In her recent article, How to Make Old Tax Debts Disappear, Amy Feldman emphasizes that individuals looking to settle their tax debts should temper their expectations, particularly when influenced by flashy advertisements promising “pennies on the dollar.” According to a Treasury Department report, the IRS has seen a significant uptick in requests for its “offer in compromise” tax-relief program, with 59,411 applications filed in fiscal year 2011—an increase of 28% from four years earlier. This surge has contributed to a backlog of 36,069 cases, marking a 57% rise since 2007.
Tax attorney Steve Katz from Sideman & Bancroft highlights a troubling reality for many taxpayers: the economic downturn has forced individuals to go from high earnings to struggling to make ends meet. Katz explains, “Someone might have gone from a place where they had high earnings to a place where they don’t.” He emphasizes the need to convince the IRS that a taxpayer’s financial situation has genuinely changed, noting that he has recently increased the number of offers in compromise he files while also negotiating with IRS and California tax officials for clients unable to pay their debts.
Feldman points out that the evolving landscape of tax relief is creating more opportunities for individuals to qualify for offers in compromise and installment agreements. She cites Katz’s observation that since the Great Recession, the IRS has “relaxed its policy with offers,” showing a willingness to help taxpayers re-enter the system.
For those burdened with unpaid federal income taxes, Feldman outlines three primary options: establishing an installment agreement, applying for an offer in compromise, or having their tax liability declared currently non-collectible if their expenses exceed their income. The choice among these options depends on individual circumstances and the time remaining on the statute of limitations for tax collection, which generally spans ten years.
Feldman warns that the application process for an offer in compromise is intricate and demands a clear understanding of IRS guidelines. While streamlined offers can often be processed in less than six months, those that require more documentation may take much longer. Katz reinforces the idea that with many still facing financial challenges, now is the time to pursue these tax relief options.
Ultimately, Feldman stresses that ignoring tax debts can lead to dire consequences, such as wage garnishments or property seizures. She concludes by asserting the importance of understanding the available options and taking proactive steps to address tax liabilities for those grappling with financial difficulties.
