8 critical considerations for selecting IRS tax professional for tax debt relief
Not Every IRS Tax Professional is Alike When Needing Tax Debt Relief
Choosing the IRS tax professional for tax debt relief is as confusing as reading an IRS tax transcript.
When you are ready to use successful and valuable methods of resolving your problematic tax matter, hire an IRS tax professional to advocate and guide you. You can use these tactics to find best tax debt relief companies for your needs.
Here are 8 critical considerations for selecting an IRS tax professional for tax debt relief.
EXPERIENCE IN IRS TAX DEBT RELIEF SERVICES
As you search for the best tax debt relief companies to take your case, you want to look for those that have years' worth of experience in the industry.
You do not want a novice CPA firm or IRS tax professional to gain experience at the expense of your case. You need a tax expert who has been in the tax debt relief industry for several years if not longer.
This amount of experience benefits you because you get a tax professional who has more than likely handled cases just like yours or perhaps even cases that were more complicated.
This individual also will know how the current tax laws apply to your case and will use them to your advantage when dealing with the IRS.
LENGTH OF TIME DOING TAX DEBT RELIEF
We tie the experience that a tax resolution firm can offer to you to how long it has been in business. The industry standard for determining whether a firm has experience is if it has been in business for at least five years. Depending on the experience you are looking for, hire a company that has been in business for longer than five years.
The time an IRS tax relief professional has been in business also correlates with how experienced the staff is to assist clients like you with their tax matters. You may ask the firm you are interested in hiring, how long it has operated. A newer company may lack the experience needed to resolve your complex tax case to your satisfaction.
WHEN FINDING THE BEST TAX DEBT RELIEF COMPANIES QUALIFICATIONS ARE CRITICAL
As a client, you want the staff of an IRS tax relief professional to assist you to your satisfaction.
You should look for tax resolution companies that use people who are Certified Public Accountants (CPA) or licensed as an Enrolled Agent (EA) or certified as tax attorneys as one of these are the only IRS tax professional that can represent you before the IRS.
They should also belong to professional organizations like the American Society of Tax Problem Solvers or the American Institute of Certified Public Accountants. Tax attorneys should be members of their state bar.
TAX DEBT RELIEF COMPANY REVIEWS
As a potential client, you may look for an IRS tax relief professional reviews before engaging its services.
Getting behind on your taxes can have serious financial repercussions, such as asset seizures and wage garnishment.
The good news is that there are a number of tax relief firms that might be able to assist you in working out a tax debt settlement with the IRS for less than what you owe.
The credibility of the entire tax debt relief industry has been damaged, however, as a result of numerous tax debt relief organizations taking advantage of desperate people by employing dubious methods.
The good news is that there are numerous trustworthy IRS tax debt relief organizations accessible to assist in reducing the burden of tax debt. Finding reputable, experienced tax relief providers that provide the services you require for a cost you can afford is the challenging part.
THE BEST TAX DEBT RELIEF COMPANIES OFFER NO GUARANTEE
Some firms offer guaranteed satisfaction. In reality, a tax resolution company cannot guarantee the outcome of your case or that you will get the resolution you want from the IRS.
A good firm will tell you upfront that the outcome of your case will depend on factors like:
-How much you owe to the IRS
-The age of your debt
-Any penalties and interest you owe
-If the IRS has moved to garnish your wages or seize your assets
-Whether the case is resolvable with an Offer in Compromise, installment agreement, or other payment option.
These factors make it challenging for any firm to guarantee how your case will be solved.
As a client, you want to hire a tax professional who will offer you personalized service. You want to say informed and in charge of your case as it unfolds.
Personalized service allows you to meet face-to-face with the person handling your tax situation, so you know the most intimate details of it well before you meet with the IRS in an audit or court hearing. You also want to know that the tax professional handling your case will answer your phone calls and emails whenever you have questions or concerns.
YOUR ROLE IN THE TAX RESOLUTION CASE
Finally, you want to find out what your role will be in your own tax resolution case. You should find out what the company expects from you from Day One so you can act and prepare accordingly.
You can find out these details by insisting on speaking with the professional representing you before you put him or her on retainer. You should ask how you can say proactive in your IRS tax debt case and how you can say informed as the case gets underway.
These criteria allow you to search for and find a tax professional or tax resolution firm that is qualified to handle your tax debt case. You will retain representation to guide and advise you as you approach the IRS. You also may get the desired outcome of your tax debt situation.
The Top Myths regarding Tax Pros can be found here myths.
For more information regarding IRS tax relief visit KeithJonesCPA.com.
IRS Tax Form 941 for Payroll Taxes
Here is everything you need to know about tax, payroll tax filing, quarterly returns and form 941.
Remember the thrill of your first paycheck?
Remember feeling less thrilled when you discovered that your employer held some money for income taxes and Social Security?
That is employment tax. Likewise now it it’s your turn for payroll tax filing and to file form 941 and be the bearer of bad news.
Certainly, you have employees, therefore, you pay into their income & FICA (Social Security & Medicare) taxes by withholding some of their paycheck.
Here, we’ll go over IRS Form 941,the tax form that makes all this possible.
What is Form 941?
Employers must submit IRS Form 941, also known as the Quarterly Federal Tax Return, to report three different taxes via payroll tax filing:
Most noteworthy, is the federal income tax in addition to other taxes withheld from employee paychecks like social security and Medicare. Finally the employer’s portion of social security or Medicare tax.
You use Form 941 quarterly to report these taxes on your payroll filing.
Most likely, you’ll make the tax payments themselves monthly or every two weeks through direct deposits (more on that below), depending on the dates wages are paid.
Who must file Form 941?
If you pay wages to an employee (remember: there’s a difference between employees and independent contractors) you have to withhold or ‘hold onto’ some of their pay to cover things like income taxes, social security and Medicare therefore you have to file Form 941.
If you’re a seasonal employer, you only need to File Form 941 in quarters where you’ve paid employee’s wages.
If you’re paying less than $1,000 in employment tax in a tax year, you’re off the hook (but you must file Form 944 instead).
And if your employees are “household employees” (a house cook or nanny, that kind of thing), you’ll just fill out Schedule H from Form 1040.
How do I withhold payroll taxes?
If you’re a new employer, have never withheld money from an employee’s paycheck and never filed Form 941, talk to an accountant to make sure your bookkeeping and payroll are set up and that you’re signed up for EFTPS deposits.
You can do this over the phone by calling the IRS at 1-800-555-3453 (have your bank account info ready) or online EFTPS website.
You’ll then have to create a password for your Electronic Federal Tax Payment System account, which you then must login here..
Do I have to make a filing if I have no employees working for me this quarter?
You still have to file Form 941. Only seasonal and agricultural employers who show their status on line 18 of the form don’t have to file Form 941. (See the IRS’s instructions to Form 941 for more information about who doesn’t have to file.)
What do I need to have ready before payroll filing?
Have your tax and payroll records on hand, and information
about taxable tips your employees collected this quarter (here’s the IRS’s guide to tip record keeping).
How do I submit payroll tax filings?
You can e-file Form 941 yourself online, or you
can have someone else do it for you.
What does a form 941 look like?
The current Form 941 PDF from the IRS contains a two page form, a voucher, and a fourth extra page of instructions. Besides the employer information section at the top, the form contains five parts.
The employer information section
Here you’ll show which period you’re reporting
for, your name, address and employer identification number (EIN). Don’t use your social security number (SSN) or individual taxpayer identification number (ITIN) here. You can apply for an EIN online at IRS.gov/EIN.
Line 1 asks you for the number of employees working
Line 2 asks for any wages, tips or other
compensation you paid them.
Line 3 asks for income taxes you withheld from
If you have no wages, tips or other compensation
subject to social security or Medicare to report this quarter, check the box on
Line 5 is the heart of form 941. It’s all about
calculating your tax obligations and making sure they’re up to date.
Line 5a will ask you to multiply total wages by
12.4% to calculate your social security tax obligation on wages.
Line 5b ask you to do the same thing for tips.
Line 5c is all about calculating Medicare taxes. The
current rate of 2.9% covers both your portion and the employees’ portion.
Line 5d is about any additional taxes on employee
compensation over $200,000, which is taxed at 0.9% and paid by employees.
Line 5e will ask you to total up all the amounts
Line 5f is for employers who have been asked
by the IRS to pay additional taxes on unreported tips. (See the instructions for 941 for more.)
Lines 6-10 will walk you through calculating your
total taxes after adjustments, which you’ll make to account for things like sick pay and group-term life insurance.
Line 11 is about the qualified small business tax credit for increasing research activities, which you can read more
about Instructions for form 941.
Lines 12-14 take your total taxes and subtract any
payments you’ve already made to come up with your total balance due.
If you overpaid (i.e. line 13 is greater than line
12) you report that on line 15.
This part is where you’ll figure out how often you
must send the IRS the taxes you calculated in part 1. Most employers will have to deposit monthly or every two weeks. If you deposit semi-weekly, you must explain your tax liability on Schedule B of Form 941.
If you owe more than $100,000 in taxes for the quarter, you must deposit these taxes immediately.
Here you’ll show whether you’ve stopped paying wages altogether, and whether you have any seasonal employees. If you do, you might not need to file 941 every quarter.
If you want to let an accountant, lawyer or tax prep professional discuss this form with the IRS on your behalf, this is where you’ll give them permission to do so.
Sign and date here to ensure everything you’ve
entered is correct.
Payment Voucher form 941-V
If you have a total balance due (i.e. line 14 contains a positive number) use this voucher to pay any taxes you owe to the IRS.
When do I need to form 941?
If you’ve never filed form 941, you must file your first copy at the end of the quarter in which your business first started
paying employee wages. You then must file on the last day of the month that follows the end of every quarter after that.
If you’re not sure when the quarter begins and ends, consult the following chart from the IRS:
|The Quarter Includes…||Quarter
941 Is Due
quarter: January, February, March
quarter: April, May, June
quarter: July, August, September
quarter: October, November, December
If you’ve already made all your tax deposits for the quarter, you have an additional ten days after the above due dates to get your form 941 filed.
Is that all I must worry about payroll tax filings?
Not quite. If you withheld taxes from an employee’s paycheck, you might also need to file Form 940, and there are some state and city-specific taxes you might have to collect depending on where you do business.
Talk to your accountant to make sure you’re clear on these obligations.
What if I don’t submit tax filings?
If you don’t file 941, check out How The IRS Can Make Your Life Miserable. You will pay the IRS 5% of the tax due for each month you don’t submit your tax filing ,to a maximum of 25%.
You could also incur a second penalty for making your tax payments late, which run between 2 and 15% of the underpayment, depending on how late your payments are.
Filing issues can also be found at Payroll Tax Issues and Pitfalls
There are three main IRS collection alternatives taxpayers use to solve back taxes: Installment Agreement, Currently Not Collectible and Offer-in-Compromise.
IRS collection alternatives if you cannot pay the back taxes
We know the story: things are tight financially, so you either (1) do not file the tax return, or (2) file the return but don’t pay the balance due. But do not worry, you tell yourself, next year will be better.
Now it is 2-3 years later and a letter arrives from the IRS, and the threats start, and maybe it has even gotten to the point of actual levy and seizure activity.
Now the IRS is wreaking havoc on your financial life and you simply do not know what to do.
We know. We have helped many clients through that exact scenario. Fear not, there is a light at the end of the tunnel.
The most commonly used alternatives are extensions of time to pay and streamlined installment agreements. That’s because most individual taxpayers just need a few weeks to get the funds to pay their tax bill, or they can pay monthly.
As it turns out the IRS is usually only too happy to work with taxpayers, but there are some ground rule you need to be aware of and a roadmap to follow.
1. Tax Compliance
The first step in resolving your tax issue is to get into “tax Compliance.” Compliance means that you have filed all tax returns due for the last 6 years and have made your current tax payments. Once you are in tax compliance we can now work on resolving the back-tax issue.
2. Collection Alternatives
There are three main collection alternatives to resolve a back-tax debt: Installment Agreement, Uncollectable Status, and Offer-in-Compromise.
An installment agreement is an agreement to pay the taxes back over time. There are three variations of the installment agreement: Regular, Streamlined, and Partial-Pay.
Which type of agreement works best for you will depend upon your personal circumstances and is something we can help you address when you are ready.
Uncollectable status is when the IRS determines that you are unable to make current tax payments.
When a taxpayer is deemed uncollectable the IRS may still file a Notice of Federal Tax Lien to secure its position in the taxpayer’s assets but will not otherwise take enforcement action to seize (or levy) the taxpayer’s assets or income streams.
If you cannot pay the IRS, you can request currently not collectible (CNC) status, which strictly limits allowable expenses to necessary living expenses limited by IRS collection financial standards. CNC status is usually temporary; the IRS uses manual and automated procedures to determine whether your client’s financial situation has improved.
For CNC arrangements, the IRS will file a tax lien if more than $10,000 is owed. To request a CNC arrangement, you must contact the IRS by phone, in writing, or in person.
An Offer-in-Compromise is an agreement where the IRS agrees to accept less than the total amount owed to it and the taxpayer agrees to pay the amount negotiated, as well as maintain his or her tax compliance for 5 years following the acceptance of the Offer-in-Compromise (“Offer”).
The basis for an Offer is a formula referred to as “Reasonable Collection Potential” or “RCP.” RCP is effectively the net equity in assets plus the taxpayer’s excess future income for 12 or 24 months, depending upon how the Offer is structured.
There can be significant planning done to help a taxpayer maximize the potential for the Offer acceptance.
If you or someone you know has an issue with paying their federal taxes and needs help to end their IRS nightmare, please contact us by either phone at 844-888-1040.
TFRP or Trust Fund Recovery Penalty
What does TFRP mean? Trust Fund Recovery Penalty also known as TFRP, basically means you can be held personally liable for a penalty for not properly managing the employment taxes of a business. This is known as the “trust fund recovery penalty” (TFRP).
The TFRP is not a penalty in the traditional sense of being an amount added to a deficiency in tax due by an individual, corporation, or another taxpayer. Rather, the TFRP is a collection device that permits the IRS to impose liability on a “responsible person” who “willfully” failed to remit the employment taxes that were held in trust for the government.
TFRP cases rely heavily upon the fact pattern, and your success in defeating the penalty depends on the presentation of the evidence and knowledge of the IRS’s TFRP procedures.
The Two Prongs of the Trust Fund Recovery Penalty
There are two statutory components that must be established under IRC section 6672(a) before a person can be held liable for the TFRP.
First, the individual must be a “responsible person” for withholding and paying employment taxes to the IRS. Second, the person must have “willfully” failed to collect and remit the employment taxes due.
For purposes of IRC section 6672(a), the liability of a responsible person who has acted willfully is equal to the federal income taxes withheld from the employees’ wages and the employees’ share of the Social Security and Medicare (i.e., FICA) taxes.
These are the taxes that the employer is required by law to hold “in trust” and pay over to the government, hence the term “trust fund recovery.”
Under IRC section 6671(b), a “responsible person” includes any officer or employee of a corporation, or member or employee of a partnership, who has the duty to collect or pay employment taxes.
The mere holding of a corporate title, or the lack thereof, is not controlling on the issue of a person’s liability; the test is one of substance that asks whether the person had the status, duty, and authority to control the company’s financial affairs [Godfrey v. U.S., 748 F.2d 1568, 1575-76 (Fed. Cir. 1984)].
IRC section 6672 requires significant control over the business's financial operations and the ability to decide which creditors will and will not be paid; therefore, if a person’s financial authority is circumscribed by, for example, a senior officer who has the final say on which creditors will be paid, TFRP liability will not apply.
The principal factor that the IRS considers when examining which individuals may or may not be liable for the TFRP is who signs company checks. The IRS also investigates whether the person is an owner, officer, or director of the company; has the right to hire and fire employees; signs contracts with lessors/vendors or otherwise is active to the day-to-day affairs of the business; makes payroll tax deposits; or is responsible for the disbursement of payroll.
In defending putatively responsible persons, it is crucial to demonstrate that they lacked the requisite financial control exhibited by the foregoing factors through such things as company business records, e-mails, court pleadings in litigation involving the business, and affidavits from third parties, combined with effective written and oral advocacy.
An individual who qualifies as a “responsible person” is not necessarily liable for the TFRP; it must also be established that the responsible person acted “willfully” in failing to collect, account for, or pay the employment taxes. Under IRC section 6672, willfulness has been defined as a “voluntary, intentional, and conscious decision” to pay other creditors rather than remit the trust fund taxes to the government (Godfrey).
Courts have held that a reckless disregard of the duty to collect and pay employment taxes satisfies the willfulness prong, but mere negligence is never a sufficient basis for liability.
An advisor must be prepared to prove with evidence and arguments that even if a client was a responsible person, she did not have knowledge that the taxes were not paid, did not have the authority to decide the priority of payments to creditors, or otherwise was not willful with respect to the nonpayment of the employment taxes.
The Trust Fund Recovery Penalty Investigation
The TFRP investigation is conducted by a revenue officer from the IRS’s collection function. The revenue officer typically requests bank signature cards, canceled checks, and other business records to identify potentially responsible persons. If the company does not provide these documents voluntarily, an administrative summons will be used to demand the records from the business or from third parties.
The revenue officer will examine the records and then schedule interviews with persons who may be responsible for the failure to pay the employment taxes. If a potentially responsible person does not voluntarily agree to appear before the revenue officer, he is likely to receive a summons to command his presence for an interview. The individual will be told that he can bring an IRS-authorized representative to the meeting.
The purpose of this interview is to secure from the individual Form 4180, Report of Interview with Individual Relative to Trust Fund Recovery Penalty or Personal Liability for Excise Taxes. Form 4180 is a critically important document, and it can be perilous if an individual attends the interview or completes Form 4180 without legal representation and thorough preparation by counsel.
The document contains direct questions specifically designed to elicit responses that show whether the individual was a responsible person and whether she acted willfully. It is often necessary for the individual and her counsel to provide the revenue officer with a full description of the individual’s limited role and responsibilities in the business and to resist responding to questions in the “yes” or “no” format established by the interview form.
The individual should also make certain that Form 4180 includes an accurate written statement of the individual’s defense to the TFRP. When the interview has been completed, the revenue officer will ask the individual to sign Form 4180.
Challenging a Proposed Trust Fund Recovery Penalty Assessment
At the conclusion of the investigation, the revenue officer will decide which individuals will receive notices of their potential liability for the TFRP. Revenue officers are notoriously overbroad in their TFRP determinations, often including persons with marginal liability exposure. The revenue officer will mail Letter 1153(DO) and Form 5471, Proposed Assessment of Trust Fund Recovery Penalty, to the individuals determined to be liable for the TFRP. The TFRP notice must be sent to the individual’s “last known address” to be enforceable [IRC section 6672(a)(2)].
An individual who qualifies as a “responsible person” is not necessarily liable for the TFRP; it must also be established that the responsible person acted “willfully.”
An individual receiving Letter 1153(DO) and Form 5471 has 60 days to file a written protest with the IRS Appeals Office to challenge the TFRP determination. The protest should contain a complete discussion of the facts and legal authorities that show that the individual was not a responsible person for the company’s employment taxes or that he did not act willfully. The protest, or subsequent submission to the Appeals Office, should include documentary evidence, such as business records and affidavits, that supports the individual’s case. At the conference, an authorized representative will present arguments that the individual should not be held liable for the TFRP or that the penalty should be compromised on the basis of hazards of litigation.
Trust Fund Recovery Penalty Post-Assessment Procedures
If the Appeals Office upholds the TFRP, the IRS will assess the penalty against the individual and issue notice and demand for payment of the trust fund taxes. The individual can dispute the IRS’s decision in court, but first must pay a “divisible” portion of the penalty for each quarter of the employment tax assessment and file a claim for refund with the IRS.
The divisible amount of the tax is equal to the withholding taxes attributable to a single employee for each payroll tax quarter covered by the penalty assessment. If the IRS issues a Notice of Disallowance of the refund claim or takes no action on the claim for a period of six months, the individual can commence a refund suit. The lawsuit must be initiated within two years of the date that the divisible tax was paid, or two years from the date that a Notice of Disallowance was issued. The action can be filed in the local United States District Court or the Court of Federal Claims.
Fighting the Law and Winning-Trust Fund Recovery Penalty
Preparation is crucial to winning a TFRP case. A professional advisor must exhaustively develop the facts and review company business records, correspondence, and e-mails. These documents, together with affidavits from third parties, should be used to show the limitations on the authority and the lack of willfulness of the potentially responsible person.
If you are facing a TFRP, and need more information, you can get expert Advice from TheCPATaxPRoblemSolver for free. 844-888-1040.
BOOK YOUR NO COST NO OBLIGATION APPOINTMENT HERE TO SCHEDULE A CONFIDENTIAL VIRTUAL MEETING FROM THE COMFORT OF YOUR HOME OR OFFICE!
What is the IRS Fresh Start program initiative?
You've worked hard, but for whatever reason, you find that your tax debt cannot be paid on time and you don't know how to resolve it.
Owing the IRS for back taxes is a nightmare you never thought you would take part in. Yet, here it is. The penalties are accumulating and the threatening letters have arrived.
You're not alone. The IRS collects millions from taxpayers in penalties for failure to pay. Yet, many taxpayers are unaware that the IRS does have programs to help you get back on track.
Curious about the IRS Fresh Start Program? Check out our informative article for a helpful overview of what you need to know.
In 2008, The United States experienced a housing crash. Even before the official declaration of a financial crash, many homeowners were struggling with inflatable interest rates on mortgages and finding themselves in financial distress.
The IRS Fresh Start Program was started in 2008 as an initiative to help its citizens who were struggling to pay taxes.
The IRS Fresh Start Program was expanded in 2012 to offer more assistance for the unemployed and businesses that were still recovering from a struggling economy that began with the housing crash.
In simplest terms, The Fresh Start Program offers a few options for individuals and businesses to pay off back taxes over time. Each option has specific requirements and regulations that must be met in order to participate in this tax relief program.
Ways to Settle Back Taxes with IRS Fresh Start program.
First, understand that although sorting through forms and filing procedures can feel very cold and frustrating, the IRS is run by people. It is not a machine.
These are people who have financial responsibilities, too. If there is a reasonable way to assist you in legally reducing your tax burden or offer payment plans, the IRS wants to do it.
With that said, working with the IRS is challenging. If you have ever tried to file your taxes on your own, you know it is time-consuming and often confusing.
Much of the difficulty in trying to resolve a tax problem on your own is due to legal terminology that requires some study and knowing which forms to file correctly.
Now imagine negotiating your back taxes on your own. This article is intended to give you a basic understanding of your options, but it is strongly recommended that you consult with a tax professional who has experience with forms and filing requirements.
Extended Installment Plan
This is a repayment agreement that allows you to pay off your tax debt in monthly payments. It is designed for people who owe $50,000 or less in taxes. With an extended installment plan, taxpayers have up to 6 years to make payments until the balance is paid in full.
The amount of monthly payment will depend on the total back taxes and accrued interest. You will also have to file financial disclosures so that an affordable monthly payment can be determined for your situation.
Businesses that owe less than $25,000 in combined taxes, interest, and penalties are also eligible to apply for an extended installment plan called an In Business Express Installment Agreement.
There are filing fees for this type of repayment plan. You may have options to negotiate penalty payments and halt tax liens.
Short Term Streamlined Repayment Plan
If you owe back taxes but will be able to pay them in a shorter extension time than 6 years, you can enter a direct debit plan for up to 180 days.
Businesses that owe between $10,000 and $24,999 are enrolled in a short-term Direct Debit Installment plan. You must have employees to be eligible.
Having monthly payments directly deposited with the IRS from your bank will help keep you on track and avoid default on your repayment plan. There are also reductions in fees and penalties by entering into a short-term direct debit plan.
Offer In Compromise (OIC)
There are situations in which a taxpayer may not be able to pay the full amount owed within 6 years. There is no limitation on the amount of tax owed to apply.
An OIC agreement is complicated and requires extensive filings and documentation to prove that your financial hardship is so severe that full repayment in full is not possible.
In this case, the taxpayer fills out application forms with financial documentation. In the application, an offer is made. This is your offer of what you can pay when filing for a reduction in the total tax debt owed.
Through filings for tax debt relief, it may be determined that your tax debt is uncollectible at this time.
This is an extreme circumstance in which you are unemployed and have no assets, suffering a major illness with large medical bills, or any other situation in which you are barely affording your most basic needs and cannot pay on the tax debt.
If your tax debt is filed as an uncollectible status, that does not mean that the debt is forgiven.
Once you are earning income again and/or acquiring assets, you will be expected to pay your back taxes. Then, you may be able to negotiate with the IRS on repayment plans.
How Can You Qualify for Tax Relief?
Before you can begin to apply for payment plans or an OIC through the IRS Fresh Start Program, you must be in compliance. The following outlines your steps to qualify for tax relief.
- Owe Less Than $50,000
To qualify for a repayment plan under the guidelines of The IRS Fresh Start Program, your tax debt must be under $50,000. This does not include an OIC. An Offer In Compromise can be submitted for any tax amount.
Businesses are also eligible to apply if they owe less than $25,000 and are able to meet monthly payments. The business must have employees.
- First Time Delinquent Tax Payer
In order to receive some of the benefits given under repayment agreements, you must not be a repeat offender. This means opportunities to apply for removal of Federal Tax Liens and penalties will not be given.
- Tax Filings Are Up To Date
This means that all of the years that have not been filed must now be up to date regardless of your ability to pay. The IRS will not accept an application for The Fresh Start Program until all filings are complete and accurate.
- Maintain Compliance For 5 Years
If you are approved for an installment plan or OIC, you must continue to pay your taxes on time for the next 5 years.
If you fail to pay on time within 5 years, the IRS has the authority to find you out of compliance and reinstate the full amount previously owed. This includes the full-back tax, penalties, and interest.
Why Should You Consult With a Professional Tax Service?
The fact that you do owe back taxes and have not been able to resolve the amount owed and return to compliance with the IRS is a serious problem.
It may make you feel that you are in over your head. In truth, you are.
Gathering all of your necessary documents to file previous years' returns, following guidelines for late filing fees, and determining the correct forms to submit are going to be a lot of work and study on your part.
What happens if you submit forms incorrectly? Have you had tax notices reviewed to see if they are accurate? What if you enter into an agreement and do not fully understand the requirements and then default?
A professional who is experienced with various tax relief programs can help you to negotiate your tax debt with the IRS in a manner that is done right.
Knowing the law and your rights under tax relief is important to avoid future problems.
A qualified CPA can assist you with financial planning that keeps you on track. They can also help you with further negotiations if you fail to meet deadlines in your repayment agreement.
Get Expert Advice For Applying to the IRS Fresh Start Program
Getting behind in filing your taxes or being unable to pay the full amount of your tax debt on time is a situation that happens to millions of Americans. It is a stressful problem because of legal terminology that most of us cannot figure out on our own.
This article has outlined some of the repayment options you may be eligible for with The IRS Fresh Start Program. There are both immediate and long-term requirements that must be met to qualify.
Keith L. Jones, CPA specializes in IRS tax debt relief, tax resolution, and back tax filing. There is a no-cost obligation with your consultation.
Get your financial freedom back. Gather your tax documents and any IRS notices and make an appointment today.
UPDATED FOR 2022
As long as your kids are doing legitimate work for your business you can hire your child tax free.
How much can I pay my child to work for my business 2022 IRS?
As long as they’re doing legitimate work for your business, you can hire your child tax free and pay each of them up to $12,000 per year tax-free.
It’s true. And all of this while they earn a little money AND start saving for college or that first business. And it’s all tax-free.
So you may want to hire your child(ren) to work in your business. And you want to do it for many good reasons: to teach them about entrepreneurship, develop a strong work ethic, AND for the tax-free income — up to $12,000 per child.
You can hire your kids and pay each of them up to $12,000 per year tax-free. If you hire your son to stuff envelopes and your daughter to update your website then you get to lower your personal income by $24,000! Simply by engaging your children in the family business.
If they stay under this limit, they don’t even have to file a tax return, which means they don’t pay any income tax on it. And you get to deduct their wages, which lowers your business’ taxable income.
BUT WAIT. THERE'S MORE.
The IRS ACTUALLY Rewards You For It! Source: Publication 929 (2020), Tax Rules for Children and Dependents)
If you have children between the ages of 7 - 22, you can use this strategy to save some money. Here is how it works:
- Each of your children can be employed by your business and paid an annual wage of $12,000. This is an important amount because it is the standard deduction amount for single individuals.
- Your business gets to take a deduction for the payment, thus decreasing your taxable income.
- Your children will then file their own tax return, & since they only made $12,000 they pay no federal income tax because of the standard deduction of $12,000, their taxable income is ZERO.
- So the business gets to take a deduction, but the kids pay no federal income tax. It does not get much easier than that!
This strategy can also be combined with IRA and 401k strategies to really maximize the benefit. For instance, if you paid each child $12K each as salary. You could put $6K into an IRA that is deductible, and you can use their standard deduction to take their taxable income to zero.
In that case, your business can deduct $18K per child, but again, no taxable income.
If you want to save money then hire your kids and make sure you have them actually work!
Keep track of the hours and tasks your children perform and make sure it’s age-appropriate. DOL Rules Regarding Youth & Labor The IRS isn’t going to believe your 5-year-old earned $12,000 analyzing dental records. But that 5-year-old can model those pearly whites in photographs to be used on your website or brochure! It’s easy to document an “image agreement” that pays an ongoing licensing fee right from the start.
Using this strategy, rather than just dumping change into their jar, (money you likely paid personal taxes on) you’ve moved those taxable dollars from your tax rate to your child’s tax rate and bracket, which, is zero, and you still keep the money in the family!.
There are countless jobs kids can do for you, and remember, you can pay them at the SAME RATE you would pay any other employee or outsourced company.
- Cleaning the office
- Washing company cars
- Updating customer lists on the computer
- Simple to advanced Data-entry
- Transcribing video or audio
- Trips to the post office or general errands
- Helping at the office, passing out handouts, and more
- Walking door to door, placing fliers for your business
- Updating your social media accounts (They won’t even equate this as work!)
But then, let’s say after reading the guide, you find out that this strategy “doesn’t work” if your business is a corporation.
The Corporation “Problem,” and Its Simple Solution to Hire You Kids
There are different rules for different types of businesses. And that when the owners of a corporation hire their child, there are still payroll taxes like FICA to deal with.
We even pointed this out in your free guide. See for yourself:
FICA tax may not have to be withheld on work performed by a child under the age of 18 while employed by a parent in an unincorporated business (sole-proprietorship, single member LLC or a partnership where the only partners are the child’s parents). However, there is no FICA or FUTA exemption for employing a child in an incorporated business (S or C Corp) or in a partnership that includes non-parent partners. In these cases, the children are subject to the same withholding rules that apply to all other employees.
So you DO NOT have to pay payroll taxes for employing your kids if your business is a sole-proprietorship, a single-member LLC taxed as a disregarded entity, or an LLC taxed as a partnership and owned solely by you and your spouse.
But if your business is a corporation, the IRS’s rules are clear. You must pay payroll taxes on income given to your children.
So are you stuck if your small business is set up as an S or C Corp? Or if you’re planning on switching to an S Corp like we normally recommend for maximum tax advantages?
Well, it turns out there is a workaround.
As one high-profile tax strategist says: in order to lower your tax, just change the facts.
Here’s how to do it:
The Payroll Tax Workaround to Hire Your Kids
If your business is set up as an S or a C corporation, or as a partnership with other non-parent partners, the IRS says you have to withhold payroll taxes when employing your kids.
But there is a way to get around this restriction utilizing a little creativity and a “hybrid” approach.
Instead of paying your children directly from your S Corp, you pay them out of a family management company.
You can create this simple family management company as a Sole Proprietorship separate from your S Corp, and owned by yourself or your spouse.
Its only purpose is to support the operations of your Corporation, which can include the scheduling and monitoring of jobs done by your child(ren) — and all the bookkeeping and documentation necessary to keep the jobs within IRS standards.
The family management company charges the Corporation a management fee for these services and can then pay your child — which removes them from your corporate payroll.
And since the family management company is a Sole Proprietorship owned by a parent, you, or your spouse, it falls under the IRS exemption where payroll taxes don’t have to be withheld.
By following this workaround, you’ve found a way to truly pay your kids $12,000 per year tax-free using nothing but the IRS’s own rules.
For more tax-saving tips check out how my blog on Tax Deductions VS Tax Credits! Then put on your HR hat, because you've got some little new hires to train!
How to Pay Less Tax Like The Rich
The richest Americans pay less tax via overall a lower tax rate than average due to what the IRS shows they do differently.
The ultra-rich save the most tax, according to IRS statistics. And over 90% of them have one thing in common. They do not sign their own returns. They hire tax pros instead. It shows they paid at a combined 24% rate on average, down 1% compared to the 25% national average.
The more money you make, the more complicated the returns. But it also means the more money you have for tax planning, to pay someone to navigate the complex tax system. They find ways to legally avoid paying tax.
Pay Less Tax
Most less wealthy Americans don't pay for tax planning. Thus they miss out on the various ways of legally avoiding paying taxes. Tax avoidance is finding ways within the law to keep taxation at its smallest amount. That, after all, is what the paid professionals are there to do.
What you need to know to how to pay less taxes
What Tax Planning Really Does
Tax planning is the art of arranging your affairs in ways that postpone or avoid taxes as allowed through the ever-changing tax regulations. By employing effective tax planning strategies, you can have more money to save and invest or more money to spend.
Put another way, tax planning means deferring and flat out avoiding taxes by taking advantage of beneficial tax-law provisions, increasing and accelerating tax deductions and tax credits, and generally making maximum use of all applicable breaks available under our fabulous IRS Code.
While the federal income tax rules are now more complicated than ever, the benefits of good tax planning to owe less tax are arguably more valuable than ever before.
BOOK YOUR NO-COST NO-OBLIGATION APPOINTMENT HERE TO SCHEDULE A CONFIDENTIAL VIRTUAL MEETING FROM THE COMFORT OF YOUR HOME OR OFFICE!
You might ask yourself if you can afford Tax planning, but the real question is - Can you afford not to practice tax planning and learn how to pay less in taxes?
IRS Gears Up for Aggressive Tax Collections and Enforcement
IRS Commissioner Charles P. Rettig testified before the Senate Finance Committee, sending the message that the IRS is committed to catching intentional tax evaders.
He stated "The IRS is committed to having a strong, visible, robust tax enforcement presence to appropriately support taxpayers who comply voluntarily. When taxpayers file their returns, they should feel confident others are doing the right thing too. Enforcement of the tax laws is critical to ensuring fairness in our tax system. IRS employees who collect taxes, audit returns, and investigate fraud, as well as tax-related identity theft, work hard throughout the year to enforce the tax laws while treating taxpayers fairly and respecting their rights."
There was no ambiguity in the message of his testimony to Congress; he noted that under his watch, the IRS will aggressively pursue those purposely evading their tax obligations with civil and criminal enforcement.
The commissioner made sure to mention that those who were not defrauding the system intentionally had nothing to worry about; they are not the target of stepped-up enforcement.
The IRS will be targeting five major enforcement initiatives:
Technology – The IRS will put a new focus on their use of technology as an enforcement tool; specifically, advanced data and analytical strategies. With this data-driven approach, the IRS believes it will be able to catch tax fraud impossible to spot even just a few years ago.
Offshore Tax Evasion – Offshore tax reporting enforcement is a long-standing priority of the IRS, but the current commissioner reiterated the focus on this area, so don’t expect to see any easing here.
Tax Shelters – The IRS believes many taxpayers are abusing two tax shelters, syndicated conservation easements, and micro-captive insurance arrangements. They plan on stepped-up tax enforcement on both those who arrange these shelters and taxpayers who participate in them.
Cryptocurrency – The IRS believes there is mass non-compliance in the world of cryptocurrencies through either underreporting or non-reporting of taxable transactions.
Wealthy Taxpayers – Tax enforcement actions take time and are resource-intensive, so it should be no surprise that the IRS is going after non-compliant taxpayers with the biggest ROI. The IRS is considering anyone with an income level of over $100,000 to be high-income.
Expect to see increased tax enforcement efforts ahead, with a focus on those who are intentionally evading the system. If you haven’t purposely defrauded the system, you have little to worry about.
THE PRESIDENT’S FY 2021 BUDGET
The President’s FY 2021 budget proposal for the IRS provides $12 billion to
administer the nation’s tax system fairly, collect more than $3.6 trillion in gross taxes to fund the government, and strengthen tax compliance.
In addition to the base appropriations request, the Budget proposes a program integrity cap adjustment that would provide an additional $400 million in FY 2021 to fund investments in the IRS tax enforcement program.
These investments will generate $79 billion in additional revenue over 10 years and cost $15 billion, for net revenue of $64 billion over 10 years, which will help reduce the net tax gap of $381 billion.
LEGISLATIVE PROPOSALS IN THE PRESIDENT’S FY 2021 BUDGET
Along with the funding requested in the President’s FY 2021 Budget, the IRS is asking for Congress’s help legislatively in several important areas that would improve tax administration and support the IRS in fulfilling its mission in tax enforcement, including the following:
Greater Flexibility to Address Correctable Errors. The budget would expand the IRS authority to correct errors on taxpayer returns. Current law only allows the IRS to correct errors on returns in certain limited instances, such as basic math errors or the failure to include the appropriate social security number (SSN) or taxpayer-identification number.
This proposal would expand the still limited instances in
which the IRS could correct a taxpayer’s return to situations where:
(1) the information provided by the taxpayer does not match the information contained in Government databases or Form W-2, or from other third-party databases as the Secretary determines by regulation;
(2) the taxpayer exceeded the lifetime limit for claiming a deduction or credit; or
(3) the taxpayer failed to include with his or her return certain documentation that is required to be included on or attached to the
This proposal would lessen taxpayer burdens and make it easier for IRS
to correct verified taxpayer errors, directly improving tax compliance and reducing EITC and other improper payments, and freeing limited IRS resources for other compliance activities.
Increase Oversight of Paid Tax Return Preparers. Paid tax return preparers
have an important role in tax administration because they assist taxpayers in complying with their obligations under the tax laws.
Incompetent and dishonest tax return preparers burden unsuspecting taxpayers, increase collection costs, reduce revenues, disadvantage taxpayers by potentially subjecting them to penalties and interest because of incorrect returns, and undermine confidence in the tax system.
To promote high quality services from paid tax return preparers, the proposal would explicitly provide that the Secretary of the Treasury has the authority to regulate all paid tax return preparers.
Improve Clarity in Worker Classification and Information Reporting. The
budget proposes to:
(1) establish a new safe harbor that allows a service recipient to classify a service provider as an independent contractor and requires withholding of individual income taxes to this independent contractor at a rate of five percent on the first $20,000 of payments; and
(2) raises the reporting threshold for payments to all independent contractors from $600 to $1,000, and reduces the reporting threshold for third-party settlement organizations from $20,000 and 200 transactions per payee to $1,000 without regard to the number of transactions.
In addition, Form 1099-K would be required to be filed with the IRS by January 31 of the year following the year for which the information is being reported. Significant information reporting and withholding can result in a 90% effective rate of voluntary compliance.
The proposal lessens worker classification disputes with service recipients, increases clarity in the tax code, reduces costly litigation, and significantly improves tax compliance.
In addition, the President’s FY 2021 Budget request also includes these two
provisions related to tax administration:
Fund the Federal Payment Levy Program via Collections: This proposal would allow the Fiscal Service to retain a portion of the funds collected under the Bureau’s Federal Payment Levy Program (FPLP) which processes and collects delinquent tax debts through the Treasury Offset Program (TOP).
TOP currently recoups its costs from retained amounts from collected amounts for all its programs except for the FPLP but under current law, the IRS must pay these costs through annual reimbursement agreements under the Economy Act. This proposal would make
the FPLP consistent with other TOP programs.
Delinquent taxpayers will not be impacted by the proposal, because they will receive credit for the full amount collected. This proposal creates efficiencies, because it allows the Fiscal Service to recover its FPLP costs from the IRS in the same manner as other TOP programs.
Require a social security number (SSN) that is valid for work to claim child
tax credit (CTC), earned income tax credit (EITC), and credit for other
The Administration proposes requiring an SSN that is valid for work to claim the EITC, CTC (both the refundable and non-refundable portion), and/or the ODTC for the taxable year.
For all credits, this requirement would apply to taxpayers (including both the primary and secondary filer on a joint return) and all qualifying children or dependents.
Under current law, taxpayers who do not have an SSN that is valid for work may claim the CTC if the qualifying child for whom the credit is claimed has a valid SSN.
Furthermore, the ODTC, created by the Tax Cuts and Jobs Act, allows taxpayers whose dependents do not meet the requirements of the CTC, including the SSN requirement, to claim this nonrefundable credit.
This proposal would ensure that only individuals who are authorized to work in the United States could claim these credits by extending the SSN requirement for qualifying children to parents on the tax form for the CTC and instituting an SSN requirement for the ODTC.
While this SSN requirement is already current law for the EITC, this proposal also would close an administrative
gap to strengthen enforcement of the provision.
Your Best Defense Against A Bank Levy
A Collection Due Process Hearing, also known as a CDP hearing, maybe your last best chance to resolve a tax controversy and stop a bank levy with the IRS short of tax litigation.
The IRS does not allow taxpayers to request these hearings for “frivolous” reasons. That includes refusing to pay tax on religious or moral grounds.
What Are Some Legitimate Reasons to Request a CDP Hearing?
- You want to seek payment alternatives such as a payment plan or an offer in compromise. To get these plans accepted, you must file all delinquent returns.
- You have a terminal illness and overwhelming medical bills.
- You can’t pay because you’re living on Social Security or unemployment.
- You can’t afford to pay with your income—the IRS has strict guidelines on this type of hardship arrangement.
Generally, the IRS must issue a Notice of Intent to Levy and Right to Request a Hearing before it sends a levy. Requesting a Collection Due Process Hearing
Complete Form 12153 Request for a Collection Due Process Hearing, and send it to the IRS at the address shown on the lien or levy notice within 30 days.
The taxpayer should check the IRS actions that he disagrees with and explain why he disagrees with such actions.
If the taxpayer receives both a lien and a bank levy notice, the taxpayer may appeal both actions.
The taxpayer must identify all reasons for disagreement, and may raise the following issues relating to the unpaid tax:
a. Appropriateness of collection actions;
c. Appropriate spousal defenses; and
d. The existence or amount of the tax, but only if the taxpayer did not receive a notice of deficiency or did not otherwise have an opportunity to dispute the tax liability.
- To preserve the right to go to court, Form 12153 must be sent to the IRS within 30 days of receipt of the notice from the IRS.
- Under CDP, a taxpayer is entitled to only one hearing relating to a lien notice and one hearing relating to a levy notice, for each taxable period.
- If a taxpayer receives a subsequent lien or levy notice after requesting a hearing on an earlier notice, Appeals can consider both matters at the same time.
Ready To Learn More?
Download E-Book On How To Release A Bank Levy
Frequently Asked Questions
What Is A Financial Institution (Bank Account) Levy?
A bank levy is an order from the IRS to seize money from a taxpayer's bank account. The levy can be in the form of all the money in the account or a certain percentage of it. The IRS is usually pretty aggressive in going after levies, so taxpayers should always try to reach out and negotiate with the agency if they're having trouble paying their taxes.
How A Bank Account Levy Works?
A bank levy is when a creditor seizes money from a debtor's bank account to satisfy a debt. The money seized can be used to pay the creditor directly, or it can be used to pay off the debt in full. If there's not enough money in the account to cover the entire debt, the creditor may seize whatever money is in the account, even if that means taking all of the money and leaving the debtor with an empty bank account.
The Federal Government has several options for collecting tax debts, including wage garnishment, asset seizure, and bank levy. Which option they choose depends on several factors, including how much money they think they can get from the debtor and how much hassle they're willing to go
Avoiding A Financial Institution Levy: What Can We Do?
Try to negotiate a payment plan with the IRS. They may be more willing to work with you if they know you're trying to make a payment plan and not just ignoring them. You may be able to avoid legal action and have taxes withheld from your paycheck if you pay off any outstanding debts before they become due.
How Long Does A Levy Stay On Your Bank Account?
A levy stays on your bank account until it's paid in full or released. A levy is a legal seizure of your property to satisfy a debt. The IRS can seize funds from your bank account, wages, or assets to pay your tax debt.
Americans who are struggling financially and find it impossible to make tax payments can apply for IRS back tax relief through the IRS Fresh Start program.
How to Get IRS Back Tax Relief
Has the pandemic caused created you to fall behind on filing your federal income tax year return or paying your federal IRS tax liabilities? If it has, you are not the only one looking for IRS back tax relief.
More than 22 million taxpayers in the United States had either failed to file a current tax return or are behind in paying their IRS taxes due and that was before the pandemic hit.
This relief ranged from postponing certain installment payments related to Installment Agreements and Offers in Compromise to the collection and limiting certain enforcement actions.
Past-Due tax returns were still due and the IRS "continued its work to secure unfiled tax returns" but told taxpayers' in an official statement that they "should file any delinquent 2018 return (and their 2019 return) on or before July 15, 2020" thus moving the April 15th deadline and extending the filing season.
Mission-critical functions continued with certain IRS services such as live assistance on telephones, processing paper tax returns, and responding to correspondence were and still are extremely limited.
Current year Tax return bills did not go away and unpaid taxes for prior years still accrued penalties and interest.
If things have been tight financially, it can be easy to ignore the task of filing and paying your federal taxes to the IRS. Some might think that they can get caught up “next year” when things get better.
However, unfortunately, for many their financial hardship won't get better and they will skip tax filing again. And maybe again allowing the situation to snowball.
Initially, one might think they have gotten away with not paying the IRS, but eventually, the IRS will catch up with you. While procrastinating, the penalties and interest build-up to a dollar amount that is way more than what would have been owed if the returns were filed and the taxes were paid on time.
What Can The IRS Do If You Fail To Get IRS Back Tax Relief?
Internal Revenue Service Restructuring and Reform Act of 1998 was a landmark law that put respect for the individual taxpayer back into the system. It forced the IRS to more fully communicate with the public and grant taxpayers "due process" rights.
But make no mistake about it, the IRS is not a joke and has almost unlimited power. They can take away your car, your house, garnish wages, clean out your bank account and retirement fund, as well as restrict your travel by seizing your passport.
They will take anything of value – jewelry, precious family heirlooms, artwork, your gun collection, even garnish part of your social security earnings.
By then, the penalties and interest will be so high that it will feel like an impossible situation to get out of.
Did you know that some of IRS debt may not be forgiven if one declares bankruptcy? This is correct.
Just the anxiety alone is not worth getting behind on your taxes. Especially at a time when everyone needs to keep their stress level low and their immune system in tip-top shape to fight the coronavirus.
For some, the added stress could cause a more severe illness. And that's the last thing that is needed because in a worst-case scenario, that can lead to lost wages and hospital bills on top of your IRS debt.
Save Your Marriage With IRS Back Tax Relief
You owe it to yourself and your loved ones to begin the journey of coming clean with the IRS. A huge burden will be lifted from your shoulders and you will feel enormous relief when you take the first step toward getting your IRS issues resolved.
Sleep at night with IRS Fresh Start Program
So, let's see if we can begin to relieve some of that anxiety. We will take a look at all of the steps and options that you have when you get behind in filing or paying your federal income taxes to the IRS.
Facts about IRS Back Tax Relief or Tax Debt Resolution
Here are some facts about resolving your debt with the IRS.
1. The IRS wants to work with taxpayers and grant IRS back tax relief The IRS is actually on your side, in a way. The agency is typically eager and happy to collect old debts. It truly wants to work with taxpayers, but there are many, many rules you need to know about and a process to follow.
2. Only 3 types of professionals can represent you before the IRS.
While you can represent yourself in front of the IRS. It might not be the best idea, especially if your debt is very high or you've ignored the situation for a long time.
There are only three types of professionals that can represent your case at the IRS:
1) CPAs, Certified Public Accountants. But be careful: not all CPAs are experienced in IRS representation.
2) EAs, Enrolled Agents. Again, make sure the EA has experience representing clients to the IRS.
3) Attorneys. Same story as above. Not all attorneys are tax attorneys, and even not all tax attorneys have a bustling representation practice.
A great question to ask anyone you are looking to hire is “What is your offer-in-compromise acceptance rate?” 3. You'll probably need to get your bookkeeping caught up.
If you're behind on your taxes, it can often follow that you are behind on your bookkeeping as well. Anyone you hire is going to need good numbers in order to work with you, so a good first step is to catch up on your bookkeeping.
Often, tax resolution professionals provide bookkeeping catch-up services. They'll do the minimum you need in order to get you or your business in compliance.
4. You will probably need to open all of your IRS mail.
Yep, we know you. It's sitting in a stack somewhere in your home. If you haven't opened the mail, start opening it up.
It's helpful for tax professionals to know what type of notice you received. In most cases, tax resolution specialists will know the letter by form number, and that will give them an idea of where to start with your case.
The Internal Revenue Service, state tax agencies, and local entities will send a letter if one of the following happens:
- You miss a deadline for filing payroll tax reports.
- You miss a deadline for filing your personal or corporate income tax returns.
- You miss a deadline for paying the tax due from your personal or corporate income tax returns.
- You miss a deadline for filing and/or paying corporate franchise tax due.
- An amount paid is short or over what the IRS or another tax agency calculates as due.
- The agency notices a discrepancy on any of your tax returns and needs an explanation.
- You have been selected for an audit.
- You fail to respond to previous correspondence.
Getting into Compliance for IRS Back Tax Relief
Here is what you need to do to get into “compliance” with the IRS. You can't have any debt forgiven until you get into compliance.
5. You should almost always file your past due tax returns, but there are some exceptions and filing needs to be done carefully so additional debt is not triggered.
Before any debt can be forgiven, the taxpayer needs to get into compliance.
This means all past-due returns must be filed. You don't have to pay off all your debt at this time; we'll talk about what you need to pay in the next item.
However, there are a couple of really big “ifs” when it comes to this step. In rare situations, filing can trigger more debt. Also, filing a particular way can also trigger more debt.
That's why it just makes sense to get a tax resolution professional involved in every step of this process, so they can keep you out of more trouble than you're already in.
6. Pay your current taxes.
While you don't have to pay all of your old IRS debt, you do have to be paying your current taxes. This is part of getting into compliance. You need to be able to show IRS that you can pay your taxes that are current.
This means that if you have a job as an employee, withholding is being withheld from your current paychecks. Or, if you're an entrepreneur taking draws, that you are currently making your estimated tax payments.
Paying Off Your IRS Debt: Options for IRS Back Tax Relief
Here are the options you have for paying off your IRS debt.
7. Pay off the entire amount, including penalties and interest.
If you can afford to, just pay it off. You will save on legal fees, but if you're a first-time offender, you may be paying penalties and interest that you might have gotten out of if you hired someone.
8. If the IRS has made an error, get the error corrected.
For this you need a Tax Resolution Professional – they can get into the RIS files and find what they have on you. It can be scary to talk to an IRS person directly.
Review return for errors, amend return, file paper return to IRS.
IRS errors usually refer to when the IRS files a return on your behalf (called a "Substitute For Return" or SFR) and only uses the info they have on hand. Therefore, no deductions are used.
9. Spouse issue You may also have a special situation with your spouse if they promised to file and did not or they do not file correctly, or they don't pay.
As a business or an individual taxpayer, you may receive a penalty on top of what you owe to the IRS. It allows compliant taxpayers to request abatement or remove certain penalties.
A penalty abatement is a tax problem resolution designed to fully eliminate or lessen the degree of IRS penalties.
The IRS penalties can roll out penalties that range from imprisonment to civil fines.
Those fines can be over 25 percent of the total owed to the IRS.
If you have tried applying for an offer in compromise and it was rejected, penalty abatement is the next best tax problem resolution to consider.
You can use it when negotiating repayment method terms or an installment agreement.
There are several types of installment agreements:
- In Business; and
11. Understand RCP: Reasonable Collection Potential One of the key concepts in getting IRS back tax relief can be Reasonable Collection Potential or RCP.
It is the basis for making an offer to the IRS as to what you can pay.
RCP is a complicated formula based on the assets and income you currently have.
A tax representation professional can work with you to create a personal budget that can be used to present an offer to the IRS.
We will discuss offers a little later in this article.
When good, hard work is performed to create the budget, the taxpayer's chances of getting their offer accepted by the IRS improve.