Tag Archives: tax settlement

Learn How the IRS Grants An Abatement of Penalties

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Penalties in the form of interest and other fees are incurred when a taxpayer fails to file a tax return by a filing deadline and/or fails to pay a tax debt when it is due. Although interest and other penalties assessed by the IRS function to create equity within the tax system and encourage compliance, they often impose a significant financial burden on the taxpayer by increasing a taxpayer’s IRS tax debt by as much as fifty percent. When the circumstances are such that a taxpayer has acted in a reasonable and prudent manner yet, because of circumstance beyond his or her control, is unable to meet a tax debt obligation, the IRS may reduce or eliminate the penalties.
The IRS grants the abatement of penalties when “the taxpayer exercises ordinary business care and prudence in determining their tax obligations but is unable to comply with those obligations.” This is called Reasonable Cause Relief. Essentially this means that something beyond the control of the taxpayer has occurred that caused him or her not to file a tax return or pay a tax debt in a timely fashion. In order to qualify for Reasonable Cause Relief, it must be demonstrated that the taxpayer took reasonable steps to counter the events that resulted in his or her inability to pay and yet was still unable meet the assessed tax obligations.
Unfortunately, despite what some tax relief or tax settlement companies might advertise, abatement through Reasonable Cause Relief is very difficult to obtain. The burden of proof that requisite care and prudence was exercised rests with the taxpayer. In addition, the following prerequisites must be met in order to be considered by the IRS as a candidate for Reasonable Cause Relief:
• The taxpayer or the tax settlement representative must make a request for abatement.

• The taxpayer’s situation must be the result of, or closely analogous to, one of the following events:

  • Inability to obtain necessary records
  • Serious illness, death, or other unavoidable absence
  • Fire, casualty, natural disaster or other disturbance
  • Incorrect advice from a competent tax professional
  • Incorrect advice, either oral or written, from the IRS
  • An Act of God.

• The taxpayer must meet the IRS standards of burden of proof regarding one or more of these events.

A qualified Certified Public Accountant handling a tax settlement case will know and understand the factors the IRS considers when determining whether a taxpayer is eligible for Reasonable Cause Relief and will make sure the case is well prepared before approaching the IRS.

The following is a sample list of questions the IRS may present when making a determination as to whether or not to grant an abatement:

  • What events prevented the timely filing of a tax document or resulted in the late payment of a tax debt?
  • When did the events happen?
  • ?Why did these events prevent the taxpayer from complying with the tax law?
  • How were other financial affairs handled during the time period in question?
  • Does it appear that the taxpayer paid other creditors and singled out the IRS as the creditor not to be paid?
  • What steps were taken in an attempt to mitigate the circumstances that prevented payment of the tax debt?
  • Is there a direct “timeline” correlation between the extenuating circumstances and the failure to meet the tax debt obligations in question?
  • Is there a history of late payment of tax debt and /or failure to meet filing deadlines?
  • Were the circumstances such that they could not have been anticipated or avoided?
  • What documentation was provided to prove reasonable cause?
  • Was the documentation provided by an uninterested third party?

Call us at (949)-596-4143 for more information about tax debt, tax relief, tax settlement, tax levies, wage garnishment, audit defense or removal of tax liens.

How We Reduced One Client’s Tax Debt from $40,000 to less than $1,000

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We were hired by the owner of a small mortgage company to resolve his tax debt. Our client had received a notice that his wages from a related company had been garnished by the state tax board and the federal government had issued an IRS notice of the intent to pursue a tax levy and tax lien. Both the state and the IRS were taking serious action and the client was understandably worried. At the time of the initial meeting the state tax board had already collected approximately $3,000 through wage garnishment which of course was a huge financial burden for his family.

What had gone wrong? The owner of the company admitted that he had actually not filed either his corporate or individual tax returns for five years. Why not? With the downturn in the economy, the company had lost money during that time and the owner figured it was not necessary to file his tax returns because he had made no profit.

Had he received any IRS Notices? Not only was the answer yes, he brought us a large stack of completely unopened IRS Notices and letters from the IRS. At Professional Tax Resolution Inc., we see this all too often. Clients paralyzed by fear have piles of unopened IRS Notices and Letters from the IRS. Why do you get so many letters? The reason is actually more logical than it may appear; the IRS generally has a 10 year statute of limitations for most tax debts so as an outstanding tax debt approaches the 10 year mark, the IRS collection efforts usually get more and more aggressive.

The first thing we did after our client hired us was determine which prior year tax returns had been not filed. We then did background research about beneficial tax codes so that when we filed his missed year returns, we could take all of the applicable benefits for our client. We know from our years of experience that the process of filing unfiled returns or correcting prior year returns is not only the right thing to do, it is far more productive than attempting to negotiate a settlement with the IRS for an amount less than the reported amount of the tax owed.

It turns out in the case of our mortgage company client, the IRS and state tax board had prepared estimated returns based on 1099 Forms provided to them by other taxpayers. When the IRS or State tax agency prepares an estimated or substitute return, they only include information that they have on file which traditionally only includes the income reported to them. The result is that all allowable expenses are generally not taken.

In this case we were able to contact the Internal Revenue Service and State Tax Board and obtain a 30 day collection hold to allow us the time we needed to file all of the outstanding returns. Using IRS transcripts, account information and our client’s company expense records we were able to actually prepare and file all of the outstanding individual and corporate tax returns. Once that work was completed and the returns were properly prepared, we ran a calculation and saw that the actual amount owed was now under $1,000! This was a huge reduction compared to the more than $40,000 the IRS and state tax boards indicated was owed just weeks before. We faxed the revised state tax returns to the state tax board and were able to stop the wage garnishments immediately and our client even receive a refund of the amounts the state had previously garnished!

We achieved great success in this case, reducing our client’s liability by over 97% because we correctly filed his outstanding returns. Had our client asked for advice years before, he might never had to face the burden of his large tax debt. Had he opened his IRS notices and called us for help earlier, he might have avoided a wage garnishment and tax lien. The lesson learned is simply that the worst course of action is no action at all.

For more information about how we can help you; call us at (949) 596-4143 and speak directly with a CPA today.

In these economic times being considered “Currently Not Collectible” is not complete freedom from tax debt, but it can provide some tax relief.

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It is no secret that Americans have been facing difficult times. At Professional Tax Resolution Inc., we have found that more taxpayers than ever are finding themselves with significant tax debts that are so large they are very difficult or even impossible to pay.

For some people a monthly tax settlement payment can create a hardship by leaving them unable to meet their necessary living expenses. In other words, tax settlement payment is just beyond their financial means. If this is the case, the IRS may classify the tax debt as “currently not collectible”. While more and more people find themselves living on less and less, getting the IRS to classify a taxpayer as “currently not collectible” is often difficult particularly without professional guidance. It should be noted that even if you obtain this classification, this status is that it is NOT a permanent designation and it may only temporarily provide to relief to the taxpayer. The fact is that a “currently not collectible” status continues to accrue penalties and interest on outstanding tax debt liabilities.

When tax debt continues to accumulate, the IRS can become more and more aggressive about collection attempts regardless of your ability to pay. At Professional Tax Resolution Inc., we are often contacted by taxpayers after they have received intent to file a tax levy from the IRS. Usually the tax debt that results in a tax Levy is accumulated from multiple years and includes a significant amount of penalties and interest.

One of the more common ways Tax debt results is from not filing returns. In these situations, the IRS may do a substitute return that only considers income and does not give credit for deductions for which the taxpayer is likely eligible. When the IRS substitutes your returns for you, it can result in an overstatement of the tax debt. How is this related to a tax levy or “currently not collectible” status? When the IRS moves to impose a tax levy, the unfilled returns can be a significant obstacle in halting the collection efforts. So, even if you can demonstrate you have a clear economic hardship caused by the tax levy, in most cases the IRS will not even consider a resolution alternatives until all returns are filed. If you have not filed your tax returns and a tax levy is imposed, you may be caught in a chicken and egg situation. It can be difficult to obtain expense and other records form past years leaving you unable to prepare outstanding tax returns in time to halt the filing of the tax levy.

A court case addressed this how these very issues interact. In Vinatieri v. Commissioner, a taxpayer faced both financial hardship and aggressive collection efforts by the IRS. In this case the Tax Court held that the IRS abused its discretion by proposing a tax levy upon a taxpayer with un-filed returns who had shown that they were in economic hardship. In other words, the taxpayer was in an economic situation that might have qualified them as “currently not collectible”, yet the IRS abused its discretion by imposing a tax levy without regard to their financial ability to pay at the time.

Unfortunately despite the ruling, IRS procedures for placing an account into “currently not collectible” status remain unclear. The net result is that a number of tax levies are being impressed upon people who are in such dire financial situations that they should be at least temporarily be ineligible from such collection actions.

There is some hope that the growing issue will finally be addressed. The national taxpayer advocate service has recently recommended that the IRS provide its employees with clear guidance that employees are able to classify an account as “currently not collectible” independent of any other criteria and even when the taxpayers has unfilled tax returns. The TAS has also recommended that the IRS provide its employees with additional training on how to manage accounts for taxpayers facing an economic hardship.

While the IRS may overtime become more accommodating to those in dire financial circumstance, the best advice for those with tax debt is to take action immediately. The effects of a tax levy, wage garnishment or other collection method can be devastating to a taxpayer that is already struggling financially. Don’t let years of interest and penalties continue to accumulate. Call us now and let us help you to evaluate your tax debt resolution options. яндекс