Consumers and business owners who owe the IRS are entering their most stressful time of the year. But those with serious tax problems do have multiple options for negotiating with the IRS to reduce past due tax penalties and payments.

Americans, carrying more debt than ever, are also more likely than ever to have tax problems. According to information released by the IRS in early 2006, the total of annual uncollected taxes reached close to $290 billion. According to the Internal Revenue Service, the number of levies (a key enforcement tool in which the IRS takes possession of assets to collect on unpaid taxes) reached 2.7 million during fiscal year 2005, a 35 percent increase over 2004 and more than double the number of levies in 2002.

Who Needs Assistance?

Usually, taxpayers with tax debts under $10,000 can manage the payment on their own or via an installment plan arranged with the IRS. Tax problems typically merit professional help when individuals cannot pay tax liabilities of $10,000 or more. At that point, specialists can negotiate directly with the IRS on behalf of these consumers, helping them obtain settlements.

Depending on the severity of an individual’s situation, two types of IRS settlements are available:

1. Offer in compromise.

   This will reduce the principal amount owed to the IRS.

2. Installment agreement.

   This is a payment plan for the amount due and often includes reduced penalties.

Tax relief specialists include attorneys, CPAs with special training and expertise, and experienced advisors with a debt resolution firm’s tax relief service. These experts can navigate the intricacies of IRS forms and calculations; help consumers understand the criteria the IRS imposes; and then help them get back into good standing with the IRS. They can leverage their expertise to negotiate with the IRS for the best possible outcome for the client.

Tax debt resolution services often provide a simpler, lower-cost alternative, allowing individuals to arrange tax repayment plans while avoiding court fees, attorney fees and bankruptcy judgments on their records. Many of these firms charge a fixed fee for their services. Fees vary depending on the type and amount of tax owed, as well as individual circumstances.

Specially trained advisors support clients by following an approach for —

• Evaluating the situation and determining the amount of taxes owed to the IRS. This includes pulling past tax returns, or proxies for unfilled returns.

• Ascertaining whether the situation meets IRS standards for “doubt as to collectibility,” which is the inability to pay the full tax burden; “doubt as to liability,” which is the issue of whether they may not owe the tax; or “economic hardship.”

• Establishing the full amount owed, including taxes, penalties and accumulated interest, and understanding whether collection limitations or penalty cancellations are possible.

• Determining the best method for managing and eliminating the tax debt.

• Negotiating with the IRS to settle on an agreed course of action, and then resolving the debt.

Bankruptcy Reform Law Tightens the Pressure
The 2005 Bankruptcy Reform Act made it even more crucial for consumers to act. Historically, consumers in severe IRS debt might file for Chapter 7 bankruptcy protection or wait for the 10-year statute of limitations on an IRS tax liability to expire. Now, people are much more limited in the ability to obtain Chapter 7 filings. The Act’s new “means test” requires many consumers to file Chapter 13 bankruptcy instead, which establishes a repayment plan, rather than wiping out all debt.

Whatever path of resolution is chosen, tax season means it’s time to face the inevitable and manage tax burdens. Fortunately, experts are available to help along the way.