rs-irs-tax-debt-resolution Archives - Page 4 of 10

The Offer in Compromise Process: Types of Offers in Compromise

May 25, 2026July 17, 2020 by Brotman Law

The Offer in Compromise Program is a program that was developed by the IRS to give taxpayers a fresh start on life. A taxpayer in exchange for a lump sum or in exchange for a settlement of monthly payments can eliminate past tax liability in exchange to the promise of future compliance to the IRS. If the taxpayer promises to pay in full and on time, and file on time then the IRS will forgive their past tax liability. Sounds a good, great deal but it’s also a tremendous deal for the government, as well, because the taxpayer is essentially getting back into compliance to paying everything and the government loses that cost of having to administer the taxpayer’s file. It’s actually a win-win for both parties. With that said, there’s been a lot of negative press associated with the Offer in Compromise Program. You’ll see hilarious ads on TV that you can settle your tax liabilities for putting your pennies on a dollar. Although that is true, a lot of people have abused the program. They submit Offers in Compromise that don’t have a chance of being accepted. Offers in Compromises work on a pretty strict formula which I will get into a minute. The most common type of Offer in Compromise is what we call a Doubt as to Collectability Offer in Compromise.

Key Takeaways

The Offer in Compromise Program is a program that was developed by the IRS to give taxpayers a fresh start on life.
A Doubt as to Collectability Offer in Compromise is one where you turn the IRS, you used to take my Offer in Compromise because you will never ever be going to collect this money from me.
The third type of Offer in Compromise is something that we call Effective Tax Administration.

How Offers in Compromise Are Considered

May 25, 2026July 17, 2020 by Brotman Law

Let’s talk a little bit for a second about Doubt as to Collectability Offer in Compromise, the successes and the more common ones. So, Doubt as to Collectability Offers in Compromise fall under a specific set of guidelines. Doubt as to Liability Offers in Compromise are based on a formula that is the quick sale value to find by the IRS at 80% of the value of the taxpayer’s assets plus the positive monthly cash flow times 60 months. If a taxpayer is showing $10 and positive monthly cash flow over 60 months, that’s $600. A hundred dollars a month in positive monthly cash flow, that’s $6,000. A thousand dollars a month in positive monthly cash flow, that’s $60,000. Positive cash flow is really important from an Offer in Compromise standpoint because little changes in the positive monthly cash flow of the taxpayer really affect the minimum offer amount that the IRS will accept. When determining whether your client is an Offer in Compromise candidate, one of the best things to do is ask the client what assets do you have? List out the assets that they have, determine what their value is, meaning not with the client’s assessed value is but with the quick sale value of the client of the asset is. Then, take those assets and list the client’s income and expenses out, and figure out what their positive monthly cash flow is if any and then, that gives you an idea of what their minimum offer amount is. That’s a really great trick to pre-screen Offers in Compromise.

Key Takeaways

Let’s talk a little bit for a second about Doubt as to Collectability Offer in Compromise, the successes and the more common ones. So, Doubt as to Collectability Offers in Compromise fall under a specific set of guidelines.
We have a policy in our firm of pre-screening offers and compromises even before we get ready to submit to them to the IRS.

Issues in the Offer in Compromise Process

May 25, 2026July 17, 2020 by Brotman Law

The next thing I want to talk about, I want to talk about some issues associated with Offers in Compromises. The first issue I wanted to discuss is what we call dissipated assets. A dissipated asset is an asset that the taxpayer has disposed of, that the IRS is going to count towards their reasonable collection potential or their minimum Offer in Compromise. For example, this happens all the time. People will liquidate their IRAs and they will go out and spend money on all sorts of things. They’re going on vacations or trips or food or whatever. The IRS will come back and they’ll say, “Wait, the $100,000 in this IRA, what happened to the money?” The taxpayer will throw their hands and then go, “I don’t know. We just spent it.” The IRS goes, “That $100,000 of money should have been used to pay your tax liability. So, we’re going to consider this a dissipated asset.” Dissipated asset comes up all the time with property. They come up with IRA’s securities. Basically, you need to be able to substantiate to the IRS the money that was used with the dissipated assets was recently spent on ordinary and necessary living expenses, what other things that the IRS are going to accept. It’s really important that the outset to identify any dissipated assets that you might have, otherwise you might make an Offer in Compromise only to be disappointed at the end. The next issue I want to talk about is valuation. Valuation is a really hot topic within the IRS and it’s something that practitioners use all the time to present the client’s financials in the best light possible.

Key Takeaways

The next thing I want to talk about, I want to talk about some issues associated with Offers in Compromises. The first issue I wanted to discuss is what we call dissipated assets.
One of the examples I’ll give is for the house. You have a house and you go ahead and Zillow and the house is worth $500,000. Then you go on the property tax, coming to assessor’s website and the tax assessor says it’s worth $350,000.
If the physician is unemployed even for an extended period of time, they’re not making any income, they have no positive cash flow, the IRS is still going to make the argument that they have the ability to go out and earn more money.

Taxes and Bankruptcy

May 25, 2026July 17, 2020 by Brotman Law

Some income taxes can be discharged in bankruptcy — but the rules are specific, and most people are surprised by how narrow the qualifying window actually is.

Bankruptcy is not a blanket solution for tax debt. Whether your taxes survive or get wiped out depends on which taxes are involved, when the returns were filed, when the IRS assessed the liability, and a few other conditions that have to be met simultaneously. Get them all right, and the tax is gone. Miss one, and it survives the bankruptcy as if you never filed.

The Three-Year, Two-Year, and 240-Day Rules

To discharge income taxes in bankruptcy, three timing conditions must all be satisfied at once.

The three-year rule: the tax return for the year in question must have been due at least three years before you file your bankruptcy petition. So for tax year 2020 — with a return due April 15, 2021 — the earliest a Chapter 7 petition could potentially discharge that liability is April 2024. If you file bankruptcy in February 2024, the 2020 tax debt is not eligible.

The two-year rule: you must have actually filed the return at least two years before the bankruptcy petition. Filing late doesn’t disqualify you outright, but it does push the discharge window further out. If you filed your 2020 return in October 2022, the two-year clock runs from October 2022, not from the original April 2021 due date.

The 240-day rule: the IRS must have assessed the tax at least 240 days before your bankruptcy filing. Assessment usually happens when the IRS processes your return, but it can also result from an audit, an amended return, or a CP2000 notice. If the IRS assessed additional tax from a 2020 audit in January 2024, that assessment doesn’t become eligible for discharge until September 2024.

Taxes That Cannot Be Discharged Regardless of Timing

Several categories of tax debt are non-dischargeable no matter how old they are.

Payroll trust fund taxes — the portion of employee withholding that an employer holds in trust and remits to the IRS — are non-dischargeable under 11 U.S.C. § 507(a)(8). The IRS treats these as money that never belonged to the employer in the first place. If you owe a Trust Fund Recovery Penalty (Form 4183) as a responsible party of a business, that liability follows you through bankruptcy.

Taxes related to fraud or willful tax evasion are also non-dischargeable. If the liability arose because you filed a fraudulent return or deliberately evaded tax, bankruptcy doesn’t help. The same applies to taxes on returns that were never filed at all — the IRS files a substitute return on your behalf, but that is not treated as a return you filed for discharge purposes. You generally have to file the actual return yourself, and it has to be filed before the bankruptcy petition.

Chapter 7 vs. Chapter 13 for Tax Debt

Chapter 7 can fully discharge qualifying income taxes; Chapter 13 puts non-qualifying taxes into a repayment plan, often without additional penalties accruing during the plan.

In a Chapter 7 case, taxes that pass all the timing tests and the fraud/willfulness tests become non-priority unsecured claims and are discharged along with credit card debt and medical bills. There is no repayment — the liability is gone.

Chapter 13 is more useful when some taxes qualify and others don’t, or when you have assets you want to keep. Priority tax claims — the ones that don’t pass the tests — get paid through the Chapter 13 plan over three to five years. The advantage is that the IRS generally cannot accrue additional interest or penalties on those claims while the plan is active. For someone with a large payroll tax liability or recent income taxes, Chapter 13 can reduce the total cost even without achieving a full discharge.

What Happens to a Federal Tax Lien

Discharging the underlying tax debt does not automatically remove a filed federal tax lien.

The discharge eliminates your personal obligation to pay — what lawyers call the in-personam liability. But if the IRS filed a Notice of Federal Tax Lien before your bankruptcy petition, that lien is a secured interest in your property. It stays attached to assets you owned at the time of the bankruptcy, even after the discharge. To remove the lien, you typically need to either pay the secured portion or ask the bankruptcy court to avoid the lien through an adversary proceeding.

This distinction catches people off guard. They complete the bankruptcy, assume the tax debt is gone, and then find the lien on their property when they try to sell or refinance. Check the county recorder’s records and pull an IRS transcript before assuming the lien isn’t a factor.

This Requires Both a Bankruptcy Attorney and a Tax Attorney

The tax discharge analysis and the bankruptcy filing are two separate disciplines, and most general bankruptcy attorneys don’t do the tax side carefully.

The discharge eligibility rules — especially the tolling provisions, which can pause and extend all three timing periods based on prior bankruptcy filings, pending Offers in Compromise, or Collection Due Process hearings — require someone who understands both bodies of law. A bankruptcy attorney can file the petition. A tax attorney needs to verify whether the taxes actually qualify before you do.

Frequently Asked Questions

Can you discharge IRS debt in Chapter 7 bankruptcy?

Yes, but only income taxes that meet the three-year rule (return due at least 3 years before filing), the two-year rule (return actually filed at least 2 years before filing), and the 240-day assessment rule — and only if the return wasn’t fraudulent and the tax wasn’t willfully evaded. Payroll taxes, recent income taxes, and taxes on unfiled returns do not qualify.

Does filing bankruptcy stop IRS collections?

Yes. Filing any bankruptcy chapter triggers an automatic stay under 11 U.S.C. § 362, which immediately halts most IRS collection activity — notices, levies, garnishments. The stay lasts for the duration of the bankruptcy case. The IRS can request relief from the stay in limited circumstances, but it typically does not pursue collection while the stay is in effect.

What happens to a tax lien after bankruptcy?

The discharge wipes out your personal liability for the tax, but a previously filed Notice of Federal Tax Lien survives and remains attached to property you owned before the bankruptcy. To clear the lien from property, you either pay the secured value or seek lien avoidance through the bankruptcy court. The lien does not extend to property you acquire after the petition date.

If you’re weighing bankruptcy against other options for resolving tax debt, the five-part discharge eligibility test walks through the specific conditions in more detail — or see our overview of other options for resolving tax debt if bankruptcy isn’t the right fit. Book a free 15-minute call if you want to talk through which approach makes sense for your situation.

Have a Tax Question or Notice?

If you’re dealing with an IRS audit, collection action, California state tax matter, or any other tax issue, we can review your situation in a free 15-minute consultation.

Schedule a Free Call → Or call: (619) 378-3138

IRS liens so I want to talk briefly about IRS liens

May 25, 2026July 17, 2020 by Brotman Law

Key Takeaways

Topic: IRS liens so I want to talk briefly about IRS liens
Read the full article below for complete details on this topic.

IRS liens so I want to talk briefly about IRS liens IRS lien or lean in general is a security interest in a piece of property so an IRS lien it represents the government’s interest in the personal and real property of a taxpayer a tax lien has the effect of attaching to all the taxpayers real and personal assets and in the event of the taxpayer goes to sell one of those assets the government it has a claim to that money now in actuality liens really serve two purposes number one they attach to property and make it really difficult to sell houses and occasionally it can make it really difficult to sell vehicles or larger items of personal property to believe those that are registered with the DMV and secondly it leans have a very negative impact on a taxpayer’s credit and their ability to borrow now the officially the policy statement from the IRS is that liens are used to preserve the government’s interest but there is a big debate between. The IRS and the tax practitioner community on what the efficacy of liens are particularly where a taxpayer doesn’t have any assets for the government to secure because the government likes to say that leaves are a necessary measure of preserving a security interest we would argue that the liens are a punitive measure that really only impacts a taxpayer’s credit particularly you have a case where taxpayer has entered into installment agreement that will full pay a liability and the IRS goes and files lien anyway that is a particularly hot topic of debate, but an IRS tax lien can be dealt with in one of three ways you can withdraw you can ask the government to withdraw the lien meaning that the gleam effectively never happened and will completely disappear from a tax payers credit the government can release.

IRS levies. A levy is a seizure of property or assets.

May 25, 2026July 17, 2020 by Brotman Law

Key Takeaways

Mostly what IRS levies are associated with is our bank levies.
The IRS will come in and will levy a taxpayer’s account.
Liens do not immediately effect property in terms of seizing that property.

IRS levies. A levy is a seizure of property or assets. Mostly what IRS levies are associated with is our bank levies. The IRS will come in and will levy a taxpayer’s account. Levy is different than liens. Liens do not immediately effect property in terms of seizing that property. A levy is a seizure. So, the IRS can levy bank accounts. They can levy accounts receivable. They can levy brokerage accounts or other financial assets. Levies are often a source of stress for taxpayer and when we get the majority of our levies clients, “Hey, the IRS wiped out my bank account.” Levies can be defeated with a number of things. The most important thing to defeat a levy is prevention. You want to make sure that you’re working with a revenue officer or with a CS to avoid any levies. When levies are issued it is important to fight them. You can fight them I numerous ways. The easiest way to fight a levy is to substantiate a documented hardship with the IRS.

Interest and Penalty Abatements

May 25, 2026July 17, 2020 by Brotman Law

Interest and penalty abatements. One of the more commonly complaints that we get around our office is the amount of interest and penalties that are tapped on to liabilities. A taxpayer will call us up and say, “Hey, we owe $20,000 to the IRS but they charged another $20,000 in interest and penalties that we didn’t even know them. Is there anything that we can do about the interest and penalties?” The short answer is “yes,” particularly with respect to the penalties. IRS interest abatements are very difficult to get. The IRS fears interest as what they are entitled to because of a delinquent tax liability. The IRS interest rate usually is pretty low. It’s usually defined by the statutory interest rate. It’s usually between a 3% and 6%. So, it’s usually not that big of a killer. The killer is the penalty portion of it. The penalties are often substantial. They can raise anywhere from 10% to 75% and they can turn a small liability into a fairly substantial one really, really quickly. Penalty abatements are governed through Section 20 of the Internal Revenue Manual.

Key Takeaways

Interest and penalty abatements. One of the more commonly complaints that we get around our office is the amount of interest and penalties that are tapped on to liabilities.
It is that particular part of the manual dictates on the “reasonable cause.” Reasonable cause is the circumstances that led to the reason that the taxpayer was penalized.
The IRS will go through a series of questions with the taxpayer representative. If they find a reasonable cause, and they will automatically abate penalty on the spot. This is a great advance in penalty abatement and makes things much, much quicker.

Differences Between the Federal Tax System and the California State Tax System

May 25, 2026July 17, 2020 by Brotman Law

Key Takeaways

Briefly I want to talk to you about differences between the federal tax system and the state tax system.
Most FTV actions are initiated from the Sacramento office whether they are levis, phone calls, contacts with tax payers, or any sort of collection actions.
The states have limited resources at the local level.

Briefly I want to talk to you about differences between the federal tax system and the state tax system. As I mentioned, due to limited resources state are usually more aggressive in their collection tactics and their examination tactics than the federal government and the principal reason for this is because taxation for the states is the principal source of revenue racing. A lot of times when there is a budget shortfall the state will lean on their self tax and the federal tax bureau will lean on the income tax to help mandate collections priorities and help raise revenues either through collecting past due liabilities or examining returns and finding new ones. In general, the states because of their limited resources will rely more on in voluntary collections actions than field representatives so there’s much greater reliance at the state level for collections processes that are instituted from a remote location so for example in California the main center of operation for the FTV which is the Franchise Tax for the State of California income tax bureau is in Sacramento. Most FTV actions are initiated from the Sacramento office whether they are levis, phone calls, contacts with tax payers, or any sort of collection actions. The states have limited resources at the local level.

What To Do When a Collection Agent Acts Improperly

May 25, 2026July 17, 2020 by Brotman Law

So, state collection agents are under a very tight guideline for how they are supposed to behave and their behavior is mandated through either statue or through administrative collections manuals or procedures so a lot of the conduct that they have is governed internally. Although you do want to foster a generally good relationship with the agent, some agents are notoriously difficult to deal with or some go off the reservation from time to time. So, if you have a situation where you have a breached of conduct, you’d make sure you want to document the conduct that occurred, you want to get the agent’s name and ID number or station number and then you want to ask the collection agent for a phone conference with their manager. One of the rights that is installed for most tax payers is access to an immediate supervisor so the collection agent – In California, for example, collection agent is supposed to have the supervisor give you a call back within 48 hours. Some collection agents will not do this, they’ll refuse to enter notes in the system, they won’t pass the message along and in which case you are still entitled to that phone call.

Key Takeaways

Although you do want to foster a generally good relationship with the agent, some agents are notoriously difficult to deal with or some go off the reservation from time to time.
One of the rights that is installed for most tax payers is access to an immediate supervisor so the collection agent – In California, for example, collection agent is supposed to have the superviso…
Some collection agents will not do this, they’ll refuse to enter notes in the system, they won’t pass the message along and in which case you are still entitled to that phone call.

Will the IRS Take Payments?

May 25, 2026July 17, 2020 by Brotman Law

Transcription

Will the IRS Take Payments?

The IRS will take payments, and an installment agreement is the most common resolution for unpaid federal taxes. It is not always the best option, but for most people with a balance they cannot pay in full, a payment plan is realistic and available.

The most common type is the streamlined installment agreement. If you owe $50,000 or less in combined tax, penalties, and interest, you can generally get a 72-month payment plan without submitting a detailed financial statement. If you set it up as a Direct Debit Installment Agreement (DDIA), you avoid the additional user fee and become eligible to request a lien withdrawal after three consecutive payments — which matters if the lien has affected your credit.

For larger balances or cases where streamlined terms do not work, the IRS offers a Partially Paying Installment Agreement (PPIA). With a PPIA, your monthly payment is based on what the financial analysis says you can actually pay — not what it takes to pay the balance in full. The IRS agrees to accept less than full payment over the collection statute period, knowing the balance may not be fully paid before the Collection Statute Expiration Date (CSED). To qualify, you submit a full financial statement — Form 433-A or 433-B — and the IRS reviews your income, expenses, and assets.

One thing an installment agreement does not do: it does not prevent the IRS from filing a Notice of Federal Tax Lien. For balances over $10,000, the IRS will generally still file a lien even once you are on a payment plan. The lien is a public record and affects your credit. A payment plan keeps levies and wage garnishments from starting, but the lien is a separate issue.

Interest and the failure-to-pay penalty continue to accrue during an installment agreement. The failure-to-pay penalty drops from 0.5% to 0.25% per month while a valid agreement is in place, but it does not stop. This is worth factoring into the math when comparing an installment agreement to other options.

If you default — miss a payment, incur a new tax balance, or fail to file a required return �� the IRS can terminate the agreement and resume collection. Getting reinstated is possible but requires going through the process again.

Book a free 15-minute call or call (619) 378-3138 to understand your options.