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Is IRS Tax Debt Relief Even Possible?

June 3, 2019

We’ve all seen the TV commercials: “If you owe Uncle Same more than $10,000, we can settle your debt for pennies on the dollar.” Me? I’m personally amazed at how those folks can make those statements when they know absolutely nothing about me or my finances. Zero, in fact. Sounds too good to be true. Well, today, we’re going to look into the reality of whether IRS tax debt relief actually exists and, if so, how a taxpayer goes about getting it.

Here at the law firm, IRS tax debt resolution is one of our primary areas of practice. So we’ve learned a thing or two about the reality behind all that hype. We’ve learned that the problems of enormous tax debt, tax liens, and bank levies are real enough. Our goal is to help our tax clients resolve their IRS tax debt and begin the process of rebuilding their financial lives.

Different Solutions for Different Problems

Tax debt resolution is a complex subject, something with many areas and angles. Tax debt resolution can take different forms, such as an offer-in-compromise, installment agreement and others. The statistics on IRS tax debt forgiveness confirm what most of us intuitively believe when we see and hear the so-called tax resolution experts on television. Namely, that IRS tax debt relief is definitely NOT easy to come by.

Every year, the IRS collects millions and millions of tax returns, but only a fraction of those returns will receive some form of forgiveness. This makes sense, because if forgiveness were easy, the government would have to make do with much less revenue. Don’t forget (as if any of us can): the IRS is an enforcement agency, and it takes enforcement of the U.S. tax code very seriously. 

Published Tax Debt Statistics

Let’s take a look at some statistics on tax debt forgiveness. The most recent available are from the year 2015. While fully four years old now, these statistics are still recent enough that they give us a good picture of what is happening in 2019. The size of the U.S. population is roughly the same, and the number of tax return filers is probably also very similar. Let’s start, then, by going over the 2015 gross collection statistics. Next, we’ll look at the to statistics on audits, liens and forgiveness. 

U.S. Gross Collections

Frankly, the figures on gross collection in the U.S. are truly jaw-dropping. These figures clearly show how much work the IRS does each year. These figures also show the sheer size of the U.S economy. In 2015, the IRS collected about $3.3 trillion in taxes. Nominally, this was the most which the IRS had ever collected. This figure of $3.3 trillion represented a 10% increase from the year before. This figure includes taxes from all sources – i.e. individuals, corporations, estates, trusts and so forth.

In total, the IRS processed about 243 million tax returns in 2015. Most were electronically processed. However, just because 243 million returns were filed, this doesn’t mean that 243 million Americans paid federal income taxes. As we know, a large percentage of those who file do not actually pay any federal income taxes.  

The statistics on collection get interesting when we break things down by state. There’s a wide variance in the amount of taxes paid by the states in our country. The gap between the highest amounts and lowest amounts are quite large. California, the state with the highest 2015 tax burden, paid about $405 billion. Vermont, the state with the lowest burden, paid just $4.5 billion. If California were its own country, it would be among the largest in terms of its own gross domestic product. Our home State of New York paid an impressive $270 billion in 2015. 

Statistics on Audits & Liens  

In 2015, the IRS audited a total of 1.4 million tax returns. This is the total figure, so this includes returns filed by all entity types. Upon first hearing this figure, many might think it’s a large number. But if put in perspective, it’s actually very small. 1.4 million returns is just 0.7% of all returns filed. Remarkably, this low percentage represents a decrease from percentages seen in recent preceding years. From all of these audits, the IRS gained an additional $7.4 billion in taxes. You should keep in mind, however, that this low percentage can be deceptive when viewed in isolation. As we’ve discussed, certain returns are more likely to be audited than others. If you’re a very high income earner, you’ll want to be very careful when you prepare your return.

In 2015, the IRS issued over a half million tax liens. Tax liens are only issued when individuals (or other entities) owe a certain amount of back tax debt. The IRS needs to issue liens before it can take further collection actions (such as levies or seizures of assets).  

The Stats on IRS Tax Debt Forgiveness

With these statistics in mind, what did the IRS do in 2015 to forgive back tax debt? The offer-in-compromise (OIC) is the equivalent of a settlement of a taxpayer’s back tax debt. In other words, it’s an agreement to settle the existing debt for less than its full face value. The IRS reviews and analyzes OICs according to specific criteria. In 2015, the IRS received approximately 67,000 OICs. Of those 67,000, the IRS accepted just 27,000! That means there were nearly 40,000 OICs submitted to the IRS which were rejected. This is precisely why you need to hire a competent professional to assist with an OIC. A qualified tax attorney, for instance, will help you understand the concept of “reasonable collection potential” and other important aspects of the OIC review process.

In 2015, the IRS forgave a total of $204 million of back tax debt via OICs. When viewed against the number of OICs accepted, this figure seems quite low. If we crunch the numbers, this means that the IRS forgave approximately $7,555 per OIC. That’s not a great deal of money, especially when we consider that many debtors owe back taxes in the mid to high five figure range. 

Here’s another fact to consider, in 2015, as a percentage of all tax returns filed, the IRS accepted an OIC in just 0.001% of all cases. That’s an astoundingly low figure! Bottom line: you shouldn’t count on an OIC to solve your tax debt problems in all instances. And if you are serious about pursuing an OIC, you definitely should work with an experienced tax professional.

Hopefully, these statistics will give our readers a better sense of the likelihood of receiving IRS tax debt forgiveness. These statistics will also shed light on IRS tax collection in general. It goes without stating the obvious, but if you want to avoid hassles with the IRS, you should stay out of tax trouble to begin with. Sometimes, though, that’s easier said than done.

Call Us For Help!

If you do find yourself grappling with back tax debt, consider hiring a qualified tax attorney. At Mackay, Caswell & Callahan, P.C., we work hard at resolving IRS tax debt issues. We know that, if left alone, back tax debt can become a very serious problem. It can negatively affect your current and future situation in any number of ways. If you need assistance, give one of our New York City tax attorneys a call today. 

Image credit: LendingMemo.com 

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