Tax Debt and Tax Settlements
How We
Can Help
The great Benjamin Franklin once said that there are only two certain things in life: death and taxes. Taxes are an unfortunate reality in our lives. As long as we continue to live together in society, we will have to pay taxes.
Taxes are your contribution to society, and they help pay for things like schools, roads, hospitals, and the military. Many of us hope to get money back from the Internal Revenue Service (IRS) or the Oregon Department of Revenue (ODR) when we file our taxes. Unfortunately, this does not always happen. In some situations, we end up owing money for taxes. This can be unexpected, such as when the withholding on a retirement distribution turns out to be insufficient, or as part of a business failure, when the payroll taxes weren’t paid as the company struggled.
A common situation that we see involves someone who filed and paid their taxes on time for years. Then, for some reason, such as illness, a divorce, a new business, had a year when they delayed filing. Maybe they didn’t have enough to pay the taxes or certain documents that were needed but whatever the reason, they didn’t file. Then the next year, they felt they had to do the last year first and again didn’t file. Before you know it, the situation “snowballed” and they end up with years of unfiled and unpaid taxes.
Having a large tax debt can be a scary situation, but there are ways out of it, and there are attorneys specializing in helping out people in tax debt to the IRS and the ODR.
We offer a flat fee, one-hour tax consultation that will analyze your situation and cover your options. The fee is $295.00 but it is worth it to be able to talk to an attorney about how your tax debt can be resolved.
What Is Tax Debt?
When people hear the term “tax debt,” they may think of the money owed to the IRS or the ODR for an individual’s personal taxes. Tax debt, however, can also come from:
- Unpaid business taxes
- Unpaid payroll taxes
- Unpaid self-employment taxes
- Unfiled returns
- Stock or crypto-currency trading
- Retirement distributions
- Sale(s) of property
How Do I Know If I Have Tax Debt?
The IRS or the ODR will send letters to people they owe taxes so check your mail and don’t ignore notices that you get from them. Or if they receive a W-2 or 1099 but don’t receive a tax return, they will send a notice asking for it.
You can also monitor your taxes using the IRS and ODR websites. You have to set up accounts which requires proving your identity but it can be well worth it because it makes it much easier to work directly with the IRS and ODR.
What Will the IRS Do If I Owe Back Taxes or Have Tax Debt?
The IRS and the ODR have a wide range of ways to collect back taxes. They can put liens on your property or take money from your wages or your bank accounts.
Tax collections can devastate your finances and credit and leave you unable to pay your bills or even borrow money to pay the taxes.
Some of the things the IRS and ODR can do to collect tax debt include:
- File a Federal Tax Lien (IRS) or a Distraint Warrant (ODR) – This hurts your credit. If you own your home, you won’t be able to sell or refinance it without paying the tax debt or at least working with the IRS or the ODR to release the lien in exchange for getting your equity from the house.
- File a tax levy (IRS) or garnishment (ODR) to take all of the money from any bank account with your name on it.
- File a levy (IRS) or garnishment (ODR) on your wages
- If you owe a lot, the IRS will notify the Statement Department not to issue or renew a Passport.
- Hire a private debt collector
- Come to your home to talk to you about your unpaid taxes
The IRS and ODR have the power to do even worse. However, these are done very rarely and only in extreme cases so usually most people don’t need to worry about them if they are trying to resolve their tax debt. These things include:
- Taking your property, such as your home, a car or a boat, etc., and auctioning it to pay your taxes
- Getting the Attorney General (ODR) or the Department of Justice (IRS) to start a criminal investigation against you for failure to file or pay taxes.
The bottom line is that the IRS and the ODR have a lot of tools that they can use against you if you do not take care of your tax debt. These actions can have terrible consequences on your financial and emotional quality of life.
Of course, they also add penalties and interest to the back taxes. The debt owed to the IRS or the ODR will continue to accrue interest until it is paid back.
What Can I Do?
The best thing to do is to contact the IRS or the ODR to try to set up a payment plan. You may be able to avoid other collection efforts if you are able to set up a payment plan quickly enough. Of course, this can be easier said than done. While the ODR can be easily contacted by phone, it is almost impossible to get through to the IRS on the phone. But you can fill out the forms to propose a payment plan online by going to this link:
Online Payment Agreement Application | Internal Revenue Service
The IRS will usually allow a “streamlined” payment plan that will give you anywhere from 60 to 84 months. “Streamlined” means that you do not have to fill out a financial statement or submit bank statements or other financial records. The ODR will usually give you a streamlined payment plan for 18 to 30 months.
There are a couple of key points here. The IRS and ODR won’t work with you if you have unfiled returns. Also, they will terminate any payment arrangement that they make with you if you do not file and pay on time in the future.
Also, the streamlined payment plans require that you allow them to take money directly from a bank account each month. So we always advise our clients to set up a new bank account just for this purpose. So that account should be in place before you contact the IRS or the ODR to set up the payment plan.
If the IRS files a tax levy on your employer, your employer will have to pay your wages to the IRS. Your employer has no option in the matter and could end up owing the IRS for the amounts that they don’t pay if they fail to comply with the IRS levy. However, the IRS will almost always agree to reduce the amount of the levy to what is left over after the expenses allowed by their standards. You can see them yourself by going to these links.
Oregon – Local Standards: Housing and Utilities | Internal Revenue Service
National Standards: Food, Clothing and Other Items | Internal Revenue Service
Local Standards: Transportation | Internal Revenue Service
National Standards: Out-of-Pocket Health Care | Internal Revenue Service
Remember that the standard for medical expenses is a floor not a ceiling so you will be allowed your actual medical, prescription, and dental expenses as well as any health, etc insurance. Also, taxes and business expenses are also allowed.
You have to call the IRS to get them to reduce the levy and that requires a lot of time, patience, and persistence since it is very hard to get through to them.
If the allowable expenses under these standards exceed your income, you can ask the IRS to put you into an uncollectable status. But this is only temporary. The IRS will contact you again to determine if you can now afford to pay and thus be subject to collection again.
The State of Oregon will never drop a wage garnishment once they send it to your employer though they may reduce it from 25% to 20% if you fill out a financial statement that shows a hardship caused by the levy.
The ODR will put you in an uncollectable status only if all of your income and all of your assets are exempt from collection under Oregon Law, for example, if your only income is from social security or retirement. But even this is only temporary and the ODR will contact you again to verify that your income is exempt.
If the IRS files a tax levy on your bank account or investment accounts, your bank has to send them the money directly from those accounts without your consent. Any bank account with your name on it is vulnerable to a tax levy by the IRS. They can also levy retirement or investment accounts.
The ODR can also garnish your bank accounts. However, if the money in them came from a source that is exempt under Oregon Law, like retirement income, social security or pension, it is protected. You can challenge the garnishment and if you can prove that the money was exempt, they must return the funds. They will also have to return 75% of money garnished from a bank account that can be traced to wages.
If your bank accounts or wages are garnished or levied, you should consider contacting us to see if we can help you reduce the levy or garnishment or get back some of the money that was taken.
But there is no doubt that the wise decision is to take care of your tax debt before it gets to that point by trying to set up a payment plan. The sooner you start to work on resolving the tax debt, the less likely it is that you will have a garnishment or levy.
Solutions for Tax Debt
If you have tax debt, you may feel like you are all alone and like there is no way out. The IRS and the ODR have some frightening tools at their disposal to collect the tax debt you owe.
The first order of business is to contact the IRS or the ODR and let them know that you are aware of the debt and want to take steps to resolve it. They may be willing to work with you to set up a streamlined payment plan or a payment plan, called a partial payment plan, that is based on what you can afford to pay, even though it doesn’t pay off the tax debt any time soon.
If a federal tax lien is filed, you will get dozens of offers from tax settlement companies offering to try to negotiate a settlement for you. They will promise success and say that you can settle for pennies on the dollar. Unfortunately, this is not always true, but they will charge you thousands of dollars to try.
We can evaluate your prospects for a settlement with the IRS or the ODR in a single, one-hour, flat-fee consultation. So before you pay thousands of dollars to an IRS settlement company, you should contact us to set up an appointment if you are interested in learning if this is an option for you. The fee is $250.00 to $295.00 but could save you from spending much more with one of the big tax settlement companies.
To get the IRS or the ODR to accept a settlement, you must use their forms and provide the information and documents that they require. There is no shortcut: They will not agree to drop the penalties and interest, for example, if you offer to pay the taxes in full. You have to go through the procedure to apply for an “Offer in Compromise” with the IRS or a “Settlement Offer” with the ODR.
Both the IRS and the ODR look at your assets and income to decide how much they would accept as a settlement:
- The IRS uses 80%of the value of your assets and the ODR uses 75%. So if you have equity in your home or money in a retirement account, it will be much harder to have an offer approved.
- They both look at what they think you can afford to pay over a set time period, based on what they think your living expenses should be. The IRS uses the state and national standards discussed above. Unfortunately, the ODR is not transparent about what it thinks your allowable living expenses should be.
- You must be current on your tax filings and must be paying adequate estimated taxes or having sufficient taxes withheld from your paychecks.
Dealing with Your Tax Debt in Bankruptcy
If the IRS has filed a wage levy or a tax lien or the ODR has started to garnish your wages or file a distraint warrant, bankruptcy is the most powerful tool to stop their collection efforts in their tracks. It is likely to be the only way to get the ODR to lift a garnishment on your wages and give you more time to pay the taxes.
This is especially true when you have a lot of other debt, like credit cards or consolidation loans that you are trying to pay each month. With a bankruptcy, those payments aren’t necessary any longer and then that money can be going to pay the taxes.
Some tax debt can be discharged in bankruptcy, either Chapter 13 or Chapter 7. While the details are complicated, here are some of the requirements:
- Only income taxes can be discharged;
- The returns must have been due, including any extensions you requested, more than three years before the bankruptcy case was filed;
- The returns have to have been filed more than two years before the bankruptcy; and
- Taxes assessed within the 8 months before the case was filed, cannot be discharged.
If you owe back taxes that cannot be discharged, a Chapter 13 bankruptcy allows you to get protection from the bankruptcy court for an extended amount of time to pay those taxes while paying little or nothing on the rest of your debts. And you can still discharge the taxes that meet the requirements.
Sometimes, discharging taxes in bankruptcy is often the only option to avoid paying the tax debt in full. You may be able to qualify for a bankruptcy discharge or a Chapter 13 when you are not eligible for a settlement offer or an installment agreement that you can afford.
We offer a free consultation for bankruptcy cases so you should contact us if you want to learn about your options to deal with your tax debt in bankruptcy.
How Can an Attorney Help With Tax Debt?
If you have tax debt, it is essential to seek professional help to ensure that you take the best course of action for your unique situation. Hiring an experienced tax attorney can provide tax debt help and give you the best chance at a successful outcome.
A tax attorney can help you sort through the various solutions, from installment agreements or placement in an uncollectible status to settlements with the IRS or the ODR to filing bankruptcy.
We can tell you how much it would cost to pursue each of the paths to address your tax debt and offer solutions running from hiring us to deal directly with the IRS or ODR on your behalf to advising you on how to deal with them yourself when it is not possible or cost-effective for you to hire us to deal with them for you.
An experienced tax attorney will be able to advise you on all your options and come up with a course of action. If you are facing tax debt, don’t go it alone. Contact a tax attorney today.
A common situation that we see involves someone who filed and paid their taxes on time for years. Then, for some reason, such as illness, a divorce, a new business, had a year when they delayed filing. Maybe they didn’t have enough to pay the taxes or certain documents that were needed but whatever the reason, they didn’t file. Then the next year, they felt they had to do the last year first and again didn’t file. Before you know it, the situation “snowballed” and they end up with years of unfiled and unpaid taxes.
Having a large tax debt can be a scary situation, but there are ways out of it, and there are attorneys specializing in helping out people in tax debt to the IRS and the ODR.
We offer a flat fee, one-hour tax consultation that will analyze your situation and cover your options. The fee is $295.00 but it is worth it to be able to talk to an attorney about how your tax debt can be resolved.
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