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tax debt is different from credit card debt

How is IRS Tax Debt Different from Credit Card Debt?

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Tax Debt vs. Credit Card Debt

How is the Resolution of Tax Debt Different from Resolution of Credit Card Debt?

Everyone has heard tales of how a family member, friend, or that guy sitting across the bar, were able to pay of thousands of dollars of credit card debt for pennies on the dollar (commonly 40 cents on the dollar) by making one lump sum payment. Not only was it (relatively) cheap, but it was so easy! All they had to do was call the credit card company or collection agency and work out a deal. It didn’t even take that long. So, why can’t you settle your tax debt for pennies on the dollar just like credit card debt?!?!

It’s not that you CAN’T settle tax debt for a lower amount, sometimes you can. However, the entire resolution process is different. That is because tax debt is a whole nother animal; an animal with much sharper teeth! The 6 most significant ways in which tax debt differs from credit card debt are:

  1. Tax Debt is Secured: Usually, secured debts are those that are secured by a security instrument, or a document placing  piece of collateral up in exchange for a loan or debt. For example, when buying a house, the loan is secured by a mortgage (the security instrument), placing your house as the collateral. If you do not pay your mortgage, your lender will place a lien on your home, and eventually foreclose. Credit card debt is unsecured. In order for  credit card company to place a lien on your property, the company must take you to court. Even though you never signed a security instrument, YOUR TAX DEBT IS SECURED BY ANY PROPERTY YOU OWN AT THE TIME OF THE DEBT! By law, a lien for the amount of the tax debt exists as soon as the tax liability is incurred (begins to exist) and can be filed as soon as the tax liability is assessed. Own any cars? A home? Vacation house? A world renowned stamp collection? Well they have all now been jeopardized by your tax debt, and any time you sell one of them, the IRS will be there ready to confiscate your proceeds.
  2. The IRS Can Garnish: We’re not talking about fancy French cuisine. The IRS can send notices to your employer, the Social Security office, the Department of Labor which handles unemployment payments, a disability insurer, or anybody else sending you regularly scheduled payments. By law, those people, companies and organizations MUST turn over a portion of your checks to the IRS. If they do not, they are liable to the IRS for amounts that could have but were not collected. How many of them do you think will refuse to the pay the IRS? Credit card companies and debt collectors do not have this power.
  3. The IRS Can Get Your Bank Accounts: Similar to garnishing your wages, the IRS can simply issue a notice to your bank telling them to hand over your money, whether it is in a checking or savings account. By law, the bank must comply. this is another power credit card companies do not possess.
  4. The IRS has 10 Years to Collect Tax Debt: In general, a credit card company has 7 years or less to take you to court over credit card debt. Meanwhile, the IRS can collect tax debt for up to 10 years, starting from when the tax debt is assessed. If you failed to file a tax return, there is nothing stopping the IRS from assessing debt under that unfiled tax return 5, 10, 20 even 30 years later, and only at that time does the 10 years start to run. For example, the debt from an unfiled tax return from 2000 could be assessed in 2020, and the IRS would have until 2030 to collect!
  5. IRS Collections Are Kept In-House: If you stop paying your credit card bills, the credit card company will sell your debt to a collection agency, who will gladly settle your debt for almost any amount over what they paid to acquire it. The IRS no longer sells tax debt to collection agencies (any agency claiming they bought and are collecting on your tax debt is a scam!). This lessens the taxpayers bargaining power when settling debt.
  6. IRS Policy is Law: Credit Card companies have policy and procedure manuals that are followed by their employees. Their policies and procedures must also comply with the Fair Credit Collection Practices Act. When attempting a settlement, the credit card company policies and procedures can be challenged based on their compliance with the FCCPA or based on reasonableness. The IRS, however, develops its own policies and procedures, and since it is a government agency, these then become law. The IRS answers to nobody but themselves.

As you can see, tax debt is far more serious of a financial issue than credit card debt. The IRS has more ways to get at your money and it’s easier for them to do so. The IRS has more time to collect on your tax debt also. Further, the taxpayer has less bargaining power because the IRS makes its own laws.

If you need help fighting or settling your tax debt, the tax resolution attorneys at G&G Law, LLC can help. We have knowledge of the IRS policies and procedures, and have experience navigating their system. We are more than just another hotline from an infomercial; call 203-740-1400 to speak to a tax resolution attorney.

Should unemployed taxpayer make offer in compromise with IRS?

Making an Offer in Compromise When Unemployed – IRS Tax Debt Relief

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Should I Make an Offer in Compromise While Unemployed?

Unemployment as a Factor for Offer in Compromise

An Offer in Compromise is one of the many tools in the tax debt resolution toolbox. An Offer in Compromise is is essentially an offer to make a lump sum payment, or 24 monthly payments to the IRS in an amount less than the entire tax debt amount, which the IRS can choose to accept in full satisfaction of the tax debt. One of the main factors for the IRS to accept or deny an Offer in Compromise is the taxpayer’s “reasonable collection potential”. It would make sense that unemployment would lower ones collection potential, and increase the likelihood of the IRS accepting an Offer in Compromise, right? Well, the answer might surprise you.

First, let us take a look from the perspective of an employed person making an Offer in Compromise to the IRS. An employed person makes X dollars. The IRS knows this person made X dollars last month, X dollars this month, and will likely make X dollars next month. The employed persons collection potential is fairly certain. The IRS can look at the level of income and determine if the offer they made is reasonable.

The income of an unemployed person is less certain. If a person made $100,000 a year last year but is currently unemployed, who is to say they won’t go right back to making  decent income next month or next year, or some time after the offer in compromise is accepted? Perhaps they will make even more money than before. Perhaps if the IRS holds out, they will be able to get payment in full for your tax liability, maybe even garnish your wages directly. The bottom line is that unemployment adds another factor for the IRS to consider when evaluating an offer in compromise; a factor that can work against the taxpayer!

How Can G&G Law, LLC Help Unemployed Taxpayers with Tax Debt?

Just because you are unemployed does not mean that your offer in compromise will get rejected. As competent and experienced tax resolution attorneys, we can lessen the affect unemployment has on the offer in compromise consideration process by:

  • explaining to the IRS that employment in the near future is not likely;
  • finding and presenting evidence of a loss in future earning capacity; and/or
  • offering the IRS a reason why future employment will not affect collection potential.

Should Unemployed Taxpayers Make an Offer in Compromise?

Nothing prevents an unemployed person from making an offer in compromise. However, while you CAN make an offer while unemployed, the more important question is: SHOULD you?

Every case is different. The reason one owes a tax debt to the IRS, how long they have owed it, the amount of the tax debt, and the financial circumstances of the taxpayer are different in every situation. Without reviewing the totality of the circumstances, it is impossible to make a recommendation. However, there are other options for settling tax debt besides an offer in compromise. You can have your accounts marked “Currently Not Collectible” due to unemployment, which will stop the IRS from taking your savings until your financial situation improves. You can get set up with a Partial Payment installment Agreement that is manageable with your limited financial capacity. If your finances are totally unmanageable, you may even be a candidate for bankruptcy.

Before proceeding with any tax resolution method with the IRS, you should consult a tax resolution professional. Only someone with a full understanding of your situation and a complete knowledge of IRS policy and procedure can properly advise you on how to proceed. If you need to resolve a tax debt with the IRS, we are here to help. We are not simply some tax hotline from an infomercial: Call 203-740-1400 to speak to a tax resolution attorney.

 

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