My Parent owe $30,000 in Back Taxes How Should They Approach this?

Question

Kind of a long situation to describe. But basically my parents owe around $30 000 all together in back taxes. They have a lawyer and are pursuing it but I want to make sure that everything is being done properly.

The taxes date back to 1996. Both my mother and father owned there own business until 2007 (which is where this tax debt came from) they now work for different corporations,and both have their taxes automatically taken out of their paychecks.

My father has talked to the IRS and they are willing to work with him, but they dont sound like their really serious about helping them pay down the balance slowly. The lawyer said an option is to comprimise on the amount of debt owed , but generally that requires a chunk of the balance up front (which they dont have).

What should the next step for them be? I want to help put there minds at ease , and start a payment plan that they can actually aford. I also dont want any legal trouble for them. They have enought to worry about.

Answer 1

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Answer 2

There's no need for them to spend money on a tax professional. Just have them call the IRS at the number on one of their collection notices. They will be asked to give financial information concerning their income, assets and expenses. If they have assets that can be liquidated or borrowed against (such as real estate and retirement accounts), they will be asked to do so. They may be asked to substantiate certain expenses and some expenses may not be allowed (such as consumer debt and credit cards). The financial statement will determine the amount, if any, that the IRS will require them to pay.

Answer 3

The IRS is much more lenient on personal taxes that they are for business taxes.  Some business taxes aren't even dischargeable in bankruptcy such as trust fund taxes (taxes that were withheld from employee paychecks that should have been forwarded to the government).  

The first thing that they should do is make sure their taxes are current with withholding or estimated taxes.  Sounds like this has happened because you say they are employees now.

Second they should get account transcripts for all periods in question.  Hire an Enrolled Agent or CPA to review them and make sure the liability is correct.  List them by the CSED (collection statute expiration date) this is the date that IRS can no longer collect for that tax period.  They normally have 10 years to collect from the time the tax is assessed, there are things that will extend that date such as amending the return or filing an offer in compromise.  

Thirdly your parents should fill out an new Collection Information Statement form 433A.  This is the form that will determine the monthly payment.  The government wants your payment to be as high as possible and you want it to be as low as possible.  That is why it is important to put the best face on your finances.  The government will allow for living expences and they will have to list their assets and liabilities.  If they have assets they will have to borrow agianst them or show proof their loan has been denied.

An OIC might be an option but odds aren't in their favor.  Less than 20% are ever accepted, mainly because the offer isn't realistic.  Remember it has to be a good deal for the government, not a good deal for your parents.

This situation is very complicated and can't really be adequently address in this short post.  Make sure they hire competent help and stay away from the  companies advertising on late night tv.

Answer 4

I am an enrolled agent who specializes in representing taxpayers like your parents; probably for a whole lot less than they are paying now.  

Taxes for old years like 1996 may be coming up on the expiration of the statute of limitations for collection.  Filing an offer in compromise may not be a good idea at this stage of the game.  If they were my clients, I would investigate to determine the status of the account and analyze their financial situation to determine what, if anything, they could pay then decide on a course of action.

If you would like some additional information outside this forum, you can send me email through my profile.

Answer 5

They need to hire the lawyer to do anything, the IRS will work better with a lawyer then your parents. The best option is the one the lawyer gave them because they will lower the amount owed by quite a bit. For example, we owed 30,000 to them, they settled for 8,000 and told us to never be in that situation again.