Q: My husband and I owe in excess of 31,000.00 in back taxes. We have learned all too well that our ignorance of tax witholding laws is no excuse to the IRS. I would like to know how to choose an agency that can help us to eliminate or reduce our tax debt to a level that we can pay. We are so afraid of the multitudes of options from companies claiming to be able to help us and want to choose a reputable company. What advise can you give?
A: Back taxes are like any other debt, with one big difference: the IRS has a lot more power to hurt you than any other creditor. For example, they can attach your bank accounts and simply take your money without jumping through nearly as many legal hoops as a private creditor. In addition, many IRS debts cant even be eliminated by declaring bankruptcy. So if youre going to owe money you may have trouble repaying, the government is probably the last entity you should owe it to.
That being said, this debt can be approached much like any other you can attempt to negotiate it yourself, or you can hire someone to do it for you. Since this amount is so large, I think youre right to try to find help. Heres what Id do: rather than respond to some ad on TV or radio, Id attempt to find a good local tax attorney or CPA to represent me. My accountant, for example, is a former IRS employee who knows many of the local IRS folks personally. He also has about 30 years experience in dealing with the IRS. So these are two obvious things to look for: connections and experience. If you dont know any tax professionals yourself, youve got two choices: ask friends for referrals (in general, the more well-heeled the friend, the better) or simply call your state society of CPAs and ask for a list. Interview a few, then pick one. Ask them exactly how they would handle your situation, how much experience they have with similar ones, and how much theyd charge. (And that fee, by the way, should be hourly, not a percentage of what they save you.)
When it come to any actual negotiation, this is an opportunity to learn how to get what you want in virtually any negotiation. And that is by having a specific request, backing it up with as much factual information as possible, and being prepared to respond to counteroffers. In the case of your debt, you should request a specific reduction, then provide evidence of why that reduction is all you should or can pay. So forget excuses about why youre in this position: focus on precisely explaining what you can afford to pay and when. So youre going to do is to you show up with a specific plan: youll have a budget showing your exact income, your exact expenses, your exact savings balances, if any, and exactly what you feel you can afford monthly. In other words, rather than essentially saying Geez, IRS guy, we didnt know what we were doing give us a break, wouldja? youre going to do something much more professional and businesslike. Youre going to be showing up saying something more like this: We screwed up, but lets focus on the future, not the past. We owe $31,000. We can afford to pay $1,000 today, then another $15,000 by making monthly payments of $200 for the next 75 months. Then you pull out supporting documents and show the IRS exactly why thats fair and what you can afford. Then you wait for a counter-offer from the IRS.
That was an example, of course: in real life, you may not say anything at all to the IRS your professional will most likely do the talking for you. But you might find that professional more easily and get charged less for their services if you start preparing that information now and presenting it to the professionals during the interview process. The more organized you are, and the less emotional you are the faster and better your outcome will probably be.
Hope that helps and good luck!