How to Resolve Tax Liability
There are many types of tax resolution techniques in which tax professionals use to help settle your tax debt with the IRS and State Department of Revenue agencies. The IRS collection process can be very stressful. You are not alone. There are millions of other taxpayers just like you that are looking for answers on how to resolve their tax liability. Below is an outline of the most common types of tax resolution programs so that you can get an idea of the several ways your account will be handled. The most common error that a taxpayer will make is to ignore their unfiled tax returns. Commonly, the easiest way to resolve your tax debt with the IRS would be to file your taxes right away.
Tax preparation can be done through a tax preparer or on your own. The IRS will assess additional penalties and interest on the tax that is due once the return is filed. The added penalty and interest to the initial tax that is due will have to be paid. The only way for the penalty amounts and associated interest to be removed is through a Penalty Abatement request. Most taxpayers are due a refund for past tax returns in which they forfeit being able to receive. This is because they are past the allotted time for the claim to be made. Typically, you have three years to claim a refund or you lose it.
For Example, say there is a missing return for tax year 2015. You attempt to file the return to claim your refund in April of 2019. You will not be granted the refund because the latest date to claim it would have been April of 2018. There is light to the end of the tunnel in order to achieve tax relief. Most firms will offer a free consultation to see if you qualify for resolution of your federal tax debt. Your consultation will consist of a review of financial data to know which resolution option suits your tax problem.
What Are the Different Types of Tax Resolutions?
Rule of Minimum Lump Sum payment
If all your tax returns are filed, then you will qualify for an Installment Agreement. The taxpayer must agree to the least amount that is required by the IRS. This amount must satisfy the debt in full within a period of up to seven years. Most of the installment agreements have a requirement that you set the payment plan up on a direct debit, which will automatically withdraw the monthly payment amount from your bank account. To implement a direct debit agreement, you must provide a signed Form 433-D, Direct Debit, at the time of setting up the payment plan. If paying the debt in full, over the time period allowed, is not reasonable for your situation then there is another option called a partial pay installment agreement. This agreement has very similar terms to an original Installment Agreement. A main difference is you arrange a much lower monthly payment based on your financial data. If your financial data does not change over time, you will be allowed to make reduced payments until the expiration of your tax debt. After the expiration date, the IRS is no longer allowed to collect on the debt. The taxpayer will also be relinquished of their monthly payments that were arranged.
What to Do After Installment Agreement
Once an Installment Agreement is in place, there is a Penalty Abatement request that can be submitted. This request is an attempt to remove the penalties and interest that are added to the tax. This request must have a strong reasonable cause as to why the penalties occurred in the first place. Each case is determined individually as there are numerous types of reasonable cause criteria’s that will qualify a taxpayer for this relief. To make a Penalty Abatement request, a well formulated story along with Form 843, Claim for Refund or Abatement must be sent to the IRS.
Cash Lump Sum Payment Options
An Offer in Compromise is a tax debt settlement program that will allow you to pay less than the full amount that is owed. This may be an option if you cannot pay your liability in full through an Installment Agreement or other payment plans. This may also be a great choice for a taxpayer if it is confirmed that paying the debt in full would create a financial hardship. Many factors are reviewed when an Offer in Compromise is proposed. Your total income and total expenses will be examined. The IRS will also take into account any equity you may have in assets. Once an Offer in Compromise is approved, you must pay the total offered amount in 12- or 24-month payments. There is also an option called “lump sum cash”. The total offered amount be paid in full within five months after acceptance. When the liability is paid in full, all tax liens will be removed, and the taxpayer will now be on probation for a period of 5 years. The Probation period is to ensure that no new balances are assessed and that all tax requirements are being met.
Some Cases Need An Expert
In many joint cases, there is relief from the tax debt through a request for an innocent spouse. This method is commonly used when there is a tax liability assessed with an additional tax. This increase is a result of incomplete information filed by your spouse. This is a very detailed request and the assistance of a tax attorney or experienced tax expert will be needed to complete.
If you have explored all options to pay the liability but still do not have the financial freedom to commit, there is a resolution that can be achieved called currently non collectible. The IRS will look at national standards for your area. This is to determine if your able to even afford your basic living expenses compared to the income that is received. This status is only best for people whose expenses exceed their income. Once placed into a currently non collectible status, the IRS will stop all attempts of collection action.