How to Think and Act like a Tax Lawyer

When faced with a tax debt, one of the first possible recourses that cross the mind of an anxious taxpayer is whether they should hire a tax lawyer.

Indeed, a tax layer, CPE, Attorney or Enrolled Agent are likely to navigate thorny tax issues better than you could yourself. However, it is notable to mention that there are no options available to these third party professionals that the IRS does not make available to a taxpayer directly.

The IRS does not function like your local traffic court. They cannot create so-called tax plea-bargains just because you have hired representation. The IRS is under obligation to administer the tax law equitably. Options to repay and or reduce the total amount owed are available to all taxpayers who financially qualify.

There would seem to be countless companies out there who are ready and willing to take an IRS bullet for you. Promises to immediately lift wage and bank garnishments, remove Federal Tax Liens, reduce or abate penalties and interest, or the ultimate pledge to present you with a "pennies on the dollar" decision all tickle the ears of naïve tax debtors.

But can these companies really take on the IRS and negotiate settlements that would be otherwise be unattainable absent their keen law-savvy specialists?

Hardly. There are many third party resolution firms and trained individuals whose mettle can stand up to the fire. Unfortunately, there are just as many companies that play on the idea that a taxpayer certainly couldn't deal with the IRS on their own. "You're gonna get creamed," as one shameless company plugs.

Check out recent lawsuits filed against companies like JK Harris, American Tax Relief, and the seemingly omnipotent Roni-Lynn Deutch.

If you have a complex tax issue or one that is being elevated to various levels of appeal, including the US Tax Court, then perhaps representation is wise. Make sure you know the authorization level of the person representing you, and the difference in what they can and cannot do on your behalf.

Otherwise, you can act like your own tax lawyer by following 5 simple tips. If you care to pay yourself a fee for your own advice, well, that is up to you.

1. Contact the IRS immediately when you become aware of the problem.

It's always amazing how people ignore strongly worded collection letters sent by the IRS. Some feel that they need to have a solid plan on the table before they call up the IRS. Not so. If you don't know what to do, then the IRS wants to hear from you.

The IRS will help you and present you with all the options you qualify for, including an installment agreement, an Offer in Compromise or considering your account Currently not Collectible.

2. Make sure you thoroughly read and understand any notice you receive.

By law, the IRS has to provide you with written warning before they take certain actions. They are required to send these notices to your address of record. If you have moved and have not changed your address with the IRS, or if you are not current in your tax filing, and, as a result, the IRS does not have your current address, then this is not an IRS problem.

Actions that are precipitated by written warnings include the filing of a Notice of Federal Tax Lien and a Notice of Levy. Many of these actions carry time sensitive appeal rights as well. Make sure you read through your notice and adhere to all timeframes outlined. If you do not, you may lose potential appeal options or the IRS may move to take enforcement action against you.

3. Realize that everyone's situation is different.

The IRS is more than willing to assist you with payment options, but you have to qualify. Just because you heard about so-and-so getting a deal doesn't mean that Monty Hall is going to let you choose what's behind the curtain too.

Generally speaking, if you have a large amount owed, the IRS will be required to analyze your ability to pay by discussing and verifying your income and necessary expenses. This analysis will yield an amount that the IRS expects you to pay. Don't expect to be allowed secondary properties or vehicles, payments to unsecured creditors, or expenses that the IRS does not consider necessary, such as voluntary investments, extra curricular school activities for your children, or charitable contributions. None of these take priority over Federal Tax debt.

For an idea of what you may be asked to provide, review IRS Forms 433-A and or 433-F. Both are Collection Information Statements used by the IRS to analyze ability to pay.

4. Get yourself current in filing.

The IRS cannot help you until you are current in your legal filing obligations. If you have past-due tax returns, then before you will qualify for any type of resolution, you must first bring yourself current in filing. The IRS needs to address all your balances at one time; they cannot do so until all returns are filed and all potential amounts owed are on the books, so to speak.

5. Be forthright and plainspoken when you talk with the IRS, and then listen to them.

The IRS allows no wiggle rooms for white lies, half-truths or the outright disposition or transferring of assets to shield them from tax.

Make sure you report all income sources and all investments. Do you have any stocks that can be sold? Do you have a whole life insurance policy that has a loan value? If your home has significant equity, can you refinance or take out a home equity credit line to repay your taxes? If you are over 62 and have full property equity or close to it, can you do a reverse mortgage? Can you borrow from your 401-K plan or take an early IRA distribution? (Remembering to set aside enough to cover the tax and the10% early withdrawal penalty of course.)

Ask yourself the above questions and then look into the possible answers. If you do not, then the IRS will require that you do so before they agree to establish any kind of a long-term repayment plan.

This is for your benefit, not just the IRS. Penalty and interest rates are designed to be high in order to encourage voluntary compliance. The IRS is not a bank; they do not offer attractive loan repayment terms. The IRS will be the first to tell you that it is much better to owe a third party lender than it is to owe them.