Whenever I introduce myself to somebody and mention my profession – “I work in the field of tax liability resolution” – I get a blank stare, sometimes accompanied by a quizzical expression. “Huh,” they say. “What’s that?”
The explanation has two parts. First, let’s look at “tax liability.” People who work in the United States (either for an employer or for themselves) or who receive income from other sources over certain monetary thresholds are required to file annual federal tax returns with the Internal Revenue Service (IRS) on one of the 1040 series of forms. Many taxpayers also live in one of the 41 States that assess State taxes, which are reported on State forms. The process for the States largely parallels the IRS process. IRS and State income tax returns are typically due by April 15th each year for monies received the previous calendar year.
At its most basic, each tax return is a series of math problems: income, minus allowable deductions, yields taxable income. A calculation is applied to this figure to determine the total tax. Tax minus monies paid in or credited to the account throughout the year (through withholdings, child or earned income credits, pre-payments, etc.) yields the return’s outcome.
If you’ve paid more than your tax, you’ll get a refund. If tax due equals payments made, you won’t owe anything, but you also won’t get any money back. The majority of taxpayers fall into one of these categories. But what happens when the arithmetic goes the other way?
The short answer is, you’ll owe. Most of us can pay any balance due when we file our return – even if we’re not happy about owing unexpectedly. However, if you can’t pay the difference when you file or shortly after, you’ll have a tax liability. The same is true of each year for which you can’t pay the rest of your taxes when you file.
Taxpayers could also have tax problems even if they didn’t file their own return(s). The IRS is allowed to make tax assessments against taxpayers who don’t file, using income information reported to them by the source(s) for which taxpayers worked, or charge additional tax if the information on a taxpayer’s return doesn’t match what was reported to the IRS. Whether you file on your own or a return is filed for you, you could have one or many years or periods with liabilities.
So we’ve established that you have this liability and you can’t afford to pay it all at once. What’s the next step? Now we’re looking at the other part of my job. In order to prevent the IRS Collections Division from just coming in and doing whatever they want – filing a tax lien, levying money from bank accounts, garnishing paychecks or other income sources, or seizing property – a “resolution” needs to be reached to address the balance due.
Essentially, resolutions are agreements between taxpayers and the IRS for how to address liabilities. As long as you keep up your side of the bargain, the IRS will agree not to pursue you. While several standard resolution types exist, such as payment plans (Installment Agreements) through which monthly payments are made, hardship placement (Currently Non-Collectible status) which requires no payments, Penalty Abatements (through which penalties and interest can be reduced or removed), and settlements (Offers in Compromise), resolving each person’s case is a highly individualized process.
For the IRS to agree to a resolution, they generally need to examine a taxpayer’s earnings and spendings to determine what’s in the government’s best interest. Occasionally this can be done in a single phone call, but mostly it takes months to finalize IRS tax resolutions. Many taxpayers contact the IRS themselves once they realize they owe and find that by the end of the call, they’ve been talked into making monthly payments they can’t afford, or that they’ve agreed to deadlines they can’t meet.
Omni Tax Help provides tax resolution services. We specialize in representation of taxpayers looking for tax relief through the collection processes of the taxing authorities. Our skilled tax professionals, including tax attorneys and Enrolled Agents, have decades of combined experience in preventing enforcement, preparing financial analyses per the IRS’s guidelines, strategizing cases, and guiding taxpayers through the resolution process.