TAX COLLECTION MATTERS

We are frequently contacted by individuals or businesses who owe taxes that they cannot pay. Here are some of the things you should know about this kind of situation:

• There is no magic solution. Tax agencies have substantial collection powers. If you have a tax debt, you will probably have to pay it.
  
  
• We normally start by examining whether the determination of the tax liability was correct in the first place. Sometimes adjustments to the tax determination are possible.



• Tax agencies are usually receptive to installment payment arrangements. The interest rates that apply may be more favorable than bank loans.
  
  
• Tax agencies may accept “offers in compromise.” If you can offer them an amount of cash now equal to the most they can expect to collect, they may accept that as full payment. A common approach is to borrow from a relative in order to clean up tax problems.



• You may be able to handle these negotiations yourself, but it is good to talk to a professional first to be sure all possibilities are considered.



• Bankruptcy may be considered. Beware, however. Technical rules apply to determine whether tax debts are discharged in bankruptcy. We frequently see individuals who have received a bankruptcy discharge that did not remove their tax liabilities.



• Payroll taxes raise special problems. Also, persons who control companies may be responsible for the payroll taxes not remitted by the companies.



• Even if you can’t pay all your debts, pay your taxes first. Otherwise, substantial penalties apply.