The sluggish economy is impacting all of us in one way or another. This is a scary time. Taxpayers who owe unpaid tax debts may feel even more helpless. This is especially true given the IRS’s focus on tax assessment and collection efforts. Coincidentally, taxpayers who find themselves subject to IRS collection action may also find that the sluggish economy has put them in a superior bargaining position with the IRS.
Loss of Employment
Taxpayers who have recently lost their job may be in a particularly strong bargaining position. Having a high paying job is the primary reason why many taxpayers are not able to reach favorable settlement or payment terms with the IRS. According to the IRS, the term ‘high’ generally refers to a job that pays more than $40,000 per year. When a taxpayer loses a job and the income from the job, the loss will often put the taxpayer in a position to reach a compromise with the government or at least to forestall the IRS collection efforts temporarily or, in some cases, permanently.
Diminished Home Values
Taxpayers whose homes have diminished in value may also be in a strong bargaining position. Having a significant amount of equity in a personal residence or other real property has also precluded taxpayers from reaching favorable settlement or payment terms with the IRS. With home prices falling in many markets, this asset may no longer be a factor for many taxpayers.
Eroded Retirement and Investment Accounts
Taxpayers whose retirement and investment accounts have declined in value may be in a good bargaining position. In my experience, retirement and investment accounts are usually not the reason why the IRS refuses to reach a compromise or payment agreement with taxpayers. Typically, these accounts are merely an agitating factor that precludes taxpayers from obtaining favorable compromises or payment terms for their tax debts. This is not the case for all taxpayers – especially taxpayers whose primary assets consist of stock options and other investment assets that are valued based on publicly traded stocks.
Loss of Lines of Credit
Taxpayers whose lines of credit or home equity loans have diminished may also be in a better position to negotiate favorable terms with the IRS. This usually comes up where the taxpayer has access to an unused home equity line of credit or a business line of credit. The IRS typically counts this type of line of credit as an asset that must, in essence, be turned over to the government as part of the negotiation process. Taxpayers who have recently lost access to this type of credit may have also decreased the amount of the assets that the IRS will consider for collection purposes.
To be fair, taxpayers should understand that obtaining favorable settlements and payment agreements is more difficult today than it has been in a long time. The factors listed above may help, but increased costs of living can make it more difficult for taxpayers. The IRS generally only allows a very minimum amount of expenses in determining how much a taxpayer should pay towards their unpaid tax debts. If the taxpayer’s personal living expenses exceed these very minimal amounts, there is still some chance that the taxpayer will not be able to work out a favorable settlement or payment agreement.
Taxpayers who have unpaid tax debits should contact an experience tax professional to see if they can benefit from our current sluggish economy.