- 11 min read
- Review the complex rules and disclosure requirements of IRS tax resolution.
- Negotiate a reduction of the tax obligation or create a manageable repayment plan.
- End levies and wage garnishment.
Why Consider Professional Tax Relief?
If you have a significant amount of IRS tax debt and are struggling or unable to pay off the debt, then a professional tax relief service may be right for you. While a taxpayer can choose to speak with the IRS directly, the IRS is focused on maximum collections as opposed to representing the taxpayer's interests. It can be a wise investment to have an experienced tax professional assist you.
A professional tax relief service can be effective for a variety of IRS-related services, such as helping you to:
- Assess a taxpayers accurate liability
- Prepare and file back tax returns / correct IRS substitute for returns (SFR’s) - Compliance
- Negotiate a reduction of the tax obligation or create a manageable repayment plan
- Stop IRS Levy and Wage Garnishment
- Assist with Unpaid Payroll Taxes
You are required to file a 1040 tax return for any year that you earned enough income to meet the minimum filing requirements. For tax year 2009, which was due in April, 2010, a single W-2 wage-earner was required to file a return if he or she earned more than $9,350. A married couple filing a joint return was required to file a return if the income was greater than $18,700. For anyone who received 1099 income, the minimum filing requirement was $400. It is crucial that you file a return for each year earned enough to be required to file. Not filing a return can have serious consequences.
One problem that can result from not filing returns is that the IRS can file a return for you. An IRS-filed return is called a 'substitute for return' (SFR), as it is a return the IRS files for you to substitute for the one you neglected to file. An SFR will not show any deductions that you are entitled to claim, such as the home mortgage interest deduction or deductions for dependents. This can result in a hugely inflated tax bill. You can replace an SFR with an accurate return that shows your legitimate deductions and the IRS will recalculate your tax debt. Still, you do not want to let things get to that point, as once an SFR assessment is in place, IRS collection efforts are the next step. Sometimes, before the SFR is replaced, the IRS has already moved to levy wages or bank accounts.
Anytime that your tax returns are complex, you should utilize the services of a tax expert or tax relief firm. This will result in the lowest possible tax obligation for you and also increase your peace of mind, as it is far less likely that a professionally prepared return will be audited compared to one prepared by an individual.
If you have a tax debt you cannot afford to pay back, you should review the IRS' tax debt settlement program. You have probably seen ads on television that promise help to settle tax debts with the IRS for 'pennies on the dollar,' through the IRS Offer in Compromise (OIC) program. Despite the claims in the ads, offers-in-compromise are not simple or common. Not everyone who submits an OIC qualifies; if everyone qualified no one would choose to pay a tax debt in full. In order to qualify for an OIC, a taxpayer must be in a financial hardship that demonstrates an inability to repay the debt within the remaining time the IRS has to collect on the debt. The financial hardship is based on an examination of the taxpayer's household income, monthly allowable living expenses, and the assets in the taxpayer's name.
Even if a taxpayer qualifies for an OIC, the amount that the IRS will accept in a settlement depends on how accurately the OIC is prepared. Only about 15% of OIC applications that are submitted by individuals are approved by the IRS. The success rate of competent tax professionals is much higher. This is due, in large part, to a professional not submitting a case that does not meet the OIC standards. OICs are not a speedy process. Most cases take over a year to move through the system. IRS rules require the IRS to decide within two years from the date of submission of the OIC. If they do not finalize an answer within two years, the OIC is automatically accepted. If you feel that you cannot afford to pay your tax debt, contact a tax professional with a proven record of successfully negotiating IRS offers in compromise.
Monthly Payment Plan
If you do not qualify for an OIC and are deemed able to pay all or most of the your debts, another option is to negotiate a monthly installment agreement. Individuals who owe less than $25,000 can often apply for these themselves, if they are able to pay the entire debt, as well as the interest that will be added on, within five years. A tax professional should help you if you feel you cannot pay the debt in full in five years, wish to apply for a partial installment plan, or owe more than $25,000 to the IRS. Once the tax debt is over $25,000, the IRS no longer offers the option of paying the debt within five years. The IRS becomes more aggressive in its collection efforts for a debt over $25,000, demanding a payment that leaves the taxpayer only with enough money to cover basic living expenses. Importantly, the IRS' definition of basic living expenses quite narrow. It can be hard to live on what the IRS thinks are reasonable living expenses. In the PPIA, a tax professional can help you get a small monthly payment that will continue each month until the tax debt expires due to the 10 year statute of limitations. Again, having a tax professional advocate for you can be the best way to work within the IRS system to obtain the smallest monthly payment plan.
Protect Yourself from IRS Levies
It can be the case that the first time that you realize that you owe the IRS is when you receive a Notice of Intent to Levy. A Notice of Intent to Levy is a written warning that is mailed to you, alerting you that the IRS is attempting to collect on a tax debt. Notices of Intent to Levy can come with a 10-day warning or a 30-day warning periods, giving you limited time to action to protect yourself. You should never ignore a Notice of Intent to Levy.
A threatened levy can be stopped, if the taxpayer takes the proper action. Generally, stopping a levy requires that all tax returns are filed up to date. Also, a threatened levy will be stopped if the taxpayer pays the tax debt in full, contacts the IRS and makes payment arrangements, or can prove to the IRS that he or she is in a financial hardship and lacks the ability to make any payment on the tax debt. To prove a financial hardship, the taxpayer must submit a financial disclosure to the IRS and meet the IRS' criteria for financial hardship. It is important to remember that the IRS' definition of a financial hardship is usually narrower than the taxpayer's definition.
If a taxpayer does not take the proper action after receiving the Notice of Intent to Levy, then the IRS will proceed by issuing a Notice of Levy. The Notice of Levy will show the taxpayer's name, the date the levy was issued, the assessment for one or all of the years owed, any additional penalties and interest that have been added on, and the type of tax debt owed (1040/personal, 941/payroll, or civil penalties). Once a levy is received, the taxpayer is at great risk of suffering immediate harm.
A copy of the levy notice will be sent to anyone who has paid the taxpayer wages in the past or issued a 1099 for services the taxpayer rendered. An employer or business owner/contractor that receives a Notice of Levy for an employee or sub-contractor is required to withhold a portion of the wages/income due and remit them directly to the IRS. The IRS can levy a huge percentage of a person's pay. For a wage-earner, the amount levied will depend on the income and the size of the wage-earner's family. In 2010, a single person that is levied by the IRS can be left with as little as $109.62 per week! The amount of a wage-earner's income that is exempt from IRS levy can be viewed on the IRS' Web site, by looking up the Form 668-W. A new 668-W is issued each year. Once initiated, the wage levy will stay in place on each and every paycheck until the tax debt is paid off, unless that taxpayer takes the proper steps. For a 1099 recipient, a wage levy can be even more disastrous. Anyone who has previously submitted a 1099 for the taxpayer to the IRS will receive the Notice of Levy. This will prevent the 1099 recipient from receiving any income from the business or contractor until the levy is stopped.
A copy of the levy will also be sent to any bank that the IRS is aware of in which the taxpayer holds an account. Any funds in the account that are equal to or less than the size of the tax debt will be frozen by the bank and sent to the IRS 21 days later. Any account that the taxpayer is listed on is at risk of levy, even if held jointly with someone who has no part in the tax debt. Funds that are deposited in the bank account after a levy is received by the bank are not subject to the levy and will not be sent to the IRS, but a bank account can be levied repeatedly.
It is possible, but difficult, to act within the 21 days get the IRS to drop the levy. However, options that existed before the levy was received, such as setting up a payment plan while not having the bank account funds remitted to the IRS are no longer available. Often, by the time a Notice of Levy is received, even if immediate action is taken to stop the levy, the levy will affect the taxpayer's wages or bank accounts. While the IRS does have authority to seize other assets, such as a house or a car, to collect on a tax debt, it almost never does so, except in cases of tax fraud.
A business incurs payroll tax obligations when it has employees. A business that does not keep on top of its payroll taxes faces serious repercussions. The IRS is even more aggressive when collecting on payroll taxes than they are with income taxes. In part, this is because the employees will be credited on their tax returns for all the monies that were withheld by the employer for income taxes. When the employer keeps the money withheld from the employees, it is as if the IRS is suffering a double loss. A payroll tax debt is far likelier than a standard tax debt to result in an IRS revenue officer being assigned to collect on the debt. Revenue officers have great authority and there is no avoiding them once they appear on the scene. Attempting to avoid the revenue officer can result in a business being forcibly closed by the IRS. The payroll tax debt does not go away once the business is closed, but becomes the personal liability of the owner or principals of the business. Anytime a payroll tax problem has grown or a revenue officer appears, make sure to speak with a tax professional.
It may be possible to reduce the amount of penalties that the IRS has added to a tax debt, through a process called penalty abatement. In order to have a successful claim for penalty abatement, you need to prove to the IRS that the penalty was incurred beyond your control to avoid it. For instance, if you were hospitalized on April 1st and were still in the hospital when the tax return was due on April 15th, the IRS would likely accept your claim for penalty abatement and waive the late-filing penalty, understanding that it was reasonable that you did not file your return on time. A competent professional can help you determine if you have a valid claim for penalty abatement. Because of the fee a professional will charge, it only makes sense to hire a professional to work on your penalty abatement case if the savings of the abatement exceed the cost of the fees.
If you have an IRS tax debt, explore all of your options. It is crucial for you to understand the full extent of your tax problems. Make sure that your returns are prepared to result in the lowest legal tax debt. When deciding what to do about an existing tax debt, factor in the penalties and interest the IRS tacks on month to month. It is also important to be fully informed about all IRS collection efforts, so you can protect yourself as best as possible from IRS levies, liens, or wage garnishments. It is best to contact the IRS or an experienced tax professional for debt help as soon as you receive a notice or aware that you are going to have a tax problem.
Be sure to check out tax relief reviews of firms that offer IRS debt advisory services, including Freedom Tax Relief, Tax Masters and JK Harris among others. Do your homework to figure out what you owe, what your options are, and who the best tax representation firm is for your needs.