Taxpayers should take their tax notices seriously and explore their resolution options available.
The 2021 tax season is officially over. Taxpayers who requested an extension had until October 17, 2022 to file their returns to avoid the late filing penalty. The penalty could be as high of 25% of the tax due. After a return is processed, the IRS would generally send a letter if there was any issue. To illustrate, for 2022 thus far, the IRS has sent Fourteen Million notices, for “math error” (CP11/CP12 and CP2000’s) in comparison to just 649,000 in 2020. That is a big increase.
Million of taxpayers could not pay their taxes or failed to file their tax returns. The number gets higher every year. Some taxpayers incorrectly filed their return. Unfortunately, many taxpayers ignore the notices to their detriment. Those math errors could bring some consequences that could be significant if taxpayers do not act quickly.
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. The penalty for late filing of failure to file is much higher for business tax 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.
Taxpayers must answer to correspondence from the Internal Revenue Service when an action is required. Do not dismiss any letter. Generally, taxpayers have 30 days to answer to an IRS correspondence. Many taxpayers are scared and do not open those letters. A tax resolution professional could relieve the stress by opening the letter, explaining the content, and discuss a resolution.
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 family.
- Taxpayers could request an installment agreement (IA). An installment agreement is easily approved 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. Generally, more offers in compromise are rejected by the IRS than those accepted. 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 asset equity.
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 IRS.
Please remember that you might not be able to obtain a passport or travel when you owe the IRS over $50,000 because under current law, enacted in 2015, this is information could be reported to the Department of State.
Hiring a tax resolution expert is the best action a taxpayer could take in a tax matter before the IRS or a state tax authority.
We offer FREE initial consultation!!!