An Offer in Compromise allows you to settle your tax debt for less than the full amount you actually owe. Submitting an offer in compromise may be a realistic option if you cannot pay the entire tax liability or to do so would result in a financial hardship to you and your family. The Internal Revenue Service considers each offer in compromise on a case-by-case basis. The IRS will examine the taxpayer’s ability to pay, income, expenses, and equity in assets.
An Installment Agreement is a structured payment plan for the tax liability, and any related penalties and interest, owed to the IRS or other taxing authority. It is important to point out that interest continues to accrue during the existence of the installment period. In matters involving the IRS, if the taxpayer owes $25,000 or less, the taxpayer qualifies for an Installment Agreement of 60 months. However, if the taxpayer owes more than $25,000, it will be necessary to negotiate with the IRS to formulate an appropriate installment plan.
A tax audit is the taxing authority’s means to obtain missing information from a taxpayer to determine whether the taxpayer has reported his or her income and/or deductions properly. It is highly recommended to hire a tax professional to represent you in a tax audit. Tax audits can be held over the telephone in some instances or by field audit. In either case, the audit examiner is “fishing” to find additional revenues potentially owed to the taxing authority.
First, time is of the essence when attempting to remove a tax lien. A taxpayer has thirty (30) days to respond to a tax lien after receiving a “Final Notice of Intent to Levy”. A tax lien may be removed if the taxpayer can prove a financial hardship or if the tax liability subject to the tax lien is settled or paid in its entirety. It will be imperative for a taxpayer to structure a settlement or payment plan with the taxing authority to prevent bank levies and/or wage garnishments.
The Taxpayer Advocate Service (TAS) is an independent office within the Internal Revenue Service that reviews discrepancies between a taxpayer and the IRS for the sole reason to reach a settlement between the parties. The TAS does not get involved in every case; the taxpayer must qualify in order to receive assistance from the TAS. Typically, the TAS will help in cases of financial hardship, emergency cases, or where the normal channels of trying to resolve the tax problem with the IRS have broken down.
Once all prior years’ income tax returns are filed and processed by the IRS, an assessment will be issued stating the tax liability and any related penalties and interest. If the taxpayer fails to pay the tax bill or fails to make arrangements to pay the IRS, the IRS will take action to collect on that tax bill. First, the IRS will file a Notice of Federal Tax Lien, which is a claim against all of the taxpayer’s property. The IRS will serve the taxpayer with a Notice of Levy and seek to recover from wages through a wage garnishment, from bank accounts through a bank levy, from social security benefits, retirement accounts and other sources of income. A more serious collection effort by the IRS may include seizure of the taxpayer’s house, cars and other property.
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