5 IRS Tax Myths Debunked

Anytime someone wants to strike up a conversation about the IRS, you will find there is no lack of opinion. Good, bad or indifferent, everyone likely has something to say about the government's tax collecting branch.

The problem is that much of what is said is incorrect. Here are five common IRS tax myths debunked.

The IRS accepts compromises for pennies on the dollar.

Any late-night television spot or radio commercial advertising their services to reduce your tax debt is likely to use this phrase, or another like it. One-time settlement, window of tax amnesty, pennies on the dollar - whatever the current catch phrase is, they all refer to just one thing: An IRS Offer in Compromise.

The Offer program has been around for many years, and it is a way for taxpayers with unmanageable debt to offer to pay a lower amount. If the amount is in the best interests of both the taxpayer and the government, the IRS will accept the amount in lieu of full payment.

This program however is designed for taxpayers to do themselves, absent paying over a grand or more to a third party. The formula for the compromise is based on your income, assets, expenses and future earning potential, not ever on a percentage of each dollar owed.

All tax debts are dismissible via a bankruptcy filing

Bankruptcy law is quite convoluted at times, but the general condition to have an individual tax debt pardoned via a bankruptcy petition is that the balance has to be at least three years old. Current balances are considered priority debts and are not dischargeable.

Anytime a taxpayer files for bankruptcy protection, the automatic stay of collection applies, and the IRS will cease making contact and enforcing collection action. But if the debt is not resolved through the bankruptcy (such as by a monthly payment plan entered into with a Chapter 13 filing) the debt is reactivated for collection.

An attorney or CPA can resolve your debt with options not available to taxpayers

Wrong. The IRS does not plea-bargain tax balances, or otherwise offer mitigating options simply based on the fact you have hired legal representation. The IRS is not traffic court.

Whatever the options are, and no matter what the next act is on a taxpayer's account, the IRS will follow through with the required actions. While a third party CPA or attorney may have a better understanding of tax law or collection procedure, do not be hesitant to contact the IRS directly.

If I was audited once, I will be audited again

Almost all IRS audits are conducted via the mail, and most are initiated due to income that was reported to the IRS from one of your payers, but was left off your tax return.

If you have been the subject of an audit, this does not mean that somehow your account is "flagged" for a higher potential for future audits.

If you have had your tax return examined for erroneous or fraudulent claims of credits, expenses or deductions, then you may be subject to subsequent examinations in order for the IRS to verify you are now compliant.

If I do not pay my taxes, the IRS will seize my home and car

Extremely unlikely. Typical balances that a taxpayer owes from year to year are handled in-house, absent the assigning of the case to a Revenue Officer or Revenue Agent. These field reps generally handle large dollar balances, and seizures most often occur when a taxpayer has significant assets but is shielding the assets from the reach of the government and doing nothing to address their delinquent debt.

More from this Contributor:

10 things you didn't know about the IRS Offer in Compromise program

Bankruptcy and IRS tax debt - The basics you need to know

3 secrets the tax resolution firms don't want you to know