Tax Solutions
common
tax Solutions
While taxpayers may face similar types of problems, each specific situation is unique. There is no “one-size-fits-all” solution. Not everyone qualifies for the same solutions. Expert guidance is needed from a professional who can analyze the specifics of your situation and unlock solutions appropriate for you.
Innocent Spouse
Offer in Compromise
Penalty Abatement
Installment Agreement
Audit Representation
Bankruptcy
Innocent Spouse
When you and your spouse file a joint tax return, both of you are jointly liable for the entire amount of tax due, along with any penalties and interest. This liability holds even if the tax owed arises entirely from your spouse’s income. Consequently, both the IRS and state tax authorities can pursue either or both spouses for the full amount owed on a joint return.
Even if you divorce and your divorce decree assigns the tax responsibility to your ex-spouse, the IRS can still seek payment from you. However, there is a provision known as innocent spouse relief (ISR), which may apply if it would be unfair to hold you responsible for the joint tax liability. Do you want to see if you qualify?
Offer in Compromise
An Offer in Compromise is essentially the IRS’ version of “Let’s Make A Deal,” where you can settle your federal tax debt for less than the full amount owed. This option also extends to many state tax obligations, though not all states participate. Under this arrangement, you propose to pay a portion of what you owe in taxes, and if the IRS accepts your offer, you pay the agreed amount, and the remaining debt is forgiven. This solution provides a pathway to clear your tax liabilities without paying the total balance, offering financial relief and a fresh start.
This settlement plan is beneficial to those who are unable to pay their full tax debts, but one cannot simply offer any amount they wish. The IRS takes many things into consideration including your entire financial situation. It’s critical to hire a resolution specialist to assess your ability to qualify.
Bankruptcy
Before deciding to file for bankruptcy due to tax debt, remember that it will impact your credit for years. Obtaining loans for a car, a house, or other needs will be challenging because lenders will doubt your ability to repay. Additionally, once you file for bankruptcy, you cannot file again for seven years. Any new tax debt incurred during this period will have to be paid regardless.
If you want to discharge tax debt from the past year, you’ll need to wait, i.e., most states require a waiting period before you include taxes in your bankruptcy, typically three years. In the meantime, you will need to continue making payments on your tax debt in order to avoid severe penalties. Before pursuing bankruptcy, consider a resolution option that works for you and pay off what you can.
Installment Agreement
An installment agreement allows you to make regular payments towards your tax debt to the IRS if you’re unable to pay in full. There are several types of installment plans available, and typically, you can only have one plan active at a time. However, the IRS may sometimes permit you to add new tax liabilities to an existing agreement.
Most plans require you to pay off the entire balance, but partial payment installment agreements are also available, where you pay a portion of the total debt. To set up an installment plan, you must apply, and each type of plan has its own specific paperwork requirements. While on an installment plan, penalties and interest will continue to accrue on your account, but the penalty for failing to pay is generally reduced by half compared to not having a plan.
Alternatively, if you can secure a bank loan with a lower interest rate, it might be more cost-effective to pay off the IRS debt using that loan.
Penalty Abatement
If you think you shouldn’t be liable for certain federal penalties or interest, you can request IRS penalty abatement. If approved, the IRS may remove some or all of the penalties associated with your account.
Eligibility for penalty abatement requires demonstrating a reasonable cause for late filing or payment. You might also qualify if errors or delays by the IRS impacted your return, or if incorrect written advice from the IRS led to the penalties and interest. Additionally, the IRS often grants abatement for first-time offenses, making it one of the more commonly relieved penalties.
Audit Representation
Receiving notice that you or your business is being audited can feel like a tidal wave of stress and overwhelm. Under the Taxpayer Bill of Rights, all taxpayers are entitled to representation in dealings with the IRS. While it is not mandatory to hire a tax resolution specialist, doing so can be advantageous for many reasons, e.g. taking over all of the correspondence, attending meetings with IRS personnel, etc.
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