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.
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.
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.
Do You Owe The IRS Money?
Possible IRS Tax Resolution Strategies to Set Your Mind at Ease
Even for honest taxpayers, the IRS can be frightening. Unlike most other government agencies, it has the power to attach your wages, freeze your bank account and even confiscate your property, and that is enough to send a chill up the spine of any taxpayer.
If you receive a letter from the IRS saying that you owe additional taxes, it is important not to panic. It may be a frightening situation, but there are things you can do to settle your tax debt and get back on the good side of the agency.
Taxpayers have options when resolving tax disputes and paying additional taxes due and knowing what those options are can set your mind at ease.
As an expert Tax Resolution Firm, we encourage all readers facing a tax problem to contact us for a free consultation!
Regardless, it’s important to an educated taxpayer so here are three strategies you can use to resolve your tax debt and get on with the rest of your life. Not all of these options will be right for everyone, but it is important to be informed as a taxpayer.
The IRS may be frightening, but they can be surprisingly reasonable - if you know what to say and how to approach the situation.
Review the Amount Owed to the IRS and Your Tax Return in Question
If the IRS says you owe money, you should not assume they are right. The tax agency makes mistakes, as do tax prepares and ordinary taxpayers.
Whether you filed your taxes on your own or hired someone else to do it for you, it is important to examine your return and compare what you find with what they are claiming.
It pays to seek professional help for this tax review, even if you filed your own taxes.
A professional with IRS experience may uncover errors and inconsistencies you would have missed on your own, and that could end up saving you money.
There is no guarantee this review will eliminate the extra taxes they say you owe, but it never hurts to be sure. There have been many cases in which taxpayers who thought they owed money to the IRS ended up owing nothing - or even being owed a refund from the IRS.
Set Up a Payment Plan
Getting a notice of additional tax due from the IRS is frightening if you cannot afford to pay what the agency says you owe. Keep in mind, however, that you do not have to pay the bill all at once.
The IRS is often willing to set up payment plans with taxpayers, and those payment plans could make paying what you owe easier and less stressful. Once again, seek professional help and guidance here - the IRS can drive a hard bargain, and you do not want to end up with a payment plan you cannot afford.
If you fall behind on the payment plan you agreed to, you could be subject to additional enforcement action, including the tax agency garnering your paycheck or even freezing your bank accounts. Getting the help of a tax resolution professional upfront can help you avoid these serious consequences.
Explore an Offer in Compromise Settlement
If you truly cannot pay the money the IRS claims you owe, you may work out a smaller payment. The IRS may not advertise this program, but the tax agency is often willing to work with taxpayers by accepting lesser amounts if those taxpayers have few assets and a limited income. Sometimes these can be for a fraction of what’s owed if you qualify. We offer a free no obligation consultation to find out if you qualify.
If you plan to explore this last option, I advise you to work with a tax resolution expert. These compromise offers can be complicated, with legalese and language that can be difficult to understand.
You do not want to make a misstep here, and you want to ensure that paying the compromised account will result in a complete settlement of your tax bill.
Few things are as frightening as getting a letter from the IRS. That official-looking letterhead is bad enough, but what the letter says is even worse.
If you receive such a letter, you need to take positive steps right away. Ignoring the situation will not make it go away, and the sooner you start exploring your tax resolution options the better off you will be.
If you want the help of an expert tax resolution professional who knows how to navigate the IRS maze, reach out to our firm and we’ll schedule a no-obligation confidential consultation to explain your options to resolve your tax problem.
Call #TheCPATaxProblemSolver toll-free at 844-888-1040 TODAY and SLEEP MUCH MUCH BETTER TONIGHT!
Would you rather have financial luck or be good with money? Most financial challenges aren't just because of unfortunate events. They 're usually founded on poor financial habits. Some may call it financial luck, but most money challenges can be dealt with with using effective habits. Even a minor unforeseen cost can be crippling, with unsuitable financial practices.
While there are many negative financial habits that one might be guilty of committing, there are a couple that are particularly damaging.
Be careful not to acquire those poor financial habits:
- A failure to keep saving money. Consistently free from financial challenges, people have a consistent saving habit. There's always money to handle the inevitable financial emergencies if you save a portion of your paycheck every time you get paid.
- Make yourself a guarantee that you'll save a certain amount of each paycheck.
- Over-spending. The more you invest, the less you need to save. That is so plain. Over-spending leaves you vulnerable and more likely to face financial difficulties. Very excessive spending results in debt accumulation which is the ultimate financial curse.
- Look for other opportunities to have fun other than wasting money that you just don't need to spend.
- Set a tough cap on how much you can spend per month.
- Credit card overuse and other forms of debt. Debt poses a huge challenge to financial safety and stability. Debt can be cumbersome to eliminate and most debt comes with costly terms that make debt a particularly expensive way to spend money.
- Guard against debt. If you have to use debt to buy something, particularly something that is not necessary, then it's a safe bet you can't afford.
- Ignore the bills. No one enjoys paying bills. Period. Bills, though, have a tendency to pile up and have to be paid eventually. You're also wasting money during the time that should go toward your bills. That is an incredible error.
- Every week, spend a few minutes paying your bills. Make it a ritual that you execute one day a week.
- Charge fines, fees, and over-interest daily. Knew that credit card companies earn more revenue from late fees than they earn from interest? The penalties for ATMs are high. These interest-free loans have enormous interest penalties unless you pay them off on time.
- Pay the bills in due time. Using ATMs that do not claim a fee.
For information on tax debt relief go here!
- Raiding your savings, retirement and investment accounts. There may be times when you might be justified to dip into your savings or other accounts, just be sure it's for a good reason.
- Cashing out part of your 401(k) for a trip to Disney World is not a good reason for that. Wiping out your savings for a vintage car is probably not even a smart idea.
- Retirement accounts are used to invest. Investment and retirement plans are built to invest and create wealth. When you take money out of them they don't work well.
- No budget. And no budget. We just need a budget. Just one billionaire will have to have a budget. Financial limits are set in budgets, and financial limits help avoid financial problems.
- Too much dining out. Is difficult to eat out. Even fast food is more costly than a homemade meal. Homemade meals often prove to be safer.
Were you guilty of any of those attitudes?
Think of someone you know who does have a good career but who appears to be struggling financially. Count how many of the negative habits that person commits is guilty of. Then imagine someone you know, who never seems to be financially struggling. So many of these horrible habits have they?
The findings will come as no surprise!
Positive habits result in positive outcomes. Make sure your financial activities take you to a position you want to be in.