December 25, 2009

How to Pay Less Taxes than What You Owe

Marlene Hamann, a former operator of a temporary staffing company in Amherst owed the IRS more than $1 million in taxes but the IRS agreed to a payment of only $27, 444 as full settlement. Impossible? Not if you know of a certain provision in tax law that gives you the eligibility to pay less than what you actually owe the IRS. This provision is called Offers in Compromise. This provision is little known and used hence only less than 11,000 taxpayers in the country applied for it in the fiscal year ended Sept. 30th, 2008.

Under this provision the IRS collects taxes from eligible taxpayers that are potentially collectible at the earliest possible time and the least cost to the government. The agency only makes such arrangements with individuals from whom collecting the tax and penalties would be impossible. Not everyone is eligible for Offers in Compromise, however. It depends on each individual’s economic hardship.

A qualified and experienced tax attorney could help you evaluate whether you are qualified for Offers in Compromise. Generally, you must have fallen into some economic problems that affect your ability to pay your taxes like divorce, serious illness, lost jobs, family hardships or even addictions.

Marlene Hamann, who is mentioned above, ran a temporary staffing company that filed for bankruptcy and went out of business in 2002. But under the Offers in Compromise provision, she received a waiver of more than $1 million in her taxes. This $1 million tax break, while unusual, is not unheard of, according to tax attorneys.

The success of your application for an Offer in Compromise is solely at the discretion of the IRS, who applies a very strict formula in deciding your eligibility. You must furnish all required documents such as your bank statements, investment accounts, the valuation of your properties and statements of all other assets. The IRS also examines your monthly income from all sources and deducts your expenses. It is on this basis that the IRS either accepts or rejects your application.

There are other details to this provision. If you make an Offer in Compromise application, you must pay an upfront amount of 20% of the offer. If your offer is rejected, this amount would be applied towards your tax bill and you will have to settle the rest. If your offer is accepted, your offer is kept in a public file for a year. This means that your federal tax information becomes public record for that year. Then you are placed on probation for 5 years, during which you are to maintain an up-to-date payment record of all your taxes. Should you default again within the 5 years, your full tax bill is reinstated as though there was no Offer in Compromise at all. Worst of all is if you are caught lying about your circumstances in making your application, you will be prosecuted for perjury.

If you are interested to make an Offer in Compromise, be sure you contact a qualified tax attorney for advice.

Darrin T. Mish is a veteran, nationally recognized tax attorney who has focused on providing IRS help to taxpayers for over a decade. He regularly travels the country training other attorneys, CPAs and enrolled agents on how to handle their toughest cases with the IRS. He is highly ranked among the top attorneys in the country, with an AV rating from Martindale-Hubbell and a perfect 10 on Avvo.com. Martindale-Hubbell has also honored him with a listing in their Bar Register of Preeminent Lawyers. He is a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. With clients on every continent but Antarctica, he has what it takes to solve your IRS problems no matter where you live in the world. If you would like more information about his practice and how he can help you, please call his office at (813) 229-7100 or toll free at 1-888-GET-MISH.

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