In the following excerpt from her May 2015 interview on The Seth Leibsohn Show, Lisa Reilly Payton discusses taxpayer options for reaching an IRS settlement for unpaid taxes.
More about Frazer Ryan’s Tax Controversy practice
[Lisa Reilly Payton] One of the areas that I work in is IRS collections, so that’s 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 I’ll talk about last, but there are two on the outside.
Let’s say it’s 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 you’re 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 you’re in a position right now where you can’t make any payments to the IRS.
The three other alternatives, and what we deal with a lot are – we don’t actually file bankruptcy on behalf of clients – but a lot of people don’t realize that a lot of income taxes can be dischargeable in bankruptcy. That’s 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 that’s a good option.
[Seth] Now that second category you said, where you’re having a hardship in paying the IRS what you owe but you don’t have to necessarily sell your home to do it, there are options …
[Lisa] That’s 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. That’s what I do, but I’ll explain how we’re different.
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, we’d have to agree, but the thing is that there are settlement options out there for clients. I have a whole example spreadsheet. I’ve saved people that owed $2.5 million and settled it for $200,000, $500,000 for 10 grand, $400,000 for – you know it’s not that there’s a certain percentage.
It’s all about their reasonable collection potential. It’s 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 they’ve determined that through an installment agreement – they wouldn’t be able to full-pay the amount owed, and we don’t 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 aren’t so good.
[Lisa] What happens is this: I feel like maybe the analysis wasn’t done correctly, in the beginning, of whether or not they’re 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 didn’t it work?“ When I explained to him how this works, five minutes later he understood that it’s a formulaic process, it’s not “Let’s 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. It’s your net equity and assets and your remaining monthly income, and that’s either multiplied by 12 or 24, based on what settlement we’re 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? You’re not a candidate for this program.“ So I think that’s the biggest problem – not everybody’s 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, it’s a great deal.
