Debt Cancellation Archives - Professional Tax Resolution

Category Archives: Debt Cancellation

What Happens If You Can’t Pay Your Taxes?

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What Happens If You Can’t Pay Your Taxes?

What Happens if You Can't Pay Your Taxes?

What Happens if You Can’t Pay Your Taxes?

What happens if you owe tax money to the IRS and you cannot afford to pay it? Most importantly, do not ignore the IRS. They have a lot of information on you and are not going to forget about the money that is owed. To prevent the IRS from initiating aggressive collection techniques such as freezing your bank accounts and garnishing your wages, it best to contact them promptly. A tax problem will not go away. On the contrary, it will only compound and increase over time until it is resolved. There are several options available for resolving a tax debt. Some of these options can be initiated directly with the IRS. However, if your tax problem is complicated, it may be in your best interest to hire a qualified tax resolution specialist to assist you. Here are some steps to take if you owe back taxes and do not have the necessary funds to pay the balance in full:

  • File Your Taxes on Time (even if you don’t have the funds to pay the balance due): No matter what your financial situation, stick with the same process each tax year and submit your tax return by the filing deadline. Whether you decide to use the services of a CPA/accounting firm or a seasonal tax company or file on-line yourself via tax prep software, always send in your return on time or file for a tax extension. If you fail to do this, you will be assessed a failure to file penalty which will begin to accrue the day after tax day. This penalty will be levied in addition to interest and possible failure to pay penalties on any taxes you may owe. These penalties and interest charges will add up very quickly over time so it is always advisable to avoid the late filing penalty even if your do not have sufficient funds to pay the tax balances owed. Okay, this is good information, but what if you already owe the IRS money?
  • Set up a Payment Plan: If you owe back taxes, it is best contact the IRS immediately.The IRS would rather work with people who acknowledge owing back taxes rather than chasing around after them around to collect the outstanding tax liabilities. There are several types of installment plans that can be set up to pay off a tax bill over time. To review theses plans as well as other options available for settling a back tax balance, see the following IRS link: https://www.irs.gov/Businesses/Small-Businesses- &-Self-Employed/Filing-Past- Due-Tax- Returns . If this is your first time failing to pay your taxes on time, the IRS may be lenient and waive the penalty. See the following IRS link for information on penalty abatements: https://www.irs.gov/Businesses/Small-Businesses-&-Self- Employed/Penalty-Relief- Due-to- First-Time- Penalty-Abatement- or-Other-Administrative-Waiver.

If you have tax questions or a tax debt you are unable to pay, our tax settlement professionals are happy to discuss your tax resolution options free of charge. For more information about our services, visit us today at www.professionaltaxresolution.com or call us at 877.889.6527. With over 16 years in the business of resolving tax debt, we have a thorough understanding of tax law together with the experience to know which settlement option will be the best fit for your specific set of circumstances.

IRS Tax Debt – Cancellation of Debt – Mortgage Forgiveness Expires in 2012

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Tax Alert! The Mortgage Forgiveness Act is Set to Expire at the end of 2012

As many of you who have had a short sale or home forclosure know, under ordinary United States tax law, a short sale produces a tax liability. When a lender agrees to accept a short sale, the amount of mortgage debt forgiven is considered to be income for the borrower and is therefore subject to taxation by the IRS.

In 2007, the passage of the Mortgage Forgiveness Act served to protect homeowners from this potential tax burden. With the passage of the Mortgage Forgiveness Act, the amount of debt forgiven in a short sale was excluded from being a tax liability. Although this tax liability protection covers most short sales, it does have the following limitations:

• It applies only to the sale of a primary residence, not a second home or a rental property.
• It usually does not include home equity loans.
• The maximum amount of debt forgiveness is $1 million.

We often get calls from taxpayers who are very concerned about this type of liability. With our headquarters located in California, the home value crisis and the potential tax burden is top of mind. Because our CPAs know and understand the laws and regulations for recourse and nonrecourse loan structures, we have helped many clients remove liability for the gain that results from the short sale or foreclosure of a primary residence or from a bankruptcy filing.

Why the tax alert? The Mortgage Forgiveness Act will expire in 2012 unless Congress votes to extend it.

Already facing a short sale or forclosure? Call or contact us today to get your liability removed before it is too late.Click the “Learn More Link” or Call (877) 889-6527 to have one of our CPAs provide a Free, no obligation consultation.

Amazing Tax Settlement – $1,600,000 Tax Debt Reduced to Zero!

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Karen M. was recently divorced and owed the IRS over $1,600,000 for a joint IRS liability she had incurred with her ex-husband.  The debt had accumulated over many years and, as is usually the case, included a significant dollar amount of assessed penalties and interest. The taxpayer was newly single, lived on a modest income and had no possibility of settling the debt owed to the IRS. After looking at the taxpayer’s situation and all of the available tax settlement alternatives, we determined that filing for Innocent Spouse Relief gave the taxpayer the most realistic chance of one day being free of the tax debt.

Innocent Spouse Relief provides a taxpayer relief from tax debt if their spouse or former spouse failed to report income, reported income improperly or claimed improper deductions or credits.  While the benefits from obtaining this tax settlement option can be significant, it is usually difficult to obtain. Generally, a taxpayer requesting Innocent Spouse Relief must claim and document that he or she had no knowledge of the unreported income and did not receive the benefits of that income.

In the case of Karen M., we were able to provide documentation demonstrating that our client had no knowledge of the unreported income and had limited involvement in the financial matters of the family. We were also able to prove that she did not receive the benefits of the income that was never reported and that the non-innocent spouse had a history of hiding income from both her and the IRS.

Professional Tax Resolution and the taxpayer were thrilled when a letter was received from the IRS indicating that the Innocent Spouse filing was accepted and that the $1,600,000 tax debt was reduced to zero.  This is another good example of why CPAs, Enrolled Agents, and Attorneys are often so passionate about what they do.  In most cases there are tax settlement options available even in the most complicated situations.

Understanding The Three Settlement Types for an Offer in Compromise

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The Offer in Compromise is a specific tax relief option made available by the IRS through which a taxpayer offers the IRS a certain amount of money in exchange for which the IRS agrees to cancel the taxpayer’s outstanding tax debt. While it is an effective tax settlement option for a very specific group of taxpayers, the Offer in Compromise definitely does not represent a blanket solution for anyone with an outstanding tax liability. The acceptance criteria are very explicit and, since many applications are submitted that do not meet the published IRS guidelines, the rejection rate is high. When considering filing an application for an IRS Offer in Compromise it is important, not only to understand the specific qualifying criteria, but also to be familiar with the available settlement alternatives.

There are three payment options available for an IRS Offer in Compromise. An application requesting any one of the three payment plans requires a $150 application fee (unless the taxpayer submitting the application qualifies for a low income waiver or is submitting the application for the reason that he or she doubts they actually owe the outstanding tax debt). All three tax settlement options require an initial payment (unless the taxpayer qualifies for a low income waiver) followed by a lump sum or a specific set of scheduled installments. The plans vary as to the calculation of the settlement amount, the amount of the initial payment, the number of periodic payments and the time period over which those payments will be made.

The three settlement alternatives for an Offer in Compromise are summarized below:

1) Lump Sum Cash Payment
• Generally requires a 20% payment upon the filing of the application with the balance paid within five months of acceptance. Low income taxpayers may be exempt from the initial payment requirement.

2) Short Term Periodic Payment
• Payments are made in monthly installments with the balance being paid in full within 24 months of the IRS receiving the Offer in Compromise. Taxpayers must generally make the proposed monthly payments while the IRS considers the offer unless they qualify for the low income waiver.

3) Deferred Periodic Payment
• Payments are made in monthly installments with the balance being paid in full in 25 months or more but within the statutory collection period. Taxpayers must generally make the proposed monthly payments while the IRS considers the offer unless they qualify for the low income waiver.

The flexibility of the settlement alternatives available for an Offer in Compromise makes it a viable and effective tax relief alternative for taxpayers with varying financial situations. However, since the Offer in Compromise involves a settlement for an amount less than what the taxpayer actually owes, it can be difficult to obtain. The IRS will carefully review the available assets and income of the taxpayer and the taxpayer’s ability to pay the original tax debt. During the review of a submitted Offer in Compromise by the IRS, all other collection activity will stop. The job of a qualified tax resolution firm is to assist in demonstrating a taxpayer’s inability to pay the full amount of his or her tax debt and to prove that it is in the best interest of the IRS to accept an offer for less than the full amount.

When selecting this tax relief option and the accompanying payment plan, the taxpayer should be well aware that it is an official contract with the IRS and comes with a specific set of financial responsibilities. If an individual entering into an Offer in Compromise fails to comply with any of the contractual provisions set forth in the agreement, the IRS will probably revoke the contract and reinstate the full amount of the original tax debt.

The Offer in Compromise is one of numerous tax relief options open to a taxpayer who may be facing an impending tax lien, tax levy or wage garnishment due to a large outstanding tax debt. For help in determining whether your tax debt situation meets the acceptance criteria for an Offer in Compromise and whether it is the best tax settlement option for your specific needs, contact an experienced tax professional at www.professionaltaxresolution.com.