Taxpayers should take their tax due notices seriously and explore their available options.

In 2020, it is estimated that 25 million taxpayers could not pay their taxes or failed to file their returns. The pandemic has made the matter worst and the number is expected to be higher in 2021. The Internal Revenue Service Commissioner estimates that taxpayers owe $1 trillion per year. The IRS has several means available to enforce tax filing compliance and payments of taxes due. Many taxpayers are currently receiving notice of levy or seizure of property. Taxpayers have usually 30 days to respond.

When taxpayers did not request an extension to file their tax return, the penalty for late filing and compound interest on any tax due continue to increase. It should be noted that the extension to file does not stop interest from accumulating on tax due. The penalty for late filing is much higher for partnerships and S corporations returns. Pay as much as you could, as soon as possible, to lower the penalty and interest. The IRS could be lenient in certain cases. The Service, in fact, advises taxpayers to borrow money to pay a tax due because for some taxpayers the interest imposed by the IRS could be higher.

You must answer to correspondence from the IRS when an action is required. Do not not dismiss any letter.

There are many ways to resolve a tax debt. However, a taxpayer needs to be in compliance for the past 6 years to obtain an abatement, an installment agreement, and an offer in compromise.

  • Some taxpayers could be qualified for an abatement (FTA) of the penalty.
  • Some taxpayers could use the reasonable cause exception to get relief from tax debt.
  • Taxpayers could also request for Currently Not Collectible (CNC) status when the payment of the tax due would cause a significant financial hardship on the taxpayer’s family.
  • Taxpayers could request an installment agreement (IA). An installment agreement could be quickly approved in certain cases and could be modified based on changing financial circumstances.
  • There are cases where taxpayers could apply for an offer in compromise (OIC).

An Offer in Compromise is an agreement between a taxpayer and the Internal Revenue Service that settles a taxpayer’s tax liabilities for less than the full amount owed. It is not suitable to every taxpayer. It is a long process. A taxpayer’s unique facts and circumstances are taken into account to qualify for an offer in compromise. The Internal Revenue Service will look at the taxpayer’s ability to pay, income, expenses, and equity in the taxpayer’s assets.

NEVER ignore a tax due notice, regardless of your financial situation. Seek the guidance of a tax professional who is qualified to represent you before the Internal Revenue Service.

Do you know that you could reduce your tax liability by proper tax planning strategy as individual or business owner.

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