Of all the mail you could receive that would put a knot in your stomach, a letter from the IRS is high on the list.
Maybe you’ve had cash flow problems, bookkeeping problems, liquidity problems, they can all contribute. But now you have a tax problem. Not just that, you have an IRS problem.
It’s official. The knot is growing bigger.
IRS problems don’t go away on their own. They don’t even sit quietly and stay the same. They grow. If you don’t take action to resolve the problem, it can lead to all kinds of actions being taken against you to collect the allegedly owed tax, whether it’s true or not.
What is tax resolution?
Tax resolution is simply the process of resolving an issue with the IRS. Although the definition may be simple, the process often isn’t. The tax code is very complicated and the IRS has far more resources than you do. Figuring out the truth and finding the best solution can be very complicated. When we help our clients through an IRS tax resolution, we go
through three phases:
Investigate
Before we can resolve a tax issue, we need to have all the facts. Often, the numbers the taxpayer is using and the numbers the IRS is using don’t match. If an error led to the tax issue in the first place, this is probably true.
Investigating the issue starts with requesting a tax transcript from the IRS showing all the information they have on your file. The transcript lets you know what they know and compare your records to the records on the IRS’s end. Simple errors can often be found by making that comparison. Any misinformation the IRS may have about you is also uncovered.
Comply
If your tax issue involves being behind on filing, this is the time to get current.
Even if payment of taxes isn’t possible and a payment plan is needed, making sure all tax returns are accurately filed and currently helps avoid additional problems and lets you see where you are and what (if anything) is due.
Resolve
Once all tax returns are filed and the issue has been clarified, the actual resolution takes place. This is your representation before the IRS (and possibly even tax court) to reach an agreement on what’s owed and how it will be paid.
This is where payment plans are negotiated, offers in compromise are settled, and a plan is reached to move forward and resolve the issue.
What actions can the IRS take if I owe taxes?
As a government agency, the IRS has a lot of power to collect the money it’s owed. They can take a number of unpleasant steps to collect money if you don’t resolve the issue quickly:
Interest
Any unpaid tax amount gathers interest from the time it was due until the time it’s paid. This can add up quickly on large sums and, if the process is lengthy, there can be a big interest charge stack on top of your tax bill.
The IRS can audit returns for several years, so you may have accumulated years of interest before you even knew there was an issue.
Penalties
In addition to interest, penalties can be added to your tax bill if you fail to file, file after the deadline, or file but fail to pay.
If the IRS believes you intentionally misfiled to evade taxes, there will be additional penalties added. You’ll need to prove you didn’t evade taxes as part of the resolution to get those penalties reversed.
Liens & Levies
Even your cable company can charge you interest and penalties on unpaid bills. Liens and levies are where the IRS starts to get nasty when they want to collect taxes.
If they feel you own unpaid tax, they can place a lien on your property. Liens are a legal claim to your property, preventing you from selling it and limiting how you can use it until the tax is paid and the lien is released.
The IRS can also levy property. Unlike a lien, which is a claim on property, a levy involves the IRS actually taking your property to help pay off your tax debt.
Everything from real estate and business assets to cash in bank accounts could potentially be levied by the IRS.
Garnishments
Another tool the IRS uses to collect money is wage garnishment. Similar to a levy, garnishment involves the IRS contacting your employer and having a portion of your paycheck sent directly to the IRS before it ever touches your bank account.
What are my options?
If the IRS’s claim that you owe unpaid taxes is false, it may be possible to disprove it.
Finding an error in the tax transcript or clearing up an honest mistake in your own tax return could resolve the issue. If not, there are a number of possible options to reduce your tax debt and make it less of a burden to pay.
Offer in Compromise
If your income and assets are insufficient to pay the tax, it may be possible to reach an offer in compromise. This is a settlement for a lower tax payment allowing you to resolve the issue for less than the full amount claimed by the IRS.
This is a great outcome, second only to getting the tax debt completely removed, but it takes serious supporting evidence to get the IRS to compromise. They’re in a powerful position, with plenty of time and resources and options for collecting your money.
Penalty & Interest Abatement
It may be possible to reduce or eliminate the portion of your tax debt made up of penalties and interest. In some cases, this is a very large sum. If while reviewing tax transcripts, you’ve found reasons the interest and penalties shouldn’t exist, abatement may be an option for you.
Currently Not Collectible
If your current financial situation makes payment of your tax debt impossible, currently not
the collectible status could suspend the collection of your taxes for a period of time. The debt isn’t eliminated and interest continues to accrue, but payment is delayed until your financial situation allows. Installment Agreements Sometimes your situation doesn’t leave any room to reduce or eliminate your tax debt. You’re going to have to pay the amount the IRS tells you to pay. But that doesn’t mean you have to pay it all upfront in one lump sum. The most commonly available solution for taxpayers is an installment agreement.
Even if other options aren’t available, you can set up an installment plan to pay the taxes owed over a period of time that fits your budget.
Can I represent myself?
Not unlike a courtroom, taxpayers have the right to represent themselves and deal directly with the IRS. Also similar to a court, it’s typically a bad idea unless the issue is VERY small and straightforward.
If we keep following the courtroom metaphor, representing yourself is a bit like going into a court where the other party is also the judge. Unless you end up in tax court, the IRS itself will be deciding the outcome and whether or not your arguments are convincing. That’s not a very friendly environment to be representing yourself with no professional help.
We highly recommend working with a tax resolution specialist and allowing all communication with the IRS to go through them. This includes bringing them all mailed correspondence from the IRS before responding and having your resolution specialist reach out by phone on your behalf.
The IRS is in a powerful position and they’ve done this thousands and thousands of times before. They have massive resources that can be overwhelming to a taxpayer and often unclear (does that remind you of the tax code?).
How can a tax resolution professional help?
When working with our clients at BSM Accounting Services, we improve their outcomes and make the whole process easier. The stress of dealing with the IRS can be overwhelming.
Knowing that you have experienced professionals on your side greatly reduces that stress. We also have a deep understanding of the tax code and the tax resolution process, so we can approach it strategically with very few surprises.
Working with a professional can save you time, money, and stress. If your case does end up in tax court, a tax resolution professional will be there for you to handle everything.
Do you have a tax matter in need of resolution?
We’re here to make your resolution as painless as possible so you can get back to your life.
Call us today at (973) 478-4846 to schedule an appointment and go over your tax resolution options.
