TaxMasters, one of the firms filling late night TV with promises to settle your tax debts for “pennies on the dollar” has filed for bankruptcy. They join JK Harris and Roni Deutch not only in bankruptcy but facing state charges for fraud. Basically, the taxpayers these firms help are themselves not their clients. So, if you owe the IRS what can you do? Get good help from a tax pro who doesn’t make promises they can’t keep. And you have to realize there is no magic formula to solve your tax problem.
Who can you turn too for help? An Enrolled Agent, CPA or attorney can represent you with a valid Form 2848-Power of Attorney. Other tax pros can help you get info and act for you in limited circumstances. They may need a Form 8812 to do that. For more info on representation, please check this post. Besides giving your representative authorization to act for you, you should expect to pay a retainer for services. If you can’t afford the preparer’s services there are low income tax clinics which specialize in representational work.
The first issue to resolve is to make sure that all your tax returns are filed. This may be the actual problem of your tax debt. When a tax return isn’t filed, the IRS uses the information they have from W-2s and 1099s. But these calculations don’t take into consideration the basis, expenses, deductions, and credits to which you are legally entitled. The IRS doesn’t have that info. By filing a return, you might find that your balance due disappears. The IRS also won’t work with you on an Offer in Compromise until all your returns are up to date.
The Offer in Compromise (OIC) isn’t you making an offer about what you want to pay. It’s a serious look at what you can pay. Most taxpayers will have to complete a financial statement which lists income, assets, living expenses and other debts. And the IRS expects to be paid before most other creditors. It’s not the easy solution firms like TaxMasters make it sound.
If the OIC doesn’t work for you, you can set up an installment agreement with the IRS. This will allow you to make monthly payments until your debt is paid off.
Being in debt with the IRS is not fun and getting out of debt is not easy. Please don’t let the late night pitches convince you otherwise. Use the links in this post to educate yourself about your options and find a tax pro that will work for you. There are no guarantees that your debt can go away but it may be possible to make it easier to handle.