No one really wants to get themselves into the situation of owing back taxes. Unfortunately, it happens; and it happens most often when people are going through a difficult time including facing unemployment, life and relationship changes, and even medical problems. The present state of the economy certainly isn’t making it easier. However, the Internal Revenue Service recently launched the Fresh Start program to give taxpayers relief – if they are willing to get compliant by filing all of their taxes, and work with the agency to resolve their back tax debt to the extent they are able.
Get back tax help now by calling us at 877-788-2937.
It can be downright difficult to face the situation, but ignoring the IRS doesn’t make your back tax debt go away. When you don’t file your taxes, the IRS will figure your taxes for you – based on income that is reported to them by your employer or clients if you are a independent contractor. The taxes are calculated at the highest rate possible. On top of that, you are charged penalties and interest.
Whether you’ve filed taxes and not paid the amount due, or just not filed – you’ll have some work to do. The first step, in the event that you haven’t filed, is to get all of your tax filings up-to-date. Finding a good tax specialist is recommended, but not mandatory. If you can’t afford one, or prefer to handle this on your own, it is an option. The advantage of working with a tax professional is that he or she can assist you in getting all of your deductions claimed and keep your taxes as low as is allowed by law. A tax professional, specifically an enrolled agent, can also represent you before the IRS and resolve your back tax matter if required.
Now, once all of the back taxes have been filed – if you are unable to pay them in full at one time you may arrange for an “Installment Agreement” to pay them over time. If your circumstances are such that you won’t be able to pay them over time, an “Offer in Compromise,” is an arrangement to pay less than you owe. In order to qualify for these programs, you must prove a level of financial hardship.
You may also be eligible for penalty and/or interest abatement (of the penalty portion). These are granted in limited cases that meet criteria of reasonable cause and extreme hardship.
Once you’ve decided to handle your back taxes situation – whether that’s paying or filing back taxes there are tax relief programs designed to help you get out from under the debt; but you must request them. The good news is that the Fresh Start program from the IRS is available for both individuals and small businesses. Following is a quick overview of the latest updates to the program:
Installment Agreements:
In-Business Trust Fund Express Installment Agreement (IBTF-Express IA)
This is for a small business with employees. Typically, no financial statement or verification needed during the application process. The qualifying criteria includes:
• You owe $25,000 or less at the time of the agreement.
• If you owe more than $25,000, you may pay down the liability before entering into the agreement in order to qualify.
• If you owe between $10,000 and $25,000 you will need to enroll in the Direct Debit installment agreement (DDIA).
• The debt must be paid in full within 24-months or before the Collection Statute Expiration Date (CSED), whichever is sooner.
• You must be compliant with all filing and payment requirements.
Streamlined Individual Installment Agreements:
The IRS wants to make it easier to catch up on back taxes, and get compliant. They have expanded the maximums for amount owed and terms for payment to make this more effective. An installment agreement will require some financial information, but not a financial statement to be accepted. These are available to individuals who owe any type of tax (Form 1040, Trust Fund Recovery Penalty, etc.); businesses who wish to arrange for an installment agreement are limited to defunct sole proprietors who owe any type of tax (Form 940, 941, 943, etc.).
There are two categories for the installment agreement – a balance due of $25,000 or less, and balance due $25,001 to $50,000.
For a balance of $25,000 or less, the criteria include:
• You owe $25,000 or less at the time the agreement is established, if you owe more than $25,000, you may pay down your tax debt in order to qualify.
• You must pay the debt, in full, within 72-months or prior to the Collection Statute Expiration Date, whichever is earlier.
• You must maintain, and be up-to-date with all filing and payment requirements.
For a balance due of $25,001 to $50,000, the requirements are as follows:
• You owe $25,001 to $50,000, when the agreement is established. If you owe more than $50,000, you can pay down your liability in order to qualify for an agreement.
• The debt must be full paid within 72-months or prior to the Collection Statute Expiration Date, whichever is earlier.
• You must be compliant with all filing and payment requirements.
• You will be required to arrange your payments through a Direct Debit Installment Agreement.
Offer in Compromise
An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability, or doing so creates a financial hardship. The IRS will consider your situation including:
• Ability to pay;
• Income;
• Expenses; and
• Asset equity.
An offer in compromise should be a fair representation, and attempt, to pay the amount that you can feasibly pay. The IRS will be looking to collect as much as possible, within a reasonable period of time.
It is not for everyone. Consulting with the IRS.gov website or a tax specialist will give you a better idea of your eligibility for this program.
Although you can apply for an Installment Agreement, Offer in Compromise, or a penalty or interest abatement on your own, assistance from a tax professional can make the process less daunting. If you opt to work with a tax specialist, you should know that there are a few who are able to represent you to the IRS, these include: Enrolled Agents (federally-authorized tax practitioners who can represent taxpayers before all administrative levels of the IRS), Certified Public Accountants (CPAs), and attorneys. Meeting with a tax advisor will allow you to discuss your particular situation and get advice on the best possible option for you.
I personally specialize in helping individuals and businesses who are unable to fully pay their taxes, either back taxes, or due to current or late filing. If you cannot pay your taxes, do not let this prevent you from filing because tax settlement options may be available. You can get compliant and we can help.
Tax Relief Services by Mike Habib, EA
For more details contact us as quick as possible 877-788-2937.
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