How to Successfully Get an IRS Tax Settlement

It can be extremely stressful to be in debt with the IRS or to owe them money. If you find yourself in this situation, take a deep breath, and learn about the potential ways to receive an IRS tax settlement under certain circumstances.

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If you have ever been in debt to the IRS, you know how bleak it can feel. But don’t give up on hope. While it is in the government’s best interests that you pay off every last bit of what you owe, the IRS knows that this isn’t always possible – and under specific circumstances, you can seek an IRS tax settlement.

But before you get your hopes up, it is important to understand what that means.

 

What Does an IRS Tax Settlement Entail?

The IRS will not let you off the hook without a very good reason. Neither will they reduce what you owe on the premise that you just don’t want to part with that much money.

Taxpayers who demonstrably cannot pay off their debt within its lifetime, as per the statute of limitations on IRS collection actions, may be able to convince the IRS to an offer that is financially feasible, giving you a shot at a clean slate, and giving them a higher likelihood of at least collecting some of your debt before it invariably expires.

This is among the more common ways in which the IRS may compromise on your tax situation by giving you an IRS tax settlement.

 

Can I Avoid Paying?

A much rarer option is to find a reason to avoid paying. This is exceptionally rare, as it usually entails that the IRS made a mistake and attributed a debt or penalty to your tax account that you aren’t actually liable for. For example, the IRS may have reversed a deduction that you do in fact qualify for or attributed a penalty where none was due.

If you can prove this, then you must file an appeal on your tax situation as soon as possible via the IRS’ Independent Office of Appeals or the United States Tax Court. In both cases, it is highly recommended that you speak with a tax attorney first, and make sure that you’ve got every detail of your situation straight. Proving the IRS wrong isn’t an easy task, but if you’ve got the paperwork to back it up, you might not need to pay as much as you’d expect or pay at all.

There are a few other ways to reach an IRS tax settlement. But very few cases, if any, allow you to avoid paying anything at all. You will need to take a serious look at your finances and figure out how you can effectively argue that you might not be able to pay what you owe – based on your income, assets, expenses, and number of dependents.

 

Understanding the Different Types of IRS Tax Settlements

Aside from taking the IRS to court or filing an appeal, there are four major ways in which you can drastically reduce what you owe to the IRS, or otherwise halt collection efforts and buy yourself some time.

These tax settlements can be crucial tools in negotiating with the IRS and figuring out how best to deal with your debt, but you shouldn’t count on your chances without first consulting a tax professional. Let’s go over each type of IRS tax settlement together.

 

1. Installment Agreements

When approaching the IRS on the topic of settling your tax account and paying off your debt, you must make an offer to either pay now, or pay in rates, either in the short-term (within 180 days) or long-term (more than 180 days). If you decide to pay your debt off over the course of more than 180 days, via monthly payments, you will be entering into an installment agreement, also known as payment plans.

When opting to pay immediately, the IRS requires absolutely no setup fees and accepts most types of payment, such as check, money order, debit and credit cards, or electronic payment via the Electronic Federal Tax Payment System.

But on the topic of installment agreements, there are a few minor fees, and considerations. You can opt to have your payment automatically withdrawn at a reduced setup fee, as well as a lower risk of defaulting, or choose to pay manually, albeit with a substantially higher setup fee.

You can check out the installment agreement application via the IRS here, and learn more about how it works. In addition, there are various tax relief options for individuals that you may qualify for, including deductions and credits that can significantly reduce your taxable income. It's important to explore these options to maximize your savings and ensure you are taking advantage of all available benefits. Consider consulting with a tax professional to better understand which relief options apply to your unique financial situation.

 

2. Offer in Compromise

If you cannot afford to pay off your debt via monthly installments, you may be able to argue for a reduced total debt. However, it will be on you to make a convincing case. The IRS requires that taxpayers create offers in compromise to send to the IRS for review.

In this type of IRS tax settlement, it is effectively a proposal on your part on what you can pay every month, to pay off your debt.

The IRS is usually hard-pressed to accept these offers, so you need to ensure that you qualify. They have their own pre-qualifier tool, but it also helps to go over your finances with a professional.

The IRS utilizes a specific formula to determine your effective collectability, based on your:

If you try to undercut what they consider to be within your ability to pay, they will reject your offer. Note that while the offer is being considered (which can take weeks), your debt will continue to accrue interest.

While these offers used to require that a taxpayer pay what they can until the debt expires (10 years after the tax assessment date on which the debt was established, plus tolling periods), the IRS may allow you to pay off a significantly lower portion of your debt as part of the Fresh Start Initiative.

 

3. Filing as Currently Not Collectible

If you cannot pay monthly, and you cannot pay a reduced amount, then you likely qualify as a person under financial hardship. The IRS is obligated to avoid pursuing collection actions against a person under financial hardship, and you may file as currently not collectible.

With this type of IRS tax settlement, your debt isn’t wiped away, and interest will continue to accrue. But the IRS will not be able to file liens or levies against you until your financial situation markedly improves, which they verify periodically. You must continue to pay taxes and file your tax returns even if you are currently not collectible.

 

4. Penalty Abatement

The final form of IRS tax settlement is a sizeable reduction in your debt in the form of penalty abatement. Penalty abatement is usually reserved for first-time offenders, effectively wiping out your penalties and interest, so all that’s left to pay is the initial tax debt.

 

Don’t Fear the Tax Man

Regardless of what your situation currently is, the IRS is not out to harm you. They won’t knock down your door and demand the shirt off your back.

The worst thing you can do is nothing at all. Be sure to contact a tax professional and discuss your options immediately. The sooner you act, the less you have to pay – and the sooner this can be over.

Contact our team of tax professionals today.

How to Set Up a Payment Plan with the IRS in 5 Easy Steps

If you have outstanding payments or tax debt, it's important to take steps to resolve the issue as soon as possible. Here's how to set up a payment plan with the IRS in five easy steps.

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The IRS is responsible for ensuring that every taxpayer upholds their end of the collective bargain. If one fails to do so, they are penalized, and a debt is created, in their name, to the government. As time passes, this tax debt can grow. And as it does, the IRS may choose increasingly aggressive means to pursue the individual’s finances and coerce payment.

There are countless reasons why a person might be in debt to the IRS. Even the agency recognizes that most tax debt isn’t nefarious, or malicious. Sometimes it’s a late fee or unpaid penalty, or a case of forgetfulness. Sometimes, a really bad year or two can push the thought of filing your taxes to the back of your mind. While these are understandable reasons, there are consequences nonetheless.

A payment plan, or installment agreement, is the most straightforward (and often only) way to address those consequences, and prevent the IRS from deploying its increasingly aggressive and restrictive collection methods, from liens to levies. But how do you go about paying the IRS back what you owe?

 

What Do IRS Payment Plans Look Like?

Payments to the IRS can be made either in full, via multiple payments in a short period, or over a long period in the form of monthly installments. All three options are viable, although they have different setup fees. For taxpayers who prefer more manageable financial commitments, installment agreements with the IRS are often the best choice. These arrangements allow individuals to spread their payments over time, making it easier to avoid financial strain. It's important to review the terms carefully and ensure compliance to maintain good standing with the IRS.

You can apply for any of these payment plans online, provided your tax debt is underneath certain limits. For example, individual taxpayers with a total combined tax debt of more than $50,000 cannot apply for a long-term payment plan via the Internet. You can still opt for the old-fashioned way, via mail.

 

How to Set Up a Payment Plan With the IRS

To set up a payment plan with the IRS, you must first identify your three options:

    1. If you plan to pay now, you pay nothing in setup fees, but need to pay the full amount from a checking or savings account, via the Electronic Federal Tax Payment System, via check, via money order, or via a debit/credit card.
    2. If you plan to pay in a handful of lump sums (within 180 days or less), you pay no setup fees, but you continue to accrue penalties and interest until the payments are complete.
    3. Additionally, if you plan to pay in monthly installments (more than 180 days), you can choose to either pay via Direct Debit (automatic payments) or voluntary payments via Direct Pay, or any of the methods mentioned above.
      • Paying via Direct Debit will cost a $31 setup fee online, or a $107 setup fee in-person/via mail/via phone, and you will continue to accrue penalties and interest until the payments are complete.
      • Paying via Direct Pay or any other voluntary way will cost $149 in setup fees online, and $225 in setup fees in-person/via mail/via phone. Only a portion of your setup fees will be reimbursed if you meet the criteria for low income.

Let’s go over what it takes to set up a payment plan with the IRS and work your way through the IRS’s payment systems.

 

Step One: Determine Eligibility and Debt

Taxpayers each have their own tax account with the IRS. You can create your account if you haven’t yet, or request an Account Transcript via the IRS’s website. The IRS’s website may be the easiest way to figure out exactly what you owe. You can also utilize the letters and notices that the IRS will have been sending your way to figure out what you need to pay off.

Determining what everything will cost you is a good first step. Next, you will have to figure out if you are eligible to begin payment, and whether you can do so online. Applying online is always the best choice, because it’s simpler and cheaper. But it isn’t available to everyone.

As mentioned previously, tax debts over $50,000 cannot be paid off online in monthly installments. You can still apply for a short-term payment plan of 180 days or less, if your debt is $100,000 or less.

Businesses have different requirements, and a lower limit. Your overdue balance would have to total $25,000 or less.

 

Step Two: Consider Your Choices

Aside from the three choices mentioned previously, a fourth (rare) choice requires you to be out of all financial options, and at a point where your debt cannot be paid within a reasonable timeframe (i.e. before it expires), even if you liquidate all non-essential assets and property.

These circumstances would allow you to argue for an offer in compromise, reducing your debt to something you can manage to pay. This is an offer you need to make, meaning the IRS will not suggest how much you should pay. If you offer to pay too little, they will not accept your offer.

It is crucial to tackle an offer in compromise with a professional. There are many nuances to calculating the right offer, and it takes time for the IRS to deliberate these offers. This time will cause your debt to continue to accrue interest.

 

Step Three: Actualize Your Tax Returns

A crucial step to set up a payment plan with the IRS is being up to date with your tax returns. The IRS generally ignores payment plans if you haven’t gone back and filed all the returns you’ve missed, even if you can’t afford to pay your back taxes.

Always file your returns. A good way to ensure that you’re working through your backlog of returns quickly and efficiently is by contacting an approved tax return preparation service.

 

Step Four: Gather the Paperwork and Begin

There are a few different documents to work on before you can formally apply for a payment plan. These documents and data include:

With this information in hand, you can set up a payment plan with the IRS with the help of a professional, and complete the process.

 

Step Five: Wait

Before you start making payments, you need to wait for the IRS to approve your request. They’ll take this time to double-check the info, make sure you’re eligible for the agreement you’ve requested, check your tax information, check your tax returns, and so on.

This can take time, especially if you plan to pay in installments. It may take multiple weeks for the IRS to get back to you. The bigger your bill, the longer it takes.

Once they do respond, you will know what to do next. After paying the requested setup fees, you will begin making payments (monthly, in lump sums, or all at once) until your debt is paid. Missing payments is a huge deal.

The IRS can penalize you and make it much harder for you to waive penalties in the future. Your debt will also continue to grow at a faster rate than if you had continued making payments.

 

Why Set Up a Payment Plan With a Professional?

The process for getting in touch with the IRS is a lengthy one. The last thing you need is missing info. A professional can help you prepare everything you need before you begin contacting the IRS, so you can start paying off your debt as soon as possible. The sooner you set up a payment plan with the IRS, the less money you send the IRS in the long run.

If you have a debt with the IRS, don’t wait until it becomes unmanageable, and don’t get stuck in the paperwork rut. Get in touch with us at Rush Tax Resolution today, and let us help you rush your way through the IRS’s requirements, and back into a good standing with the tax man.

What is a State Tax Lien & How to Resolve It?

To stay in good standing with the IRS, you must avoid liens. But, what is a state tax lien and how can it be resolved? 

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A lien of any kind is a legal claim on a person’s assets or property, to serve as collateral for a debt. In practical terms, liens effectively allow a creditor to take precedence over other creditors and establish a priority for their debt to be repaid. A lien is not a forceful claim of a person’s assets or property. A lien is not enough to take away the farm, or sell the car, for example.

State and federal liens are some of the scariest liens to be exposed to. These have the backing of the government – and they usually occur because a taxpayer racked up a significant amount of tax debt and has been unable to repay their debt for some time.

When you have a lien against your tax account, you will have a significantly harder time seeking financing of any sort. Liens serve both as a pressuring tool for state and federal authorities (or large creditors) to coerce repayment, and as security. For example, a lien on your car means if you sell it, the proceeds must be used to satisfy your debt, first. You can take certain actions to bypass your lien, or even avoid it outright.

 

Explaining State vs. Federal Tax Liens

Different jurisdictions are responsible for collecting different taxes in different parts of the country, and each of them bear the individual responsibility to enforce either state or federal tax law. You might already have noticed that federal tax rules can often differ from state tax rules – and that some states have taxes that other states don’t.

A state tax lien is the same as a federal tax lien in both theory and execution, the difference being that the IRS is responsible for issuing federal tax liens, while local state governments issue state tax liens.

In California, for example, the Franchise Tax Board (FTB) issues a statutory lien on all property that you own or have the rights to in the State of California. This includes both real and personal property. You will receive mention of this via multiple notices and letters warning you of your tax debt, followed by a public Notice of State Tax Lien with one or multiple county recorders, as well as the Secretary of State in California.

In the past, both state tax liens and federal tax liens were effectively guaranteed to affect your credit score. However, times have changed. Credit reporting agencies are no longer reporting tax liens, despite liens being part of the public record. That being said, tax liens – both state and federal – can still have an impact on your credit.

A lien on your personal and real property may affect your ability to repay debts, seek financing, keep up with payments, and maintain your credit score. Part of the pressure of a lien is that it robs you of financial freedom and flexibility.

As with federal tax liens, state tax liens have an expiration date. The statute of limitations on state tax liens in California is ten years, for example. As with any other lien, however, this can be extended under certain circumstances. As with federal tax liens, state tax liens also attach to all real and personal property owned now and acquired in the future.

State tax liens are only attached to property you own or have rights to in that state. Federal tax liens attach to everything you own or have rights to.

 

Tax Liens vs. Levies

Tax debt is a serious crime, but not everyone in debt to their state or the IRS goes to jail for it. If you have accrued tax debt not out of malicious tax avoidance or illegal actions, but as a result of tardy payments, penalties, or even financial hardship, there are multiple ways to address and pay down your debt.

Failing to do so will lead to a lien. But failing to respond to the lien can lead to a levy.

Levies are what most taxpayers fear when dealing with the IRS or any state tax body. A levy represents a claim on a property, wherein the government (or another creditor, in a general sense) steps in a liquidates an asset, as debt repayment. This can be anything from real property (outside of your primary residence) to most personal property, including bank accounts.

If a levy was enough to settle your debt and pay off your due balance, you are usually given the remainder of what your property was worth. If it wasn’t enough, the tax agency may issue another levy.

Both state tax agencies and the IRS can also claim a levy on your wages. This is called wage garnishment, and it is managed through your employer. Your levy is calculated based on your income and number of total dependents, and a portion of your paycheck is withheld every paycheck, until your debt is paid.

While liens do not force you to sell or liquidate anything, they can serve as a foreshadowing of what is to come.

 

How Are Tax Liens Triggered?

Tax liens only occur as a result of unpaid tax debt. This might accrue over time, or could be the result of recurring penalties, for things like failing to file tax returns on time or failing to pay your due amount after the state or IRS amended your tax bill for the year.

For example, if you fail to qualify for a deduction you used to qualify for or are earning way more as a self-employed contractor but are still making the same quarterly tax payments, your local tax agency may investigate and correct your returns and demand payment for the missing taxes. As with other creditors and debtors, the IRS and state tax agencies levy both penalties and interest on tax debts.

 

How to Resolve a Tax Lien

There are very few ways to negotiate your way out of a tax lien. The simplest way is to resolve your tax debt. If you do not have the money to pay your debt outright, entering into a monthly installment plan and meeting your payment deadlines for at least three to four months in a row is often enough to resolve a lien.

If the reasons for the lien were erroneous to begin with – such as your tax agency making a mistake, such as striking down a deduction you do qualify for – you should talk with a tax professional about bringing this evidence to light, and getting your lien removed.

Both state and federal tax liens are usually only removed once you are both up-to-date with your tax payments, and up-to-date with your tax returns. You must file all missing returns to get back into good standing with state and federal tax agencies. In addition, it is essential to explore federal tax lien removal strategies that can help expedite the process of resolving any outstanding obligations. Consulting with a tax professional can provide tailored advice on the best approach to take based on your unique situation. Utilizing these strategies can pave the way towards restoring your financial standing and eliminating the burden of tax liens.

 

Federal and State Tax Lien Notices This August

This August marks an important time of the year for many delinquent taxpayers.

For one, the IRS has started Automated Collections Enforcement this month, on August 15th.  This means that both liens and levies will be issued against taxpayers behind on their payments. If you have received a final notice of intent to levy, or received any letters about federal tax liens, contact a tax professional immediately.

Secondly, multiple counties and states have pushed the dates for tax lien sales to this month. This means that this may be one of your last chances to resolve your tax lien before your debt is sold (at which point you will have to pay the buyer, and redeem your property).

Tax liens can be frightening to deal with. But with the right professional help at your side, you can work to resolve your lien and reclaim your properties.

Contact our tax professionals today if you have received a federal or state tax lien.

What is Backup Withholding and How Does It Affect You?

When paying your taxes, there are many things to consider, including backup withholding. What is backup withholding, and how does it affect you, the taxpayer?

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The government collects taxes on income, among other things. But there are many different types of income, and some taxpayers don’t always report the income they generate.

Furthermore, some taxpayers might not even realize that they need to account for taxes on some of the kinds of income that they earn or know how to calculate the respective tax rate for said incomes.

Backup withholding is the IRS’s method of ensuring that taxpayers who forget to report certain kinds of income still end up paying the taxes that they owe, usually to the detriment of the taxpayer (i.e. overpaying).

This is because many taxpayers pay taxes through their employer or the business they work for. However, that business is not required to withhold all incomes, and is allowed to assume that the taxpayer is doing their due diligence. If they aren’t, and the IRS catches wind of it, backup withholding ensures that Uncle Sam recoups some of the money it has lost.

 

What Is Backup Withholding?

In the IRS’s own words, there are “situations when the payer is required to withhold a certain percentage of tax to make sure the IRS receives the tax due on this income.” This is what the agency refers to as backup withholding. It has a flat tax rate of 24 percent on all income affected by it. There are types of income that are exempt from backup withholding, but in general, it applies to most income that must usually be reported on Forms 1099 and W-2G.

Backup withholding does not always trigger when the taxpayer isn’t reporting their income. Instead, it triggers when the IRS doesn’t have sufficient information to adequately track the income a taxpayer is receiving, specifically tied to their taxpayer identification number (TIN).

In other words, it usually triggers when a taxpayer uses the wrong TIN. This is referred to as Backup Withholding Program B, or BWH-B.

Underreporting or failing to report certain income is referred to as Backup Withholding Program C, or BWH-C.

 

Does Backup Withholding Apply to You?

You will know if backup withholding applies to you, as well as why the IRS is applying withholding to begin with. The IRS is required to send out four notices within 120 days prior to beginning backup withholding due to incorrect reporting or underreporting of income (BWH-C), and will send you a notice CP2100 and CP2100A if you are about to be subject to backup withholding due to incorrect or missing TIN (BWH-B).

Check through all the mail, letters, and notices the IRS has sent you to ensure that you aren’t currently under the effects of backup withholding on your income. Note that of the four notices the IRS sends before it begins program C, the final notice is the one that informs you that they have started.

 

What Income is Affected?

The IRS does not affect all types of income with backup withholding, just income usually listed in Form 1099 and W-2G. More specifically, this income includes:

You can check the respective IRS newsroom post for more information on what income is subject to backup withholding.

Payments that are exempt from backup withholding include:

 

How to Stop Backup Withholding

The IRS does not require you to personally inform them that you’re addressing the problem to stop backup withholding on your income, thankfully. What it does require you is to accurately amend your tax returns with any missing or underreported income and fix the issue of the wrong or missing TIN.

This includes going back and fixing old tax returns that you’ve already sent in. The IRS can basically hold you accountable for about 3-6 years’ worth of tax returns, but it’s generally a good idea to go through them all and amend as many as you can. Additionally, exploring tax relief options for New York residents can further enhance your financial situation. Many programs are designed to ease the burden for local taxpayers, providing valuable resources for those who qualify. By understanding these options, you can make informed decisions and potentially save a significant amount of money.

Being up-to-date and accurate on your tax returns is also usually a prerequisite for getting anything done with the IRS, including payment plans for late payments or accrued tax debts.

If you’re having trouble keeping up with your tax returns, then getting professional tax preparation services to help out can be a smart decision.

 

Avoiding Tax Problems in the Future

The IRS can be confusing to work with. While their job remains relatively simple – preventing tax fraud – decades of loopholes and tax schemes has led to complicated rulesets and a number of hoops most taxpayers aren’t even aware they need to jump through. It’s not particularly difficult to show up on the IRS’s radar, and even innocuous mistakes might lead to something like backup withholding.

Don’t let that discourage you from finding a way to resolve your problems with the tax man. The IRS is obligated to give you ample warning whenever it has to take action against your tax account and will do its best to explain what’s going on – and what it wants from you.

But if you want to preempt these issues, and better protect yourself against problems with the IRS in the future, nothing beats professional help.

A tax professional can review your accounting and your tax return writing habits and help correct them to ensure that you’re squeaky clean – without incurring greater costs, penalties, and interest payments from the government. Better yet, a tax professional might even help you figure out where you could be saving more money, and where you might be dropping the ball on potential deductions and tax credits (that you qualify for).

At Rush Tax Resolution, we can help you minimize your tax debts, avoid future tax problems, and help you find the most effective way to do your duty as a taxpayer without overpaying or incurring the wrath of the IRS.

Beware of these IRS Dirty Dozen Tax Scams for 2021

Each year, the IRS Dirty Dozen Tax Scams are updated with the most common trends in IRS-related fraud and scams. Here is what to know this year.

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It’s the tax man’s job to ensure that the government gets its legal share – but masquerading as the IRS has been and continues to be a problem for thousands of Americans caught in tax scams year by year. Each year, the IRS puts out an advisory to help taxpayers keep an eye out for the twelve most common and most effective scams, and the forms they might take on. This is called the IRS Dirty Dozen.

Not all of these are tax scams directly aimed at the average taxpayer. They include scams aimed at tax professionals, dubious or unscrupulous services, abusive arrangements, illegal or unprofessional deals, and other illegal or questionable activity that, at the very least, could lead to serious financial problems and identity theft, and at worst, may lead to criminal charges.

 

What are the IRS Dirty Dozen Tax Scams?

The Dirty Dozen change on a yearly or near yearly basis, and the IRS keeps track of the last few IRS Dirty Dozen tax scams to give taxpayers an idea of what direction the trends have been moving in, and what the future of tax scamming might look like.

Most of these scams revolve around promising taxpayers the impossible, or soliciting information in lieu of serving the IRS, either through threats or promises of tax credits. Let’s go over the most common IRS Dirty Dozen tax scams for 2021, and how to avoid them.

 

The New IRS Dirty Dozen

This year’s Dirty Dozen will be officially separated into four distinct categories, namely the:

      1. “Pandemic-related scams”
      2. “Personal information cons”
      3. “Rues focused on unsuspecting victims”
      4. “Schemes that persuade taxpayers into unscrupulous actions”

In total, the Dirty Dozen this year include:

- Economic impact payment theft:

The economic impact payment, or the stimulus check, was part of the coronavirus aid and recovery measures implemented by the government in 2020. The vast majority of these were paid out automatically by the IRS, usually via mail. They could have been stolen by intercepting mail or looting mailboxes, or through phishing scams aimed at getting into your bank account.

- Phishing scams aimed at tax pros:

While phishing (the use of official-looking emails or proxy sites to steal and harvest login data and sensitive information) is nothing new, an emerging trend in 2021 has been the use of phishing to scam tax professionals in particular. These phishing attempts may revolve around trying to get tax pros to verify Electronic Filing Identification Numbers.

- Impersonator calls:

Sometimes also known as vishing, this tax scam involves impersonating someone from the IRS in order to coerce information or even money through threats of tax liens and debt. Note that the IRS always notifies taxpayers of anything important through a letter and/or notice first and will only call if these notices go ignored. Even so, the IRS will NEVER request sensitive information over the phone. Hang up immediately if the caller is asking for info like your TIN or SSN, or if they request payment via suspicious methods like Google Play or iTunes gift cards.

- Social media scams:

These are examples of identity theft using social media info to trick friends and family into providing further information, as well as malware.

- Ransomware:

Ransomware has been an emerging trend in recent years, forcefully locking access to a computer until a ransom is paid and encrypting (and subsequently deleting) the data on the computer if the demands are not met. These attacks are generally aimed at financial and healthcare organizations.

- Fake charities:

These fake charities may attempt to solicit money for COVID-19 victims, only to disappear once enough people have been scammed to take notice.

- Senior fraud:

Scammers are targeting seniors and immigrants with poor English skills in particular, often via the phone, usually to get them to transfer money to a “friend” or “forgotten family member” in need.

- Offer-in-compromise mills:

An offer in compromise allows taxpayers with a significant tax debt to pay off less than they might owe, if very specific criteria are met. Offer in compromise mills market themselves with the promise that they can always get their clients off on an offer in compromise, only to take their money, run, and disappear, or do the bare minimum for an exorbitant fee.

- Dangerous tax preparation scams:

Tax preparers must be officially recognized and licensed by the IRS via a Preparer Tax Identification Number. Yet not everyone offering tax preparation services has a PTIN. This can be a scam in and of itself, as these unregistered tax preparers might be looking for a quick profit by demanding upfront payments or using fake deductions.

- Unemployment fraud:

These are schemes based on manipulating employers or banks in order to continue to claim benefits they aren’t entitled to.

- Improper claims of business credits:

Taxpayers may claim certain business credits, such as research-related credits, by qualifying for the credit. Claiming it without proper qualifications, however, can lead to trouble with the IRS, including penalties and tax debt.

- Micro-captive schemes:

A micro-captive scheme is based on captive insurance companies, wherein both the insurer and the insured have shared ownership of the company, specially created in cases where the insured did not want to lose out on the tax benefits of insurance when their specific circumstances and risks are not usually covered.

In captive insurance, the insured receives coverage in exchange for greater premiums. This rabbit hole goes further down, and can lead into abusive micro-captive insurance schemes where taxpayers are convinced into paying exorbitant premiums for what amounts to little to no real insurance.

 

Avoiding Tax Scams in 2021 and Beyond

It is always best to thoroughly exercise caution and be mindful of the IRS Dirty Dozen tax scams. If you aren’t sure that a message or call is really coming from the IRS, or if something sounds too good to be true, or if you’re just plain suspicious of a specific service, then do the reasonable thing: look into it. Call a reputable tax attorney for more information. Contact the IRS itself, ask if what you’ve witnessed is legitimate, and report it if it isn’t.

As a general rule of thumb, note that the IRS isn’t going to ask for personal information or important tax info over the phone or via email. These are almost always attempts at getting the information scammers need to pull off their schemes.

The IRS will either ask you to mail copies of certain documents to addresses that are very clearly an IRS field office (which you can easily verify), or they might ask you to fill certain information out online via their official website and portal, NOT through an email.

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How Far Back Can the IRS Audit You?

How far back can the IRS audit you? Here's what you should know about the IRS audit process, and what to do if you receive a notice.

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One of the IRS’s main functions is to investigate tax fraud. The government has a vested interest in tackling tax fraud, even more so than tax negligence or tax tardiness, because the former requires malicious intent and manipulation.

But because the IRS has to sift through the data of millions of US taxpayers every single year, it automates a good portion of this process to skim through to the most suspicious accounts. This generally means that many Americans who are initially scrutinized by the tax man are innocent – and for that reason, IRS investigations range from near harmless (for the majority of cases) to serious.

If you’ve received notice that the IRS is going to audit you, the last thing you should do is panic. Audits happen randomly at times when testing a new system, and audits may be triggered by any number of potential reasons – none of which immediately implicate you in any sort of crime.

 

How Far Back Can the IRS Audit You?

Furthermore, the IRS cannot audit or investigate every shred of tax information on you, and have time limit on how long they can audit you. How far back can the IRS audit you? As of today, the IRS can audit either: The IRS audit timeline for taxpayers varies depending on the type of tax return filed and the specific circumstances surrounding the case. Generally, the standard period for an audit is three years from the date you filed your return, but this can extend to six years if there is a substantial underreporting of income. In cases of fraud, the IRS can go back indefinitely, highlighting the importance of accurate and honest reporting.

The more severe the IRS’s suspicions, the more thorough the audit. The IRS also has the ability to extend the tax assessment period, or the statute of limitations, given certain circumstances. More about these in Publication 1035. Understanding the IRS streamlined installment agreement benefits can provide crucial relief for those facing financial burdens. This arrangement allows taxpayers to pay off their debts in manageable monthly payments, alleviating some of the stress associated with owing back taxes. By leveraging this option, individuals may find a path towards financial stability without the looming threat of enforced collection actions. As the holiday season approaches, many individuals may seek tax relief options for Thanksgiving to ease their financial burdens. Exploring various deductions and credits can help taxpayers maximize their savings during this time. Additionally, consulting with a tax professional could uncover unique opportunities to enhance their holiday budget.

 

When Does the IRS Perform Audits?

Audits are triggered by one of three reasons:

Unless your tax account is under review as part of an ongoing investigation into someone else, please note that the vast majority of tax audits are a simple matter of having an IRS agent mail you about an audit, contact you to ask about a discrepancy, request some basic financial information confidentially (usually via mail), and make a simple decision based on the information. This decision will be one of three: Additionally, taxpayers should stay informed about any updates related to irs delays payment reporting requirement, as such changes can affect planning and compliance. It is important to maintain accurate records and stay proactive in understanding how these adjustments may impact your financial situation. Being aware of these developments can help you avoid any potential pitfalls during tax season.

Any decision made by the IRS can be protested and appealed through the Independent Office of Appeals, or through tax court. Be sure to run that idea by your tax professional first, to make sure you have a case.

 

What’s an IRS Audit Like?

Most audits are called correspondence audits because they occur almost entirely over mail. The IRS will do very little if any telephone calls during the audit process and will never request any kind of sensitive information over the phone. This is important to help distinguish the IRS from a potential phishing scam. The IRS encourages individuals to report scams to help protect others from fraud. Receiving a five star review on Better Business Bureau can provide assurance about the legitimacy of a service. It's essential to remain cautious and verify any communication that seems unusual or requests personal information.

The IRS also provides a lengthy list of industry-specific IRS guides to help taxpayers and businesses learn what to expect. These are basic rules of engagement the IRS follows when conducting an audit. You can also check out this short educational video. Understanding state tax levy explained for taxpayers is crucial for compliance and avoiding potential penalties. Taxpayers should familiarize themselves with the processes and implications of levies in their respective states. By doing so, they can better manage their financial responsibilities and stay informed about their rights. One common notification that taxpayers may receive is the irs notice cp14 explanation, which details any unpaid tax balance and the associated penalties. It serves as an important reminder for taxpayers to stay proactive in addressing any discrepancies. Timely response to such notices can prevent further complications and ensure compliance with tax regulations.

If the audit requires more input than just mail-to-mail correspondence, it may graduate into an in-person audit. In-person audits are conducted either at an IRS office nearby (also known as an office audit) or at the taxpayer’s residence or place of business (a field audit).

The IRS is not trying to intimidate you. Audits are generally boring. Be sure to correspond with your accountant and tax professional to prepare all the information the IRS requested in the letter sent to you, so you can get things over with as quickly as possible. Understanding IRS notice cp14 explained clearly can help you grasp what the IRS expects from you. It usually pertains to a balance owed or missing information, making it crucial to address promptly. Failing to respond could lead to further penalties or complications with your tax account.

If the IRS audited you because of a mistake you made, note that you will most likely not get into any trouble. They might cut into a tax credit to make up for the taxes you failed to pay as a result of your mistake, or send you a bill via your tax account, and give you a deadline to pay your balance.

 

What Triggers an IRS Audit?

There are a large number of factors that go into what triggers an IRS audit, and no one knows exactly how the IRS’s screening process is scripted. We do know that certain mistakes and behaviors cause you to be more likely to be audited. Some basic things that seem to trigger an audit more often include:

In other words, anything that might seem suspicious or cause your tax return to look a lot different from the average tax return of someone in your income class and occupation may trigger an automated red flag, requiring a human being to go over the document and contact you if the need for more information arises.

 

What Happens When the IRS Finds Something?

If the IRS finds a discrepancy and changes your tax account, you will be in debt to the IRS. This is easily fixed by paying said debt. You can check your tax account through the IRS website. settling your irs debt efficiently can help you regain financial stability and peace of mind. It's essential to explore your options, such as payment plans or potential settlements, to make the process smoother. By taking proactive steps, you can avoid further penalties and manage your tax obligations effectively. Exploring options for irs payment plans can provide flexibility in managing your tax debt. These plans allow you to pay off your balance over time, making it easier to stay on top of your financial responsibilities. Additionally, understanding the terms of these plans can help you avoid future complications with the IRS.

If you were audited as a result of an unfiled tax return, you’ve also got penalties waiting for you. Note that these generally aren’t as bad as you might expect – but they can pile up and become worse the longer you ignore them. The IRS can leverage penalties and interest to pressure you into paying sooner rather than later – which you should. Understanding IRS late payment penalties explained can help you navigate your tax obligations more effectively. They are calculated based on the amount owed and the length of time it remains unpaid, so timely payments can save you a considerable amount. It's essential to be proactive in addressing these penalties to prevent them from escalating further.

Failing to pay incurs further penalties, eventually leading to liens and levies. If you’re worried about how you’re going to deal with a tax debt, or have an ongoing tax debt problem, you need to contact a professional. Understanding strategies for managing tax obligations is crucial for maintaining financial health. Professionals can provide personalized advice tailored to your unique situation, ensuring you navigate the complexities of tax laws effectively. By implementing these strategies, you can reduce stress and prevent the escalation of tax-related issues. Proper tax planning can also involve taking advantage of small business tax deductions explained. These deductions can significantly lower your taxable income, allowing you to reinvest more in your business. By understanding and utilizing available deductions, you can improve your financial standing and enhance your overall profitability.

 

File Your Taxes!

One of the worst ways to be audited is for an unfiled tax return. This is because there is no statute of limitations on a return that doesn’t exist, so the IRS can hound you until you file it. If you need help with your taxes, speak to our professionals today!