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Pay Those Taxes!
Tax and Financial News
February 2000
Pay Those Taxes!
Can the IRS put you in jail for not paying your taxes? The answer is NO!
The IRS can put you in jail if you conceal your assets (prisons are filled with people who tried this). If you think you can conceal assets that may be available to the IRS to pay taxes, think again. No crime is committed if you cannot pay your taxes. If you sign over assets to a third party and try to hide assets, you could be charged with "impeding" the IRS from collecting their taxes. The party that helped you hide these assets would equally be in trouble and charged with "conspiracy".
Most people who have not filed personal income tax returns for a number of years offer a similar excuse. They did not file one year and the next year they were afraid they would get in more trouble with the IRS if they filed a year or so late. End this cycle of non-filing (which is a crime) by getting together as much information as you can for any years not filed. If you can't find all your records, get copies or estimate numbers and attach an explanation to your tax return. This is far better than not filing and your financial professional can help you do this.
If you owe the IRS money that you cannot pay, you can work out a payment plan with them. If you find yourself in this situation, the faster you deal with the IRS, the better the chance you have of coming up with an installment plan where your assets won't be seized. If the amount of tax you owe is less than $10,000, and you can meet certain conditions, an agreement to repay the total amount over three years is offered automatically. Some people ignore notices from the IRS. This will not make them go away. (Note: moving and not receiving notices won't count) If your income does not provide you with enough to pay current year taxes and make payments to the IRS on an installment basis, you could consider the following:
Negotiating a Settlement with the IRS
The first step in negotiating a settlement of taxes owed is to provide the IRS with a current financial statement. Without a statement they can verify, the IRS will not even consider a settlement. Signing a "false" financial statement is also a serious crime. If you have no assets and no income, there is nothing the IRS can levy. If you are in this desperate predicament, it does provide an opportunity to discuss an "Offer in Compromise."
Offer in Compromise
Easier offer in compromise rules may let more people reduce tax bills through compromise agreements with the IRS. Until now, the value of vested pension benefits or equity in a home often caused taxpayers to be deemed too wealthy to be eligible to compromise a tax bill - even when they had no cash to pay the tax. The IRS now considers a hardship when looking at a compromise offer. So showing that you are in a bind may make you eligible for a compromise. (Use IRS Form 656A to make an offer).
An offer in compromise is where the IRS will accept a one-time payment of as little as 10 cents for each dollar owed. Current tax liability is not usually accepted in an offer in compromise. The IRS must feel it will receive more money from you in the long run by entering into an offer in compromise and a collateral agreement (an agreement where you agree to pay a certain percentage of your income for 5-10 years). Take a professional with you to meet with the IRS.
If you oppose the amount the IRS claims you owe, you must file a petition in Tax Court within 90 days of the notice of deficiency. In most cases, if you miss this deadline, you will be required to pay the tax and then file for a refund in a US District court or the US Court of Federal Claims.
The IRS is unlike any other creditor. They do not have to go to court to get a judgement against you to seize your assets. When the IRS determines taxes are owed, they can seize your assets without a court order. They can seize your bank accounts and your salary. The IRS has no problem with placing a lien on your home. It is conceivable that your employer or the company that you own will have to turn over any draws or salaries to the IRS.
Keep in mind if you are divorced, separated or widowed; you can be liable for tax generated by your spouse. There is more information available about "innocent spouse relief" than ever before. The divorce rate is so high that new laws are being passed to help the "innocent spouse." It pays to know what your spouse is doing and keep yourself informed of your marital financial affairs.
There is no "debtors prison" in the U.S. There is however, free room and board for anyone hiding assets from the IRS to avoid paying Uncle Sam. Nobody wants to pay taxes. It is hard for everyone to write that check, but the alternative can be disastrous. If you are in a financial bind, playing ostrich is not the way to handle your situation. Go for help and the "friendlier IRS" may be easier to work with than you think.
The IRS can put you in jail if you conceal your assets (prisons are filled with people who tried this). If you think you can conceal assets that may be available to the IRS to pay taxes, think again. No crime is committed if you cannot pay your taxes. If you sign over assets to a third party and try to hide assets, you could be charged with "impeding" the IRS from collecting their taxes. The party that helped you hide these assets would equally be in trouble and charged with "conspiracy".
Most people who have not filed personal income tax returns for a number of years offer a similar excuse. They did not file one year and the next year they were afraid they would get in more trouble with the IRS if they filed a year or so late. End this cycle of non-filing (which is a crime) by getting together as much information as you can for any years not filed. If you can't find all your records, get copies or estimate numbers and attach an explanation to your tax return. This is far better than not filing and your financial professional can help you do this.
If you owe the IRS money that you cannot pay, you can work out a payment plan with them. If you find yourself in this situation, the faster you deal with the IRS, the better the chance you have of coming up with an installment plan where your assets won't be seized. If the amount of tax you owe is less than $10,000, and you can meet certain conditions, an agreement to repay the total amount over three years is offered automatically. Some people ignore notices from the IRS. This will not make them go away. (Note: moving and not receiving notices won't count) If your income does not provide you with enough to pay current year taxes and make payments to the IRS on an installment basis, you could consider the following:
Negotiating a Settlement with the IRS
The first step in negotiating a settlement of taxes owed is to provide the IRS with a current financial statement. Without a statement they can verify, the IRS will not even consider a settlement. Signing a "false" financial statement is also a serious crime. If you have no assets and no income, there is nothing the IRS can levy. If you are in this desperate predicament, it does provide an opportunity to discuss an "Offer in Compromise."
Offer in Compromise
Easier offer in compromise rules may let more people reduce tax bills through compromise agreements with the IRS. Until now, the value of vested pension benefits or equity in a home often caused taxpayers to be deemed too wealthy to be eligible to compromise a tax bill - even when they had no cash to pay the tax. The IRS now considers a hardship when looking at a compromise offer. So showing that you are in a bind may make you eligible for a compromise. (Use IRS Form 656A to make an offer).
An offer in compromise is where the IRS will accept a one-time payment of as little as 10 cents for each dollar owed. Current tax liability is not usually accepted in an offer in compromise. The IRS must feel it will receive more money from you in the long run by entering into an offer in compromise and a collateral agreement (an agreement where you agree to pay a certain percentage of your income for 5-10 years). Take a professional with you to meet with the IRS.
If you oppose the amount the IRS claims you owe, you must file a petition in Tax Court within 90 days of the notice of deficiency. In most cases, if you miss this deadline, you will be required to pay the tax and then file for a refund in a US District court or the US Court of Federal Claims.
The IRS is unlike any other creditor. They do not have to go to court to get a judgement against you to seize your assets. When the IRS determines taxes are owed, they can seize your assets without a court order. They can seize your bank accounts and your salary. The IRS has no problem with placing a lien on your home. It is conceivable that your employer or the company that you own will have to turn over any draws or salaries to the IRS.
Keep in mind if you are divorced, separated or widowed; you can be liable for tax generated by your spouse. There is more information available about "innocent spouse relief" than ever before. The divorce rate is so high that new laws are being passed to help the "innocent spouse." It pays to know what your spouse is doing and keep yourself informed of your marital financial affairs.
There is no "debtors prison" in the U.S. There is however, free room and board for anyone hiding assets from the IRS to avoid paying Uncle Sam. Nobody wants to pay taxes. It is hard for everyone to write that check, but the alternative can be disastrous. If you are in a financial bind, playing ostrich is not the way to handle your situation. Go for help and the "friendlier IRS" may be easier to work with than you think.
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.
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