There isn’t a worse feeling than to owe back taxes. The reasons you may owe taxes could be because you lost a job, had high medical bills or got behind on payments. After a time, there was no way to pay the taxes you owed as every year the amount increased. Then the IRS sent out notices about paying your tax obligation now. As you are sitting in front of your television watching tax resolution company ads, you may be wondering how do tax resolution services work?
How Do Tax Resolution Services Work: The Basics
About Tax Resolution Services
Tax resolution services offered by organizations try to act as intermediaries between the taxpayer and the IRS. Some people become so scared about talking with the IRS because they are embarrassed about owing taxes as they avoid responding to all IRS letters. Other people may not be able to represent themselves due to other causes, such as a medical impairment, or because they simply don’t know all the tax laws that apply to them. Tax resolutions services are provided by third-party individuals and organizations who may be versed in tax law or have a specialized degree in taxation, although some companies may not have such experience. These organizations may offer a range of different services.
Removal of Tax Liens and Levies
The IRS may impose a levy or a lien against your property. A levy is where the IRS will take ownership of your property to satisfy a tax debt or will take ownership of other assets such as bank accounts and wages. A lien is where the IRS will place a legal claim on the property to get payment. If you try to sell the property, the money from the sale will first go to the IRS to satisfy the owed back taxes as anything left will go to you. Tax resolutions services may involve trying to get the lien or levy removed.
Tax Debt Reduction
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You may be in the position where the amount owed in back taxes is simply too much. Certain tax resolution services seek to lower this tax obligation. The tax debt reduction is normally called an offer in compromise (OIC). An OIC is usually not considered by the IRS until all other repayment options have been exhausted. They also may be reluctant to offer a reduction if they believe that the back taxes can be paid in full. There is no set amount on how much of a reduction a person will get because every person’s circumstances are different and must be taken into consideration.
Tax Payment Installments
Normally, taxpayers can negotiate with the IRS to receive a payment installment plan. The installment plan, called an installment agreement through the IRS program Fresh Start Initiative, is usually the easiest route to take. It allows a person to pay back taxes in smaller amounts over a period of time. The IRS usually can’t deny a payment installment plan if a person owes less than $10,000. They also have streamlined agreements for people who owe between 25,000 to 50,000 as they can pay off their debts in 5 to 6 years.
Penalty and Interest Abatement
While owing taxes, penalties and interest will be added to your tax bill until you are caught up. These fees can make it even more difficult to pay back the IRS. In rare and limited circumstances, the IRS will provide abatement for penalties and interest. With the abatement, you can then pay what you actually owe in back taxes. Tax penalty abatement and interest may happen if you have gone through a special hardship.
Tax Debt Postponement
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In this circumstance, you take full responsibility for owing the IRS in back taxes. However, your current financial situation simply doesn’t allow you to repay the debt immediately without impacting your daily living expenses. The IRS may postpone your payments and place your account into Currently Not Collectible status (CNC). The IRS will cease collection efforts and agree to not place a levy on your property or assets while you are in this hardship status. But you will still collect penalties and interest as they review your financial situation periodically to determine if your status has improved to the point where they will continue collection efforts.
Only certain individuals are permitted to negotiate directly with the IRS on your behalf. Certified public accountants (CPAs), attorneys, and enrolled agents who are federally authorized to be tax practitioners can represent you when you wish to obtain an OIC, abatement for penalties or interest, and payment installment agreements from the IRS. So consider your options when you are seeking tax resolution services from third-party organizations. Hopefully, the information above on how do tax resolution services work can help you get caught up on your back taxes.
Have you tapped the services of a tax resolution services firm before? Please share your experience by leaving your comments below.