Frequently Asked Questions
You first need to find out why you owe the taxes. While this may seem like a no brainer, you need to determine if you agree or disagree with the amount of taxes that the IRS states that you owe. If you agree with the taxes, you will have different options available to you than if you don’t agree with the taxes due. This is assuming that your disagreement is not based on philosophical grounds, but because of a legitimate reason. If you disagree, you may have other options than just paying the tax due. Tax Relief Services will present the most common payment options available to you. We will also present the most common solutions if you agree or don’t agree with the taxes due. The information we provide are options that the IRS or even other tax professionals don’t bring up.
Before you will be able to do anything other than pay the tax due in full, you will need to be in compliance. This means you will need to be up to date with your income tax filings. If you are self-employed or have other income with no withholding, you will also need to be current with your estimated taxes.
If you have missing or unfiled tax returns the IRS has Policy Statement P-133. Under this Policy only the last 6 years of unfiled tax returns will need to be completed. This is not to say that you might not have a filing requirement for more than 6 years, but if you are trying to get an extension of time to pay, an installment agreement or doing an offer in compromise, you will not be able to take advantage of one of the options listed without first filing the missing returns. Six years of returns is the magic number that the IRS will be looking for. Don’t file more years than the IRS wants. Contact the IRS at 800.829.1040 to find out what returns you need to file. Of course, if you have filed more years already and have liabilities owed or have tax liabilities from returns filed by the IRS, this Policy may not apply to you.
In most situations, the IRS will be able to provide you with wage and income data to help prepare the missing tax returns. You can call 800.829.1040 to order the available information. Many times it is quicker and easier to contact your former employer to get a copy of the information. The IRS will only have federal withholding information which may not be completely helpful if you need to file State tax returns. If you are self-employed, you can contact the IRS for additional methods in reconstructing your income. When you call the IRS ask them if they can help you to prepare the missing returns or where you can get free or low cost help through a local tax clinic. You can get back tax forms from the IRS at no cost if you want to complete the returns yourself.
The IRS is generally not looking out for you. While they can offer some limited help, if you owe taxes, their job is to collect the taxes due. If they cannot get voluntary compliance, they have the authority to take enforced collection action against you and your property. Remember, they are not your friend.
Yes! There are generally two penalties you will be liable for. They are the failure to file a tax return by the due date, usually April 15 and the failure to pay penalty for not paying the tax due by the due date. The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file timely, even if you can’t pay, this will not apply. That’s why even if you can’t pay the tax due, file your tax return on time. This can cut the penalties down by about fifty percent. The other penalty is failure to pay. The failure to paid. This penalty can be as much as 22.5 percent of your unpaid liability.
Interest is mandated by Congress and is generally not abated by the IRS. There are exceptions for presidentially declared disaster areas, military personnel, terrorist actions or IRS error or delays. If applicable, interest is in addition to the penalties and it is applied to both the taxes and penalties. The interest rate changes each quarter based on the federal underpayment rate is the federal short-term rate plus 3 percentage points.
You may be able to avoid part or all of the penalties if you can establish that you failed to file or pay your taxes on time because of a reasonable cause. A reasonable cause waiver is generally granted when a taxpayer exercises ordinary business care and prudence in determining their tax obligation, but is unable to comply with those obligations due to circumstance beyond their control. Some common examples are due to divorce, death in the family, substance abuse or illness, to name a few. There are other types of penalty waiver relief, but we do not cover them because reasonable cause is the most common. The IRS will not volunteer to waive penalties. You will have to request a waiver.
If you haven’t filed, the IRS has the authority to file on your behalf. They will file a tax return based on your known available wage and income data. The IRS will have sent out a series of notice asking you to file. If you don’t file, they will file you as single or married filing separate with one personal exemption. Once they file for you they will assess the tax due and send out a bill for the tax due.
Yes, by filing your own Original Tax Return. The IRS will treat your filing as an Audit Reconsideration and adjust the balance you owe either up or down. Many times you can eliminate the balance due and generate a refund. If you do file an original return, make sure it is to your advantage. By filing, you will start the 10 year collection statute all over again on the new assessment.
If your tax return was audited, but you never responded to the IRS or never presented supporting documentation, you may be able to do audit reconsideration. An IRS audit is a review/examination of tax return and financial information to ensure information is being reported correctly, according to the tax laws, to verify the amount of tax reported is accurate. If you owe taxes because of the Audit, you may be able to ask for audit reconsideration to present additional information to disagree with the changes made by the IRS. The two most common types of audits are the CP 2000, notice of proposed changes or an in person examination.
The audit reconsideration may not be available to you if you agreed with the assessment and/or paid the tax in full. You will be able to file an amended tax return.
If your audit is not over, provide information requested by the tax examiner to dispute their position and/or support your position.
You can contact the Group Manager to see if the disagreement can be resolved with the Manager. If it cannot be resolved, you can go to Appeals.
The mission of Appeals is to resolve tax controversies, without litigation, on a basis which is fair and impartial to both the Government and the taxpayer in a manner that will enhance voluntary compliance and public confidence in the integrity and efficiency of the Service.
If you discover an error after your return has been submitted, you may need to amend your return to correct it. Also if you paid the tax in full because of an audit, a substitute for return filing, or with your original return, you can file an amended return to claim a refund. You will have 3 years from the date of filing or 2 years from the date of your payment to qualify for a refund. If it is filed after two years, you can reduce the amount owed, but it will not be able to get a refund. If the tax was not paid before the amended return is filed, it is treated as audit reconsideration. An amended tax return is filed on the form 1040X. This form is available from the IRS. The collection statute should be reviewed to make sure it is to your benefit to file an amended tax return.
The IRS only has 10 years from the date of assessment of the taxes to collect them from you, unless you have voluntarily extended the statute. The most common methods of extending the collection statute is signing a statute extension, filing a collection due process appeal or filing an offer in compromise. Care should be used in extending the statute because sometimes the best strategy may be to let the 10 year statute expire. You can verify the statute date with the IRS.
Even by filing a amended tax return, or submitting audit reconsideration, until the tax return or audit reconsideration process is complete. The IRS will not use the corrected tax liability.
Amended returns and audit reconsiderations may take 90 days or longer to process. Until it is processed you will have to deal with the tax liability that is currently owed. The IRS may provide a temporary hold on your account to allow for the processing of the tax return or audit reconsideration. If they don’t you may temporarily have to set up one of the payment options to keep the IRS appeased. Generally, you will need to deal with the amount they claim you owe, even though when the return you submitted or the audit reconsideration is process you will owe less or even nothing at all.
Depending on what notice status you are in, it may be possible to obtain a temporary hold on your account from 2 to 6 weeks. When you talk to the IRS tell them you need time to review and determine if you agree or disagree with the balance due.
It depends. You might be speaking with taxpayer service at the toll free number 800.829.1040 or you might be speaking with ACS or depending on how large a balance is due, you might be speaking with the large dollar unit in Buffalo, NY, or an exam unit.
While this option seems obvious, by paying in full you will save money by avoiding accumulating penalties and interest. You may save money in the long run by borrowing money, using a credit card, selling an asset, or using retirement funds to pay the taxes you owe. If you pay in full or have already paid in full, you can still claim a refund within two years of the payment.
Generally a short term extension may be obtained for 30, 60, 90 or 120 days. There are restrictions, but this might be an alternative to an installment agreement if you believe that you can get the money to pay the taxes in a short amount of time. There are no set up fees to getting a short term extension if you qualify, but interest and penalties will continue to accumulate until the tax is paid in full. If you think you might be able to get the money within the extension period, this is a good option. If you can’t get some or all of the money to pay the taxes in the extension period, you may still be able to get an installment agreement. Generally, it will not matter how much you owe with the extension. The extension of time to file can be made by calling the IRS at 800.829.1040 or by going online to IRS.gov and going to the online payment agreement link and completing the application online.
Payment can be made by cash at most local IRS offices, with check, money order or cashier’s check, with a credit card or debit card or electronically. The payment methods apply to all the option types. Additionally an installment agreement can also be made as a direct debit from your savings or checking account or as a payroll deduction or online.
An installment agreement request can be made when your tax return is mailed in, by telephone after you receive a notice, in person at a local office, or online at IRS.gov. Even with a formal installment agreement, the IRS may file a tax lien to protect their interest against other creditors. A tax lien attaches to your personal or real property until final payment is made and it may have a negative impact on your credit rating. A tax lien is recorded through the County recorder’s office and it becomes public information. There are conditions that must be met when you set up an installment agreement. Payments must be made for the full amount and by the due date. You must remain current with your taxes and file and pay future tax returns on time and for the full amount. Failing to meet the required conditions will default the installment agreement and it may subject you to enforced collection action.
If you owe under $10,000 generally the IRS is required to provide you with an installment agreement. There are generally user fees to set up the installment agreement ranging from $52 to $105 dollars. If you owe under $25,000, including interest and penalties, you may qualify for a streamline installment agreement for up to 60 months. The streamline installment agreement means that you will generally not be required to provide detailed financial information to get the installment agreement. If you are not able to pay the tax, interest and penalties within 60 months, you will need to provide financial information to setup the installment agreement. The IRS may file a tax lien if your tax liability is larger than $10,000.
If your tax liability is larger than $25,000 you will be required to provide financial information to the IRS on a Form 433A or 433F to establish an installment agreement. The IRS will use this information to establish your ability to pay based on your gross monthly income and your monthly allowable living expenses. When your balance is over $25,000 the IRS will usually file a tax lien.
A federal tax lien gives the IRS a legal claim to your property for the amount of an unpaid tax debt. Filing a Notice of Federal Tax Lien is necessary to establish priority rights against other creditors. A tax lien informs the public that the U.S. Government has a claim against your property. This includes property owned at the time the notice of tax lien is filed and any property acquired after the tax lien is recorded. A lien will affect your credit rating.
The current IRS policy is to file a tax lien if the balance owed is more than $10,000, but there is an exception made for balances under $25,000 if you make a direct debit installment agreement and show reliability in making payments. If a tax lien has been filed, it is possible to get a Withdrawal of the Tax Lien by setting up a direct debit installment agreement and making a request for the withdrawal. The IRS will generally not volunteer the information, but be aware of the withdrawal process. A withdrawal is better than a release because it is treated as if it never existed. One strategy would be to pay down your balance below $25,000 to qualify for a streamline installment agreement.
If you already have a installment agreement from a previous year you may be able to modify your installment agreement to include additional taxes owed into one new agreement. If an installment agreement is modified, reinstated or restructured, a $45 user fee may be charged.
If you defaulted on your installment agreement by making a late or missed payment, you can generally have your agreement reinstated if you make up the missed payments.
In order to secure a levy release for a wage garnishment, a collection information statement Form 433A or 433F will need to be completed for the IRS. As with any installment agreement, before a levy release will be issued, you will need to be up to date with your tax filings. The IRS will generally take your financial information over the phone. Sometimes the IRS will want the Form 433 faxed or mailed in with supporting documentation. Even if you do not agree with the amount owed, you may still need to set up an installment agreement to get a release of the levy. The IRS may be able to fax a release if you can provide a fax number for the company. If the release is mailed, it could take a week or longer to receive the levy release.
Generally, funds taken from a bank account will not be released unless you can establish a financial hardship. The funds are kept by the bank for 21 days before being turned over to the IRS. This will give you the time to seek a release of the money taken. It is common that joint bank accounts are levied and money fund taken are not all yours. If the IRS has taken funds improperly through a wage garnishment or levy, contact the Taxpayer Advocate Office by telephone.
If you have a tax liability that you believe is owed solely because of your current or ex-spouse, you might be able to have the IRS separate your tax liability, but your will need to meet the criteria for innocent spouse relief. There are three types of relief: innocent spouse relief, separation of liability and equitable relief.
The offer in compromise is a settlement program that the IRS offers to individuals or businesses that qualify. You must meet the criteria, before you can qualify, but if you do qualify, it is a way to settle all of your tax liabilities, interest and penalties for an amount less than the full amount.. There is no set amount that they will generally accept. It is usually based on your financial information. The most common type of offer in compromise is doubt as to collectability, which simply means that you agree you owe the taxes but because of your financial condition, you can’t afford to pay the taxes owed even if you wanted to. The other types of offer in compromise are doubt as to liability and effective tax administration.
Don’t believe those radio ads or late night television commercials that you have been bombarded with. Many of the firms are only interested in separating you from your money, without fully performing what they promise. Some individuals may qualify to pay a fraction of what is owed, but you must meet the IRS criteria to qualify. Exercise caution when using these types of companies.
There are only three categories of professionals that can legally represent you before the IRS. They are the enrolled agent (EA), a CPA and an attorney. A frequent question asked is do I need to hire a tax professional. Usually you don’t need to hire a tax professional. An attorney, might be familiar with the law, but may not have the practical knowledge of basic income tax issues and IRS payment options. Generally you only need an attorney when you plan on going to tax court, have a criminal tax issue, or are planning a bankruptcy. There is a misconception about all certified public accountants (CPAs) being experts in all tax issues. Income taxes and accounting are two different areas of practice. An enrolled agent is a person who has earned the privilege of practicing, that is representing taxpayers, before the Internal Revenue Service. Enrolled agents, like attorneys and certified public accountants (CPAs), are unrestricted as to which taxpayers they can represent, what types of tax matters they can handle, and which IRS offices they can practice before. Income tax preparation and IRS tax collection issues are separate areas of expertise and practice. Just because someone know how to prepare your tax return does not mean they can help you with IRS tax issues.