Tax Resolution

Tax resolution is a means to turn an individual’s, or business’, tax liability situation around. In order to accomplish that, there needs to be a complete record of the state or federal tax account. The resolution is the proposal for submission to the IRS or state tax agency that comes from an assessment of an in-depth review of financial information and documentation.

Tax delinquency sets off a series of penalties and interest that, basically, pushes a tax situation from bad to worse quickly. Quite often, in working towards a resolution, added penalties to tax liabilities may be removed. Penalty abatement applies to penalties only. The IRS does not abate interest. An individual must demonstrate uncontrollable reasons in support of their non-compliant behavior – like missed payments or filing deadlines. Taxpayers must also show that they are working towards a solution to file any delinquent forms and paying any liabilities to qualify for penalty abatement.

A tax resolution for those teetering on the edge of financial hardship comes in the form of an Offer in Compromise. In this situation, the IRS assesses the complete financial package of income, expenses, and assets to determine the maximum amount they could receive from the taxpayer without causing financial hardship. Once the assessment is made, the remainder of the tax debt is forgiven. The taxpayer is released from their liability when they meet the conditions of their agreement with the IRS. Offers in Compromise do not come lightly. They can be difficult to achieve because the IRS is, essentially, giving the taxpayer a clean slate for a substantial discount on what the taxpayer actually owes.

Installment Agreements are a popular method of satisfying tax liabilities by allowing taxpayers to pay off their balance over a period of time – from six (6) months to ten (10) years. The “monthly” payment takes into account a taxpayer’s personal, property and other financial information. These agreements come in many forms to satisfy the current liabilities of the taxpayer to state and federal tax agencies while keeping current with future taxes as they come along.

• A Traditional Installment Agreement is a simple installment payment plan where the taxpayer settles the complete tax debt over a series of many monthly payments. The amount due is simply divided into monthly payments over a maximum of ten (10) years. It is based on the taxpayer’s current financial situation. It allows the taxpayer to pay off their tax obligations over time without being under the threat of wage garnishment or levies;
• For taxpayers with substantial assets or disposable income, and a tax balance of $50,000.00 or less, there is a Streamline Installment Agreement. In this agreement, the total balance, including accrued penalties and interest, is paid to the IRS or state in five (5) – six (6) years. While there are these strict guidelines for this agreement, it can be preferred by some taxpayers – as it does not require disclosure of all of a taxpayer’s financial information to the federal or state tax agencies;
• Taxpayers currently obligated to other large expenses such as car loans or legal attachments such as child support have options available, such as  Stair Step Agreement. This Agreement allows for a shift in priorities, where the larger expense is focused on and small installment payments are paid to the federal or state tax agency. Once the balance of the initial expense is completed, the monthly tax debt payment is increased to the full amount to pay back taxes over the next four (4) to five (5) years. This Agreement allows the taxpayer to satisfy tax debt without the fear of defaulting on other financial obligations.
• The Partial Pay Installment Agreement is a hardship payment based on the taxpayer’s current financial situation and information. The hardship payment is less than the monthly payment that would be needed to satisfy the tax debt in full. The IRS has a ten (10) year Statute of Limitations in which they can collect on a past due tax debit. The Partial Pay Installment Agreement will be paid over the course of the remainder of that 10-year period.The tax balance will not be paid in full by the time this IRS or state agency can no longer collect on that tax debt;
• The Conditional Expense Installment Agreement allows taxpayers to continue to pay on long-term monthly bills and expenses while satisfying their tax debt. A steady, and continuing, payment schedule for such obligations as 401K retirement plans and credit cards that they are required to keep are not interfered with. Tax payments on this plan usually are spread over five (5) years and the tax debt is paid in full. The IRS will require payments made in an agreed amount; continuing proof of the conditional expenses; and any required financial documents or records. The taxpayer pays the IRS back, in full, and continues with the current financial plans that make up their lifestyle.

Currently Not Collectible is the status of the taxpayer who is struggling with financial hardship. This “status” removes the taxpayer’s obligations from active collections with the IRS or state tax agency and offers taxpayers some relief as they work through their financial distress. The taxpayer demonstrates the current inability to meet basic financial obligations in life, let alone tax debts. With the Statute of Limitations on a tax obligation set at ten (10) years, the current tax debt may not be satisfied. However, taxpayers will be required to continue to file tax returns and report any changes in income and expenses – along with any information requested by the IRS. Should a taxpayer’s financial situation improve significantly within the Statute of Limitations, they may lose their Currently Not Collectible status and need to set up a new payment plan to settle the balance due the IRS or state tax agency.