Notice of Federal Tax Lien” to give notice to other potential creditors. At this point, the debt is publicly available. The Notice is filed with the County Recorder and with the State Secretary of State. Furthermore, the Notice is reported by the credit reporting agencies.

At this point, landlords, employers, car salespeople, and banks can find the Notice and use it to influence their decision regarding the taxpayer. However, there are ways to release a Notice, including:

  1. Paying the debt in full;
  2. Guaranteeing the debt with a bond;
  3. File an Offer in Compromise, and it is accepted;
  4. The period for collections has ended (in the IRS’s case, the release should be automatic).

If a tax debt is “released” that means the IRS has both wiped the tax debt and cleared the Notice of Tax Lien.

The IRS may also “withdraw” a lien. If a lien is withdrawn, it is no longer in the public record. The IRS withdraws a lien to inform other creditors that it is abandoning its lien claims (however the lien remains active and could be collected on in the future). The IRS will withdraw a Notice if:

  1. The Taxpayer is paying down the debt pursuant to an installment agreement;
  2. The IRS determined it will help the taxpayer pay the taxes more quickly;
  3. The IRS violated its procedures;
  4. It is in the best interests of the government; and
  5. It was filed during a bankruptcy automatic stay period.

Finally, taxpayers can apply to “discharge” the lien. A typical example occurs when the taxpayer sells the property, and the debt is satisfied by the sale.

Long-Term Impact of IRS Tax Debts

The IRS is an institution, and like any institution, it can be worked with and understood. However, the IRS enjoys historically low approval ratings among the American people which mean it is poorly understood and feared – a dangerous combination for anyone trying to understand their latest IRS letter.

The long-term impacts of tax debts on businesses and individuals are severe. The standard statute of limitations to collect on debt is ten years (it can extend if fraud is discovered). Therefore, debts can follow a person for years before they are finally discharged by the time limit. Additionally, tax debts cannot be discharged by bankruptcy court (but the IRS is usually willing to negotiate a reduced settlement).

IRS Using Private Debt Collection Firms to Collect Tax Debts

In Dec. 2016, Congress authorized a bill allowing private debt collectors to recover unpaid tax debts. The law is part of the Fixing America’s Surface Transportation Act, and it authorizes the IRS to use specific debt agencies to collect inactive receivables. Taxpayers with past due debts might be able to negotiate IRS settlements, for less than the amount of their total balances.

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Types of Tax Debts that Might be Collected by Private Agencies

The IRS may send inactive receivable tax debts to the collection agencies if a) the tax debt was removed from the agency’s active tax debt inventory, b) the IRS is unable to find the taxpayer, or c) the taxpayer has limited resources. Also, older debts without an agent can fall under the inactive umbrella. Plus, debts may be declared inactive if more than a year has passed since the IRS connected with the taxpayer.

What Happens When a Tax Debt is Assigned to a Private Debt Collector?

Debts offloaded by the IRS must comply with requirements outlined in the Fair Debt Collection Practices Act. Note, however, that debt collectors may not request payments via prepaid debit cards. If they do, it could be a scam. So, be careful.

Taxpayers will not have their accounts transferred to private debt collection agencies if they have pending or active offers in compromise or are currently under investigation by the IRS.

Taxpayers who owe substantial amounts of tax debts should not ignore them in the hope that they will go away. It is possible to negotiate an IRS tax settlement that might include paying less than the total amount owed, giving taxpayers fresh starts.


Tax Penalties: A Quick Overview

If a person, partnership, or corporation is selected for an audit, the IRS can impose financial and criminal tax penalties. But don’t worry, affected parties can choose from several payment and abatement plans.

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Most Common IRS Penalties

Failure to File: 5% per month to a 25% maximum. After sixty days the minimum IRS penalty is the lesser of $135 or 100% of tax due.

Failure to Pay: 0.5% per month, not exceeding 25% in aggregate.

Accuracy-Related: 20% to 40% of the underpayment.

Fraud: 75% of the underpayment attributed to fraud.

USC General Fraud Penalties

If a person, partnership, or corporation is fraudulently non-compliant with tax reporting there may also be serious US Code consequences that can include a jail term, fine, or both — plus costs.

Attempt to Evade or Defeat Tax

Maximum prison sentence of five years or $250,000 ($500,000 penalty for corporations) or both, plus prosecution costs.

Willful Failure to File a Return, Supply Information, or Pay

Maximum prison sentence of 1 year or $100,000 ($200,000 for corporations) or both, plus prosecution costs.

Fraud and False Statements

Maximum prison sentence of 3 years or a $250,000 ($500,000 for corporations) or both, plus prosecution costs.

OVDP Penalties

The 2014 OVDP (Offshore Voluntary Disclosure Program) carries a 27.5% penalty on undisclosed assets; 50% penalty if your bank is on the IRS’ “bad bank” list. However, the “Streamlined” OVDP program has a penalty of 5% of the maximum aggregate bank account balance during the disclosure years.

For both of these programs, the above penalties only apply to taxpayers who start the program voluntarily. If the IRS audits a taxpayer and unearths undisclosed foreign assets or bank accounts, the penalties are severe! For undisclosed bank accounts, the typical penalty is $10,000 per year per account.


The 2015 Bipartisan Budget Act can affect partnerships starting in the 2018 tax year. At that time, authorities will asses tax deficiencies at the partnership level.

Liabilities for any penalties will be determined also at the partnership level, rather than individually, as was previously the case. Unless the partnership elects to pass the adjustments through to its partners, the partnership itself is liable for penalties.

The implementation of this new act may require diligent planning with the help of a tax attorney.

A Tax Lawyer Can Help You Get Relief

Taxpayers have a right to challenge IRS decisions in court. A tax attorney can guide you through the process. Gordon Law Group represents many clients with penalty abatement requests and appeals.

If a tax matter splatters in your lap, we can help clean up the mess. Get in touch today to begin the conversation. Let’s sort out your tax tangle.

IRS Tax Settlement: What Percentage Does The IRS Typically Accept?

IRS tax settlement calculation lawyerAre past-due taxes stressing you out? If so, we’ve got some good news: The IRS’ Offer in Compromise (OIC) program helps taxpayers struggling with back taxes. In 2015, nearly 70,000 taxpayers applied for offers in compromise, and the Internal Revenue Service (IRS) accepted about 27,000.

The IRS Offer in Compromise Formula

The IRS formula for calculating an offer in compromise is two-fold.

IRS Tax Settlement Calculation: Cash Flow

First, the IRS evaluates a candidate’s current income and expenses to determine available cash flow. Typically, agents use pay stubs or profit and loss statements to calculate cash flow.

Then, agents calculate living expenses. These include things like housing, utilities, vehicle payments, clothing, and food costs, which the IRS can curtail to “reasonable” levels.

After the IRS tallies a candidate’s income and allowable expenses, it subtracts living expenses. If taxpayers can fully pay, in five or fewer installments, over a period of five months, the IRS multiplies their available monthly cash flow by 12 months. If someone cannot pay the settlement in 5 or fewer months, the IRS multiples the cash flow amount by 24, and then the taxpayer has up to 24 months to complete payment.

IRS Tax Settlement Calculation: Assets

After determining the settlement value of a taxpayer’s cash flow, the IRS examines available assets and adds that amount to the cash flow figure. To establish a number, analysts consider real estate, vehicles, retirement plans, jewelry, and other valuables — minus any mortgages or loans. Then they apply a 20 percent asset value reduction; the remaining result is the taxpayer’s IRS asset valuation.

For an OIC to be accepted, the total amount owed under current tax law cannot be collectible.

Connect With An IRS Tax Settlement Lawyer

Do you need help with back taxes? We know it can be stressful, but we’re here to help guide you through the maze and get you safely to the other, debt free, side. Get in touch today to begin the conversation and start learning about your options.