In an earlier blog, we discussed the 21 resolutions available to U.S. Taxpayers. In this blog, I would like to talk about two of those options, specifically the Tax Expiration Programs. One of the most important variables considered when looking into a resolution for your tax debt is your Statue of Limitations, or CSED. The IRS has 10 years to collect on a debt. If you don’t file your 2005 tax return, for example, until 2008, then the IRS has until 2018 to collect that debt in full. There are, however, ways to extend your CSED, such as filing for bankruptcy or submitting an OIC.
When a client files for bankruptcy, the CSED on their tax debt is extended for the entire length of time that they are “bankrupt”, plus 30 days. In the previous blog, I went over an OIC, or Offer in Compromise. This option can actually hurt you when trying to settle. When you submit for an OIC, you extend your CSED for the amount of time it takes for it to either be accepted or rejected. In addition, 30 days are added. In this situation, the IRS has 2 years to make a decision on your offer. The CSED can also work in your favor. The IRS will realize that your tax debt is close to expiring, which will increase your chances of reaching a settlement more quickly. The IRS would rather receive some sort of payment, rather than nothing at all. This is especially true if they have been trying to collect for the 10 year period. Discovering your “actual” CSED with the IRS can be tricky because the IRS will sometimes extend your Statue of Limitations without your knowledge. Viewing your account transcript can be complex, and having a professional look over it for you can be helpful!
The other Tax Expiration Program I want to discuss relates to business clients and defunct, or closing your business. Closing your business is sometimes an option used to help eliminate, or greatly reduce, debt owed to the IRS. When your company gets behind on 941 taxes with the IRS, you are typically going to have a Revenue Officer knocking on your door to collect the debt. This is because the IRS looks at unpaid 941 taxes as stealing. This is considered stealing because your employees trust that the money taken from their paychecks is going to the IRS.
I deal with clients regularly who have gotten behind on their taxes. Unfortunately, because of the direction in which their businesses are headed, they find themselves unable to get current with the IRS. One option that is available to these folks, in order to reduce their debt, is to close their business. The RO may then assess a “civil trust fund penalty”. A civil trust penalty typically will reduce the debt down to 60% of the balance and then you can work towards a resolution from there. The other option available to businesses is to close the business and then allow any assets to cover the tax debt. I have dealt with clients before who got behind on their business income taxes. Their decision was to close the business, sell any assets, and then re-start the business under a new name, in hopes that a fresh start will bring success. This might sound like a tough option, but getting rid of the penalties and interest the IRS charges will save you thousands, if not more! Dealing with your RO, and dealing with a Civil Trust Fund Interview, can be overwhelming and confusing; I would seek help from someone who knows your rights with the IRS!