During tough economic times, millions of taxpayers might find themselves mired in back taxes owed to the federal government. For some, this tax debt may become more burdensome over time due to penalties and interest added to the principal by the IRS. In occasional tragic cases, such looming debt has resulted in financial and/or personal disaster.

 

While the IRS can be a formidable adversary, they do understand that a taxpayer in the throes of financial ruin works against the public interest. Collecting some money is better than collecting no money.

 

Negotiation of back taxes owed can be extremely difficult because of the complexity of tax laws coupled with tax law changes that tend to occur with every new federal administration. While such inherent hurdles might cause an average taxpayer to give up, in truth, there will always be reasonable remedies available if you know where to look.

 

So, where do you look? This may be chief among the more important questions that you will need to ask.  

 

What Type of Professional Can Negotiate with the IRS? 

 

There are a range of available types of qualified professionals, such as:

 

• An EA. An "enrolled agent" (EA) is an authorized tax practitioner with a federal credential that assures that he or she has passed an IRS examination and background check; or has worked for the IRS for at least five years, long enough to acquire a federal government license.
• A CPA. Like EAs, certified public accountants (CPAs) are legally qualified to represent taxpayers in front of the IRS. They are accredited by ACAT (Accreditation Council for Accounting and Taxation). 
• An attorney. Certain attorneys are also qualified to represent taxpayers under ACAT accreditation.
• A CFP. Certain certified financial planners (CFPs) may also be qualified under ACAT.

 

How Do I Find a Qualified Representative?

 

In every state, many advocates offer their services to taxpayers. They are easy enough to find because they tend to advertise in a wide variety of media. Unfortunately, because some of these advocates may not be qualified, taxpayers should probably cross-check a professional's credentials before hiring him or her, paying particular attention to records of any complaints. You could turn to the following places to help verify any potential resources:

 

• Your state's Better Business Bureau (at http://welcome.bbb.org/) is usually a prime resource for past client complaints.
• Your state government's Board of Accounting (or similar agency) might provide verification of a CPA's credentials. 
• The IRS's Office of Professional Responsibility can help you double-check an EA's credentials. 
• Your state's bar association can help you verify an attorney's credentials (or acquire specific tax attorney recommendations).

 

Should I Use the IRS's Taxpayer Advocate Service?

 

Even though the Taxpayer Advocate Service (at http://www.irs.gov/advocate/) is a part of the IRS, it acts as an independent agency that only reports to the office of the National Taxpayer Advocate. Created by Congress in 1998, the National Taxpayer Advocate Service offers taxpayers free help with irresolvable problems through traditional IRS channels, vowing to provide continual assistance until the taxpayer's problem is resolved.

 

To qualify for these free services, a taxpayer must be experiencing:

 

• extreme financial hardship as a result of tax laws
• immediate adverse legal action as a result of tax laws
• impending irreparable injury as a result of tax laws

 

Each state has at least one Taxpayer Advocate Service office; most have several.

 

Should a Lower Income Taxpayer Consult a Low Income Taxpayer Clinic (LITC)?

 

Like the Taxpayer Advocate Service, LITCs are federally sponsored. Unlike the Taxpayer Advocate Service, LITCs are operated independently by non-government entities including non-profit organizations, law schools, and business schools. Note, however, that LITCs are partially funded by the IRS.

 

Can I Directly Negotiate with the IRS Without Benefit of Representation?

 

An "Offer in Compromise" (OIC) was created by the IRS as a "last resort" option (so described on the IRS Web site), offering the average taxpayer a way to negotiate directly with the IRS. However, the IRS also notes that only "1% of all balance due accounts" are resolved through an OIC.

 

Why the negative statistics? For an OIC to be negotiated, the following conditions must be met:

 

• A negotiating taxpayer has the burden of proving reasonable doubt that he or she will ever be in a position to fully pay the debt.
• A negotiating taxpayer has the burden of proving that the tax balance owed is an incorrect amount.
• A negotiating taxpayer has the burden of proving exceptional personal circumstances where tax collection would be unfair and inequitable.

 

Another reason an OIC may not be for most taxpayers: appellants may have to give the IRS a non-refundable percentage of the payment due in order to be allowed to file an Offer in Compromise.

 

Additional Resources:

 

• About the IRS's Office of Professional Responsibility: http://www.irs.gov/taxpros/agents/article/0,,id=123370,00.html

 

• About the IRS's back tax collection procedures: http://www.irs.gov/faqs/faq1-5.html

 

• IRS back taxes FAQ from nationally advertised tax attorney firm: http://www.ronideutch.com/Faqs.aspx

 

• IRS's list of nationwide LITC offices (PDF file):

      http://www.irs.gov/pub/irs-utl/publication_4134_2008.pdf

 

• IRS's FAQ for Offers in Compromise: http://www.irs.gov/businesses/small/article/0,,id=109622,00.html

 

• About EAs from NAEA: http://www.naea.org/memberportal/Resources/ForTaxpayers/Whatis_EA.htm

 

• Legal representation advice from ACAT:

      http://www.acatcredentials.org/consumers.html