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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.

What is the Offer in Compromise Success Rate?

IRS Offer in Compromise Success Rate – Acceptance Percentage By Year

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What Percentage of Offer in Compromise Submissions are Accepted by the IRS?

Offer in Compromise Success Rate

A commonly used tactic for the relief of IRS tax debt is to make an Offer in Compromise. If you are not familiar with what an Offer in Compromise is, please read our post, “What is an Offer in Compromise?“. Whether you have already submitted an Offer in Compromise and have been waiting to hear back from the IRS (feeling like forever yet?) or you are simply weighing your options of how to proceed with meeting your tax liabilities, you may find yourself asking, “What is the Offer in Compromise acceptance rate?”.

Luckily, the IRS publishes a yearly Data Book jammed full of exciting IRS statistics! “Woooohoooo!” scream the fun-loving children of America. Yes, that is sarcasm, the Data Book is a very boring read, and would be highly effective as a bedtime story. However, it does allow us to answer the question at hand. Please note, these stats are nationwide, the numbers run from Oct.1 to Sept. 30, and the IRS rounds their Offer in Compromise statistics to the nearest thousand.

  • In 2010, there were 57,000 offers of which 14,000 were accepted, a success rate of 24.6%;
  • In 2011, there were 59,000 offers of which 20,000 were accepted, a success rate of 33.9%;
  • In 2012, there were 64,000 offers of which 24,000 were accepted, a success rate of 37.5%;
  • In 2013,  there were 74,000 offers of which 31,000 were accepted, a success rate of 41.9%; and
  • In 2014, the last year for which statistics are currently available, there were 68,000 offers of which 27,000 were accepted, a success rate of 39.7%.

There are a few patterns we can see emerge when we analyze these statistics. The first is that the number of offers submitted goes up year to year until 2014. The second is that the rate of acceptance seems the increase year to year until you get to 2014. however, perhaps the most important pattern, is that the acceptance rate is ALWAYS far less than half. In 2014, 3 of every 5 Offers in Compromise made to the IRS were rejected. Those are people who waited months for an answer just to be disappointed.

Why Would the IRS Reject an Offer in Compromise?

This is no simple answer and there could be more than one reason why any specific Offer in Compromise is rejected. It could be something as simple as making errors on Form 656. It could be because the IRS feels they can easily collect the full amount of the tax liability from the taxpayer. It could be because the taxpayer has not met the requirement of “coming into complete compliance”, which could be due to many factors, such as not filing any of the returns for the past 10 years. Perhaps the IRS Agent in charge of your file feels like they need to make an example of you….

Each tax liability and taxpayer is different, so ever Offer in Compromise has it’s own factors. Many of the offers fail because they had 0% chance of success from the beginning and should never have been made.

How Does a Taxpayer Increase Their Chance of Success with an Offer in Compromise?

Do not believe anyone who tells you that you are guaranteed to succeed on your Offer in Compromise: it is not up to them, it is up to the IRS.

The best way to increase the chance of success for your offer in compromise is to make sure it is part of a complete tax plan which you made with the assistance of a tax professional or tax attorney. here at G&G Law, LLC, our law firm has a much higher offer acceptance rate than the national average. We won;t share that percentage here because as the Connecticut Bar likes to remind us, “past results are not an indicator of future performance”, and of course, this is an accurate statement.

How Does G&G Law, LLC Increase the Chance of Offer in Compromise Success?

  • We consult with our clients to make a tax plan and determine if an Offer in Compromise is right for them (there are other options);
  • We make sure our clients actually qualify for an Offer in Compromise;
  • We make sure the tax debt is rightful!!!;
  • We make sure our clients have come into compliance with the IRS;
  • We know what the IRS is looking for and present the Offer in a light most favorable to our client;
  • We provide all details the IRS needs to make a determination, and nothing more, to avoid making unnecessary or additional disclosures;
  • We can appeal unreasonable rejections.

Dealing with the IRS is not something you have to do alone! We are here to offer our knowledge, experience and professional guidance.