 How to negotiate huge overdue tax bill
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 Dear
Bankruptcy Adviser,
I have approximately $64,000 in back taxes including $12,000 in penalties. I filed bankruptcy under Chapter 7 in 2002 and was discharged because of a medical situation. The tax situation arose after this time. I want to repay the tax debt in full, but am considering a Chapter 13; I don't have other debt except for a student loan, but cannot get an offer I can afford from the IRS directly regarding the tax debt. Will Chapter 13 be denied if I have no other debt besides the tax debt? I can repay the tax debt over the five years required. Also, what is the impact on my credit with two bankruptcies? Will I ever be able to get credit after these fall off? Thank you.
-- Tom
 Dear
Tom,
You've asked some good questions. Hopefully this answer will be
helpful to you as well as to other people who are facing issues
involving bankruptcy and back taxes. You can file a Chapter 13 reorganization
bankruptcy even if all you owe is tax debt. Please note, I recommend
seeing an attorney whenever filing a bankruptcy that involves serious
tax issues. Also, anyone filing a bankruptcy within four years of
a previous Chapter 7 filing needs to consult an attorney to discuss
recent
changes
in Chapter 13 cases.
First of all, if you are considering paying back $64,000
over the three to five years necessary to fulfill a Chapter 13,
you probably have an above-average income. Of course, you probably
also have above-average expenses. The key to your strategy will
be a) how much of a lump sum you can put together or b) how much
you can legitimately afford per month.
You've investigated an offer
in compromise
with the IRS directly, and that's the right thing to do. For everyone
else reading this, it's important to negotiate a settlement or set
up a monthly payment plan with the IRS immediately. Don't wait until
you have the money -- that's how most people get into IRS trouble
to begin with. If you wait around, the IRS will file a tax lien
against you and this lien will harm your credit. You want to set
up a 60-month repayment plan with the IRS.
Don't fear communicating with the Internal Revenue
Service. It is made up of employees just like any other business.
Immediately contact them to establish and then maintain a positive
rapport with them. The IRS is also used to people lying to them
or reneging on deals, so they're going to be suspicious. So, if
you establish a deal, stick to it. The IRS will be much happier
if it needs to communicate with you only once. Sometimes your
financial situation will change during the repayment period. Contact
the IRS immediately to modify your plan.
You can also hire a law firm, CPA or an enrolled
agent to communicate with the IRS on your behalf. Enrolled
agents are tested and licensed by the IRS after passing rigorous
exams on taxes and undergoing federal background checks.
All of the above professionals will have experience with the IRS
and will know how your situation matches up with other cases. Meaning,
they will have experience in determining what they can negotiate
on your behalf. There are many companies that aren't law firms that
negotiate with the IRS. Many of them have very negative reputations
among consumers and with the Better Business Bureau. You may be
better off dealing with an individual enrolled agent, CPA or attorney.
If you choose the bankruptcy route rather than the installment agreement
or debt negotiation route, I recommend consulting a capable attorney.
Finally, you can always rebuild your credit, even
after two bankruptcies. This is a process that I've written about
in other
columns but basically, you'll need to wait until after you've
achieved a settlement, finished a payment plan or discharged your
bankruptcy. Then you can begin a process which, if you are diligent,
will probably take a few years. Still, it's worth it.
Justin Harelik is a practicing attorney in Los
Angeles. To ask a question of the Bankruptcy Adviser go to the "Ask
the Experts" page, and select "bankruptcy" as
the topic.
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