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When faced with IRS or state tax debt, it is common to worry about managing these conditions correctly or finding the right tax resolution option. Individuals or New York-based businesses may wonder how to move toward tax resolution. The good news is there are many options available to taxpayers when it comes to repaying your tax bill. The key is selecting the best one for your financial circumstances.
Here are some common tax resolution options available to you.
An installment agreement is a payment plan that allows you to repay outstanding taxes plus penalties and interest to state and federal taxing authorities. You can choose from a number of payment agreements:
You can set up an agreement that will only end up paying part of the bill you have, known as a partial pay agreement. Or select a streamline installment agreement that allows you to pay your bill within either five or six years.
If you have other debt that will be paid off within a few months or up to a few years, you can set up an agreement that will allow you to pay a smaller monthly amount upfront and then increase it when other debts become paid off over time. This is known as a tiered agreement.
Another option is the full pay agreement for taxpayers who are unable to pay the amount in full within five or six years, but can pay an amount that will allow the tax bill to be paid within the collection time period the IRS has by law (usually 10 years).
An offer in compromise is a settlement option with state and federal taxing authorities. This is the option you often hear advertised on the radio or television and is commonly incorrectly referred to as a “pennies on the dollar settlement.” There are rules and regulations in place that govern if a taxpayer qualifies for an offer in compromise, and for how much a tax debt may be settled by using an equation.
If you qualify for an offer in compromise and one is accepted, you are essentially on tax probation for a period of five years before you are fully clear of the tax bill.
This type of relief is granted if the tax debt owed was as a result of an erroneously filed tax return by the other spouse or former spouse. The erroneous items could be unreported income or incorrect deductions. Innocent spouse relief is only applicable when dealing with individual income and self-employment tax. To request for Innocent Spouse relief, you must first file form 8857.
If you are assessed a tax bill after a tax return has been filed, and the bill is the result of your spouse not reporting everything correctly, then you may qualify for relief under the innocent spouse relief provision. This option has a strict timeframe for requesting relief and its approval. So, if you think you may qualify for it, you should contact us today to discuss your options.
The IRS will then determine the tax you are responsible for. We do not recommend this using this method unless dealing with a former spouse.
To qualify, you and your tax professional must prove the following.
If the reasons you owe federal or state taxes are not intentional or fraudulent in nature, then you might qualify to have some of the penalties removed or abated. Accumulated penalties make up roughly 5% of the tax debt. Penalty abatement, if granted, waives the penalties and helps you repay the debt quicker.
The IRS has strict criteria to qualify for relief of the assessed penalties, but if you were dealing with a circumstance beyond your control that prevented the timely payment or filing of tax returns, this is an option that is worth looking into.
Currently Not Collectible is a tax resolution option that is granted to people who are having trouble meeting even the most basic needs.
Basic needs here refer to food, clothing, housing, and other utility bills. The IRS relies on information obtained from National Standards to reach a conclusion. The IRS must go through your expenditures and will compare it with what you earn in a year. Once it is established that your expenditures exceed your income, you are granted a Currently not Collectible status. This does not eliminate your tax bill, but it does give you relief from being required to pay the back taxes for the next eighteen to twenty-four months.
To initiate the process, the affected person should speak to an IRS agent or mail a properly filled Form 433-F. The IRS will keep tabs on the individual and review their financial situation every year. The relief is revoked once you can pay, or the statutory limitation expires.
If you should default, the IRS has the legal authority to seize your assets. You have 30 days after receiving the levy notice to try reaching an agreement before the IRS is able to issue the levy. You can negotiate for a tax levy release once issued if you can convince the IRS that you are more likely to settle your outstanding tax debt without the levy. This can be granted if, for example, you are planning to sell a property and use the proceeds to pay your tax debt. Tax levies are the last resort and can be avoided by negotiating with IRS agents.
The most effective tax resolution method is filing your returns on time. The IRS charges penalties and interests on the tax debt. Alternative tax debt settlement options only end up costing more in the long run.
Fortunately, the IRS is more interested in having their debt settled than punishing you. If you are unable to file your returns for one reason or the other, communicate and reach an agreement.
Tax issues are complex and very serious. Having a tax resolution professional to help can make all the difference. Explore the True Resolve Tax Professionals website to learn more about the tax resolution services we offer. We are happy to work with you or your New York-area business and the IRS or state tax agencies to address your tax issues. Don’t let any outstanding tax debt derail your financial growth. Act now.
