Americans Have Alternatives to Pinching Pennies, Changing Lives

In an economy heading south, American should explore the amount they pay the IRS.

By David Semanchik, Esq.

For the last several months, business analysts have flirted with the idea of a recession, wondering if it would come before the stock market bounced back.

But now, after the uncertainty and tragedy brought about by the Sept. 11 terrorist attacks, analysts no longer wonder if a recession will come, but how long it will last.

Anxious about the health of our economy, Americans are now pinching pennies – attempting to build a savings in order to help them through rough patches in our economic recovery.

Indeed, it’s a good idea.  Putting a few dollars away could help to keep many Americans from financial ruin.

But what few Americans realize is that they may be paying the Internal Revenue Service more than owed – potentially losing thousands of dollars that they could employ to build their bad-weather savings.

According to IRS records, approximately 26.3 million Americans owe the federal government back income taxes.  However, most of them do not realize that the amount they owe may be much more than they need to pay.

A fact becoming better known to Americans in recent years is that the IRS doesn’t work exactly like other government agencies, such as law enforcement or property appraisers.

When you receive a speeding ticket or owe property taxes, the amount listed is the amount you must pay.  Most Americans interested in avoiding a night in jail know you can’t negotiate with a police officer, and even more realize that haggling with the property appraiser is a worthless cause.

But these rules do not apply to the IRS. For years, the tax-collecting agency has been burdened by collecting outstanding debts from individual taxpayers.  It’s an expensive, time-consuming process.

What the IRS knows – and what few Americans realize – is that the federal government collects more money if it negotiates with taxpayers instead of harassing them for payment month after month.

This common practice is known as an Offer in Compromise, and taxpayers who owe the IRS money can benefit.  With the help of a qualified tax professional, taxpayers can approach an IRS official and make arrangements to pay an alternate amount – often just pennies on the dollar.

What’s more, as vilified as the IRS often is, the agency realizes that Americans have financial obligations in addition to tax debt.  Requiring payment in full for thousands of dollars doesn’t make sense.  Today, the IRS is often happy to work out a payment plan with taxpayers – a reasonable amount Americans can take care of in the same way they handle their monthly car or mortgage payment.

In times of uncertainty, we all need to buckle down, put some money in reserve and allow our nation’s leaders to help us through the crisis. But before you drastically change your lifestyle to put a few dollars aside, make sure you are not overpaying when it comes to your federal income tax.

David A. Semanchik a member of the American Society of IRS Problem Solvers and a New Jersey Attorney.  You can contact him at 732 240 4055 to obtain a free subscription to his newsletter titled The IRS Times & Inquirer.