Successfully Dealing With
The IRS For Small Business Tax Debts
© by Fred W. Daily
"Creditors have better memories than debtors."
The IRS likely has the best memory of any creditor. Congress has given the IRS
enormous legal powers to collect past due taxes tougher than any other bill
collector youre ever likely to face, with the possible exception of the Mafia.
The IRS can seize just about anything that you own, including your bank
account, home and wages. The IRS doesnt need a court order or judgment before
closing your business and grabbing your property. In most cases, the IRS only has to send
you a form "demand letter" before it acts and in special cases, it
isnt compelled to give you any warning. The IRS can effectively close down your
operation by seizing your assets -- business accounts, desks, inventory -- and padlocking
Now that I have your attention, the awesome IRS collection machine wont
crush you if you know how to exercise your legal options. For instance, you can bargain
for more time to pay or maybe for a reduction of the amount owed. Or, if your financial
situation is truly dire, request to be temporarily placed on "uncollectible
status" till you get on your feet. With all of these solutions expect to have to do
some convincing to the IRS.
One crucial thing to remember, if youre behind on taxes and want to stay
in business, is to keep in touch with the IRS. You are a sitting target. A business
cant run. The worst thing you can do when behind in your taxes is play ostrich. The
IRS might leave you alone for a while, but usually pops back up at a most inopportune
Father Time is especially cruel to tax debts they grow larger every day
with mounting interest and penalties. Currently, most tax debts are compounding at 14%.
Unless you are out of business, flat broke, unemployed and likely to remain that way, IRS
tax collectors will be hovering.
On the plus side, the IRS collection machine is slow to start and react, which
gives you time to strategize. Youll get a raft of computerized tax bills and maybe
IRS telephone calls, too. It might be months or even several years before you have to
confront the IRS face-to-face. With limited personnel, the IRS tries everything else
before assigning a real person to your case. Dont get too comfortable, though, just
because no one knocks on your door. Every year the computerized IRS collection system gets
faster. Computer-generated tax liens and levies can make your life every bit as miserable
as human collectors can.
Here are five things to keep in mind for success in
handling a tax bill with the IRS.
- In most cases you should cooperate with the IRS in providing financial
information to a collector. However, full disclosure can be hazardous to your health.
Never lie to the IRS, but you dont have to disclose anything about your finances or
assets to the IRS collector unless you are formally served with a summons.
- The IRS often threatens, but rarely shuts businesses down. In these few
instances, it is usually for unpaid payroll taxes.
- Most tax debtors are allowed to pay off old tax bills in monthly installments,
but interest and penalties are always running.
- About one in four folks can make a deal with the IRS to settle a tax bill for
pennies on the dollar through the Offer in Compromise process. But, this is never easy, it
is a lengthy, formal process.
- Regardless of what the IRS may tell you, filing for bankruptcy can reduce or
wipe out some tax debts. The rules are complicated, but worth checking out as a last
By: Frederick W. Daily, Tax Attorney,
John Raymond, Bankruptcy Attorney, and
Allan H. Rosenthal, paralegal.
All of the three have offices in San Francisco.
(This article was originally written for tax
practitioners who represent clients before the IRS. But the information
presented here is valuable for all taxpayers.)
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