Wouldn't it be nice if it was that simple?

You get into a little tax trouble because you failed to make quarterly payments on your business income, you had an unexpected bonus at year's end, or a serious medical issue arose with you or your family causing a disruption in your income---

These are all things I see frequently in my clients' lives. Wouldn't it be nice if you could just call the IRS and ask for the "Fresh Start Initiative" or get yourself on the "pay pennies on the dollar" tax payment plan?

Well, it would be nice, but it doesn't work that way. If it was that easy, NONE OF US would be paying our full tax liability each year. We would all be paying a fraction of our tax liability like these national tax resolution companies promise on late-night TV!

The IRS works on a system called "reasonable collection potential" or RCP. The IRS's job is to collect the most tax as quickly as possible from taxpayers who owe the government money. Using a financial analysis formula, the IRS can, on a case-by-case basis, reasonably predict the amount that they will be able to collect from a taxpayer within the time period allowed (usually 10 years from the date the tax is assessed).

Certainly there are boundaries and limits on what financial resources and corresponding amounts the IRS can quickly grab from taxpayer accounts. Knowing their strategies are critical in determining your RCP and coming up with a collection alternative proposal to the IRS.

"But I have a VERY GOOD REASON THAT I CANNOT PAY MY TAXES!"

I have found that the IRS is not really that interested in your personal story---YES, there are times when there are incredibly compelling circumstances of taxpayers who have involuntarily fallen on hard times --those may be considered by the Revenue Officer or collections representative. But generally speaking, the RCP formula will override all other details if the IRS thinks it can get paid in full.

Don't be fooled by the "pennies on the dollar" scam. Don't think that your personal situation will win the hearts and minds of the IRS. Ultimately, it may be the skill and knowledge of an experienced tax attorney who can advise and navigate you through the maze of IRS collections and arrive at a fair result---not an empty promise.

I represent clients in the greater San Francisco Bay Area and nationwide with IRS collections, examinations, IRS notices, and other post-filing tax compliance matters.

Note: The above information is intended to provide a general overview regarding the topic presented. It is not intended to be a legal interpretation of your individual tax situation. If there is a conflict between the information provided and any legal authority implementing or interpreting the topic, the legal authority shall prevail. Always seek legal advice from a licensed attorney. This article does not in any way establish an attorney-client relationship. That relationship can only exist with a contemporaneously signed agreement by both parties.