On December 4th President Obama signed the Fixing America’s Surface Transportation Act (“FAST”) into law. While the law focuses on improving America’s transportation and highways, it also contains provisions dealing with collection of back taxes. These provisions allow the IRS to revoke or deny taxpayers a passport if they owe delinquent taxes to the government, and it requires the IRS to use private debt collectors.
It is unclear why this was included in the law, as the IRS did not ask for this authority. In fact, private debt collectors have proven in the past to be harmful to tax compliance. Instead of properly funding the IRS – thus allowing the hiring of properly trained and qualified revenue officers – FAST appears to be pushing a discredited and troubling “outsourcing” political policy.
What this means to you if you owe back taxes is that, if you fail to act, you not only face the usual enforced collection action by the IRS such as liens and levies, but also possible harassment by private debt collectors and having your passport revoked.
What you need to do today
If you owe back taxes to the IRS we can help you not only avoid the unpleasantness of private debt collection and a revoked passport, but can help bring an end to your tax problems. Some of the options for resolving your old tax debt include an installment agreement, Offer-in-Compromise and even bankruptcy. But you need to make the decision to get started working on this problem now, and bring the situation to a close.
An installment agreement is a payment plan with the IRS to repay your back tax debt over time. If you owe $50,000 or less you may qualify for a streamlined installment agreement and pay the amount owed over six years. Otherwise, the amount you have to pay depends upon your personal financial situation and your ability to pay. The IRS considers your gross income, allowable expenses and assets when determining your ability to pay.
An Offer-in-Compromise allows you to settle your back tax debt for less than the full amount owed. How much you need to pay to settle your back taxes depends upon a financial analysis to determine your ability to pay, called your “reasonable collection potential” or “RCP”. The IRS’s RCP calculation will include net equity in assets (with some exemptions) and future income (gross income less allowable expenses). An Offer-in- Compromise can be a great way to settle your back tax problems, but requires a thorough analysis to calculate your RCP and see if it makes sense for you to pay this amount to the IRS.
Upon meeting certain requirements, income taxes may be dischargeable in bankruptcy. In addition to discharging the underlying taxes, the related penalties and interest will be discharged as well. Finally, other debts can also be cleaned at the same time. A complete analysis needs to be done by both your tax professional and a competent bankruptcy attorney, but bankruptcy may be the quickest and cheapest way to resolve the outstanding tax debt and other financial issues.
With the enactment of the FAST Act it has now become more urgent that you work quickly to resolve your back tax debt before you become the target of new IRS enforcement and harassment. Call us for your free consultation and get the help you need to find the answer to your tax problems.