A tax problem solution can have an approach that is as unique and varied as the taxpayer’s individual circumstances. An IRS notice is usually the first clue to a taxpayer that they have a tax problem and require a solution, but government studies have proven the IRS to be wrong 50% of the time. It follows that a necessary step to arriving at a tax problem solution begins with handling and responding appropriately to these notices. Notices for additional taxes dues, penalties, missing returns, liens to be filed and wage levies are all indicative of tax problems requiring different solution alternatives.
One tax problem solution alternative is penalty abatement (relief or cancellation). Almost all penalties assessed by the IRS have an opportunity to be cancelled if the taxpayer can show he or she acted in good faith. Meeting the “good faith” condition simply means you had a reasonable, non-frivolous reason (usually resulting from a misunderstood application of tax law) for making the mistake that resulted in the penalty. Of course with government studies showing the IRS to be wrong 50% of the time you can have penalties abated simply by proving their error. Click here to watch or read more information on IRS Back Taxes.
A less common tax problem solution is interest cancellation. If you owe past due taxes interest on those taxes can significantly increase your total tax bill over the years, often doubling the original amount. A tax return subject to an audit or assessment a couple years after being originally filed, can result in not only additional taxes but added interest calculated from the date the return was originally due. In these circumstances a taxpayer is often penalized because of the bureaucratic delay in examining their return. If a taxpayer can show there was a delay by the IRS in deciding that additional tax should be assessed, the taxpayer is entitled to relief from having to pay interest on the additional tax for the period of the delay.
The IRS has ten years from the date tax is assessed to collect that tax. A tax problem solution commonly employed for some taxpayers that have multiple years of back taxes, is to wait for the collection statute to expire on the oldest liabilities. This tax problem solution can be implemented by a simple “do nothing” or waiting strategy, or it can be implemented when a taxpayer qualifies for “hardship” status because his or her income does not exceed national and local standards for basic necessity expenses. Several actions can suspend and extend these statutes, and many taxpayers may voluntarily agree to extend these statutes out of ignorance. Adopting a “do nothing” approach successfully often requires the careful analysis of a qualified tax problem solution professional.
Far and away however, the most familiar tax problem solutions are the installment agreement and the offer in compromise. The offer in compromise is prominent more so for it’s use in advertisement rather than practical application. On the other hand the installment agreement is almost universally applicable if the taxpayer has a demonstrated ability to pay something toward the outstanding liability on a monthly basis. It’s not uncommon for an installment agreement to be the final component of a complex tax problem solution that implements other solution options first. More common than not a taxpayer’s problem will be solved by a combination of identifying IRS errors, penalty abatement and interest reduction, resulting in a revised tax bill that can be divided into affordable monthly payments by the taxpayer over a period of time.