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Tax Resolution

What is tax resolution?

Tax resolution includes many services and goes by different names (IRS representation, tax relief, tax problem recovery, tax resolution, tax controversy) but in summary, tax resolution is a service in which you help a client resolve their open debt with the IRS in a way that minimizes the debt as much as possible.

Tax resolution services include:

  • Offer in Compromise
  • Installment Agreement
  • Penalty Abatement
  • Innocent Spouse
  • Tax Liens
  • Levies
  • Trust Fund Recovery Penalty
  • Bankruptcy
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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 Internal Revenue Service (IRS) considers your unique set of facts and circumstances:

  • Ability to pay;
  • Income;
  • Expenses; and
  • Asset equity.
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It will generally approve an offer in compromise when the amount offered represents the most it can expect to collect within a reasonable period of time.

The IRS allows taxpayers to pay off tax debt through an installment agreement. Because interest and penalties will apply, however, the IRS encourages taxpayers to pay taxes immediately. Interest and penalties can equal 8% to 10% per year.  If paying the entire tax debt all at once is not possible, an installment agreement is an alternative allowed by the IRS. The IRS has four different types of installment agreements: guaranteed, streamlined, partial payment, and non-streamlined.

You may qualify for relief from penalties or Penalty Abatement if you made an effort to comply with the requirements of the law, but were unable to meet your tax obligations, due to circumstances beyond your control. Penalties eligible for penalty relief include:

  • Failing to file a tax return
  • Failing to pay on time
  • Failing to deposit certain taxes as required
  • Other penalties as applicable.
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The Innocent spouse rule allows a taxpayer to avoid a tax obligation arising from errors made by a spouse on a joint return. Most commonly, the error involves unreported income or an inflated deduction.  Innocent spouse relief only applies to individual income or self-employment taxes. The taxpayer must apply for relief within two years of the IRS initiating collection.

Tax Lien avoidance or removalA tax lien is a lien imposed by law upon a property to secure the payment of taxes. A tax lien may be imposed for delinquent taxes owed on real property or personal property, or as a result of failure to pay income taxes or other taxes.   A lien is not a levy. A lien secures the government’s interest in your property when you don’t pay your tax debt. A levy actually takes the property to pay the tax debt. If you don’t pay or make arrangements to settle your tax debt, the IRS can levy, seize and sell any type of real or personal property that you own or have an interest in.

The Trust Fund Recovery Penalty (TFRP) is a penalty assessed against those who have the responsibility of collecting and paying over trust fund taxes (i.e. payroll taxes) to the government and willfully evade or attempt to evade payment.

Bankruptcy is sometimes the best tool when dealing with delinquent taxes.  You can discharge (wipe out) debts for federal income taxes in bankruptcy only if all of the following conditions are true:

  • The taxes are income taxes. Taxes other than income, such as payroll taxes or fraud penalties, can never be eliminated in bankruptcy.
  • You filed a tax return. You must have filed a tax return for the debt you wish to discharge at least two years before filing for bankruptcy. (In most courts, if you file a late return (meaning your extensions have expired and the IRS filed a substitute return on your behalf), you have not filed a "return" and cannot discharge the tax. In some courts, you can discharge tax debt that is the subject of a late return as long as you meet the other criteria.)
  • The debt is at least three years old. To eliminate a tax debt, the tax return must have been originally due at least three years before you filed for bankruptcy.
  • You pass the "240-day rule." The income tax debt must have been assessed by the IRS at least 240 days before you file your bankruptcy petition, or must not have been assessed yet. (This time limit may be extended if the IRS suspended collection activity because of an offer in compromise or a previous bankruptcy filing.)
  • You did not commit fraud or willful evasion. If you filed a fraudulent tax return or otherwise willfully attempted to evade paying taxes, bankruptcy can't help.
    Ask your bankruptcy professional if bankruptcy is the best option for you. See Bankruptcy page for a brief overview of the different bankruptcy chapters.