IRS: How to Get Back Taxes Help
But according to the experts, depending on your situation, many of the claims made by tax resolution companies on television are exaggerated and some are outright wrong -- leaving many unwitting taxpayers further in debt than when they started.
Read below to separate some fact from fiction when it comes to back taxes and watch ABC News' "World News With Diane Sawyer" and "Nightline" Wednesday for a new Brian Ross Investigation into the tax resolution industry.
I Can't Pay Everything I Owe, Can I Settle My Tax Debt for Less With the IRS?
It is possible to negotiate with the IRS to get a reduction in the amount of back taxes owed collectively through what's known as an "Offer in Compromise" deal. When the taxpayer cannot pay the amount he owes, he or she can offer a deal with the IRS with what he or she can pay. After the IRS checks out the financial situation, including the taxpayer's current assets, and determine if they should take the deal or hold the taxpayer to what they originally owed.
"If you offer more than they are able to get through their collection efforts, then they are willing to settle for less than the amount owed," Federal Trade Commission Midwest Director Steve Baker told ABC News. "You may end up owing less taxes, but basically. it's a situation where the IRS would never be able to collect the money anyway and they realize that."
What About Paying Back 'Pennies on the Dollar'?
Baker said some people can make a deal in which a taxpayer can pay back "pennies on the dollar," but only "if pennies is all you have."
Since in the "Offer in Compromise" deal the IRS rates what they believe the taxpayer can reasonably pay, the federal agency would have to determine that you were incapable of paying most of your debt.
According to Nina Olson of the IRS' Taxpayer Advocate Service, that is "not an easy thing," and companies that promise to significantly slash debts are not being straight with their customers.
"You have to show the government, you have to show the IRS, that they are not going to get any more money out of you than pennies on the dollar," Olson said. "But to say that you'd be able to do that routinely is just not true."
Do I Need to Hire a Private Tax Professional to Help With Back Taxes?
"Taxpayers can certainly be afraid of approaching the IRS," Olson said. "They don't know the rules, they don't know what to say to the IRS and they don't know what the IRS wants from
them. I think there is a need for someone to come in and help the taxpayers solve their problems."
However, Olson said taxpayers should be take their time when choosing a tax resolution company.
"People need to be very careful about what they are paying for," she said. "I have seen firms that just simply send the taxpayer a very large fee, just a package of forms for an Offer and Compromise -- which is a government form that's free for mailing to you or downloadable off the [IRS] website -- then have the taxpayer fill out the form, mail it back to them, then all they have to do is to mail it to the IRS for the price of a stamp."
Olsen said taxpayers need to be sure they're consulting with a qualified consultant -- either an attorney, a Certified Public Accountant, or what's called an enrolled agent, "someone who has taken a test to practice before the IRS." Also, Olson said to make sure that whoever the taxpayer hired is actually in contact with the IRS.
"Some of the cases that I have seen, the taxpayer thinks the person they are hiring is talking to the IRS, but the person they hired is not talking to the IRS and the IRS doesn't even know this person exists," she said. "The IRS is sending letters to the taxpayer and the taxpayer doesn't answer the letters because they think they've hired someone. Then the IRS thinks the taxpayer is ignoring the IRS and so they move forward with collection action."
What If I Want to Go It Alone?
Both Olson and Baker said that many times, everything the tax resolution company is doing, the taxpayer can do on their own.
"There's nothing special the tax relief companies can do for you," Baker said. "There are things the IRS can do for you. They do have programs to help people, they do understand if people genuinely cannot pay their taxes. But there are no huge secrets that people advertise on the TV or radio know about."
Olson said taxpayers shouldn't let their fear of the IRS allow them to be exploited.
"Just picking up the phone and talking to the IRS and walking through the problem or even reaching out to my organization, the Taxpayer Advocate Service if they are really having economic hardship," she said. "We can help you and we can get a collection activity stopped while we try to solve the problem."
Baker said he's seen some people pay tax resolution companies more than it would've cost them to settle with the IRS directly.
Visit the IRS website for more tax assistance information.Source: abcnews.go.com