Partnership Relief of Debt Penalty

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It’s the American spirit to start new business and use the capitalist system to create new business and ideas to make money.  As part of that endeavor, many people form partnerships to start their ventures.  Sometimes those business ventures are successful and sometimes they are not.  Sometimes you decide to sell your partnership share or part ways with your partner.

For tax purposes, the amount of income that you gain from selling your partnership share includes cash, any property that you receive, and your share of the partnership that you leave behind.

So in real life here is how this works.  John and Jim have a partnership in which they do custom cars.  They have different ideas in terms of how the business should expand.  They haven’t been getting along.  John proposes to buy out Jim’s share of the partnership.  John offers to pay him $35,000 for Jim’s share.  The business owes $20,000 in debt.

If Jim decides to sell his partnership shares to John, he will face some tax implications that he may not be aware off.  Naturally, Jim will be taxed on the $35k that he sells his shares for.  By selling out of the partnership he will avoid his share of the $20k debt (which is $10k).  So the IRS will treat his benefits from the sell as $45,000.  Jim will have to pay taxes on $45k if he elects to sell his partnership.

So be careful if you have a partnership and want to sell out your shares.

Bad debt deductible?

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Many people who run a business often ask the question, are bad debt deductible on your taxes?  Well the first thing we need to do is define what is bad debt.  Bad debt is consider bills and invoices that your client does not pay.

Some bad debt can be written off your taxes but some cannot.  It all depends on what you do.  For example, consulting services, medical and legal bills that are not paid cannot be written off as a tax deduction.

These types of bad debt are not deductible because it would be hard for the IRS to depend if they are legitimate or not.  Since we can inflate their invoices or bills and there is no way for the IRS to tell if they are true or not.

But goods sold but not paid for are deductible.  So if you sell someone merchandise and they don’t pay you for it, you can write that debt if you are a business and made a demand for payment, suing them, or turning the matter over to a collection agency.

 

Negotiating with IRS

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If you owe a tax debt and you cannot pay the full amount then there are ways of negotiating with IRS. When you think of the IRS you do not necessarily think of someone you can negotiate with but that is simply not true. There are numerous ways that you can make a settlement that you can live with you just have to know what your options are and how to negotiate.

Options

  • You should not talk too much when negotiating with IRS. The reason is that the IRS agents are experts at drawing as much information as possible from taxpayers. All questions you are asked should be truthfully answered, but you should keep them succinct, short and to the point. Do not disclose too much or discuss or elaborate your personal life.
  • You can make arrangements to pay in installments. If you agree that you owe the debt but you just cannot pay the lump sum then you can make arrangements to pay monthly on an installment plan. This will help you manage your debt in a feasible way while still paying what you owe. There will be interest charged when you pay on an installment plan so that should be considered when setting up the plan. You may want to negotiate the amount of interest you have to pay.
  • When it comes to paying your tax liability, do not make promises that you cannot keep. If you are asked if you can pay $300 every month on your tax balance, and you know that you can only pay less than $150, you should let the IRS agents know.
  • If your tax debt is more that you can handle then you can hire a tax settlement company to negotiate for you. They can negotiate a deal for you and they have a team of tax professionals to get you the lowest amount possible. The down side to this is that they will charge for the service and you have to figure their cost into how much they can save you.
  • You can also request a compromise if you meet the requirements. Basically the requirements are if you cannot pay and will never be able to pay, there is some doubt whether you owe the tax debt or paying the debt would put you in a financial bind and cause undue hardship. There are also several other factors like you cannot be in bankruptcy proceedings. You also have to file your tax returns from past years and pay your payroll taxes if you have a business.
  • You have to recognize the tax debt and negotiate your tax debt within a reasonable amount of time or they can levy your bank account and garnish your wages.

When you owe tax debt the worst thing that you can do is ignore it because it will not go away. You can work out a solution when you negotiate with IRS. You do not have to hide from the tax debt and there are avenues that you can take to make sure that the debt is taken care of.

Whistleblower

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Did you know that the IRS pays people money for telling about people that they know who aren’t paying their taxes.  That is right?  The IRS will pay your friends, neighbors, co-workers, family if they give them information leading additional taxes, penalties, or other amounts thanks for the information provided.  They will pay them up to thirty percent of the money collected.

So if have tax debt don’t tell the world about it as it will only get you in trouble.

To find out more information on how the whistleblowers work, check out IRC Section 7623.  In summary, there are two types of awards.  If the taxes, penalties, and interest in dispute exceed $2 million then the IRS will pay 15% to 30% of the amount collect.  If the case deals with an individual, their gross income must be over $200,000 a year.  Based on these large amount, the number of whistleblower getting paid for telling them about tax debt is probably not that high.  Nevertheless, you can never be too careful so keep your financial business to yourself.

How long IRS debt last?

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By law, the IRS has the right under the law to collect federal tax debt for ten (10) years from the date your tax liability was assessed.  The ten year period is very similar to the length of time that a credit with a judgment has to collect and enforce their judgment against a debtor.  However, it should be noted that a general creditor can renew the judgment when the ten year period is about to expired.

With the IRS, however, that ten year period is tolled (get paused) when the following times occur:

  • If you submit an offer to make an installment plan or an offer in compromise and those offers are being considered by the IRS or the Office of Appeals;
  • from the date you request a CDP hearing until Appeals issues a CDP Notice of determination or, if you seek a review by the tax court, until the tax court’s decision becomes final, including appeals to the United States Court of Appeals;
  • from the date you request innocent spouse relief until a final determination is issue or, if you seek a review by the TAx Court, the date the Tax Court’s decision becomes final and for sixty (60) days thereafter.  If you appeal that decision then the period will begin to run 60 days after the filing of the appeal unless a bond is posted with the appeal;
  • if you file for bankruptcy, for the period while the automatic stay is in force, plus an additional six months;
  • while you are residing outside the United States if you are absent for a contiguous period of at least six months.

So what this means is that the IRS has ten years plus the periods stated above to enforce your debt against them – which is a very long time.  The staying of the ten year period during the above activities makes it very difficult for you to hope that they will not try to enforce and take collection efforts to collect the money that you owed them for taxes.

Hello Everyone!

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Welcome to Debt IRS Tax!  We are a IRS tax debt site whose focus and aim is to provide individuals and business with debt relief information.  The IRS is going to be the most powerful creditor that you will ever deal with.  They possess powers that normal creditors do not have.  So it is very important that you do your homework if you want to get yourself out of the debt that you have with the IRS because you do not pay your taxes.