One of my friends pulled me aside yesterday and asked me what I knew about tax law... "Why," I asked.

It seems his dad hasn't paid the IRS in about five years, and now they've started garnishing 75% of his paycheck. (Now he's only taking home $200/bi-week).

Now I didn't think that was possible. I thought the Fed cap was 25%, and further restricted by our state cap of 15%. So I came home, googled, and found out the caps don't apply to Fed/State taxes. Rather the IRS has some table, and they let you keep $X amount of your pay, based on your filing status and # of exemptions you can claim.

Anyway I found some info on th IRS Collection Appeals Program (CAP), which states something about an Offer in Compromise, which may let you setup installment payment arragements to stop the garnishment ....

Has anyone done that, or know how to go about doing it? Is it just a matter of calling the IRS and asking them to setup a payment plan? Are they usually good about stopping the garnishment, or is that rare?

Any help is appreciated.

I've never been garnished but was threatened with it. I called the IRS and requested an application for a payment plan, which stopped the garnishment BEFORE it started.

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It depends on a lot of things. First off, what is his balance? If it's over a certain amount, it would automatically go to the IRS's ACS (Automated Collection Systems) department and they can be sticky to deal with.
He would need to do a financial statement listing his assets/liabilities and he can download that off the IRS.gov website. If the IRS is not leaving enough for him to live on, then he needs to either call the Taxpayer Advocate or get in the PRP (Problem Resolution Program). He can state that paying this money is a financial hardship and propose a payment plan that he can live with--but the IRS does have the option to either reject or accept it.
If he does an Offer in Compromise, he still needs to download the forms off the website. This is where he proposes a lump settlement of his debt. If the IRS accepts his offer, it promises to wipe the slate clean--and in return he agrees to file and pay all liabilities on time. If he doesn't then the deal's off. Hope that helps!

They are taking 75%? Is that legal? That's like having a loan with 75% rate..isn't it?

They seem to be wanting him to take them to court to settle. The bad thing about the IRS is if you owe $10,000
they will declare you owe 10 times that amount and it becomes $100,000.
In this case the question is did the man file an extension each time it was due? There was no time limit on extensions unless they have revised it. And if so it looks like they would have taken the subject to court for income tax evasion. He needs a lawyer and go to court to keep from paying 10 times what he really owes. The penalities and interest amount to so much he would never get it paid off. When a Federal Judge makes a ruling the IRS have their hands tied. Otherwise the person will pay the rest of your life on money he does not really owe. This is worse than a slow death when one is starved out. Some people have to find a job and take a money as they say under the table where it is not on the books, to survive. Some people would just leave the country and go to Canada and take up a new residence. Bill Clinton did to get out of a war. Anything to survive. The man couldn't kill himself for they would come after the spouse. So get a lawyer and settle it in a federal court. This way if you have to make payments the judge will set the amount you pay on. Sure you will have a lawyer fee but is it worth is?

The following is my opinion...

An Offer in Compromise will stop all garnishments. The office of Roni Lynn Deutsch is a decent law firm to employ for this service, but like many of the firms that will represent you they will set you on a payment plan and then make the process last as long as it takes to get your last payment. Even though that sucks, unfortunately if you try to file an offer in compromise on your own the IRS agent will stick it to you.

As long as you did not lie on your tax filings, there is no threat of jail time. That is not tax evasion, that's failing to PAY the tax.

Taxes become uncollectable after 10 years. The time you are in an Offer period adds to the 10 year statute.

I settled a $40,000 claim once for $1100. But the statute has changed since then. The IRS rules are now incredibly stupid. First they want to know how much you can pay each month according to their standard list of allowable expenses (which you can find by searching for Offer In Compromise on irs.gov) and THEN they tell you you have to pay double that amount. It's completely idiotic, but that's the system now and it's stated very clearly in the free downloadable forms.

You are also penalized for not spending money. People who try to save money by paying cash for a cheap used car, for instance, no longer have the allowance for vehicle expenditure. So the more you SPEND monthly on allowable expenses such as Life Insurance, Car, Rent, etc the more you can deduct. Basically, if you're too poor to afford a life insurance premium you can end up on the hook for more money than someone who CAN afford it. It's a completely messed up system. I hope Obama fixes it.

That's the end of my opinion.

The took 100% for one of my paycheck and the rest out of the next I got 3 days notice - it really was not fair as I didnt pay what I owed since I couldn't afford it already- I had to borrow money just to make ends meet and now I am still in the situation plus I have kids they were heartless!

Debtcruncher..
AS you know, I get to handle garnishments all darn day for a living! I'll tell you this much...The IRS is the ONLY creditor I have ever seen stop a garnishment once it began, and I've been doing this 10 years now!
Unfortunately, I don't have a clue about how to begin the process..I'm really used to dealing with consumer debts. I guess I would imagine it WOULD be as simple as calling the IRS, I would think that someone there would be able to point him in the right direction.
I also remember that a few years back a few ex-members of this site were getting garnished by the IRS and did get it stopped. I know that they said that the IRS was amazingly easy to work with, and I have heard that same sentiment from employees at work. Wish your friend good luck!

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Thanks Fins (and Shazzers, kscornell, and everyone else who posted)...

I almost forgot about this post and my friend's dad's problem. I asked him a while back if they ever got it straightened out. He pretty much said all they had to do was call the IRS and setup a payment plan. They stopped the garnishment, but will resume it if he misses a single payment (which is understandable). He didn't tell me how much he has to pay per month, but at least he can pay his rent now. Thanks again.

They CAn and WILL take whatever they want. As to what this causes you in terms of hardship is based solely on THEIR discretion. I did everything they asked within the time frame they gave me. I CALLED THEM FIRST !!! They still took my whole paycheck through my employer even though I was so badly behind on other bills. I was just getting back on my feet and was facing total ruin if I missed one check and you know what the guy told me? Its your debt, you created it theirs nothing I can do for you. This is a true story. A branch of my owen Govt. allowed me to become homeless, lose my job due to the stress and inability to pay rent, Gas for my car to get to work Etc., food - and I called them first to get the ball rolling and did everything they told me to do to the letter. I spent money I didnt have to get professional help to make sure all my Docs. were accurate and mailed them certified mail. They still ruined my life. If I dont blow my brains out it will be a miracle. I lost access to my son due to the living conditions it created for me and losing my job. They are Satans minion as far as I'm concerned. This was all true and I regret ever calling them to try fixing my debt with them voluntarily.