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:
- 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.
- 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.
- 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.
- 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!
- 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.
- 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 Glouzgal Ramos Groth LLP 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.