[Lisa Reilly Payton] One of the areas that I
work in is IRS collections, so thats what keeps me very busy. As
long as the IRS collects and taxpayers continue to owe the IRS, I
will continue to be busy.
Basically the IRS collects taxes in five
different collection alternatives. Most people fall within the
three that Ill talk about last, but there are two on the outside.
Lets say its a full-pay situation. There are
assets, and you owe the IRS $100,000 and you have a million dollars
of equity in your home, and youre going to sell your home and pay
off the IRS. On the other side of that we have something called
currently not collectible or hardship status Status 53 where
youre in a position right now where you cant make any payments to
The three other alternatives, and what we deal
with a lot are we dont actually file bankruptcy on behalf of
clients but a lot of people dont realize that a lot of income
taxes can be dischargeable in bankruptcy. Thats very technical
the three-year rule, two-year rule, and 240-day rule. It has to be
from a tax year at least three years ago, the return has to have
been filed at least two years ago, and no additional assessments for
240 days. It gets technical, but we can do an analysis and maybe the
taxes are dischargeable in bankruptcy, and thats a good option.
[Seth] Now that second category you said, where
youre having a hardship in paying the IRS what you owe but you
dont have to necessarily sell your home to do it, there are options
[Lisa] Thats where we come in, and the two that
I work on the most are installment agreements, which are payment
agreements with the Internal Revenue Service. We figure out the
monthly amount you can pay, or the one that I really wanted to talk
about today, which is offers in compromise. You see probably a lot
of those commercials on TV. Thats what I do, but Ill explain how
You know, Do you owe the IRS more than $10,000?
You may be eligible for a settlement. I think a lot of those
commercials are pretty misleading, wed have to agree, but the thing
is that there are settlement options out there for clients. I have a
whole example spreadsheet. Ive saved people that owed $2.5 million
and settled it for $200,000, $500,000 for 10 grand, $400,000 for
you know its not that theres a certain percentage.
Its all about their reasonable collection
potential. Its very formulaic. How it works is, basically the IRS
has 10 years to collect taxes, and so we have a certain program, a
settlement, where if theyve determined that through an installment
agreement they wouldnt be able to full-pay the amount owed, and
we dont have a lot of assets in place we may be eligible for a
settlement. I just had one the other day. The clients owed $330,000,
we settled it for 30 grand.
[Seth] When you hear those advertisements what
are some of the pitfalls that happen to people when they go there
they end up having compromises that just arent so good.
[Lisa] What happens is this: I feel like maybe
the analysis wasnt done correctly, in the beginning, of whether or
not theyre a good candidate. For example, I had a client who came
in and said, Well, I owe the IRS $100,000, and I offered $10,000. I
went to this tax service, they prepared it for me, why didnt it
work? When I explained to him how this works, five minutes later he
understood that its a formulaic process, its not Lets Make a
Deal. Well, he had a million dollars of equity in his home, and I
explained to him we have an A factor and B factor. Its your net
equity and assets and your remaining monthly income, and thats
either multiplied by 12 or 24, based on what settlement were going
to do, so when I explained to him, Why would the IRS take a ten
thousand dollar settlement on a $100,000 liability, with a million
dollars of equity in your home? Youre not a candidate for this
program. So I think thats the biggest problem - not everybodys
eligible. Maybe you want to try penalty abatement to reduce what you
owe, maybe you want to do a payment agreement.
Our goal is to save you money, but not everyone
is a candidate. If you are, its a great deal.