(1) Challenge the substantive tax. A substantive tax challenge is most easily and early performed (a) by challenging the mathematical basis for the tax at the earliest moment. It can also be performed (b) most expensively later, after the Tax Court possibilities are gone, by paying the tax, requesting a refund, and then bringing suit in Federal District Court. It can also performed (c) by filing an Offer-In-Compromise on the basis of “Doubt as to Liability”.
(2) Apply to IRS for (a) an Offer-In-Compromise to discharge part of the tax owing because of taxpayer inability to pay, or (b) a request to have the taxpayer account placed in currently-not-collectable (CNC) status.
(3) At the appropriate time, after thorough checking the statutes of limitation, consider a bankruptcy filing. The bankruptcy statutes permitting discharge have to be properly accounted for, either toward or away from limitation statute time deadlines. The collection statute expiration should be known. A decision in favor of bankruptcy should also consider the effect on non-tax debts.
(4) Consider whether the collection expiration date has occurred including all activities that will have “tolled” or stopped the forward movement of time either toward or away from limitation statute time deadlines. At the same time examine whether, at an appropriate time, and after thoroughly checking the statutes of limitation, a bankruptcy filing should e considered. The bankruptcy statutes permitting discharge have to be properly accounted for, and the collection statute expiration should be known.
(5) Consider whether it is more appropriate to simply pay the tax to the extent possible as time proceeds and as the taxpayer passes various limitations milestones. Whether a taxpayer pays, and the extent and timing over which payment is made must be considered from a possible criminal approach. If it can be adjudged that the a taxpayer is trying to evade by non-payment, a criminal inference might enter into the taxpayers possibilities.
(6) The sixth possibility is one that is almost never considered to be an affirmative act. That sixth possibility is to simultaneously monitor the IRS tax accounts, and all limitation milestones, and track non-tax debt. To be sure of what is going on, the full tax file is needed, not just the transcripts. many actions, especially in (1), (2), or (3) above will affect the statutes of limitation. Its a little like walking a railroad track; every day you take a step and move forward both toward and away from limitation milestones. If the taxpayer avails themselves of either the left rail (bankruptcy) or the right rail (IRS action) a “tolling” suspension occurs, during which the passage of time does not create a relative distance separation with respect to the limitation milestones.
What happens in real life is that a citizen will feel some compulsion to take action. If the citizen goes to a bankruptcy attorney its highly likely that a bankruptcy will result. If the citizen goes to a tax attorney its highly likely that an Offer-In-Compromise (or other IRS action) will result. Choosing either side might be sub-optimal. In fact, maintaining the center path might in fact be the most optimal. The real problem is that taxpayers don’t take the time to set up the future milestone map as a guide. If they do, they get to decide to act or keep monitoring. Usually the milestone of which they become most keenly aware is either a single closest Offer-In-Compromise (or other IRS action) milestone for tax action if they talk with a tax attorney. Thankfully there are practitioners that consider both tax and bankruptcy limitation milestones. But it would be helpful to consider the “continue to monitor and move past the limitations periods” as a potentially best solution until the right combination of milestones are approached and passed.
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Other related articles include:
Invention Euthanasia (excerpt from INVENTION EUTHANASIA: The 2017 Tax Bill – outline)
Pre-Startup Efficiency – Introduction (Parts 1&2)