How to Fix Your Tax Debt if You Earn $10,000+ per month

When I think about someone who I perceive to be smart I think about people who understand the concept of leverage- especially if they are talented enough to earn $50+ per hour. I dare say, If you’re smart, you should have some level of self- awareness and as a result, be able to ask yourself difficult questions.  Fixing your tax debt is achieved by asking and answering those difficult questions. 

So, shall we begin? 

Difficult question number one: Do you accept the tax liability? 

Acceptance of the situation is essential. It is also the last stage of grief according to the Kubler-Ross model. I wrote another article here mapping what thoughts can manifest when dealing with a tax debt. If you don’t accept the liability, then the rest of this article will not be helpful to you.

Difficult question number two: Do you understand how the tax bill came about? 

This is important because if you don’t know how the debt was created, you will have a very difficult time preventing it in the future. Understanding the debt’s origin will help you to figure out if it is preventable. Making a tax debt preventable may take some time. During that transition,  you might have to renegotiate an arrangement with the IRS several times until your grand plan is achieved – a workable arrangement between you and the IRS that will resolve the issue.

An example…

Tom S. cashed out some money from his retirement plan when he was in between jobs. He worked for the first four months of the year but his job loss lasted longer than he planned so he was forced to cash out part of his retirement plan.

On the surface this might seem like a one time situation. But If the job loss stretched over into the next year and Tom took another distribution in the new year also, there would be two years worth of income tax due, as well as interest and penalties. Moreover, Tom might need to make some adjustments to his current finances during the transition between jobs. Some of those adjustments might be to make overtures to the IRS to delay payment, or renegotiate payments when the new tax appears.

Another example…

James R. stopped filing after his wife got sick. There was nothing malicious in his intent, he was simply spread too thin. Between maintaining the household, caring for his wife and children and keeping his electrical contracting business going, he simply could not do it all. Something had to give. The IRS was the victim of diminished attention when he paused filing for a few years.

He knew that he would owe. He had never gotten into the habit of making regular estimated tax payments. James would simply try to make a large payment on April 15 and scramble to try and pay off the bill before the next year or at least until the next filing deadline. 

Difficult question number three: Can you afford to pay the IRS?

Once you’ve dealt with those two questions, the next serious question to ask yourself is can you afford to re-pay the IRS? It is not rhetorical. Even after working with people for over 15 years, I still experience a mixture of being impressed, surprised and dumbfounded by people who earn $10,000 or more per month and who say to me they cannot afford to pay $300 or $400 a month to the IRS. It boggles the mind.

But I got bills…

I totally understand the sentiment. We all have our financial obligations. An often overlooked obligation is taxes. Also, if you’re in a situation where you are collecting income without taxes coming out you can feel richer than you really are. Sometimes that feeling turns into an entitlement.

Another example…

Myra H. does really well for herself and her family. She was a marketing executive at a large company earning nearly $200,000 a year. When her husband was working, they enjoyed a very high standard of living. They earned enough to send their children to private religious schools and never had to worry about their day-to-day cash flow. 

The origin of their tax debt was unusual. But after trying to fight it for years and years, they gave up.  Eventually, they will have to repay the debt. Yet, Myra still hasn’t fully accepted the liability, they have taken steps to stop future liabilities but now they are stuck on question three. Myra simply cannot accept that their budget should be able to accommodate a payment to the IRS of about $700 per month. Redonkulous!

Myra cannot prove to the IRS that she does not have the cash flow to repay the debt.  If she presented her finances for review, the IRS would pick apart her budget and disallow the expense for religious private school her children attend and her family’s above average mortgage payment. 

The reality of someone saying to the IRS that they cannot afford to repay when you earn income in the top 6% of all Americans means you are not managing your personal finances well. 

If you owe the IRS and you make more than $10,000+ per month, the best way to fix your tax problem is to agree to repay the debt. Depending on how much you owe and how much time is left to repay it, the IRS could allow you to re-pay it over 60 to 84 months.

In terms of repayment, the absolute worst case scenario for a $100,000 tax debt would be $1,200 a month for repayment. $1,200 per month seems manageable, if your gross wages are $10,000+ but maybe I’m maybe a sucker. Also, that payment could be done without financial disclosure. This means no judgment from the IRS about how you spend your money. If you and your partner want to drive matching Telsas but have to finance them, the IRS will not interfere.

This advice obviously doesn’t encompass every situation. I’ve spoken to people who earn over $10,000+ per month who do qualify for relief. Relief might mean repayment is on hold or a settlement is possible. At higher incomes, those cases are the exception, not the rule.  Generally, there are some pretty specific requirements for a situation like that. Hefty out-of-pocket medical bills and or substantial child support or alimony obligations are a necessity.

So there’s no relief available?

All hope is not lost. If you are able to establish a payment plan with the IRS and you honor those payments, there might be an opportunity to request and receive a first time penalty abatement. There are requirements and sometimes the savings is minuscule, but savings is savings, right? However, there are some configurations of circumstances that can result in noticeable and worthwhile savings.

What does a tax resolution company do for people who earn $10,000 a month?

The first thing that a reputable company will do is honestly guide you into the proper path. There should not be pie in the sky, unrealistic resolution strategy that is doomed to failure. If a strategy is presented, do you want to do it yourself (DIY) or do you want a company to do it for you? (DFY)

If you do it alone, there’s no more need to work with a tax resolution company unless you have further questions and want expert answers to those questions. 

If you want a guide, a reputable firm should be able to deliver on its promises to get you a payment plan and terms you agree upon after all information is verified.  It will save you many hours of frustration.  A good company can also help you with determining if you qualify for the FTPA and help you receive that reduction.

For more information visit

Where the IRS is headed and What it means for taxpayers, Part 1

I read the IRS Tax Payer First Act – First Report to Congress, January 2021 so that you don’t have to do it.  Here are some thoughts about what the future looks like as the IRS tries to figure out what the next 2-10 years look like…

The IRS is headed toward self-service.

Expanding Digital Services is part of their plan to be Taxpayer focused. The pandemic has accelerated adoption of some new technology like digital signatures which can be a good thing for tax professionals. I do not think “enhanced mobile and online experiences” are going to be live up to the hype.

On one side, the relationship between taxpayer and IRS is similar to the relationship with a primary care doctor. You see them once a year and hopefully, there are no issues. The other side of the equation is one where the taxpayer’s problems are protracted. In a prolonged medical situation, lots of time and attention is required.

Enhanced mobile or online experience won’t cut it.

The January 2021 TFA Report to Congress boasts that 122 million refunds were issued. This is staggering number – in size and achievement. Yet, only 2 pages later, they mention the “Where’s My Refund” application handled 368.8 million inquiries. So, if you’re the average taxpayer, you visit, 3 times after filing your tax return looking for your refund.  That hardly seems like progress.

Have a well-operating computer or newer model smart phone or else

On your individual account, the IRS is proposing a secure two-way messaging system. If you ever chatted with a friend via phone or a company through their chat function, there are limitations to this method of communication. The IRS is also exploring other innovations such as “AI chat” function where a computer tries to figure out your question and answer it without human intervention. Not to belabor the medical analogy but problems with the IRS are sticky and require time and attention. Two-way secure chat does not inspire a taxpayer to believe that attention will be paid to your tax issue.

The report also mentions secure document exchange. If you’ve ever interacted with someone exchanging documents via phone or computer – it can be frustrating affair. Images are too small, blurry, illegible, etc. Image quality is affected by light, lack thereof or camera resolution. Sometimes basic unfamiliarity with a computer’s file system presents substantial technical challenges for many users. The high tech solutions from the IRS will never address that gap in knowledge. If you don’t have a well-managed computer or recent model smart phone, these novelties will simply be out of reach.

Many people will get frustrated with the “Do It Yourself” approach that the IRS is informally advocating. This will force taxpayers to seek the assistance from tax professionals or at least other people who can navigate the technological changes at the IRS. Nina Olsen, former National Taxpayer Advocate foresaw this and warned the IRS about it in her last interview before retiring. Vulnerable communities i.e. those who are older, living in rural areas and who don’t have as available access to broadband internet would certainly suffer under these changes. Yet, the IRS is pressing on.

If you find yourself worried about these changes and want to work with a tax professional that will answer your telephone calls and mail you documents through the US Post Office but who knows enough about technology at the IRS to help you fix your problem, call me at 312-529-5009. 

Kissing Tax Debt Frogs

I recently started reading a book called Very Important People by Ashley Mears. It’s about the international night club scene where the very wealthy spend ridiculous amounts of money. It’s not my normal type of read. However, I was intrigued to learn about the informal caste system nightclub bouncers and promoters used to classify and segregate, by physical appearance, the women who are a crucial part of the club scene. 

I’m reminded of the same type of screening that I do when having conversations with people about helping them with their tax debt. 

In that international club scene, physical beauty is dominant. Women who aren’t tall or skinny enough or who simply have the wrong shoes can be turned away. It’s 100% superficial. In my world, the screening is much more nuanced but as important for helping those who make it through those screens to have success fixing their tax issue. 

Before I discuss the analogy, let me state this unequivocally: 

Everyone is entitled to getting some help with their tax debt. However, they are not automatically entitled to get that help from me. Moreover, in working together, if we can’t meet each other’s expectations and obligations, it doesn’t make sense to continue to work together. In other words, we get to choose who we work with and that choice must be mutual. Life’s too short to fight with your clients.

There are many causes of tax debt. Sometimes it’s intentional, sometimes unintentional from ignorance, other times someone’s intention was to exploit you. Whatever type of victim you are, its sometimes a function of class, education and status. You didn’t have anyone to get advice from, you didn’t know how or why, or you thought you weren’t entitled.

Where they come from tells me about them…

The ways people find me sometimes give me a clue..

If we’ve mailed them a letter, that letter might have sat in their drawer for months before they had the courage to call me. When they make that call, the phone weighs 400 pounds and the weight of the matter on their soul is heavier still. Usually, they’ve invested in reading the letter we’ve sent and have absorbed our message and intention: to help you if we can especially if we can figure out a way to work together.

If you’ve hit a button on Facebook to sign up to talk or replied to an email I sent – the motivation behind this sort of action is less premeditated and this where some screening is often necessary. 

Rather than relying on physical appearance like a bouncer at the door of a glamorous night club, I have to rely on an individual’s understanding of their situation and communication of the facts that we’ll need to know in order to be helpful. It’s not uncommon for me to ask a handful of questions to help me make a decision about how to help or whether or not to offer help. Communication is so important – any sort of reluctance to share details, disrespect or hostile attitude quickly becomes an insurmountable obstacle for me to overcome.  I’m also trying to sniff out if I’m dealing with a “low information” tax debtor – one who might not appreciate timeframes, costs, and mutual expectations. 

There’s also a group of callers who seem to believe that solving their tax problem is more significant than other urgent circumstances. I have spoken to countless homeless, long-term unemployed people.  Some of these people enduring extended joblessness are also attempting to acquire a disability benefit. One of my constant refrains is that the IRS can’t take aggressive action against those with no income nor bank account. Focus on stabilizing your finances before thinking about engaging a tax resolution company to help with tax problems.

Some people call in a transitional state, recently released from prison or several months into their sobriety. The ambition to correct their past mistakes – as if from one the 12 steps – is admirable, if ill-advised. Fixing a tax problem requires some base level of stability. Without a steady job and stable home, the odds of fixing the tax problem would be compromised.

A subset of the “low information” tax debtor is the one who is especially vulnerable to fraudsters before-during-after the tax debt. These are people who trust too easily who end up choosing tax preparers because they are able to get me large refunds.  Or who hire a tax resolution company because they said they could settle or that they were told interest and penalties are negotiable – they’re not.  It’s not uncommon to be the third or fourth company they have hired. I only hope, if they made it through my screening, the reason for their failure was the company and not them. Otherwise, they might be onto hiring their fifth company.

The last group I try to keep out of our company is the group we playfully call the “gamers.” Gamers have schemes to “trick the system” of any interaction. They don’t want to play by rules and have unrealistic expectations. “Why can’t you just offer the IRS, 10% of what I owe and be done with it?” “I only want to pay the principal amount of what I owe, no interest, no penalties” “I don’t owe the IRS, they owe me(but I can’t prove anything)” or my personal favorite, “Can you help me sue the IRS?” If anything in this paragraph gets spoken while talking with someone about their tax debt – it’s almost always a deal-breaker, meaning we ain’t doing business together.

Talking with the right people about helping them fix their tax debt allows me to help a ton of people. Identifying the “right” people, those who need and the help, who appreciate the expertise and who, when we are finished, are grateful for completing the journey together. If you have a tax debt and you feel like you can make it through my screen, and become one of our tax debt frogs that turns into a prince/princess, Text the word: REPORT to (773)232-3277.

Mapping your emotions when dealing with a tax debt

The realization that you have a tax debt can often be a surprise. Also, it can represent a trauma that the stages of grief can help to explain. For reference, Here’s the Kubler-Ross Model for the emotions people experience when they grieve.

  • Denial  
  • Anger 
  • Bargaining  
  • Depression  
  • Acceptance

My experience in talking with thousands of people with tax problems is that unless they can move to the Acceptance stage – they’ll have a hard time fixing their tax debt and will remain stuck in Tax Debt America. It’s possible to move through the stages quickly and even sometimes within a 15 minute phone conversation.  Below are actual quotes from tax debtors which I mapped onto the 5 stages model.


I can’t owe. 

I pay/paid enough tax. 

This can’t be happening!?! 

I hired a tax preparer. 

I did everything right. 

I have receipts and manage my paperwork well. 

It’s not my fault. 

I don’t/didn’t understand. 

I don’t/didn’t make much money anyway. 


I hate the IRS. 

I hate my preparer/wife/business partner, i.e. I feel betrayed by them.

This is another reason why my life is not good.

Why is the IRS picking on me? 


What if I just give them X? Will that fix it? 

What If I quit my job or start working for cash?

Companies are telling me I can settle for as little as 10%, is that true?


This can’t be fixed. I can’t do it myself. Other companies I’ve hired just ripped me off.

They’ll just keep my refunds, 

Keep garnishing, I can’t/won’t file anymore. 

It doesn’t matter. If i ignore it, it will go away.


This is a problem but it can be fixed. 

I’m in control of my life even with the tax debt. I can either pay it back or I can get relief.

If you are stuck in the Denial stage, chances are you will have a hard time fixing your tax problem. Looking at what people say in that stage suggests they are not willing to take responsibility for fixing the debt.  When you have a tax debt, it belongs to you only and sometimes your life or business partner, if you file jointly or if you operate your business together. There is no one coming to save you – even an experienced tax professional cannot drag you kicking and screaming across the finish line. You must be a willing participant – this is difficult to do if you don’t accept the tax debt. 

People who are angry about their tax debt often find it difficult to fix their problems too. There are myriad frustrations dealing with people, processes and paperwork. Yelling at an IRS representative won’t persuade them to provide useful information to you. Anger is not a useful emotion. Dealing with the IRS to fix a tax debt, often involves straightforward demonstration that one can or cannot pay. Screaming, cursing, sarcasm don’t contribute to the positive reception of your proposal. 

The tax resolution industry has done the most damage to people in the Bargaining stage. These tax debtors no longer deny their tax debt, their anger has faded but they are looking for a quick fix to an issue that has often taken years to develop. Unfortunately, many companies encouraging “pennies on the dollar” settlements too often have found themselves scrutinized and later sued by Attorneys General from many different states. Companies still lure bargaining tax debtors with empty promises stating “as soon as you hire us, you are totally protected from IRS collections actions” when there is no button to be pressed by an outside company that stops IRS processes instantaneously. Still, the insincere pledge to “reduce penalties and interest” is made by dishonest players knowing full well, interest is never negotiable and reducing penalties is difficult, cumbersome, and prone to failure.

The depression stage is dangerous for tax debtors because it can last a long time and can give the illusion that progress is being made. Ignoring a tax problem usually make it much worse. The IRS can estimate much larger tax debts than are really owed. Interest and penalties will then build on that larger amount. Tax refunds can be intercepted in the meantime leading to false conclusion that the tax debtor is paying off the debt. The IRS can remain quiet for a period of time where you might be misled into believing they have forgotten about you – until they wake up and make your life miserable. Under that stress, people sometimes fall back into the bargaining stage – where they might fall prey to the hollow commitments less scrupulous companies make. 

With acceptance comes freedom. Tax debtors who accept their situation and have a reality-based approach to fixing it will end up fixing their tax debt. It may take years and require substantial life changes like controlling your cashflow and budgeting or changing careers. As long as that information is out in the open, then resolution and relief is possible. 

I’ve talked to thousands of people at various stages of grief with respect to their tax debt. My hope is to move from one of the early stages: Denial, Anger, Bargaining or Depression to Acceptance. It can happen in a single phone call – if there’s hope for relief and trust in the process, we can often begin the journey and help them to accept their situation, and then look forward to the journey and the work that is needed to fix the tax debt. 

If you’d like to learn more about fixing your tax debt – you can visit the Tax Debt America Project for more information or email me directly at

Tax Debt by Exploitation: Three Conditions

Owing the IRS is unpleasant but owing the IRS as a result of someone taking advantage of your education level, lack of understanding, immigration status or simply because someone knows they can get away with it is abhorrent. Three conditions: being an immigrant, unbanked and low information makes tax debt by exploitation commonplace.

The unbanked are people who don’t have bank accounts. They are a part of society that isn’t often seen unless you live or work in  the world of alternative banking i.e. check cashing shops, prepaid debit cards, payday loans. The unbanked typically operate on a cash basis paying for things in cash or money orders. According to the FDIC, there are about 7 million unbanked households in the US. 

A portion of these people are immigrants, some without papers, some with proper immigration status. Many of these people become exploited because of their immigration status, lack of language proficiency, and general ignorance about banking, employment, or general responsibilities as a taxpayer.

About 10% of the people who reach out to me regarding tax debts are what we call “low information” taxpayers. For these people, short-term financial survival is their primary motivation. Everything else beyond that is an afterthought. As a result, they are not too concerned with paperwork like paystubs, W2s or 1099s. For 1099 workers, documentation is an after-thought. 

The most organized of these low information taxpayers mail us a shoebox full of crumbled-up receipts. Proofs of purchase for cigarettes and soda, diesel for their truck, and movie tickets. They expect us to go through and categorize each one to help with tax preparation. I guess it’s better to include all receipts if you’re not sure which ones might qualify.  But this ignorance and lack of knowledge can harm them if they are working with an unscrupulous tax preparer. We won’t even mention mileage logs since those are non-existent for this type of taxpayer.

Because these people are trying to survive, they are susceptible to exploitation -the failure to provide paperwork in real time or at all. Fraudulent paperwork can be submitted to the IRS which inflates what was paid to the worker. I’ve heard many variations on this theme:  “I made $1000 a week but the IRS says I made $96,000. What is going on?”

I always chuckle to myself when a client tells me they were working “under the table” and that they later learned their “under the table” income was reported to the IRS.  People who work “under the table” usually do so to avoid reporting and paying taxes. Whoops!

The boss-worker relationship is asymmetric for “low-information” workers. Dishonest employers can exploit these workers in other ways by characterizing an employee as a contractor thus avoiding the payroll tax obligation. It also harms the worker in the long run since those earning will not have a FICA, i.e. social security & Medicare deposit. 

In the trucking industry, clients mention they get paid a percentage of the load carriage fee as a pay for their work with a 1099. The worker simply drives the truck which doesn’t belong to him, he pays no truck operating expenses, and is assigned the work. This sounds like an employee to me. This is an abuse of employee/contractor designation. The employer probably knows it. The worker might know but is often afraid of confronting his employer for fear of losing the work.  

The decision of being and staying unbanked is financial. Unbanked/underbanked workers don’t earn enough to keep money in a bank account. Fixing the unbanked condition is not easy. Similarly, there is not a simple solution to being a “low information” taxpayer. Without knowledge and education about how the system works, exploitation and abuses will continue. Some of the most disadvantaged are immigrants for whom English is a second language.

Confused about fairness of the tax laws? You’re not the only one.

Have you ever wondered about the fairness of taxes? At the federal level we have a progressive system where the amount you pay is correlated to the amount you earn. This is why you hear about tax brackets, higher earners pay a higher percentage of income as income increases, income from capital gains and rents pay lower rates. Those who earn little at the lower end, pay the least amount of tax. In some cases, they receive tax credits which are redistributed from those who pay more in tax.

Tax relief is less progressive. As your income increases, you simply won’t qualify for most relief programs except reduction of penalties, maybe. As a matter of fact, the qualifications for tax relief programs encourage behaviors that would be considered contrary to personal finance advice as well.

It matters where you live

One of the glaring contradictions about tax relief is the impact of where you reside.  In other words, in a collections context, if you are telling the IRS about your income and expenses, in the hope of qualifying for relief, the IRS takes into account the county in which you live. There’s a guidebook based on census data that the IRS uses to determine what the local cost of housing and utilities should be. If you spend more than those standards, that’s usually a problem.

My hasty analysis shows for a single person living in one of the top 50 expensive counties, you would have to earn $20-$27 per hour before you were required to repay back taxes. This wage number can be much higher if… 

  • you drive and have a car payment;
  • are married;
  • have children who live with you; 
  • pay for health insurance;
  • pay on student loans or medical bills;
  • pay child support or alimony. 

Special treatments

I mentioned that my analysis was hasty because I didn’t take into account the other factors that could skew the figures. One of those factors that has an outsized effect is whether a tax debtor has financed a vehicle.  In a collections context, if you are making a car payment up to $500 a month, the IRS allows it. You can have a newer (or at least, a financed) vehicle before being required to repay back tax. It seems counter-intuitive doesn’t it? Pay for your new car instead of repaying back tax.

This is where personal finance gurus flip out. Tax debtors can finance a depreciating asset in order to reduce disposable income and  qualify for tax relief. 

My analysis was on a single person household. Larger households get more favorable treatment – a larger allowances for food, clothing and other expenses as well as housing and utilities. The United States is unique in the world for many reasons but it is unique in the way that it taxes a family unit instead of an individual.

Exchanging collection information statement data with the IRS when you there is a stay at home parent taking care of multiple children can also yield favorable outcomes – and possibly relief.

Tax policy is used to encourage certain behaviors. I’m sure you’ve heard of “sin taxes” where higher taxes are paid on cigarettes and alcohol. Taxes for married couples who file jointly are lower than those who file separately – it nudges people to file that way. Tax policy nudges people to get married.  Interestingly, the IRS won’t even allow you to amend a return from Married Filing Jointly (MFJ) to Married Filing Separately(MFS). They say they do this for public policy reasons. 

Health insurance is also considered when in discussions about whether or not you can repay your tax debt. If you have health insurance, you benefit in two ways: 1) You have access to healthcare and that’s one less worry in your life. 2.) The IRS allows this expense before you have to repay tax debt. If you don’t have health insurance obviously, those two benefits do not apply. 

There’s always an exception, isn’t there?  The exception happens in cases of divorce. Parents who have to pay for child support and or alimony.  It’s an allowable expense. It also flies in the face of the IRS’s “public policy.” 

The relief everyone wants – settle my debt!

The Offer in Compromise (OIC) is the “settle your tax debt for less than you owe” relief program. Everyone (who has a tax debt) wants to do an OIC. If you have done some things right, in terms of personal finance, those good behaviors often disqualify you from the OIC program.

For most Americans, if they are able to purchase a home, it becomes the single largest store of wealth in their lives. In many real estate markets, purchasing a home might not make someone rich but it does control some cost of living and allows the homeowner to build up equity that would otherwise be lost if they were renting. 

The equity one builds in the ownership of their home could be a dis-qualifier for the OIC program. If you were fortunate enough to build up enough equity in your home to match your tax debt, you may not be able to get relief through the OIC program. 

Another often repeated personal finance recommendation is to leverage tax deferred/advantaged growth, if you can, by establishing a retirement savings plan. Again, for many Americans, the only retirement savings they have is a plan offered by their employers like a 401(k). Some employers even offer to match a certain percentage of the savings you make.  Saving money this way over a long period of time allows the miracle of compound interest to occur.

These retirement assets factor into the qualification for the Offer in Compromise and often disqualifies them. Equity in your home, even if your can refinance or money in a retirement pan that cannot be accessed till age 59.5 make the OIC a no-go.

People who get in trouble with tax debt but who are doing their best to get ahead financially by making good decisions are being penalized. By driving cars that are already paid for, purchasing a home to keep living costs stable(and taking advantage of most American’s most important asset) and saving money for retirement – all of these things negatively affect any plan to get relief from unpaid income tax.

If you’re doing everything right from a personal finance perspective, there’s still a chance for relief. You may decide the relief plan takes too long and prevents too many future options but it’s good to know that if your disciplined behavior falters, you can may try somethings to keep the IRS away from your door. 

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Tax Debt Scars

Dealing with a tax debt can be a traumatic financial experience. People come to grips with the mistakes whether intentional or not, then fight through the bureaucracy and red tape towards a solution alone or with a guide. Some people come out unscathed, others feel the effects but eventually manage and a third group are scarred indelibly forever. 

I’m a believer in the ideas behind financial literacy – but what encompasses financial literacy can take a lifetime to learn. Financial literacy doesn’t determine financial success but understanding some elements of it can be very helpful when managing a tax debt.  Here’s a couple examples of some applications of that knowledge, some very successful, others not so much.

Bankers know about money

Pat Williams has seen financial success – his own and others., He has experience the ups and downs in the economy. His income is literally dependent on those fluctuations because he is a banker. When the economy is booming, he does well. He can earn a bonus that most people dream about. When the economy doesn’t do as well, his income suffers. Pat earns over $100,000 and has done well for himself and his family. The unevenness of his income, feast or famine, has led to a tax six-figure tax debt. 

We were able to get Pat some from the IRS based on his ability to pay. His ability to pay was diminished at a down point in the economy. We were also able to take advantage of the expiration of tax debt because of the statute of limitations. Pat had been dealing with the tax issues on and off for several years.  The expiration of that part of the tax debt saved him a ton. 

Pat is a very grateful client. With our help, he has his tax debt under control and some portion of it is diminished. For him the decision to hire the Tax Defenders was further validated because he was able to get a return on his investment. It makes sense that a banker would look at this way. He paid $1 and got $3 back.

For Pat, his interaction with the IRS is just a business transaction. There is an understanding of a debt and the high likelihood that he’ll paying most of it back when his income returns to the bonus levels. The only psychological mark the IRS left is that he was lucky the circumstances aligned for him to not have to repay all of his tax debt.

What does a Veterinarian know about money

Rhonda C. went through a messy divorce. Her ex husband wanted alimony and full custody of the kids. The legal bills were mounting and her veterinary practice was suffering too. She simply didn’t have the time to see her (animal) patients while going through the divorce process. Her income diminished as a result and he stopped making her estimated tax payments. Three years later, she facing an unmanageable tax bill. 

We were able to negotiate a successful Offer in Compromise (OIC) for Rhonda.  With her tax debt gone, she was able to start her life again after her divorce. She paid just 5% of her six figure tax debt. 

All of Rhonda’s tax trouble didn’t end there. A successful OIC has a compliance requirement for the five years that follow. Rhonda’s long-time tax preparer was in the early stages of Alzheimers and neglected to file on time, putting her accepted offer in danger of default. We are still working with the IRS to save her offer and feel confident we will be able to save it. For now, Rhonda seems to see the light at the end of the tunnel.  

The psychological toll of the divorce and dealing with the tax debt have been heavy. Rhonda takes it day by day, looking forward to the day when all of this will be behind her. So far, this nightmare has lasted three years.

Knowing nothing about money

Maria Matthews is a low information tax payer. She stayed home and raised their children, relying on her husband to provide for them. Whenever her husband asked her to sign the annual tax return, she would do so dutifully and without asking any questions. After the children have grown up and moved out. Maria’s mother got sick. She returned to her parent’s home to help care for her ailing mom. She had no income – mom’s retirement income would sustain both of them while Maria cared for her mom.

Physical separation became marital separation but not divorce. Maria had not heard from her husband for several years and came to terms with it. When mom finally died, she expected to inherit the home, sell it and live off the proceeds. Maria came to learn that federal tax liens had been filed against her. They were the result of her filing jointly with her husband so many years ago. With no support from her husband, no income of her own, she had no to continue the necessary payments for the house. She sold the home – what equity mom planned to leave Maria was seized to satisfy her estranged husband’s tax bill.

Maria was left penniless. I don’t know what happened to her but have to believe the process broke what little faith she had in the possibilities of the future. This experience has painfully scarred her for the rest of her life.

Financial literacy can be helpful in fixing a tax debt but having a guide to help you through it can amplify the result of that knowledge. Sometimes having a trusted sherpa is sufficient replacement for no financial literacy at all. When we are talking about stakes, not just financial but psychological as well, having an experienced person in your corner can make all the difference.

Mistaken beliefs about tax debt, Part 2.

The US Tax System is voluntary so the government uses a variety of tactics to ensure compliance, i.e. carrots and sticks. The idea comes from the days of riding horses. You could get your horse to move faster by offering it a carrot – a reward. Or you could simply whip the horse into compliance with a stick, in other words, a punishment.

Rewards of participation in the tax system can be intangible – dues paid in to demonstrate membership in the idea of America. 

“To use the language of political theorist Judith Shklar, ‘taxpaying is an emblem of public standing, proof of one’s virtue and entitlement to political power In the contemporary era, debates about who deserves to be American are still couched in the rhetoric of who pays taxes’ ”.  Read My Lips by Vanessa S. Williamson

Also, for the vast majority of employees, tax refunds are seen as free money instead of the return of principal with no interest paid on a short term loan to the US government. This can be perceived as a reward as well.

There are consequences for failure to comply with the tax code even though it is voluntary. Most of the penalties are civil and administrative, i.e. penalties and interest, if you end up owing. For those who don’t owe but who don’t file, if you fail to make a claim for your refund within three years of your filing date, your refund is forfeited.  

If there’s criminal intent, i.e. hiding income, evading tax, the penalties get more severe. Criminal tax behavior is not the focus of this essay. 

An important question remains, it defines how you live your life, that question is: 

What happens in a no consequence environment? 

Your child takes a cookie from the cookie jar when they shouldn’t, if there is no consequence, you may find your child will take from the cookie jar at will, and perhaps, so will his siblings. It’s easy to come up with countless other examples about the prohibition of murder and theft. You can also imagine the absence of consequence for crime would do society.

Failure to file tax returns or failure to pay income tax owed, with no consequence can eventually lead to the tragedy of the commons. The tragedy of the commons is a parable about over-grazing public land, i.e. the common. Adding just one extra sheep to a flock is beneficial to the herder and minimally damaging to the common, until all the shepherds think that way and minimal damage turns the common into barren land by overgrazing.

Failure to report and pay tax can lead to long-term irreparable government deficits which eventually leads to reduction in services and ultimately government and societal decline – another tragedy of the commons.

This is why consequences for failure to comply with tax laws are important.  Yet, so many people are drawn to the siren song of getting penalties and interest abated, in other words, reduced or removed. There’s no reason to do that and the idea that the government would do that can lead down a slippery slope. 

Here’s a truth bomb that blows up the mistaken belief that penalties and interest can be negotiated: 

Interest owed to the IRS is NEVER negotiable.

Sometimes interest can be reduced by reducing the underlying tax debt on which the interest is being charged. How can the underlying amount be reduced? Amending tax returns to include unaccounted for deductions or write-offs or reducing the assessed penalties for reasonable cause. There are other tax reduction strategies that could be employed but those take some planning and are beyond the scope of this article.

Penalties can be reduced sometimes too. Assuming you get a favorable representative, the IRS can be receptive and generous to requests by first time offenders for penalty abatements if certain conditions are met. The IRS also has a formal process to request a reduction in penalties for reasonable cause assuming you have a reasonable cause(usually health or medically related) and have demonstrated due diligence, meaning you have paid or are paying your debt. Also, attempting a penalty abatement for anything more than a two-year tax debt situation is usually a futile exercise.

If you owe tax and if you qualify for relief, the relief might be the form in which you indirectly negotiate with the IRS about penalties and interest – but that’s a long game for experienced players. 

If you’d like to read more about my thoughts on the tax resolution industry or how to manage tax debt, shoot me an email here or visit 

Mistaken beliefs regarding settling your tax debt

If you go into something with a set of mistaken beliefs, what are the odds that someone will take advantage of you and mislead you? The world is complicated enough without trying to be an expert in every area.  Humans, myself included, tend to compress knowledge and learnings for ease of storage and access. Remember this? 

An apple a day, keeps the doctor away.

– Unknown

I have no idea where that compressed wisdom comes from. These days, we have a bajillion inputs that our brain has to deal with. Sometimes that input process gets hacked and we are programmed with mistaken beliefs that our brain has been tricked into believing; usually through repetition or through mass media like television, radio, and internet. A seed is planted in your brain which leads you down the path to be influenced. 

For people who owe tax debt, one of the hacked beliefs is the following:

“Can’t I just get the IRS to take a smaller amount and just ‘be done with it’” ? 

Settling your tax debt

On any given day, 30% of the people I talk with about their tax debt think that if they wave some money at the IRS, the IRS will accept the money and erase the remaining tax debt. I’m not sure how this idea has taken such a firm hold in society. I’m sure one reason is the Offer in Compromise (OIC) program where it’s possible to settle for less, but it is a program which has a process that must be followed. 

Think about getting your driver’s license. You take an exam to prove you know the rules of the road. You take a driver’s test. You take a vision test. They take your photo. You fill out your personal information. You get your driver’s license after completing those steps, not before. There is no shortcut — you cannot simply waive a Benjamin Franklin in the face of a DMV employee to get your license, right?  

Credit card debt consolidation companies might be partially to blame for the ”let’s negotiate a reduction in what’s owed” idea.

These companies often advise their clients who have credit card debt to stop paying their credit cards and, instead, start paying the consolidation company to build up a cash pool that can be used to negotiate a reduced balance with the creditors. The client’s credit score is destroyed in the meantime and they’ll likely have a tax as a result of the credit card settlement, but the burden of the credit card debt is sometimes eased.  The biggest difference between this type of negotiation (i.e. customer & private creditor and tax debtor & IRS) is the nature of the relationship between the two parties; one is a consumer business relationship and the other is a citizen governmental relationship

With a consumer business relationship, the business usually has a processes in place to deal with almost all scenarios but the overriding fundamental for the business is to be profitable. So, they will cut losses and account for some portion of their clients failing to repay their credit card bills. The overriding fundamental guiding the IRS is to collect tax according to the laws and statutes as authored by Congress.  In other words, the government is not set up to play: Let’s make a deal. 

Without getting into the technical nitty gritty of the Offer in Compromise (OIC) program, it is possible to settle your tax debt. You should know about how it works before applying for it. There are qualifications for it. There are some immediate disqualifications. Depending on how you got into tax debt, you will have to develop a new behavior around how you deal with tax. 

Immediate disqualifications for the OIC program

Disqualification One – Equity in Assets

If you have assets that you can liquidate, this usually will be an OIC killer. What do I mean by assets? Money in a 401k or IRA, stocks, bonds or cash in a bank, or equity in your home. If you have more in your retirement plan than what you owe in back taxes, an OIC may not make sense. This still applies even if you are able to access the retirement funds. 

If you are a homeowner and you have equity, the IRS will do a Quick Sale Price (QSP) calculation. It works like this: 

(FMV – CMB) x 80% = QSP


  • FMV – Fair market value, recent appraisal will be required
  • CMB – Current mortgage balance
  • QSP – Quick sale price 

If QSP is more than the tax owed, then you could sell your house and pay off the IRS in full. Why should the government accept anything less? 

Disqualification Two – Dissipated assets

If you’ve accessed a lump sum of money in the three years prior to your attempt for settlement, you will be denied. Let’s say you sold your home and realized profits while having a tax debt. If those profits were similarly sized as your tax debt, the IRS won’t settle with you now. They might forget in three years.

If you cashed out your retirement and didn’t pay the tax, and the amount you received was close to the amount you owe, then the IRS won’t settle with you for at least 3 years from the date of receipt of that money.

These two scenarios illustrate what the IRS calls a dissipated asset. You had the money to repay your tax debt but chose to spend it another way. A dissipated asset temporarily disqualifies you from the offer in compromise.

Disqualification Three – Exceptional standard of living

As I mentioned before, the OIC is a program for which you have to qualify. Those qualifications involve sharing your income and expenses and comparing your figures to the national, regional, and local standards for: housing & utilities, food, clothing, and other expenses, such as transportation — operation & maintenance of your vehicle, health insurance, and taxes. 

If your standard of living exceeds the standards, an OIC won’t work.  Why should the IRS accept less tax than you owe when you drive a vehicle with a $800 payment instead of one with an allowable $500 payment? Why should the IRS accept less than what you owe when you pay $2800 for housing & utilities when the local allowable standard is $1800. 

This is a common sore point for many people who owe tax debt. They feel like the standards are not accurate for the area where they live. However, often, they live unapologetically in the nicest part of town.

If you’re thinking about trying to settle your tax debt and the disqualifiers don’t apply, and want to talk about next steps, reach out via email or via phone 312-529-5009.  We can talk about next steps – no pressure, I promise.

Can you manage having a tax debt?

Fourteen million people in the US are dealing with tax debts. This condition saddles them with another financial obstacle and can be a signal for other money worries like saving for retirement or children’s education or something more essential like not having health insurance. If they are lucky, they can get out of the tax debt in a few years. For some, they will have fallen in a trap that seems impossible to fix.

Here’s a brief quiz to see how well you could manage having a tax debt…

  1. Was your tax refund a financial windfall, i.e. a lump sum of money you expected every year to help you pay off debt, buy a car, or some other essential?  YES or NO? A Propublica article from December 2018 shares the stories of 3 separate taxpayers whose refunds were a financial lifeline staving away eviction and credit card debt. 
  2. If you continue to owe tax, do you understand why?  YES or NO. The 2018 Comprehensive Survey of Taxpayer Attitude determined that 51% of tax payers use a tax preparer. Are you getting the help you need?
  3. Have you stopped filing because you weren’t receiving refunds anyway? YES or NO?
  4. Do you know anything about IRS tax debt relief programs? YES or NO? An Audit Impact Study commissioned by the TPA included in the Tax Advocate Service – 2019 Report to Congress reported that “many taxpayers do not perceive a correspondence examination as a genuine audit.”  Moreover, I’m often surprised by people who call me thinking I’m the IRS. I’m inclined to believe that most taxpayers consider the IRS a blackbox – knowing very little about its operations and prefer to keep it that way.

Access programs that comprise the patchwork safety net to help Americans without anywhere else have simplified especially by going online. This has not translated easily to the tax world where a preparation error can cause a crippling tax debt. Even Nina Olsen, former National Tax Payer Advocate who worked on behalf of Americans navigating the tax system and its pitfalls believed the IRS “pushing people to self-service online is not good at all.”

The IRS offers free filing options for people who may not be able to afford to pay for tax preparation software through private partners like Turbotax. The private partners haven’t made access to their free filing option easy. As a matter of fact, in May 2019, City of Los Angeles, Attorney General sued HR Block and Intuit, maker of Turbotax for misleading customers to paid preparation options when even though the taxpayers qualified for free filing.

Consumers are getting a double whammy here: IRS moving preparation and access to services online forcing those consumers who aren’t good at using a computer, don’t have a computer or simply prefer filing via a paper form and private companies intentionally misleading consumers to pay for service that should be really be free. 

What about Self Employment?

If you are earning enough through self-employment to cover your living expenses – then you should be able to cover your tax obligations. We have determined (what we call the z-number) which is the net income figure you must earn before you have to repay tax debt. The z-number is only valid for tax debt relief.

There is no “get-out-of-paying-future-taxes” program available,

Truck driver, Johnny Smith generates revenue of about $100,000 per year driving his rig. At the end of the year, he always owes about $6,000. Smith has an established relationship and trucking route, he’s consistently earned $40,000-50,000 per year Why does he continue to owe and why does he continue to be surprised? The simple answer is that he may not believe it’s important. The IRS will eventually force his hand but until then, unless he decides to change something, nothing will.

The IRS answer to Johnny Smith’s problem is to have him pay $1500 every 3 months to the IRS as estimated quarterly payment. This number doesn’t work in his budget – he doesn’t believe he has the cash flow. Yet, if he breaks it down to a weekly payment of $125 – it becomes doable, the pain of making the estimated tax payment becomes manageable. 

Tax debt can happen to regular working Joes too. Many divorced dads fall into this trap. Daniel Parker became divorced from his wife. The divorce was a mess, his wife got the kids and the house. He now pays child support. He went from filing status married filing jointly with 3 children, to filing status single and zero  His child support obligation forced him to underwithhold so that he could afford to live.

Seizure of tax refunds for student loans or back child support obligations can make one feel like they can never get ahead. That hopelessness often causes people to stop filing. “She takes all my money anyway, now I gotta give her that too?” complains Jermaine Tiller who stopped filing after he temporarily lost his job and got behind paying child support. In some cases, tax payers who fail to file, sometimes leave money on the table. If they do not file and make a claim for refund, the refund to which they are entitled, is forfeit – an anonymous donation to the federal government. For those of us who pay too much already, who wants to give an anonymous donation?

Ignoring one’s filing requirement can sometimes lead to other challenges if a non-filer decides to come clean with the IRS. The documentation needed to file, i.e. w2s, may be misplaced or destroyed. If the tax payer worked several jobs and didn’t do a good job retaining that paperwork, it may be hard to remember all the different places they worked several years after the fact. This is a current frustration with the many people we speak to about obtaining their Corona Virus Stimulus payment.

However frustrating the seizure of refund checks, people should continue to file. It is better to have money to which you are legally entitled pay down debt vs. the alternative. 

Programs you don’t know about 

The public’s knowledge about tax relief programs is modest. Only 10% of American adults are dealing with a tax issue – and only a fraction of those have a federal tax lien which is usually the trigger for taxpayers to start learning about tax relief programs unless they see the myriad television advertisements. That education comes via force-feeding by the marketplace. Most consumers fail to learn and end up being swindled out of their hard-earned money by a company making promises that they have no intention of keeping.

If you find yourself a new resident of Tax Debt America, here are some tips for you to manage your (hopefully) swift departure. 

Understand why you owe

If you owe, try to figure out why you owe. I can’t tell you how many people simply defer to what their accountant tells them. Ask your preparer questions, google some information, get some knowledge so you can discuss your issue. There might be administrative actions you can take that may reduce or even eliminate your tax debt. It’s unusual but it can happen. This applies for both self-employed and regularly employed people. 

Refine your financial management

Can you afford to repay the debt? Can you reconfigure your cash flow so that you do not continue to owe? Be serious about those answers.  If you received an $8,000 refund which you should not have received, why shouldn’t you repay it?  If you are entitled to a refund for future years, the IRS will seize that refund to pay for the debt. If you can’t repay your tax debt, are you prepared to prove it to the IRS? They will ask questions and expect you to live according to National, Regional & Local standards. Most people don’t like to share that information with the IRS. 

Get to Square One

I can’t tell you about how many people believe the IRS owes them. It may be the case but there is a process. If you entitled to a refund, file your return and make your claim. If you can’t take the first step, why should you expect the IRS to take Step 2. File your missing tax returns! 

If you can repay the debt, do so, if not

The IRS will let you repay a tax debt over 60-84 months depending on how much you owe – be prepared to spend several years in Tax Debt America.  If you can’t repay the debt, you might qualify for relief but might still have to stay in Tax Debt America for a long time. One relief program called the Offer in Compromise (OIC) might get you out sooner but you should have a good handle on your finances, be at square one, and qualify for that program. Without a professional guiding them through the OIC process, it can be pretty tough to do on your own.

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