Credit Repair System

Regardless of how you feel about the IRS and Government Spending, the National Debt, and other related issues, non-filing of taxes based on the 861 position, or any other reason, will eventually get you in trouble.

The IRS will file your taxes for you based on a single status with no deductions, plus they will add interest and penalties. Once they have filed your taxes, they can get a judgment against you based on the fictitious filing, and attach your property, including your bank accounts, retirement funds, and/or any other property they can learn about. And all the time, you thought the freedom of information act was a good thing.

What I find amazing is that they have the power to do this without taking you to a regular court to sue you.  If you receive any registered mail with return receipt requested, read it carefully, front and back, and don't wait for them to notify you of a court date. It may never come. And, in your absence at their court, you are going to be found guilty. Evidently, they have their own kangaroo court system. 

In cases as mentioned above, where the IRS is attempting to attach your property, make sure you get a good tax attorney to represent you. There are programs in place at the IRS (they won't tell you unless you ask) to reduce the tax debt you owe, and a good attorney can work with the IRS to make that happen for you.

Your best bet is probably with an OIC (Offer In Comprimise). An OIC requires 2 forms:

• Form 656 - This is for your actual offer.
• Form 433-A - This is for calculating the offer.

Even though there are only 2 forms, the research to find all the documents required to justify your assets, income and expenses may take you a few days. Make sure you can justify whatever you claim. The exception to the rule is to use the National Standard for your miscelaneous expenses. In high cost areas, your local standard my be even better. These standards take into account the size of your household. The larger your family is, the more you can deduct for your expenses.

Tip: If you own a home and don't qualify for OIC because of a large equity, and the IRS has already place a lien against you, use this to your advantage. Apply for a Home Equity Loan at 2 banks. Banks will not loan you money while the lien is in place. Use the denial letters from the banks to establish that the equity is not available because of the lien. If the equity is not available, you don't need to claim it as an asset.

For food, clothing, miscellaneous expenses, and out-of-pocket health care costs, you can list the full amount of the allowable standard, even if the actual amount you pay is less. If you spend more than the National Standard, justify, justify, and rejustify.

It is possible to show more expenses than income, in which case, the offer would be whatever you want to offer, as long as it is not $0. This does not mean the IRS will accept your offer, but it puts you in a good position to bargain. You will have established a "Doubt Of Collectability" defense.

Also, make sure you take advantage of Low Income Certification. A 5 person household can be certified low income with $70,000 income or less. Section 1 of Form 656 contains the Low Income Certification chart. The figures are based on 250 percent of the poverty guidelines published by the Department of Health and Human Services. If you can qualify for the Low Income Certification, there is no cost for submission of your offer and there are no advanced or periodic payments required while the IRS is deciding your case.

If the OIC doesn't work for your situation, you might also want to consider chapter 7 bankruptcy. You might have heard backruptcy doesn't work for taxes, but that would be wrong in some cases. Under certain circumstances, it can be your best choice. If it has been over 2 years since the taxes were assessed, or in the case of an audit deficiency at least 240 days, then you can file bankruptcy to remove your tax burden. Consider this: If the IRS has placed a lien on you, it will show up on your credit report. Once on your credit report, even if the lien is paid and released, it will stay on your credit report for 10 years. Bankruptcy will also stay on your credit report but with bankruptcy, your only cost is the attorney. You don't have to pay the taxes, penalties, and interest.

A bankruptcy can be fixed using aggressive credit repair techniques. A tax lien can be fixed by having the lien withdrawn. Use IRS Form 12277 to accomplish this. Make sure you mention the IRS Fresh Start Program and ask that the credit bureaus be notified of the withdrawal in the narrative section.