Two Common Tax Myths and Mistakes Made by Taxpayers

If you have legal questions about your taxes, or you have received a notice from the IRS and don’t know where to turn, the experienced tax attorneys at Anderson & Jahde, P.C. are here to help. In our new series of articles, our team of tax lawyers have outlined and debunked some of the most common tax myths and misconceptions, starting with settling tax liabilities and the collection of tax debts.

For many, the IRS is the 500-pound gorilla coming through your front door. In some instances, a healthy dose of concern and skepticism is appropriate. But when fear turns into paralysis, your troubles with the IRS can increase exponentially. Too often taxpayers with tax problems do not know where to turn for competent professional help. Of course, there are national marketing companies and telemarketers poised to capitalize on taxpayer fears of the IRS. They would have taxpayers believe that, whatever their financial condition, they can resolve their tax debt for “pennies on the dollar.”

Over the years, our tax litigators have helped many clients who have first paid out thousands of dollars to one or more of these national advertisers, with the only result being the loss of their money and no resolution to their tax problem.

Myth 1: All tax liabilities can be settled for “pennies on the dollar.”

We’ve all heard the radio and late-night TV ads touting the ability to settle tax debts for a fraction of what is actually owed. To be sure, the success stories are likely true—for those appearing in the ad. But this is not a one-size-fits-all opportunity, and not everyone is eligible for the IRS’s Offer in Compromise program.

Determining whether a taxpayer is eligible for an Offer in Compromise is a complicated process of analyzing the taxpayer’s entire financial condition—as the IRS will do. If after this analysis, the IRS determines it can actually collect all that is owed through a taxpayer’s assets or income via tax liens and levies, any offer short of full-paying the liability will be rejected.

We have seen too many taxpayers who have wasted thousands of dollars with firms (usually required as an upfront “retainer”) pursuing Offers in Compromises that have absolutely zero chance of being accepted by the IRS. In the end, these taxpayers are left bare in the cold, with no resolution.

Be wary of those who promise results—particularly when made before collecting any financial information from you.

Myth 2: I can avoid my IRS problems with the “Ostrich Defense.”

In 1998, Congress granted taxpayers a number of procedural protections and rights against the IRS’s ability to collect a tax liability, requiring notice and an opportunity for a “Collection Due Process Hearing” before (or sometimes shortly after) the IRS takes a particular action to collect a tax debt. Similarly, most taxes may not be assessed by the IRS without first sending proper notices to the taxpayers. Before doing so, the IRS must issue a “Statutory Notice of Deficiency” to the taxpayer’s last known address.

The required notices must be sent by Certified Mail, and they provide certain procedural rights, which are lost if a timely response is not submitted. For that reason, do not avoid or ignore any correspondence with the IRS. In doing so, you will only succeed at losing important rights and making matters worse for yourself. Pick up and open all correspondence from the IRS immediately (especially if it is sent by Certified Mail).

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