How to prove to the IRS that you are uncollectible

The proof required to show you can’t pay and the IRS should cease active collection will be revealed with the Form 433F or Form 433A (& the supporting documentation). This takes a lot of work. Essentially, the IRS subtracts your allowable expenses from your net income and asks you to pay the difference.

Here are the various Forms used by the IRS to ascertain if you can pay:

Form 433F – Collection Information Statement Individuals (short form)
Form 433A – Collection Information Statement Individuals (long form)
Form 433B – Collection Information Statement Businesses

INCOME ISSUES: With wage earners the income is easily ascertainable from recent pay stubs. Self-employed taxpayers will have to reveal their business income and expenses to arrive at Net Business Income, which can be more difficult.

For self-employed taxpayers, you can use Quickbooks or whatever program you are using to compute your current year tax obligation (Form 1040X). Also, TaxHelp has a series of Webinars to help you properly construct these forms so you are not rejected.

EXPENSE ISSUES: The IRS only allows you certain expenses so you will have to build your case with solid evidence. Get the actual invoices or billings for all the expenses and divide them into the proper categories. Then, place them in chronological order. Next, get copies of all the payments and match them with the billings with a total tape on top so the IRS can easily trace your expenditures.

It helps if you can present any medical or physical ailments to show the IRS your difficulties. Gather all the medical reports from your doctors and get any recent medical billings as expenses on the Form 433. The medical reports can also be used to make a Penalty Abatement Request.

If you are meticulous and determined you can win the case. But, you don’t want to invite disaster by rashly giving the IRS personal documents which will cause more trouble. It’s best to complete the Form 433 in pencil and come see Mr. Hopkins for advice prior to submitting your information to the IRS.

Use a TaxHelp Webinar to complete the appropriate Form:

Form 433A Webinar
Form 433F Webinar
Form 433B Webinar

After you’ve completed the Forms contact this office for further instructions. Thanks!

J. David Hopkins

What is the Definition of an Assessment?

It has been asked in the queries how to define an assessment. To put it plainly, an assessment is the formal recording of a taxpayer’s tax liability. However, this simple definition fails to alert you to the vast division between not owing and owing the IRS, which will bring a myriad of procedural rules to follow.

Once the IRS places your debt into their system it is an “assessment” and they can collect. Prior to that, they cannot collect. You can “self-assess” this debt by filing a return. If you fail to file a return, the IRS can gather all the evidence they can about you and file the return for you.

So, prior to an assessment are the procedures towards assessment: Filing returns, Return Errors, Audits, Unfiled Returns, Appeals, & Tax Court each of which carries its own strategies and tactics.

After assessment are the procedures of Collection, Appeals, Offer in Compromise, Bankruptcy, US District Court, Penalty Abatement, among other things.

Each of these assessments and procedures are also found in the area of Business Tax, with the huge added wrinkle of the Trust Fund Recovery Penalty.

Then, all of this is repeated with the Colorado Department of Revenue.

Click on the links above for advice on each of these topics!

J. David Hopkins, JD, LLM

Dangers of making an Offer in Compromise to the IRS

You have undoubtedly heard TV advertisements promising to “settle” or “negotiate” your IRS debt & you are given the impression that the result is guaranteed to be in your favor. If you will notice, these ads rarely come from Attorneys because Attorneys have a duty of honesty and advocacy for your interests. Many of these promoters have fought criminal charges & declared bankruptcy because of fraudulent practices.

You won’t learn this from the TV ads but the procedure proposed to be used against the IRS is called an “Offer in Compromise”. This procedure has been vastly over-abused as a supposed method of reducing or eliminating your tax debt. Mainly because these promoters are not Attorneys and cannot pursue your rights fully with the IRS and the Courts. They only have one method of resolving your problem but Attorneys have many solutions.

But, in fact, the IRS is also pushing debtors to submit offers in compromise. See What If & Letter 278C. So, why are fraudulent promoters and our enemy, the IRS, asking you to submit an Offer? The reasons may range from absolute ignorance to sinister opportunism against unsuspecting debtors in their most fragile time of life.

Before you are induced to make an Offer consider these facts:

Rejection Rates: Although it varies from year to year, the average acceptance rate for an Offer in Compromise hovers around 30-35%, meaning the chance of rejection is 65-70%.

Cost: The IRS inquiry and process is very time-consuming (if done correctly) and requires a lot of financial planning and shifting. Thus, the fees to hire a representative are easily above $5,000.00 in most cases. Plus, the IRS requires you to put down (non-refundable) 20% of a lump-sum offer or begin making (non-refundable) payments for a 6-24 month Offer.

Unfairness in the Process: The amount of information you are required to reveal to the IRS about your personal life and finances is vast. The IRS literature suggests that when using their calculator, that your offer will be accepted. In fact, the IRS will review the Form 433 you are required to submit along with all the immense supporting documentation and deny you legitimate expenses while trying to raise your current income and the following 5 years of income.

The IRS will not allow expenses beyond the “National Standards” for the various items: Food, clothing, housing, auto, insurance, etc. So, therefore, your income is artificially inflated and your expenses are unfairly decreased. So, it appears you can pay substantially more than your submitted amount and your Offer will be denied.

Extension of Statute of Limitations for Collection: When you submit an Offer to the IRS, regardless of whether they accept it or not, you give them additional time to collect from you. So, the obvious trick is to solicit an Offer from you, gather all your financial information, plus the down-payment and then reject your offer to gain time onto the limitations period and know your financial ability to pay. Promoters of making Offers simply want to take your money.

Appeals: It is almost certain that your initial Offer will be denied and you will have to Appeal. But, this adds to the cost and continues to extend the Statute of Limitations.

It is easy to see that the only acceptable Offers come from people who happen to have a little money or equity in an asset and will not work again for the next 5 years. So, basically Offers are only good for retired, disabled or homeless people, not for everyone. Whatever you do, don’t take money out of your retirement plan or sell an asset to pay for the taxes without getting legal advice. There’s no sense in creating a new tax debt to satisfy the old one.

So, what the solution? First, see if amendments or filings may reduce the tax. Second, see if a Penalty Abatement Request will reduce the penalties (without extending the statute). Third, look at transforming the non-deductible tax debt into a deductible debt, such as mortgage. Fourth, see if a payment agreement or uncollectible status will allow the statute to expire. Fifth, see if Bankruptcy is a better solution. Mush of the IRS collection process mirrors Chapter 13 bankruptcy so it might be best to file.

There are numerous other strategies and tactics against the IRS, depending on the process and your situation. It is best to review ALL your options with a tax attorney who represents your best interests.

The Problem of Cooperating with the IRS!

When approached by the IRS for an audit or collections many people believe that if they cooperate with the IRS then it shows their good faith and the IRS will leave them alone.
   However, IRS agents who conduct audits are trained to keep digging into your affairs to find fault. They take one-sided notes of conversations so they can be witnesses against the taxpayer in any hearing. It is nearly impossible to rebut IRS agent testimony.
  For collections, Revenue Officers are constrained in what they can allow and they are trained to look for all sources for collection. Everything you reveal to a Revenue Officer or Agent can and will, be used against you!
  Therefore, in either circumstance, it is better to have an attorney represent the taxpayer with the IRS so they can be a barrier against improper IRS inquiry and to advance the taxpayer’s interests.

J David Hopkins, JD, LLM – TaxHelpLaw.com has 3 easy steps to IRS victory!

Why won’t the IRS help me?

Dealing with the IRS is made more frustrating by the complete lack of help you will receive from the IRS employees. The publications they print are hard-to-follow and offer no guidance. Any letter you receive from them is packed with methods to pay but little advice on how to fight.

The reason for this is because the IRS (like any gov’t) can’t offer legal advice. If they did, they would be forever embroiled with claims of improper advice. Plus, the employees at the IRS have limited authority and if you don’t ask them to perform specific tasks for you, on the proper forms, they have no legal authority to act.

So, the only way to win your case against the IRS is to know the law thoroughly, know what you want specifically, know which forms to put your request upon and exactly what language to use. Otherwise, your case gets thrown around various IRS offices and “appeals” and nothing gets done. You may call them repeatedly and be assured they are “working your case”, only to find out in 6 months that nothing has happened.

It takes diligence to pursue the IRS. You must follow up with them and make sure they are doing what you request. You have to appease them and make sure you are current with filings and payments.

But, above all, don’t look to the IRS for advice. They aren’t allowed to adequately give advice and it will be deficient. Use the IRS to gather information, then create and pursue the best case possible!

J. David Hopkins, JD, LLM