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In the U.S., the Internal Revenue Service (IRS) has the responsibility of collecting federal taxes and making sure people follow tax laws. The IRS handles the processing of tax returns, collection of tax money and the distribution of tax refunds. In 2018, the agency collected around 250 million tax returns and distributed tax refunds worth nearly $400 billion.
Many people only think about the IRS during tax season and as they wait to get their tax refund. There are times, though, when the IRS makes its presence known at other periods of the year. If the agency believes an individual or business hasn’t reported enough income, has underpaid or didn’t file a return when they should have, it can take action. When that happens, a person or company might need tax resolution services to help solve the issue, pay back taxes or get tax relief.
Table of Contents
- What Is Tax Resolution?
- How Does Tax Resolution Help You?
- How Does Tax Relief Work?
- BC Tax Can Help You Resolve Your Tax Issues
What Is Tax Resolution?
Tax resolution is the process of working with the IRS and tax professionals to find a solution to your tax problems. The IRS might have an issue with your tax return or tax situation for a few reasons. If you have a complicated tax return, for example, the IRS might audit you to verify you are reporting the appropriate amount of income and claiming legitimate deductions. In some cases, the IRS might believe you have underreported your income, and it might want to take a closer look at your tax situation.
Another example of an IRS problem occurs when you don’t file your taxes for several years. Eventually, the issue can be serious enough that you need outside help to get you back on track and to avoid being charged more than you owe by the IRS.
Some instances when you might use tax resolution services include:
Audit Representation
If you receive a notice from the IRS that you are going to be audited, don’t panic. Although the audit process can seem intimidating, it’s not something you need to go through on your own.
The IRS audits taxpayers for a range of reasons, and just because the IRS decides to audit you doesn’t mean you have done anything wrong. Hiring a professional tax consultant to help put together an audit defense for you can help you rest assured that the results of the audit will be as accurate and fair as possible.
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The IRS makes mistakes, too. Sometimes, it believes you made more money than you did, or it includes the income from an ex-spouse or a former business partner with your income. When that happens, you have the right to disagree with the IRS and to present evidence to help you make your case. Tax professionals can help you put together a transcript protest, so you don’t have to pay money you don’t owe.
Non-Collectible Debt
What happens when the amount you owe to the IRS is so much that you can’t repay it and continue to afford reasonable cost-of-living expenses? In that situation, you don’t have to choose between a roof over your head or paying the IRS.
The IRS does offer a form of relief when you can’t pay your tax debt. During what’s known as a “Currently Not Collectible” status, the IRS won’t try to collect the debt you owe. Using tax resolution services can help you see if you qualify for the status and can help you understand the benefits and drawbacks of using it.
Tax Penalties
The IRS tends to charge interest and tax penalties when individuals or businesses pay their taxes late or don’t pay at all. Fortunately, there are some instances when the IRS will waive the penalty. Tax resolution firms can help you determine if you’re eligible for tax penalty abatement and help you through the process of deciding whether or not you qualify for the penalty waiver.
Unfiled Returns
You’re expected to file a tax return each year, but in some instances, life and other circumstances can prevent you from filing. When that happens, the IRS might guess at how much you owe based on the documents it’s received, such as Forms W-2 and 1099. A tax consulting firm can help you prepare returns from past years. It can also help you file present-day returns and work with you to put together a tax plan for the future.
Paying Back Taxes
Should you owe back taxes, you might not be able to pay the full amount due in one lump sum. Part of tax resolution involves evaluating your returns to make sure you are responsible for the back taxes you’re being charged. It can also include working with the IRS to put together a plan that makes paying the tax you owe more manageable.
Compromising With the IRS
There are cases when the IRS is open to compromising with taxpayers. If you owe a hefty amount and aren’t able to pay it, the IRS’ Offer in Compromise program might accept a payment that is less than what you owe.
Compromising with the IRS can be tricky, as the agency usually doesn’t take requests for reduced payments. Working with a tax consultant can help you see if compromising with the IRS will help you resolve your tax issue or if another option, such as a payment plan, might be more appropriate.
Payroll Tax Recovery
Businesses that have employees need to pay payroll tax on their employee’s wages. When a company doesn’t pay payroll taxes, the IRS can penalize it, usually through the Trust Fund Recovery Penalty. A tax resolution professional can help you navigate the process when the IRS issues a penalty, including working with you to complete Form 4180 and helping you prepare for the 4180 interview.
Tax Liens
A lien is a claim against a property you own, such as your home. If you have trouble paying property taxes, federal taxes or state taxes, the tax agency can put a lien on your home or other valuable property.
To help you avoid foreclosure and other complications, any liens on a property must be adequately removed and discharged. Tax resolution can help protect your property from liens as well as confirm that any liens have been appropriately discharged or withdrawn.
Wage Garnishment Help
When the IRS wants its money, it will go to specific lengths to get it. One of those lengths is to garnish your wages, making your paycheck smaller or non-existent. Part of tax resolution involves negotiating with the IRS before it begins garnishing your income. A tax consultant can help you put together a payment plan to present to the IRS, demonstrating to it that you can pay what you owe without it having to step in and take the money directly.
The sooner your tax issue is resolved, the better. Getting professional help for tax resolution can mean less headache and stress for you and mean you don’t pay more than you need to the IRS.
How Does Tax Resolution Help You?
Although you do have the option of working through your tax issues with the IRS on your own, it’s often in your best interest to work with tax professionals who can help you work with the IRS and resolve your problem.
As a taxpayer, you have certain rights, which are outlined in the IRS’ Taxpayer Bill of Rights. You have the right to:
- Be informed
- Receive quality service
- Pay no more than you owe
- Challenge the IRS and be heard
- Finality
- Privacy
- Appeal the decision of the IRS
- Retain representation
- Confidentiality
- A tax system that is fair and just
Working with a company that provides tax resolution services helps you ensure your rights are protected. A tax resolution firm can help:
Evaluate Your Situation
The first step when working with a tax resolution firm is to schedule a consultation. During the meeting, you’ll have the chance to explain your particular issue, and a tax professional will have the opportunity to review your paperwork and assess your situation.
The consultation can help you see if you’d benefit from the services offered by a tax resolution firm. It also gives the tax consultant the chance to get to know your situation more in-depth and to start the process of coming up with a solution to your problem.
Put Together a Defense
If a tax consultant or enrolled agent believes your situation is one that can be resolved, the next step is to create a plan to help you work with the IRS and come to an agreement that satisfies everyone. If you’re being audited, an enrolled agent will go through your documents to get a thorough understanding of your situation before preparing a defense for you.
In the case of negotiating with the IRS or avoiding wage garnishment, your tax consultant can put together a repayment plan that demonstrates to the IRS that you can pay — or can’t pay, in some cases. Your plan and defense can keep you from being overwhelmed by a substantial tax bill.
Act as the Go-Between
You have the right to representation under the Taxpayer Bill of Rights. Your tax consultant can be the go-between or mediator between you and the IRS. Working with a tax resolution firm means you never have to worry about dealing with the IRS on your own.
Enrolled agents and tax consultants have years of experience working with the IRS and a full understanding of tax law. They know your rights and what you can and can’t be held responsible for by the IRS. Having a professional represent you reduces your stress and increases the likelihood of an outcome in your favor.
How Does Tax Relief Work?
The IRS is more sympathetic and understanding than you might think. The agency has several programs designed to provide tax relief to qualified individuals and businesses.
One such program is known as “Fresh Start.” The IRS created the program in 2011 to help people and businesses that were struggling to pay their taxes. The initiative made changes in three areas:
- Liens: As part of Fresh Start, the IRS raised the dollar threshold for liens. It also made it easier to withdraw liens after taxes are paid and allowed them to be withdrawn once a taxpayer creates a direct deposit payment agreement.
- Installment agreements: Fresh Start makes it easier for a taxpayer to work with the IRS to create an installment agreement to pay back tax debt. The process of applying for an agreement is simpler for people who owe less than $50,000, as they can now apply online and don’t need to fill out certain forms. Fresh Start also lengthened the repayment term from five years to six.
- Offer in Compromise: Fresh Start also expanded the Offer in Compromise program, meaning more people became eligible for it. An Offer in Compromise lets you settle with the IRS and pay less than the amount you owe. It’s a tax relief option that’s available when all other sources have been tried and exhausted. Under Fresh Start, taxpayers with incomes up to $100,000 and tax liability up to $50,000 might be eligible for an Offer in Compromise.
You can apply for tax relief on your own, but many people prefer to work with a tax professional to ensure they are going through the process correctly and to improve their chances of getting the relief they need. If you decide to get help for your tax situation, be aware that only particular individuals are qualified to help you or represent you. Those individuals include:
- Enrolled agents
- Certified public accountants (CPAs)
- Lawyers
An enrolled agent is a person who is authorized by the IRS to represent taxpayers. To become an enrolled agent, a person needs to pass a three-part examination or have a history of working with the IRS.
Once a person becomes an enrolled agent, they need to complete continuing education courses and uphold a code of ethics. When you work with an enrolled agent to get tax relief, you have the reassurance that you’re working with someone who fully understands the IRS and will work with you to make sure your rights are protected.
BC Tax Can Help You Resolve Your Tax Issues
BC Tax is committed to helping taxpayers find a way to reduce their debt. Over the years, we have worked with many clients, building up a track record of success.
If you’re facing a hefty tax bill, have years of unfiled tax returns, are being audited or have another tax-related issue, our team of CPAs and enrolled agents can review your situation and act on your behalf to put together a payment agreement with the IRS or reduce the amount you owe. We’re based in Colorado, but we help people and businesses from across the U.S. We assist taxpayers with both federal tax concerns and state tax issues.
Everyone’s tax situation is unique, and the type of results you get will depend on your circumstances. To learn more about the tax relief options that might be available to you and how BC Tax can help you solve your tax problems, contact us today.
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Authored by the BC Tax Insights Team, this article reflects the collective expertise and experience of our seasoned tax professionals. The Insights Team at BC Tax comprises specialists with a deep understanding of various tax scenarios and solutions. With a focus on providing informative, accurate, and practical insights, our goal is to guide readers through the complexities of taxation and financial planning. Every piece is crafted with the intent to help individuals and businesses navigate the ever-evolving world of taxes, ensuring clarity and confidence in decision-making.
