Arizona Tax Lawyer Blog

Should bankruptcy be considered a last resort in dealing with IRS debt? In my opinion, yes.

It should however, always be carefully considered.

The potential benefits of a bankruptcy can be undeniable in relation to a taxpayer's potentially less effective options.

Having said that, bankruptcy does have some obvious negatives for the taxpayer with serious income tax debt. The more common are as follows:

1. Bankruptcy Costs Money

There is the attorney who is analyzing your case and representing you, the court who wants to be paid something i.e filing fees, the trustee takes 10% of non exempt assets in a chapter 7 and amounts paid in a chapter 13.

Also, what about lost wages due to time spent in preparing and cooperating, lost sleep and stress (does that cost money?) etc. etc.

2. Filing Gives The IRS More Time to Collect the Tax

What? If I file bankruptcy, the IRS will have more time to collect after the bankruptcy is over. But, I thought the bankruptcy would deal with the debt i.e. wipe it away?

It will if the debt meets certain criteria. But what if...

- the statute of limitations on collection that bars the IRS from collecting tax debt after 10 years is about to run out? Would it be wise to file a bankruptcy and stop that clock from ticking to deal with that same tax debt? Probably not. (There are some limited circumstances where it would make sense)

3. Credit Report

Bankruptcy does damage what otherwise was a good credit score. It typically comes back with time and some work, but nonetheless...the tax debt must be serious, with no other way out, to justify the hit.

4. Stigma

The "stigma" of bankruptcy has been diminishing over the years. Many consider this a good thing. You know..."stick it to the man" and all of that jazz.

I think that certain "stigmas" have their place.

The bankruptcy stigma can be especially harsh. For the rest of your life, if asked formally, you will have to answer yes. For some, this is reason enough to probe every other legal option before bankruptcy is used.

If you have a serious tax debt, call me, Arizona Tax Lawyer, Michael S. Anderson to talk about what the other options might be for you. 480 507 5985

Posted by Michael S. Anderson | Permalink | Email This Post

Posted In: Tax Motivated Bankruptcy

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No matter what you have heard, a bankruptcy filing, motivated by serious income tax debt, is a common occurrence.

The reason is obvious. There are benefits to filing bankruptcy.

6 of the most important potential benefits are as follows:

1. The Automatic Stay

"Automatic Stay" is the common term used to describe that section of the bankruptcy code that governs what creditors must do or stop doing, once a bankruptcy is filed. It applies in every bankruptcy case. This law requires that almost every creditor in almost every situation, stop collection activity once the case is filed. This includes the IRS.

If the IRS has proper notice of the bankruptcy, the filer can actually sue the IRS for violation of the Automatic Stay Provision and recover actual damages including court costs and attorney fees, if the automatic stay provision is violated.

2. Elimination of Tax Debt after Discharge

The most obvious reason to file the bankruptcy, is the ability to get rid of the debt. As I often say, "believe it or not" certain income tax debts can be wiped away in bankruptcy along with accumulated penalty and interest. Determining "dischargeability" can be more complicated than it seems. Use of experienced legal counsel is a must.

3. Threat of Bankruptcy in an Offer in Compromise

A good bankruptcy candidate may be able to use threat of bankruptcy to obtain a better installment agreement or overall settlement in an offer in compromise without ever having to file. The key? A good bankruptcy candidate and experienced legal counsel.

4. Force payment plan

In a chapter 13 bankruptcy a payment plan can be forced on the IRS, if the IRS won't agree to a better and more reasonable payment plan outside of bankruptcy

Whether the plan is approved is not up to the IRS, but decided by bankruptcy law and the bankruptcy judge.

5. Deal with all other debt at same time

Most with serious tax debt have other debt problems as well. Credit card debt, medical bill debt, foreclosure issues, business related debt etc. etc.

A bankruptcy, chapter 7 or 13 depending on which best fits, can deal not only with the tax debt but also with these other problems, via discharge, cramdown, or payment.

6. Re-determination of Taxes Due

The bankruptcy code allows the Bankruptcy Court to redetermine the amount of tax owed.
Bankruptcy can be used to determine the amount of the debt even if you lost the argument in tax court.

If you have serious tax debt, you must talk to an attorney experienced in the relationship between tax debt and bankruptcy in order to find the best solution to the problem.

Call our office, Michael S. Anderson P.C. to discuss your tax situation over the phone with Mr. Anderson for free. 480 507 5985

Posted by Michael S. Anderson | Permalink | Email This Post

Posted In: Offers in Compromise , Tax Motivated Bankruptcy

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If you have been researching your tax debt options for any length of time, you may be confused about bankruptcy and it's relation to the debt.

Some "experts" claim bankruptcy won't work and others claim that it may be your best option. Who to believe?

Let's make three things clear.

1. Income tax debt can be wiped away by a bankruptcy.
2. Whether bankruptcy is the best option depends on a number of different factors.
3. Everyone with serious tax debt should analyze their best options with bankruptcy in mind.

Number 3 is the quick topic of this post.

Why?

Even if you do not use bankruptcy to deal with the tax debt, the IRS is required to consider the fact that the tax debt could be discharged in a bankruptcy when determining ability to pay in response to an offer in compromise.

In english...a true bankruptcy candidate has more leverage in an offer in compromise.

In this office, every client is treated as a potential bankruptcy client in an effort to determine if that leverage exists and if it can be used.

Don't let anyone tell you that bankruptcy shouldn't be at least considered as an option. It is in more ways than one.

Call Arizona Tax Attorney Michael S. Anderson P.C. at 480 507 5985 if you have serious tax debt and need to find a solution. He will talk to you for free over the phone.

Posted by Michael S. Anderson | Permalink | Email This Post

Posted In: Offers in Compromise , Tax Motivated Bankruptcy

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Taxpayers with large tax debt are initially confused about what to do. They start making calls to companies they have seen on the TV, only to receive a high pressure sales pitch. Confusion and frustration set in, and only the notice of levy or lien forces further action.

For all Arizona Taxpayers with debt, I encourage you to call my office to talk generally about what your options may be over the phone as soon as you find trouble.

However, there is no way for me to give specific advice without spending more time with the taxpayer's specific set of facts than I can during a short phone call.

For those who are wary of paying a larger retainer or who just don't have the funds to retain an attorney, a "strategy meeting" in my office may be the solution to obtaining some of that more specific advice without the higher cost of full representation.

The strategy meeting is designed to answer all of the taxpayer's questions at one time for one flat fee.

Many of those who choose the Strategy Meeting are then able to handle the issue themselves without spending more money. On occasion, a situation can be resolved during the meeting with a phone call.

Of course many situations are too complicated to be fully analyzed during a 2.5 hour meeting. In those instances, taxpayers will need further analysis and representation.

My goal is to help my clients solve the tax problem in a cost effective and timely manner. This meeting allows me to do that in many situations.

In order to set up the meeting, call to talk to me first. I will ask you some questions and discuss whether a strategy meeting may help you. Call 480-507-5985.

Posted by Michael S. Anderson | Permalink | Email This Post

Posted In: Appeals/Litigation , Delinquent Tax Returns , Installment Agreement , Non Collectible Status , Offers in Compromise , Penalty Abatement , Tax Audit , Tax Levy , Tax Lien , Tax Motivated Bankruptcy , Trust Fund Recovery Penalty

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Licensed Attorneys, Certified Public Accountants, and "Enrolled Agents" are allowed to represent clients in front of the Internal Revenue Service. Licensed Attorneys are automatically allowed to be admitted to practice before the U.S. Tax Court. CPAs and Enrolled Agents must pass a rigorous exam.

Anyone on the other hand, can own a business that "sells" tax controversy and resolution services to taxpayers nationwide. This ability to "sell" tax resolution services with little oversight has led to a tremendous amount of misinformation about a taxpayer's ability to deal with overwhelming tax debt.

I receive a number of calls from taxpayers who are certain, based on an ad or telephone sales pitch, that they will be able to simply settle their tax debt for a very small amount.

Many who call have paid the company, went through the process, and failed.

Not only have they failed, they don't really understand why, and probably paid a large sum for the opportunity.

Attorneys have as a profession become the butt of many jokes. Many are quite funny. Most attorneys I know however are smart, hardworking and have the best interests of the client at heart.

For these reasons as well as the following, I always encourage taxpayers to talk to a real, live, licensed, experienced, and local tax controversy attorney before deciding what to do about their tax debt.

1. Lawyers Are Regulated

Attorneys have all sorts of legal obligations placed on them by various regulatory systems that have been set up to ensure the highest standards of representation. These include state ethics rules, and IRS rules of practice. No CPA or Enrolled Agent is held to a standard as high as an attorney. Tax controversy businesses are unregulated. These regulations ensure that most attorneys are as mentioned above, hardworking and conscientious.

Continue reading "For Arizona Taxpayers - Why use a local tax attorney to help you deal with the IRS?" »

Posted by Michael S. Anderson | Permalink | Email This Post

Posted In: Appeals/Litigation , Delinquent Tax Returns , Installment Agreement , Non Collectible Status , Offers in Compromise , Tax Audit , Tax Levy , Tax Lien , Tax Motivated Bankruptcy , Tax and Politics , Trust Fund Recovery Penalty

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Many Arizona taxpayers who call me for help, have a few years of un-filed federal and state income tax returns.

Most will be worried about whether they can be arrested and sent to jail. They have seen the stories about Wesley Snipes and other famous types who are currently residing in a federal prison for similar offenses.

The good news is that the IRS typically and as a matter of internal policy will not prosecute the taxpayer who files their returns voluntarily or in other words beats them to it. Visit the IRS.gov website for information about this policy.

Obviously, prosecution is not the easiest way for the IRS to collect, or they would do it to everyone with a late return. It would seem that the prosecution of a few high profile cases would be more cost effective. Fear trickles down.

Prosecutions of the "rest of us" do occur however, and much more often than one would think. There are many "average joes" whose careers and families have been lost while they sit in jail as a result of unfiled returns.

Therefore, the non filer should get the returns prepared and filed as a first step. If the IRS does decide to prosecute, it usually won't lose.

Not only does the non filer risk jail, he or she also risks the loss of tax refunds, lost earned income credit, lost social security benefits, and increased debt as a result of penalty and interest add ons.

I can help a taxpayer who hasn't filed for years to prepare the returns even if they are missing documentation, file them properly, and then find the best way to deal with the debt, all while protecting the attorney client privilege.

If you have un-filed tax returns, call Michael S. Anderson, an experienced Arizona tax controversy attorney at 480-507-5985 to discuss your situation for free.

Posted by Michael S. Anderson | Permalink | Email This Post

Posted In: Appeals/Litigation , Delinquent Tax Returns , Installment Agreement , Non Collectible Status , Offers in Compromise , Tax Motivated Bankruptcy

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A man calls an attorney and asks her how much she would charge to answer three quick questions. The attorney replies, "one thousand dollars." "A thousand dollars!" cries the man. "That's very expensive isn't it?" "It certainly is," replies the attorney. "Now, what is your third question?"

This is one of my favorite lawyer jokes. It is funny because there is truth in humor. Most attorneys I know however are not trying to get something for nothing, as is this attorney They know their practice area, and their knowledge and experience can be worth their weight in gold to those with serious problems.

The problem is that in between it's "weight in gold" and zero, it is hard to determine what a taxpayer should pay a tax attorney.

Generally, the fees charged are set by the market. Sometimes the market is skewed a bit by the high pressure sales skills of the tax resolution company employee. When promises are made that aren't necessarily true, apples can't be compared to apples.

In our office, we feel that the best way to bill a client for tax related work is by the hour.

The hourly rate solves a number of problems related to the determination of what should be paid.

1. The rate can be compared to other attorneys with similar experience and knowledge.
2. The hourly rate provides the attorney an increased incentive to work personally on the case instead of handing the file off to staff and turning the office into a "mill" as "flat" fees often do.
3. The hourly rate provides the taxpayer client an incentive to fully participate and cooperate with the Attorney. This results in a more educated client, and a better outcome.
4. Hourly rates do not end up costing the client more necessarily than flat fees. They are often less in reality and less when the results are considered. Would a client pay $500.00 more in fee, if it resulted in $10,000.00 in additional savings?
5. Hourly rates provide the client more control over what is being accomplished.
6. Hourly rates provide the client more opportunity to participate and thereby be active in the reduction of the fee.

Continue reading "Tax Controversy and Arizona Attorney Fees " »

Posted by Michael S. Anderson | Permalink | Email This Post

Posted In: Appeals/Litigation , Delinquent Tax Returns , Installment Agreement , Non Collectible Status , Offers in Compromise , Penalty Abatement , Tax Audit , Tax Levy , Tax Lien , Tax Motivated Bankruptcy , Trust Fund Recovery Penalty

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Honest taxpayers find themselves with loads of tax debt for a number of different reasons including but not limited to:

- Paycheck under-withholding
- Failure to pay tax on withdrawn retirement funds
- Assessed a trust fund penalty related to employment tax
- Failure to pay tax related to business
- Hobby Loss Challenge, Independent Contractor Challenge

No matter what the cause of the tax debt, the question inevitably becomes "what can I do about it, if I can't afford to pay it?"

There are 9 options that are commonly considered in dealing with tax debt, short of fully paying. Some options are used in combination with others and some are more effective than others.

They are as follows:

1. File un-filed tax returns and challenge the IRS substitute returns

Most of my clients have a number of years of un-filed returns. These returns need to created and filed in order to avoid possible jail time of up to one year per return. They should be filed as well because:

- The filing of the returns makes the taxpayer "current" in the IRS records. The taxpayer must be "current" in order to file an offer in compromise, file bankruptcy or negotiation an installment agreement.

- The filing of the returns will often reduce the amount of the outstanding debt. "What?" you ask. How can there be tax debt if no return has been filed? The IRS can file a substitute return based solely on income that has been reported to them from employers and others. These substitute returns are not typically accurate as they don't take into account the taxpayer's entire situation. The filing of the proper return and the challenging of the substitute return will likely reduce the debt.

2. Challenge the tax assessment

If the tax that has been assessed against the taxpayer is incorrect because the law wasn't properly applied to the taxpayers facts, the assessment can be appealed and litigated in various ways. The most common method is the offer in compromise based on a doubt as to the taxpayer's liability not ability to pay. Assessment of a trust fund recovery penalty, a debt related to the denial of a hobby loss, a debt related to the denial of the treatment of an employee as an independent contractor, among other issues can all be appealed and litigated.

Continue reading "For the Arizona Taxpayer With Serious Tax Debt - What Are All Of Your Options?" »

Posted by Michael S. Anderson | Permalink | Email This Post

Posted In: Appeals/Litigation , Delinquent Tax Returns , Installment Agreement , Non Collectible Status , Offers in Compromise , Penalty Abatement , Tax Audit , Tax Motivated Bankruptcy , Trust Fund Recovery Penalty

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Offer in Compromise Versus Bankruptcy?

Americans have always been good at two things. Solving problems and selling products that solve problems.

We have become especially adept at selling products that work for some, but not for most.

Think "Rogaine". For some...hair. For everyone else some new "fuzz" or nothing at all.

Americans with bald spots want their hair back so badly though, they buy in droves despite the easily ascertainable and mostly negative results.

They buy because of a polished sales pitch that provides them hope.

Strangely, our national obsession with selling products to those in pain, has found it's way to the world of tax debt.

The tax solution providing hope to thousands of Americans is the the IRS' “offer in compromise” program (“oic”). Savvy salespeople have realized that there are lots of Americans with tax debt who don't sleep well as a result. They offer the oic as a solution thousands of times every day on tv and radio.

The promise: "Settle your IRS tax debt for far less than what you owe easily and often guaranteed.

The problem: most taxpayers with serious tax debt aren't good candidates for the program.

Via the oic program, the IRS is statutorily empowered to accept less than what they are owed if there is

1. a doubt that they are actually owed the money
2. if there is a doubt about whether the debt that is owed is actually collectible from the taxpayer, or
3. the taxpayer can afford to pay the debt and taxpayer owes the debt, but there is some other circumstance about the taxpayers life that should be taken into account in settling the debt.

Most taxpayers pay these “sales” organizations to file an oic based on a doubt as to the taxpayer’s ability to pay. Many of those do so out of a hope that they will be able to sleep again. For the vast majority who do so, a short peaceful interlude without is interrupted when they find the offer has failed.

Continue reading "For Arizona Taxpayers With Large Tax Debt- Will Bankruptcy Be Better Than Offer In Compromise?" »

Posted by Michael S. Anderson | Permalink | Email This Post

Posted In: Offers in Compromise , Tax Motivated Bankruptcy

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