If you owe back taxes and don't file on time, you are subject to failure-to-file and failure-to-pay penalties, and you'll be charged interest on unpaid balance. After that, consider your alternatives for making your IRS payment.
In this article, we describe the repercussions of failing to file or file back taxes on time and your options when you owe the IRS money.
How to handle back taxes and IRS debt
Knowing your alternatives can help you decide what else to do when you are owing the IRS money. In this manner, you could devise a strategy. The following are the most popular options for those who owe money on IRS back taxes but are unable to pay.
Time Needed: 60 minutes
Total Cost: USD 69
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6 Practical Ways to Proceed When You Owe IRS Back Taxes:
Installment settlements are payment schedules that taxpayers might set up with the IRS. The kind of arrangement you qualify for will depend on your circumstances. It includes things like how much you owe in back taxes and when you can make the remaining payments.
It would be best if you didn't establish an installment arrangement when you can pay the remaining payment in full after 120 days.
Cost: The registration price for digital payment arrangements is $149, or $31 if installments are paid digitally. For individuals with modest incomes, the cost is $43. Form 13844 requests a low-income processing fee for IRS back taxes.
What must be done: Fill out Form 9465 or a digital payment agreement. An income report is not required for payment deals of $50,000 or less. Additionally, you may hire a specialist to analyze your problem and choose the best course of action.
Benefits or drawbacks: When you set things up in an installment arrangement, the charge on your outstanding debt drops to 0.25 percent each month unless you repay the entire total according to schedule.
Interest is assessed at the national short-term level + 3%. Generally, the IRS Back Taxes may cancel contracts when you don't make your payments on time.
File 433-A and Document 433-F are needed if the amount is more significant than $50,000. You may make a payment via payroll taxes: direct payment arrangement, Form 2159.
The IRS will give people almost 120 days to collect their whole back tax bill.
- Cost: There is no charge for requesting the extension. The unpaid debt is subject to a 0.5 percent monthly penalty.
What must be done:
- Contact the IRS at (800) 829-1040.
- Fill out the online payment arrangement.
- Hire a professional to manage this.
- Benefits or drawbacks: This method is practical for taxpayers who only have a limited time to settle their whole tax burden.
The IRS back taxes will tack on credit at the national short-term total rate of 3%. (Every three months, interest may fluctuate.) Using short-term renewals, you can save the registration cost for installment payments but not the missed payment interest charges.
The IRS provides choices, such as the presently not collectible status and the proposal in the settlement, for people in difficult situations.
You will only be eligible for a hardship delay when you demonstrate that, according to IRS Back Taxes financial guidelines, paying higher taxes you owe might put you in a difficult financial situation.
Fees: There is no cost to request a hardship prolongation. There are no fines, although interest is computed at the national short-term rate plus 3%. (Every three months, interest may fluctuate).
What must be done: Apply for a time extension to pay the back taxes because of hardship using Tax Forms 1127. A list of your financial assets is required.
You might request the financial assistance of a close friend or relative. Fees and expenses will differ significantly based on the lender. Although it could be a cheap choice, you should exercise caution.
When your 401(k) program allows this type of borrowing, you are usually limited to a 50% loan with a $50,000 maximum and five years to repay it.
Cost or fee: There may be a small charge. The strategy also has to include interest. For further information, speak with the plan manager.
Benefits and drawbacks: If it's legal, borrowing money through your 401(k) plan might be a quick and affordable way to cover any taxes you owe now or in the past. If you don't return a loan, it might harm your pension funds in the future.
When you don't complete regular payments of back taxes, quit your job without paying off the loan, and your plan expires, the loan is considered a prohibited payout. A taxable payout is also subject to the 10 percent premature transfer penalty unless you're under 59.5 years of age.
There are several commercial entities for this choice that offer back tax help.
- Fees or costs: Vary; typically between $2.49 and $3.95 (bank card) or 1.87 to 2.35 percent of the outstanding tax debt (credit card). What must be done: For a group of service companies, contact the IRS Back Taxes.
- Benefits or drawbacks: This payment is practical and allows taxpayers with back taxes help and more control and repayment flexibility.
- It gives excellent IRS back tax relief. They might also earn points, mileage, or other incentives with their credit card.
A higher account balance, meanwhile, could negatively influence your credit rating, and those with overwhelming consumer debt might not want to pay using credit.
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
Do federal tax liens expire?
The answer is yes! The Collection Statute Expiration Date (CSED) marks the end of the collection period, the time period established by law for the IRS to collect taxes. The CSED is normally ten years from the date of the assessment.
The Collection Statute Expires After 10 Years.
The collection period, which refers to the time period allowed by law for the IRS to collect taxes, expires on the Collection Statute Expiration Date (CSED). The CSED is typically ten years from the date of the assessment..
Tax assessments that have a specific Collection Statute Expiration Date include, but are not restricted to:
- Original tax assessments from voluntarily filed returns
- Tax assessments arising from amended return filings
- Substitute for Return tax assessments made by the IRS
- Audit assessments
- Civil penalty assessments
The IRS’s Time to Collect can be Suspended and/or Extended.
Certain circumstances have the potential to delay or lengthen the original ten-year CSED.
In general, when the IRS is unable to collect tax, the CSED or Collection Statute Expiration Date is suspended. The term it is suspended for extends the time the IRS has to collect. In other words, you have a maximum of ten years to collect after the first ten years. Although there are rare exceptions, the IRS typically refrains from taking levy action while the collection period is stopped.
In contrast, the collection period is tolled when the IRS is allowed by law to add additional time to the initial ten-year collection period. The IRS is allowed to continue collecting when the collection period is extended.
Typical Events That May Have an Impact on the CSED
The CSED is impacted by a number of statutes. The completion of the collection period may be tolled by more than one action. The time for multiple events is not added more than once where one event may overlap another one because overlapping conditions take place simultaneously.
The initial ten-year collection period is postponed or put on hold during the time that you are filing an Installment Agreement (IA). Until an IA may be reviewed, established, or the request is withdrawn or rejected, an IA request is usually in the pending status.
The collection period is suspended for 30 days if the proposed IA is denied. Similar to this, the running of the collection period is halted for 30 days if you fall behind on your IA payments and the IRS decides to terminate the IA.
Last but not least, the collection period is suspended from the time it begins to run until the day the appealed decision becomes final if you use your right to appeal either an IA rejection or termination. Please see Topic 202.
The running of the collection period is stopped while your bankruptcy is still pending if you file for bankruptcy. A bankruptcy is often considered pending from the moment a petition is filed until it is discharged, dismissed, or closed. Upon the conclusion of the bankruptcy, the collecting time is further extended for a further 6 months. Check out Publication 908.
The collection period is suspended if you submit an Offer in Compromise (OIC), from the time it is pending to the time it is accepted, returned, withdrew, or refused. If your Offer is turned down, the collection period will be postponed for an additional 30 days and for the duration of the appeal process if you decide to appeal the denial. Please see Topic 204.
When the IRS receives a request for a Collection Due Process (CDP) hearing, the collection period is put on hold until either the taxpayer withdraws the request or the CDP determination is final, including any court appeals. The collecting period is extended to 90 days from the date of the final determination if there are less than 90 days until the CSED at the time the determination becomes final. Please consult Publication 1660.
If you submit an innocent spouse claim, only the running of the requesting spouse's collection period is suspended from the date the innocent spouse claim was submitted until the earlier of the dates a waiver is submitted, the 90-day petitioning tax court deadline expires, or, if tax court is requested, the date the tax court decision becomes final, plus, in each case, the collection period is extended by an additional 60 days. Observe Topic 205.
The IRS is prohibited from starting an administrative or judicial collection process for the assessed debt once a particular collection period has passed.
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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.
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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.
You can pay your taxes via the IRS Fresh Start program also known as IRS fresh start initiative program.
Sometimes, we forget to file our returns. Some people have it worse—they go through difficult times and no longer have the financial means to pay their taxes.
If you are facing an IRS tax debt problem, what should you do? I am often asked, “what are the IRS fresh start programs and how can I get them?” Today, that is exactly what I am sharing with you. IRS fresh start programs reviews are also available.
Offer in Compromise
The Offer in Compromise is a tax program from the IRSirs fresh start initiative program where you can settle your tax debts less than the full amount that you owe.
It allows you to settle your financial burden without paying your entire tax liability.
The thing with this program is that the IRS considers several factors before your application gets approved.
When you apply for the IRS offer in Compromise, here are some of the things you need to think about:
- Ability to pay – the IRS will determine your capacity to pay. Among other things, they will investigate your financial status, your assets, and many other things.
- Income – the government needs to know whether or not you have a source of income. If you do, they need to know how much you are earning.
- Expenses – they also check what expenses you have. If you are in debt, they need to validate this with creditors.
- Asset equity – the government will check if you own properties such as cars, lots, and houses. If there is a possibility of selling these assets legitimately, they will take this into the equation before they decide whether you qualify for the IRS payment plan or not.
Not everybody is eligible for this program. The first thing you have to do is to apply for it. However, you cannot apply for eligibility if you did not file tax returns for the previous year. It is best to consult a professional to get help.
Who qualifies for the IRS Fresh Start Program?
|Use this tool to see if you may be eligible for an offer in compromise (OIC).|
Tax Debt Relief
Tax debt relief is a government program that makes it easier to pay your back taxes. It allows people to avoid huge penalties and jail time. We can call it the IRS hardship program since it is for people going through financial troubles.
The tax debt relief comes in the form of a payment plan or a settlement. In a payment plan, the IRS will give you some months to pay what you owe. In return, you have to pay what you owe in increments.
In a settlement, the IRS will charge less than what you owe. You will pay a lump sum for now and then pay the rest within several months.
Before you even consider doing this, you need to have a plan. For example, you need to know your options before the deadline, which is April 15. The last thing you want is to go to the IRS because someone taught you how to settle with the IRS by yourself and then realize that you do not qualify.
Also, I want to point out that the tax debt relief program is not for everybody. At best, it is reserved or people who:
- Went through a disaster like a hurricane or an earthquake
- Have an unexpectedly high tax because of a surge in income
There are several options if you apply for tax debt relief programs, which I will describe below.
- Installment Agreement – you pay your back taxes in multiple increments. Usually, the IRS could grant you up to 72 months to pay all your debts. Please note that this only applies if what you owe is less than $50,000.
- Innocent Spouse Relief – if you went through a divorce and you can prove that you have no liability with your ex-spouse’s taxes, you can get relief. Before you qualify, you must file taxes jointly and then prove your innocence.
- Offer in Compromise – in this situation, you make an offer to the IRS. You will pay less than what you should pay.
- Currently Not Collectible – you can only get this if you can prove that paying any amount of tax is detrimental to your living condition. It does not absolve you from paying, but the IRS will not bug you for not paying until you have recuperated financially.
If you think you cannot qualify for the tax debt relief program, your only course of action is to pay what you owe. You can use a credit card, get a HELOC, or borrow from your 401K. You can also learn a new skill like freelance writing and earn money on the side.
While there are ludicrous stories of people paying only $10 for a tax debt of $10,000, this kind of settlement rarely happens. If at all, these stories get highlighted by the media because they are fantastic stories that get a wide audience.
However, it is rather an exception than the norm. The IRS will do what it can to charge you what you owe. You can only get significant abatement from your tax debts if you can prove that you are in deep financial trouble.
IRS Fresh Start Program Initiative
Some people asked me about the IRS one time forgiveness 2021. I thought I might as well explain it here.
It is the same as what I have explained earlier. Some people think that they can get away with taxes, and some even call it the IRS fresh start program.
This information is wrong. If anything, the IRS does not cancel out your debt. You still have to pay what you owe, or at least a portion of it.
For this forgiveness program to work, the following things must happen:
- You have to apply to the program and secure an acceptance.
- You must agree to stay current in your tax returns moving forward
- You must agree with the terms that the IRS asks of you
- You must allow the IRS to review your financial status from time to time
- You pay your taxes as agreed with the IRS
As you can see, your only recourse is to settle. There is rarely any instance that the IRS will forgive your taxes. Even businesses that file for bankruptcy have to pay. They sell their assets, and they pay part of their due taxes from this sale.
You cannot get away from taxes. The first thing you have to do right now is to change your mindset. Save money so if something bad happens, you can still pay what you owe. The last thing that you want is to deal with the government.
Make it a regular habit to set aside money from what you earned. Keep them and then consult a professional accountant who will guide you through the entire process. Get an accountant you can trust, not one who would embezzle your money.
Summary: What Are the IRS Tax Relief Programs?
The tax debt relief programs of the IRS come in many forms. While you can apply for these things on your own, it is best to consult an accountant. It is not unusual for me to hear from clients how they got misinformed.
They have expectations that never came to fruition, all because they relied so much on advice from the internet or people who made unusual claims. Remember that the IRS deals with tax cases on a case per case basis—what worked for one person does not mean it will work for you.
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.
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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.