What Do You Need to Know About Tax Resolution?
Rock Law Firm
Tax issues can be overwhelming and stressful for individuals and businesses alike. When facing tax problems, it's crucial to understand the concept of tax resolution and how it can help you navigate the complexities of the tax system. In this blog, we will delve into the key aspects of tax resolution, providing you with the knowledge you need to tackle tax-related challenges effectively.
Understanding Tax Resolution
Tax resolution is the process of finding a solution to tax problems with the help of the IRS or tax professionals. Tax issues may arise in different forms, such as unfiled taxes, back taxes, penalties, interest, audits, and tax levies. When you face any of these issues with the IRS, it can be an overwhelming experience. However, understanding how tax resolution works can bring peace of mind in stressful times. Each step of the process involves thorough communication between clients and professionals to accurately understand their situation. This way, they can create tailor-made strategies designed to maximize their chances of obtaining successful results. While some taxpayers prefer avoiding help from professionals such as lawyers or certified public accountants (CPAs), they often end up in a worse situation due to time-sensitive deadlines and ever-changing tax laws that may not be evident to individuals who lack experience.
The Process of IRS Audits
IRS audits refer to when the government agency examines a taxpayer's activities, accounts, or financial data to ensure they meet federal guidelines. An audit can be nerve-wracking, as it often arises from discrepancies found on a person's tax return.
An analogy that can help explain an IRS audit is going through airport security. You feel scared, doing everything by the book to avoid getting into trouble with the TSA. This phenomenon is similar to an IRS audit, in which there are strict rules and regulations that need to be followed during an investigation.
Suppose you're a small business owner receiving a notification from the IRS auditor asking for more information about your expenses for business travel, deductibles, payroll taxes, or charitable donations. Your first reaction is panic, since this could potentially lead to penalties and fines if not handled correctly.
However, every taxpayer has rights throughout the auditing process that should be protected. This includes proper notice before an audit, providing adequate opportunity for the taxpayer to respond, representation before the auditor by an authorized representative or counsel, and maintaining confidentiality based on the Taxpayer Bill of Rights.
Some taxpayers might think fighting an audit notice only prolongs stress. This mentality can worsen if multiple years' returns need extensive reworking, which could take more than six months. On the contrary, successful claims made by competent professionals can significantly reduce taxes owed and exemption age limits.
Disputing IRS Tax Assessments
One of the most common issues faced by taxpayers is being assessed an incorrect amount of taxes owed by the IRS. This can be a frustrating situation for anyone, but thankfully, there are ways to dispute these assessments.
For instance, let's say you received a notice from the IRS stating that you owe $10,000 in back taxes for the previous tax year. However, after reviewing your records and tax returns, you discover that you actually only owe $5,000. In this case, you can dispute the IRS assessment by requesting a transcript protest.
A transcript protest is a process through which taxpayers can challenge an incorrect tax assessment made by the IRS. To do this, you must submit documentation and evidence supporting your claim to the IRS. This may include copies of your tax returns, financial statements, receipts, and any other relevant documents.
Once the IRS receives your protest, they will review all of your information and make a determination about whether their assessment was correct or not. If they find that they made an error in their assessment, they will adjust your account accordingly.
Some taxpayers may be hesitant to dispute an IRS assessment out of fear that it will attract more attention from the agency and lead to further audits or investigations. However, it's important to remember that disputing an incorrect assessment is within your rights as a taxpayer and may ultimately save you money in taxes owed.
Evaluating Options in Tax Liability Resolution
When it comes to settling tax debts and liabilities, there is no one-size-fits-all solution. Each taxpayer's situation is unique and requires a thorough evaluation of all available options.
For example, if you're struggling to make payments on your tax debt due to financial hardship, you may be eligible for 'Currently Not Collectible' (CNC) status. This is an option granted by the IRS for taxpayers who are unable to pay their taxes without experiencing undue economic hardship.
To qualify for CNC status, you must provide evidence that paying your taxes would create a financial hardship, such as risking losing your home or not being able to afford necessary living expenses like food and medical care. Once approved, you can focus on improving your financial situation while the IRS temporarily suspends any collection actions against you.
While achieving CNC status can be a helpful short-term solution for taxpayers experiencing financial difficulties, it's important to remember that interest and penalties will still accrue on the unpaid balance during this time. You may also be required to provide updates on your financial situation periodically. Other options for resolving tax liabilities include negotiating payment plans or entering into an Offer in Compromise agreement with the IRS. It's important to evaluate all available options thoroughly before deciding on a course of action.
'Currently Not Collectible' Status and Its Qualifications
Taxpayers who are unable to pay their tax debt due to financial hardship may qualify for 'currently not collectible' (CNC) status. This means the IRS will temporarily halt collection activities against them until their financial situation improves. The main qualification for CNC status is that the taxpayer must prove they cannot pay their basic living expenses and the tax debt at the same time.
To determine eligibility for CNC status, the IRS will conduct a thorough review of the taxpayer's income, expenses, assets, and liabilities. They will look at all sources of income, including wages, investments, and social security benefits. The IRS will then compare this total income to the allowable expenses for the taxpayer's geographic location, family size, and other factors.
Allowable expenses include food, housing, utilities, transportation, health care costs, and other necessary expenses. If the taxpayer's total allowable expenses exceed their total income, they may be eligible for CNC status.
It's important to note that getting approved for CNC status is not a permanent solution to tax debt, but it can provide temporary relief while taxpayers get their financial affairs in order. While in CNC status, interest and penalties on the unpaid taxes will continue to accrue daily, and there is no time limit as to how long someone can remain in this status.
However, it's crucial for taxpayers to understand that just because they're approved for CNC status once doesn't mean they'll be approved again in the future. The IRS will periodically review the taxpayer's financial situation and may take the CNC status away if the taxpayer's financial situation improves.
If a taxpayer is approved for CNC status, they should use this time to work on improving their financial situation so they can eventually get out of debt. This may include reducing expenses, seeking additional sources of income, or working with a professional tax resolution service to find a permanent solution.
Achieving Tax Penalty Abatement
The IRS assesses penalties on taxpayers for various reasons, such as late filing, underpayment of taxes, and failure to pay estimated taxes. These penalties can add up quickly and make resolving tax debt more challenging. However, in certain situations, taxpayers may be eligible for penalty abatement, which reduces or eliminates these penalties.
To be eligible for penalty abatement, taxpayers must show reasonable cause for their noncompliance. This means they must prove they had a legitimate reason for not paying their taxes on time, such as natural disasters, illness, or death in the family.
If reasonable cause can be established, taxpayers may also qualify for first-time penalty abatement (FTA), which automatically removes certain penalties from their account. To qualify for FTA, taxpayers must have a clean compliance history for the past three years, meaning no late filings or payments during that time.
While penalty abatement can provide much-needed relief to taxpayers struggling with tax debt, it's important to note that not all penalties are eligible for abatement. For example, failure to deposit a penalty related to payroll taxes is generally not eligible for abatement.
It's also worth noting that applying for penalty abatement can be a complex and time-consuming process. This is where professional tax resolution services can come in handy, as they understand the requirements and can help navigate the process.
Think of penalty abatement as a second chance for taxpayers who have a legitimate reason for being unable to comply with their tax obligations. It provides relief from one of the most significant financial burdens of tax debt: the accruing penalties.
Dealing with Back Taxes and Unfiled Returns
Dealing with back taxes and unfiled returns is a common problem for many people, either due to financial hardship or a lack of organization. However, ignoring the issue will only lead to more problems down the line. Therefore, it's vital to address these tax issues as soon as possible before they become overwhelming. One of the most critical first steps in resolving back taxes is filing any missing returns. This requires gathering accurate financial records showing income and expenses for each missed year. Once this is completed, the taxpayer can begin evaluating payment options.
Payment Plans and the Offer in Compromise' Program
For those who owe back taxes but cannot afford to pay the full amount immediately, payment plans are a viable option. Under this arrangement, taxpayers can make monthly payments over an extended period until the debt is paid off. Depending on the individual's circumstances, there may be several payment plan options available.
For instance, suppose someone owes $10,000 in back taxes but cannot pay the entire amount at once. They may qualify for an installment agreement where they make monthly payments over time. The length of time varies depending on how much is owed and the taxpayer's ability to pay; however, they must remain current and compliant during this time to avoid any future issues.
While payment plans offer some relief, they come with a downside. Interest and penalties will continue to accrue until the debt is paid in full, resulting in higher overall costs for the taxpayer. Additionally, if the taxpayer defaults on their payment plan agreement, the IRS can take collection action.
Another option available for those who cannot afford to pay their tax debt in full is the Offer in Compromise (OIC) program.
The OIC program allows taxpayers to settle their debt for less than the amount owed. However, not everyone is eligible for this option, and it can be challenging to navigate without professional assistance. The application process is lengthy and requires extensive financial disclosure to determine eligibility.
To be considered for anything other than full payment of the tax debt, a taxpayer must be current and compliant. Filing all missing returns and not accruing additional taxes are essential components to addressing back taxes successfully.
Role and Selection of Professional Tax Resolution Services
When faced with tax issues, seeking the services of a professional tax resolution firm can be crucial to resolving them. These firms offer various services, depending on the type and complexity of the tax problem. However, choosing the right one is essential to achieving a favorable outcome.
To start with, it is crucial to choose a firm with relevant experience dealing with your specific tax issue. Some firms specialize in certain areas, such as back taxes or payroll recovery, while others have experts in all areas of tax resolution. It is important to read reviews and check for referrals before making a decision.
Another factor to consider when choosing a tax resolution service provider is their level of expertise and qualifications. The Internal Revenue Service (IRS) has set minimum requirements for individuals providing tax-related services under Circular 230. It is vital to ensure that the provider meets these standards and holds the necessary licenses and certifications.
It is also crucial to consider the fees charged by different firms. Tax resolution services can cost anywhere from a thousand dollars for simple cases up to tens of thousands for complex cases, with liabilities ranging into the millions of dollars. It is advisable to compare prices from different providers while considering other factors such as experience and expertise.
Some taxpayers may opt to hire an attorney instead of a tax resolution firm. While attorneys are knowledgeable about IRS regulations, they may not have extensive experience dealing with specific tax-related matters compared to professionals who primarily focus on tax resolution services.
Selecting a reputable tax resolution firm goes beyond finding someone who offers low prices or high-quality services alone; it involves building trust with an experienced professional who demonstrates care, attention to detail, accountability, and a results-oriented approach towards clients' needs, much like how one chooses a family doctor or lawyer.
In conclusion, when faced with tax issues, seeking the services of a professional tax resolution firm can be beneficial in achieving a favorable outcome. Selecting the right service provider with relevant experience and proven expertise, licenses and certifications, and transparent pricing structures can give you peace of mind that your tax issue is being resolved by professionals.
Consult with the Rock Law Firm for Tax resolution.
Are you struggling with tax problems and need a reliable solution? Look no further! Contact Rock Law Firm today and let our experienced attorneys guide you to financial relief and peace of mind. Take the first step towards resolving your tax issues by scheduling a consultation now. Don't let tax challenges hold you back—partner with Rock Law Firm for effective tax resolution services you can trust.