The Role of Tax Resolution in Resolving Tax Debts

Tax resolution is a subset of tax law that deals with the actions and procedures necessary to resolve issues between taxpayers and tax agencies. It involves understanding complex tax laws, communicating with tax agencies, and navigating through the bureaucratic processes to find a solution that minimizes the burden on the taxpayer. Whether it’s an individual or a business facing difficulties with their taxes, tax resolution services can provide invaluable assistance.

Purposes of Tax Resolution

1. Settle Back Taxes: One of the primary purposes of tax resolution is to help taxpayers settle their back taxes. These are taxes that have been unpaid in the year they were due, and can accumulate over time, leading to significant debt.
2. Negotiate Payment Plans: Tax resolution services can negotiate with the tax agency to establish a payment plan for the taxpayer. This allows the taxpayer to pay off their debt in manageable installments, making it easier to get back into compliance.
3. Remove Penalties and Interest: In many cases, the tax debt can be inflated by penalties and interest charges. Professionals can often negotiate to have these penalties and interest reduced or removed, lowering the overall tax debt.
4. Stop Wage Garnishment: If a taxpayer owes back taxes, the IRS or other tax agencies can garnish their wages to recover the debt. The services can work to stop this wage garnishment and find a better solution for settling the debt.
5. Lift Tax Liens or Levies: A tax lien or levy is a legal claim made by the tax agency on a taxpayer’s property when they fail to pay their taxes. The purpose of tax resolution is to lift these liens or levies, protecting the taxpayer’s property.
6. Represent Taxpayers in Audits: Audits can be stressful and complex. Tax resolution professionals represent the taxpayer in the audits, ensuring their rights are protected and helping them navigate the process.
7. Offer in Compromise (OIC) Negotiation: An Offer in Compromise (OIC) represents an agreement between the taxpayer and the tax agency, whereby the taxpayer is permitted to clear their tax obligations by paying an amount that is less than the total debt owed. The goal of tax resolution services is to broker terms for an OIC that are beneficial to the taxpayer.
8. Provide Legal Advice: Professionals can provide legal advice to taxpayers on how to handle their tax issues. This includes understanding their rights, obligations, and potential consequences.

Tax Debt Resolution

1. Installment Agreement: This refers to a structured payment arrangement enabling taxpayers to clear their tax liabilities through monthly payments over a predetermined time frame. The IRS provides various installment agreement options such as guaranteed, streamlined, and long-term plans, tailored according to the outstanding amount and the taxpayer’s financial circumstances.
2. Offer in Compromise (OIC): An Offer in Compromise (OIC) provides taxpayers with an opportunity to resolve their tax liabilities by paying less than the total amount due. In deciding whether to approve an OIC, the IRS takes into account factors such as the taxpayer’s payment capability, income level, expenditure, and the value of owned assets.
3. Currently Not Collectible (CNC) Status: If a taxpayer cannot pay their tax debt due to financial hardship, the IRS may declare their account as Currently Not Collectible. This means the IRS temporarily stops collection activities until the taxpayer’s financial situation improves.
4. Penalty Abatement: The IRS might be willing to lessen or eliminate penalties associated with tax debt if the taxpayer can provide a valid reason, known as “reasonable cause,” for their non-compliance with tax laws. This could be due to factors like serious health issues, natural disasters, or incorrect guidance from the IRS itself.
5. Innocent Spouse Relief: In certain situations, a taxpayer could be exempted from the obligation to pay taxes, interest, and penalties if their spouse or ex-spouse has inaccurately reported or failed to include specific items on their tax declaration.
6. Bankruptcy: In certain circumstances, filing for bankruptcy may help resolve tax debt. However, this is an extreme measure and not all tax debts can be discharged in bankruptcy. It’s important to consult with a tax professional or a bankruptcy attorney before choosing this option.
7. Statute of Limitations Expiration: The IRS generally has 10 years to collect unpaid taxes from the date of assessment. If this time period expires, the tax debt may be resolved. However, several factors can extend this statute of limitations.

Each of the tax debt resolution options has its own eligibility requirements and consequences. Therefore, it’s crucial for taxpayers to seek professional advice to understand their options and choose the best strategy for their specific situation.

Advantages of Tax Debt Resolution

Tax debt resolution can bring several advantages for taxpayers carrying a heavy tax burden. Here are some key benefits:

1. Reduction of Tax Debt: Through options like an Offer in Compromise (OIC), taxpayers may be able to settle their tax debt for less than the full amount they owe, significantly reducing the overall debt.
2. Payment Flexibility: With an installment agreement, taxpayers can pay their debt in manageable monthly installments, making it easier to budget and avoid default.
3. Avoidance of Legal Consequences: By proactively resolving tax debt, taxpayers can avoid serious legal consequences like tax liens, levies, garnishment, or even criminal charges related to tax evasion.
4. Removal or Reduction of Penalties: The IRS might consent to diminish or eliminate penalties linked to a tax debt if the taxpayer can demonstrate a justifiable reason for their failure to adhere to tax regulations.
5. Peace of Mind: Resolving tax debt can provide significant emotional relief. The constant worry about potential legal action or mounting interest and penalties can cause stress, which is alleviated once a resolution is in place.
6. Prevention of Future Issues: Through the process of resolving tax debt, taxpayers often gain a better understanding of tax laws and how to stay in compliance, helping to prevent future tax issues.
7. Release of Tax Liens: Once a tax debt is resolved, the IRS will typically release any tax liens, which can improve your credit score and make it easier to sell or refinance property.
8. Improvement in Credit Score:  Unpaid taxes, while they don’t directly affect your credit score, can lead to serious financial consequences that indirectly impact your credit standing.  Resolving your tax debt can prevent these problems. If you set up an installment agreement with the IRS or negotiate an offer in compromise, you can avoid a tax lien being filed. Even if a lien has been filed, resolving your tax debt will lead to the release of the lien.