<p>These ads drive me crazy. “We owed the IRS $X and settled for 1/4 $X.”</p>
<p>Wait a minute, I pay my taxes in full, why are these people getting deals.</p>
<p>I know there is a lot more to each of these cases, but the claims drive me crazy.</p>
<p>They drive me crazy too. I also think it encourages people to spend lavishly, not pay taxes and then just not pay.</p>
<p>There was a year I thought I was going to owe much, much more than I had the ability to pay for federal taxes. I had visions of the IRS hauling me off to jail (they had audited me one time and I had owed an additional $55, and they were really nasty about that).</p>
<p>A friend of mine told me to relax - that they owed tens of thousands in taxes from the previous 5 years and it was no problem (!?!?). I found it hard to believe him.</p>
<p>Thankfully, I was wrong in my initial assessment of how much I owed and was actually able to pay it on time. But it made me wonder: How much is uncollected by the IRS and remains outstanding on the books?</p>
<p>I think ads like that are often for firms that take people through a bankruptcy process. Generally, in bankruptcy, people will not get anything like that kind of discount on their tax liabilities, but in the right circumstances, maybe (and of course if it happens once that’s what goes into an ad).</p>
<p>But I don’t think you have much to envy these people about, UMDAD. The, um, stuff they have to go through to qualify for any kind of relief pretty much takes all of the fun out of things. Also, remember, that the $X they owed the IRS included interest and penalties, which can easily exceed the original liability. In the end, they may not have paid much less than you would have, albeit they paid late, but their lives will doubtless be affected by this for years to come (and probably for years leading up to this, too).</p>
<p>I’ve done tax appeals as a lawyer, not with a company, but I’ll guess the idea is the same. Assuming the person isn’t disputing the legality of the claim, which was the usual for me, the IRS weighs what they may get and is willing to make a deal. Why? </p>
<ol>
<li>Bankruptcy costs the IRS money. They have to file information. Some of the amounts owed will likely be erased. </li>
<li>They need to encourage people to fess up. A 100% never compromise position encourages people to lie because there is no benefit in confession. </li>
<li>Equity. People sometimes have compelling issues that directly relate to their failure to pay taxes. For example, a taxpayer or a loved one may have had an accident requiring massive care. These cases should receive a more compassionate hearing.</li>
</ol>
<p>One other issue that they do not tell you is the original amount due may be an estimate or arbitrary assessment because certain returns were not filed.
Here is how it works- the Tax Agency identifies someone that should have filed returns but did not so they send the person a bill requesting the returns. If the person does not comply they send an assessment out with an arbitrary amount. My agency’s policy is to use the best available information to calculate the arbitrary assessment or double the highest previous return filed. When the individual still does not file the returns a judgment is entered for the arbitrary amount. It is generally a much higher amount than is really owed. Remember the idea of the arbitrary assessment is to get the real returns filed. So now lets say the billed amount is $100,000 but certain years you did not owe any money or were not in business when you actually file the returns or provide documentation that you were not in business the real number may be $5000.
I am not saying there are never settlements but we do not give the store away like the commercials lead you to believe. You also need to be careful because once the arbitrary assessment goes to judgment we are not required to accept returns and you could be stuck with the higher liability. Especially if the returns filed are questionable.</p>
<p>I think Tom is onto something. I received a notice from the IRS for some stock sales that I neglected to report. They were all sold at a small loss, but the total principal amount was somewhat high. IRS sent me a notice saying I owed “x”, [x was a rather large number] which was based on the assumption that I had zero basis (cost) in the stocks. In fact, when I corrected the error, they owed me several hundred dollars. </p>
<p>I didn’t need an attorney or rep, and it was a simple mistake, which in fact was to their benefit. </p>
<p>I don’t think very many people are able to get past the IRS without the risk of being in the slammer. The ads are based on mythology.</p>
<p>dadx- my agency does not much more enforcement work than the IRS. The Congressional Hearings years ago hamstrung the IRS- every one of the so called IRS abuse stories was investigated and found to be false but the damage was done. Congress passed laws that should be called the tax cheaters freedom to steal act.
The real issue is taxes that are held in trust to be turned over such as the employee social security contribution or the withholding. On the State level it is sales tax. It is down right theft.</p>
<p>What really bugs me is the way the people in the ads (actors, I presume) are always shown smiling and laughing. If I owed that kind of money, I’d be sweating bullets. Even the amounts they settle for is still serious money.</p>