By this time, most of us have either already filed our federal income taxes or at least filed for an extension of time to file the return. So, having rounded the 2009 tax year corner, we can slow down and take a moment to catch our breath. Or can we? There are many who have previous tax years that haunt them. There are some who are resolved to be better prepared for April 15, 2011.


For those people who are struggling through past tax year liability, know that there is hope. There are several methods to petition for relief. One effective method is an Offer in Compromise. For those who qualify the Offer in Compromise will result in a reduction of the tax debt. Generally, one qualifies for this relief if there is a justifiable doubt that the tax debt is even correct. It is advisable here to verify that the IRS has properly calculated the tax liability. It can be tedious and frustrating to obtain the necessary document through the IRS, but it is important to determine if any mistakes were made in the calculation of the debt. Many times the IRS simply has incorrect information. Believe me, the IRS is not going to contact you to verify. It is going to assess the liability and send you a bill. It is up to the taxpayer to contest any inaccuracies. Another way to qualify for an Offer in Compromise is for the taxpayer to show that the entire amount of the debt could not ever be paid back. Naturally, there is a great deal of detail that goes into making this particular claim. The third way to qualify is to show that an economic hardship exists. On average, it can take up to five months to prepare the proper forms and supporting documentation, over one year for the IRS to process the Offer in Compromise, and up to three months to finalize the offer and set up payments.

Another form of relief is to enter into an Installment Agreement with the IRS. This is fairly self-explanatory. After negotiating the best terms available one signs a contract with the IRS to repay the debt under a payment plan. This may be effective is stopping IRS collection efforts such as levy, garnishment, and/or liens. Interestingly, there is also a Partial Payment Installment Agreement that allows the taxpayer to make a regular payment to the IRS, but after a certain point the IRS agrees to forgive the remaining balance.

Finally, the IRS may agree that the taxpayer has no ability to pay the tax debt. If the IRS determines that the taxpayer is Currently Not Collectible then the IRS must cease its collection activities. After ten years, the statute of limitations will expire, meaning that the IRS has ten years to collect the tax.

Arguably, there are few things scarier than having the IRS breathing down your neck. Indeed, it was the IRS who finally nabbed Al Capone. However, there are ways for the proactive taxpayer to jump in and resolve the issues and I would advise that the process start sooner than later. The IRS never sleeps.

Think Twice

I commonly see situations where individuals decide to loan money. For example, many would rather borrow from an individual in order to pay off higher interest loan or because of poor credit. While it is much faster in the short term to shake hands on the agreement or maybe even write a quick notation on a handy piece of paper, one should think twice about lending money. Borrowing or loaning money is a risky and complicated process, especially if it is between friends or family. This is and should be a treated like a real business transaction. The parties must be clear on whether the money is a gift or a loan. If interest on the loan will be a part of the agreement then the interest must be lawful under the Texas Finance Code, which itself is very complicated. And beware – if an interest rate is not set then the IRS may do it for you. There should be an agreement on a repayment schedule and whether any collateral will secure the loan. The parties should put the entire agreement into written form in case the agreement must be enforced later on. This also establishes an expectation that the loan is to actually be repaid. These basic terms should merely form the skeleton of the promise to repay. Any fleshing out of the terms may need to be reviewed by a professional. Also, one should think twice about how the loan will affect the family members. It is good to keep in mind that you will likely be sitting across the dinner table from that person at the next holiday.

First of all I will state that borrowing money is a dangerous concept because a borrower may one day suddenly find his or herself out of work and unable to repay the loan. Certainly, we live in a culture of consumerism that constantly bombards us with the message that we should buy more stuff. Many families, corporations, and even certain states now face the inability to repay on the money borrowed to buy that stuff. And many of them have little or no savings in reserve to stay afloat in a sea of that debt. However, borrowing is sometimes necessary and it can be done responsibly and with a budget in place. Yes, a written budget is needed so that income can be balanced against expenses in order to show how much money is left over at the end. Unfortunately, responsible money management is, shall we say, not as widely broadcast by our culture as the spending of money is. And if you are on the lending end of the transaction, it is advisable to make sure you protect your investment by speaking with a professional about the profits and pitfalls involved.