Tag Archives: IRS penalty

IRS Offer in Compromise – A Review of Eligibility Guidelines

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We get a number of calls inquiring about the IRS Offer in Compromise Program. While an IRS Offer in Compromise is a very effective tax settlement option for a very well defined group of taxpayers, it is definitely not the optimum solution for anyone with an unresolved tax debt. The acceptance criteria for an Offer in Compromise are very specific, the application process is lengthy and the rejection rate can be high. Amazingly the IRS can also take up to two years from the date it receives the initial application to accept or reject an Offer in Compromise. With this timeframe in mind, it is often advantageous to enlist professional help when considering this tax settlement option. An experienced tax settlement professional will be able to determine whether the taxpayer meets the strict IRS qualification criteria and, following that determination, will ensure that the Offer in Compromise application is submitted according to published IRS guidelines. Utilizing a qualified CPA or tax professional can drastically reduce the rejection rate because the preliminary work to qualify you as an applicant and to appropriately complete the forms is done for you.

Not sure if you qualify? The primary components necessary to obtain a successful Offer in Compromise tax settlement are outlined below:

  • The taxpayer must meet one of the three eligibility criteria specified by the IRS. Those three criteria are

1) doubt as to whether the taxpayer is liable for the tax debt

2) doubt as to whether the taxpayer has the means to pay the tax debt

3) a determination that settling the tax debt would promote effective tax resolution.

Since the Offer in Compromise allows a taxpayer to settle a tax debt for less than the full amount owed, the IRS only accepts applications that adhere strictly to theses acceptance criteria.

  • The taxpayer’s eligibility must be adequately documented. Sufficient documentation to support one of the three eligibility criteria is required. This documentation may include tax returns and other financial records, disability claims and records of medical treatment and hospitalization, among other things
  • The total amount of the tax debt must be accurate. This means that the taxpayer must be current in submitting tax returns. All previously submitted returns must be checked for accuracy and refiled when necessary.
  • The Offer in Compromise application must have been submitted according to specific IRS guidelines. All of the necessary forms included with the application must be complete and all required fees and supporting documentation must be included.

Once an Offer in Compromise application is submitted, the IRS will begin its review process. During this time additional information and supporting documentation will be requested when necessary. The review process usually takes anywhere from six to twelve months but can take a maximum of two years. If the application is not officially accepted or rejected within two years, the IRS is required to accept the offer.

If you have an unresolved tax debt, visit us today at www.professionaltaxresolution.com for more information about our customized tax settlement assistance. With over 16 years of experience working with the IRS, our experienced professionals will help you determine which available tax settlement option best meets your specific needs. Contact us by phone at (877) 889-6527 or by email at info@protaxres.com to learn more about our services and to receive a free, no obligation consultation

 

IRS Tax Settlement Help – Tax Debt Tips From a Qualified Tax Professional

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The help of a qualified professional can be an invaluable asset when attempting to resolve a tax debt issue. However, finding the right person for the job can be a difficult task in itself. Many companies that advertise tax settlement help are made up of salespeople and marketing agents who know very little about negotiating with the IRS. Tax law is complex and negotiating with the IRS can be challenging so it is important to find a tax professional who is experienced in providing tax settlement help. To insure that an individual has the knowledge and experience to provide the help you are looking for, it is a good idea to verify their current licensure with the state certification agency and to check their standing with the Better Business Bureau. Hiring a tax professional with verifiable credentials is really the only way that you can be sure of the qualifications of the person you are hiring.

By the time a taxpayer contacts us, they have frequently made numerous unsuccessful attempts to resolve their tax debt by negotiating directly with the IRS. While IRS employees are usually very competent, it is important to remember that it is the job of an IRS agent to collect the taxes you owe. In addition, the IRS is divided into many unconnected departments with very specific functions, so there is a good chance that the agent who happens to receive your call actually does not know how to provide the tax settlement help you are seeking. At Professional Tax Resolution, we work with the IRS on a daily basis. Since we are very familiar with their policies and procedures, we know how to communicate with them effectively and will negotiate with them on your behalf to provide the tax settlement help you need.

If you are a person who has put off seeking tax settlement help, it is important to realize that procrastination can result in some very unpleasant consequences. Tax debt balances continue to accrue penalties and interest until the balance is either paid in full or a tax settlement is reached. This being the case, it is not uncommon for penalties and interest to make up more than half of the total balance that a taxpayer owes. In addition, if a tax debt is ignored long enough, the IRS will initiate some form of enforced collection activity such as a tax lien, a tax levy or a wage garnishment. Any one of these actions usually results in serious damage to the taxpayer’s credit rating. An experienced tax professional will often be able to stop such enforced collection actions and will negotiate on the taxpayer’s behalf to arrive resolve their tax debt using the settlement option that best fits that taxpayer’s specific situation. The available tax settlement alternatives include the waiver of penalties and interest and partial payment settlement options where the IRS accepts an amount that is significantly less than the amount actually owed.
If you are in need of tax settlement help, probably the most important decision you will make is the selection of a qualified tax professional. The CPAs and Enrolled Agents at Professional Tax Resolution have many years of experience providing tax settlement help. We encourage our customers to check our memberships, reviews and affiliations for verification of our credentials and our past successes. For more information about the tax settlement services we can provide, visit us today at www.professionaltaxresolution.com. Contact us by phone at (877) 889-6527 or by email at info@protaxres.com to receive a free, no obligation consultation

Penalty Abatements and Penalty Waivers. What are they and how to qualify.

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Penalty Adjustments and Penalty Waivers

The assessment of penalties and interest are methods designed by the IRS and State Tax Agencies to encourage the timely filing and payment of taxes. These charges are imposed when a taxpayer fails to meet a filing deadline or fails to pay a tax amount when it is due. The assessment of a tax penalty is announced through an IRS Letter, an IRS Notice or a similar written notification from a State Tax Agency. The notice must include the name of the penalty, the reason the penalty is being assessed and an explanation of how the penalty amount has been calculated. The IRS Notice and the IRS Letter as well as notices issued by State Tax Agencies are computer generated so often errors occur. It is therefore important to verify that the reported penalty amount is correct before making payment or proceeding with any type of tax settlement procedure.

Since the accumulation of penalties and interest can represent a significant portion of an outstanding tax liability, obtaining a penalty waiver is often one of the most productive and efficient tax settlement options available. That being said, penalty waivers can be difficult to obtain. As with other tax settlement options, they are only granted under certain very specific conditions and they require strict documentation that those conditions have been met.

Normally, a penalty waver will be granted only under a condition that is called Reasonable Cause Relief.  In order meet the requirements of Reasonable Cause Relief, the taxpayer must show (1) that tax filing deadlines were not met or tax payments were not made as the result of some circumstance that was beyond their control and (2) that they took reasonable steps to counter the effects of the uncontrollable event and were still not able to file or pay their taxes.

The short list of events that may satisfy the requirements of Reasonable Cause Relief includes (1) a serious illness or death, (2) a fire, casualty or other natural disaster, (3) the inability to obtain tax records, (4) incorrect advice from a tax professional or (5) incorrect advice directly from the IRS.

In order to obtain a penalty waiver from either the IRS or a State Tax Agency, the taxpayer or their tax settlement representative must first submit a written request for the abatement. Following this, the taxpayer must meet the burden of proof that they acted in a responsible and prudent manner and still were unable to meet their tax obligations. The required burden of proof falls under the following three main headings:

  • The Uncontrollable Circumstances

–          What events happened?

–          When did the events occur?

–          Were the events such that they could not be controlled or anticipated?

–          How did the events prevent the taxpayer from filing or paying the taxes?

 

  • The Correlation Between the Uncontrollable Circumstances and the Late Filing or Payment

–          Did the taxpayer take steps to mitigate the effects of the uncontrollable circumstances?

–          How were other financial affairs handled during the time period in question?

–          Did the taxpayer pay creditors other than the IRS or State Tax Agency during the time period in question?

–          Is there a direct correlation between the uncontrollable circumstances and the late filing or payment of the taxes?

–          Did the taxpayer have a previous record of either late filings or late payments?

  • The Supporting Documentation

–          Is the provided documentation sufficient to show that the conditions for Reasonable Cause Relief have been met?

–          Was the documentation provided by an objective third party?

Since penalties are assessed for the purpose of enforcing compliance and creating fairness within the tax system, they are normally waived only when Reasonable Cause Relief can be documented according to the criteria described above. The procedure for obtaining an abatement of tax penalties is specific and complex and may require the assistance of a qualified tax settlement professional.

If you have been assessed penalties due to an existing tax debt, we can help you determine whether the assessed penalties are accurate and whether you meet the qualifications for a penalty waiver. Our experienced tax settlement professionals can also help you submit your penalty waiver request according to established IRS or State Tax Agency guidelines. For more information about our tax debt resolution services, visit us today at www.professionaltaxresolution.com. Contact us by phone at (949)-596-4143 or by email at info@protaxres.com to receive a free, no obligation consultation.

 

Audited? Overwhelming Penalties & Interest? Request a Penalty Abatement.

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Taxpayers with tax debt soon learn that the actual amount of tax they originally owed the IRS or State is only a part of the amount they now owe overall. The balance may be much larger due to the assessment of penalties and interest. Although many find it shocking, it is not uncommon to balances that have increased by as much as 50% because of penalties and interest.

One of the larger penalties is the “Accuracy Related IRS Penalty”. This large fee is generally 20% of any portion of a tax underpayment which the IRS determines is attributable to one of the following:

1. Disregard or negligence of IRS rules and regulations

2. A substantial understatement of IRS income tax due

3. A substantial valuation misstatement covered under Chapter 1 of the Internal Revenue Code

4. A substantial overstatement of a pension liability

5. A substantial estate or gift tax valuation understatement

When is this penalty assessed? Taxpayers who have gone through an audit often incur an “accuracy related penalty.” Most often this penalty is the result of an audit where it was determined that there was a substantial underpayment of the taxes due at the time of filing.

This is one of the reasons that an IRS Audit can be so intimidating and worrisome. Taxpayers fear not only the tax debt itself but the very significant addition of the penalties and interest.

In these situations, hiring a professional tax settlement firm should be strongly considered. The problem with having significant amounts of tax debt is that outstanding tax debt issues are usually owed to both the IRS and state tax boards for multiple years. Unpaid tax debts resulting in the assessment of the “accuracy-related penalty” are generally also assessed underpayment penalties and multiple other penalties and fees. As if that wasn’t enough, until they are paid in full, all of these balances continue to accrue interest.

Unfortunately these situations can continue to snowball until they are so large and difficult to solve that they require a thorough examination of all tax settlement options, especially for taxpayers that are already in a poor financial situation. There is hope though. A qualified and reputable tax resolution firm can help you determine if you are eligible for IRS penalty abatement. If you are a candidate, it is possible to request an IRS penalty abatement of the assessed “accuracy-related penalty.”

To file this penalty abatement request, the taxpayer must be prepared to demonstrate that the taxpayer “acted in good faith and has reasonable cause”. The determination of whether a taxpayer acted with “reasonable cause” and in “good faith” is made by the IRS on a case-by-case basis. Hiring the right professional to ensure you have a solid case becomes very important as the IRS will take into account all specific facts and circumstances. Probably the most important factor the IRS considers is the extent of the taxpayer’s effort to report the proper tax liability.

If a taxpayer did not keep adequate books and records, they may have a very difficult time claiming to have acted with “reasonable care”. However, a taxpayer who has honestly relied upon the advice of a tax professional, and who has made a “reasonable effort” to assess their IRS tax debt liability, will have a better case even if the advice they received turned out to be incorrect. An honest misunderstanding of fact or law may also be considered “reasonable cause and in good faith” if the IRS feels the misunderstanding is reasonable.

Of course, simply requesting the abatement is not enough and just because you previously relied upon the advice of another or you had an honest misunderstanding of the tax law does not necessarily demonstrate to the IRS that you had “reasonable cause and good faith”. This is why the IRS looks at all of the facts and circumstances when considering a taxpayers request for tax debt penalty abatement.

Talk with your professional tax resolution specialist as it relates to your specific circumstances. Carefully consider all of your tax debt settlement options such as requesting an IRS penalty abatement, entering into an installment agreement, submitting an offer in compromise, and various other alternatives.

Remember, the problem won’t go away, it only compounds so the worst option is to do nothing.

Our licensed experts at Professional Tax Resolution (www.professionaltaxresolution.com) can assist you in determining which tax settlement options are appropriate for you based not only on your tax debt but your financial circumstances as well.

IRS Debt – How did that happen? Now what do I do?

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Incurring an IRS Debt

Most people who have IRS debt do not find themselves in that situation due to an unwillingness to pay their fair share of taxes. It is much more common that taxpayers find themselves owing the IRS either due to a mistake on a previously filed income tax return or some unavoidable circumstance such as a lost job, a decrease in earned income or an illness. While the initial IRS debt may have been the result of an unfortunate turn of events or a simple mistake or unreported item, it has often been compounded over time by the addition further taxes, penalties and interest. It is not uncommon for penalties and interest, which are often applied retroactively when the IRS or state tax agency makes an adjustment to a return from a prior year, to account for as much as 50% of an outstanding IRS debt balance. 

Resolving an IRS Debt

The first and most important thing that a taxpayer should do to resolve an IRS debt is to stop avoiding the issue. Taxpayers often think they can simply ignore their IRS debt because collection efforts begin mildly with letters simply stating the outstanding balance. Generally, the IRS has 10 years from the date a tax return is filed to collect an IRS debt. While collection efforts begin with passive techniques such as sending an IRS letter or IRS notice, as the 10 year collection period progresses, the methods get more aggressive. Collection attempts eventually lead to the possibility of filing a lax levy on bank accounts, wage garnishments or the filing of a tax lien. Any of these actions can have a drastic effect on a taxpayer’s credit rating and financial wellbeing. When faced with an IRS debt, a taxpayer may be best served by contacting a tax settlement professional to help resolve the issue.

How a Tax Debt Settlement Firm Can Help

The most obvious way to avoid an escalating IRS debt is to not incur the debt in the first place. While this may seem obvious, it is easier said than done. Mistakes are made and life events occur that are sometimes unavoidable. However once an IRS debt is incurred, it may be a good investment to enlist the help of a qualified professional to resolve the issue. Without professional help, individuals often find themselves overwhelmed by the barrage of letters from the IRS and confusion over how to proceed.

Why Professional Tax Resolution is a Good Choice

There are many different types of tax settlement firms and some, unfortunately, make promises they can’t keep and resort to unethical practices. For this reason, it important to research a potential tax resolution firm in order to select one that is reputable and has had a history of success settling IRS debt issues. To insure that a firm meets these qualifications, it is a good idea to verify their current licensure with the state certification agency and the Better Business Bureau. It is also advisable to review references if any are available. At Professional Tax Resolution, we encourage you to check our licenses, memberships and reviews. Our licensed CPAs and Enrolled Agents represent our clients before the IRS and State agency from start to finish. We work with our clients to prepare all un-filed tax returns, confirm and correct balances as reported by the IRS and provide our clients with the best tax settlement option available.