IRS Statutes of Limitations for Tax Refunds, Audits, and Collections

One of the functions of the IRS is to ensure that taxpayers adhere to their tax liability. To that end, the IRS attempts to combat the so-called “tax gap”, an estimated gap in the nation’s total tax liability and the money the IRS is pooling together from estimated payments and withheld taxes. To reduce that tax gap, the IRS must audit taxpayers, especially those with the potential to limit or skirt their tax liability the most. But there are limits to the IRS’s power, reach, and timing. Thanks to statutes of limitations, the IRS cannot audit taxes from ten years ago nor demand that debt be owed on tax refunds from the 1990s. Understanding these limits can help taxpayers better navigate their current tax situation and redirect more useful energies to maintaining a healthy record of the past several years, knowing how far back the IRS may reach.

Understanding IRS Statutes of Limitations

A statute of limitations is a time limit imposed on any claims or actions the IRS may take against taxpayer accounts. If you’ve heard of the statute of limitations, it may have been in a legal context. For example, if a person commits a certain crime with a statute of limitations, they may not be prosecuted for that crime. Some crimes have no statutes of limitations, such as murder, famously. Tax issues are far, far less serious than a murder charge. And as such, there are fairly strict time limits imposed on the IRS (and the taxpayer) to follow through with these issues. In general, there are three significant statutes of limitations that you will want to remember:

  1. Statute of limitations on claiming a tax refund from the IRS;
  2. Statute of limitations on performing and completing a tax audit, and;
  3. Statute of limitations on collection actions against a tax debt.

Statute of Limitations on Tax Refunds

A tax refund is composed of any excess money the IRS has received from you that will not go towards your tax liability. Tax refunds can also be earned through refundable tax credits, such as the revised child tax credit or the earned income tax credit – meaning, even if your estimated payments or tax withholding was not enough to cover the entirety of your tax liability for the last year, your tax credits might have taken care of the remainder, and left a little bonus. Generally, the IRS sends any tax refunds on your account back to you as soon as possible.

Failing to do so would mean paying interest on overpayment – yes, the IRS imposes interest on its debt to you the same way interest is applied on taxpayer debts. But just because you may be potentially entitled to a tax refund does not mean that you automatically receive one. If you are eligible for a refund the IRS had not assessed, you must claim your tax refunds through IRS Form 843 or risk losing hundreds or thousands of dollars of potential money back from the IRS. Your time limit for doing so is three years from the date you filed your original tax return or two years from the date you paid the excess tax.

If you miss these deadlines, you may no longer be eligible to receive the tax credits or tax refund for that particular tax return. There are certain exceptions. If you have a tax refund due to tax deductions caused by bad debt, you have up to seven years to claim it. The statute of limitations also does not apply if you cannot take care of your financial affairs at the time due to mental or physical disability. The other two significant statutes of limitations are imposed on the IRS rather than the taxpayer.

Statute of Limitations on Tax Audits

Audits are the IRS’ way of double-checking tax accounts that are more likely to make mistakes on their taxes or lead to lost taxes. In some cases, the IRS will automatically audit more taxpayers that qualify for certain tax credits, such as the EITC, to ensure that all applicants are properly found eligible. In other cases, the IRS picks up on potential accounts to audit based on a computer algorithm that crawls through millions of tax returns and corresponding information returns from businesses, banks, and other institutions, to determine discrepancies and send out red flags. Sifting through millions of tax returns is difficult, and auditing all the ones that stand out is impossible.

This is why the IRS only performs audits sparingly – for example, only about 0.25 percent of all tax returns sent to the IRS in 2019 were subject to an audit versus about 0.9 percent in 2010. That number is slated to increase as the IRS receives more funding and agents. Still, your chances of being audited by the IRS remain relatively slim each year – and are increasingly slim if you do not fall into the top or bottom most tax brackets and review your returns carefully. For taxpayers who do find themselves on the business end of the IRS’ magnifying lens, it may be of some comfort to know that the IRS has a strict time limit for when any given tax audit must be completed.

That time limit, under most circumstances, is three years from the date your tax return is due. If you file your tax return on Tax Day 2022, the IRS has until Tax Day 2025 to complete its audit of that return. There are exceptions to this rule, as well. The IRS has up to six years from the date you filed your tax return to audit it if you omitted a substantial amount of income, at least 25 percent of your total income for that year. The IRS also has up to six years to audit your return if you have income related to undisclosed foreign assets of more than $5,000. Finally, the statute is lifted for tax fraud and other crimes, meaning the IRS can investigate your return at any time.

Statute of Limitations on Collection Actions

Last but not least, the IRS can go after a taxpayer for having a substantial tax debt, to the point that the IRS can make a legal and physical claim on the taxpayer’s income and assets if need be. Yet, despite these collection actions, the IRS limits how long it can pursue a tax debt before that debt must be resolved. This statute of limitations is ten years plus tolling periods.

Tolling periods, in this sense, are extensions levied by the IRS onto a debt timer due to uncollectibility, such as an ongoing bankruptcy case, being outside of the country for extended periods of time, or military service. The statute of limitations on tax debt also serves as a timeframe for taxpayers who cannot pay off the entirety of their tax debt but can still make monthly payments to pay off most of their debt. For these partial payment plans or potential offers in compromise, keeping the ten-year rule in mind helps.

Taxpayers cannot bury their heads in the sand for ten years and expect the IRS to disappear. The IRS’ interest in closing your case grows over time, and they can levy your home, property, assets, and paychecks to pay for your debt. If you agree you owe the IRS but can’t pay due to your current financial situation, it may place your account in currently not collectible (CNC) status. Statutes of limitations help taxpayers manage their expectations when working with the IRS and offer you more options throughout the process. However, no two cases are entirely alike.

Seeking Trusted Tax Expertise

At Rush Tax Resolution, we counsel individuals and businesses on understanding and navigating the legal complexities of tax liability, helping to negotiate with the IRS to dispute or resolve tax debt. Whether it’s an IRS audit, penalty, collection, or another tax-related issue, we have the tax professionals and expertise to meet your needs. Contact us today to learn more about Rush Tax Resolution and what we can do for you.

What You Need to Know About Tax Resolution Services

Trouble with the IRS? You may be tempted to deal with it yourself – but before you get in over your head, it would be wiser to consider professional tax resolution services. While the IRS works through a code of conduct that holds the taxpayer’s rights in high esteem, it can still be a daunting task to work through its list of demands, rules, and tax regulations. The process of getting current with your missing tax returns and making a payment to cover your outstanding tax liability is complicated enough as it is – you will need all the help you can get if your problem is more profound, such as dealing with potential collection actions or appealing against their decision to bill you and prove their mistake.

What Are Tax Resolution Services?

Tax resolution or tax relief is getting back in the IRS’s good graces after missing a payment, missing a deadline on your returns, or incurring a tax debt due to a penalty, miscalculation, mistaken deduction, and so on. Specific law clinics and law firms specialize in helping taxpayers sort out their problems with the IRS and providing tips for managing and reducing tax liability and filing better-prepared tax returns.

For the most part, tax resolution involves working with the IRS to negotiate the best solution to the taxpayer’s problems. There are no dirty tricks, no simple or quick fixes, and no cheats. A tax resolution professional worth their salt will be upfront about your tax account’s issues and difficulties. After a brief investigation and thorough consultation, most of the work will involve helping you navigate the IRS’s demands and meet them as quickly and reasonably as possible.

When Do I Need Tax Resolution Services?

Tax resolution services are usually meant for taxpayers in debt to the IRS for one reason or another. Being in debt with the IRS usually means you are in continuous danger of incurring a collection action – one of the IRS’s methods for coercing payment after a period of inactivity or non-cooperation on the taxpayer’s part. When the IRS decides to issue a collection action against you, it usually begins by ordering and filing a Notice of Federal Tax Lien in the public record, notifying all applicable creditors of your non-viability as a lender, and the IRS’s superseding claim on all your assets and property as collateral for the debt you owe.

In other words, you cannot seek financing or liquidate your assets without going first dealing with your tax debt. Liens are not the IRS’s only tool to push for tax debt resolution. Levies are a step beyond, wherein the IRS makes a genuine claim of your property or assets, one at a time, until your debt is paid. This means emptying bank accounts, claiming and selling real estate, and repossessing vehicles. Suppose you have no assets or accounts eligible for a levy. In that case, the government can work with your employer to claim a percentage of every paycheck or compensation you receive, depending on your number of dependents.

Facing a lien or a levy can be seriously detrimental to your financial security and potential future. While liens no longer affect your credit history the way they used to, they can still force you to miss payments or make life much harder. Even if you do not believe you have the financial means to solve your problems with the IRS, you are heavily encouraged to contact them nonetheless. The IRS’s willingness to issue liens and levies against your tax account is generally based on three things:

  1. The sheer value of your tax debt, your likelihood to try and bail on it.
  2. Your inability to pay on time, as per a previous agreement.
  3. The degree to which you ignore the IRS’s attempts to contact you.

How Is a Lien Released?

The IRS quite helpfully explains that the only natural way to get rid of a federal tax lien is to pay in full. While this is true, it bears mentioning that they mean you must satisfy your outstanding tax balance. However, your outstanding tax balance can be modified based on the agreement you meet with the IRS. This is where a tax resolution service begins to become crucial. They can help you navigate how you might be able to reduce your tax liability, provided you are eligible for a reduction in your tax debt. Aside from seeking to have a lien released through full payment (your lien can take up to 60 days to remove after the final payment has been made), you can seek to have a lien modified if it helps you resolve your tax debt with the IRS. A lien can be adjusted in one of two ways:

  • You can seek to have property discharged from a lien, which effectively allows you to use said property to secure a loan or seek financing.
  • You can have a creditor supersede the government’s claim via subordination.

What Can I Do Against a Levy?

A levy can be a bit more difficult to combat and is often more urgent. Suppose you are in the middle of working on a payment plan with the IRS when they begin to issue a levy on your property. In that case, you may be able to stop the levy by entering a particular type of installment agreement, wherein the IRS makes automatic withdrawals from your bank account until your debt is paid. If the IRS levies and sells your property, and you only enter into a payment agreement after the sale, there is no natural way to get it back. Levies are a severe problem and one you shouldn’t be tardy in addressing.

What Are My Payment Options?

Most ways of resolving your tax debt with the IRS involve paying them – but you have multiple ways of doing so, depending on what you may be eligible for. Your options include:

  • Paying the IRS in total, all at once.
  • Paying the IRS in multiple lump sums over less than 180 days.
  • Paying the IRS in monthly installments over less than 72 months (requires setup fee).
  • Paying the IRS in automatic monthly installments, with additional perks.
  • Paying the IRS reduced tax debt through an offer in compromise.
  • Becoming currently non-collectible if you are suffering from financial hardship.

It’s worth noting that if this was your first tax offense in multiple years, you might be eligible for penalty abatement. Penalty abatement can significantly reduce your tax debt by shaving off the additional penalties levied against your tax accounts, such as the failure to pay and the failure to file a return.

Getting Current

A pre-requisite for any payment plan is to be up-to-date and current with each of your tax returns under some circumstances for at least the last six years. While the IRS can and does file substitute returns in your name, based on information they have collected, they typically will not agree to a payment plan if you haven’t been keeping up with your returns. If you are employed, you can significantly simplify the process by working with your employer and asking for print-outs of your previous Form W-2s. If you are self-employed, you may want to work with a CPA or a licensed tax professional to figure out your past returns and bookkeeping records.

Why Would I Need Representation?

Tax representation through a tax resolution firm may be necessary whenever you wish to appeal for an offer in compromise, appeal a decision to levy your accounts, appeal against a lien, or negotiate an installment agreement. It is easier to work with a professional than tackle the IRS’s demands alone, but it is often safer as well.

Offer in Compromise: How to Settle Your IRS Debt 

If you face a substantial tax debt without the means to pay it off, even in a few years’ worths of monthly installments, you may want to consider an offer in compromise (OIC). An offer in compromise is a process through which you can negotiate a lower total tax debt with the IRS. However, it isn’t guaranteed. There are strict eligibility rules and qualifications. A big part of qualifying involves being completely upfront about your financial situation, existing assets, real property, investments, vehicles, and sources of income. Ultimately, the IRS wants to ensure that you are paying just about as much as you can afford to without facing financial hardship before it will consider an offer in compromise. 

What Is an Offer in Compromise? 

An offer in compromise is one of the multiple payment options the IRS offers to taxpayers. It has tighter eligibility rules and a longer list of qualifications than the IRS’ other payment plans. Creating an offer in compromise requires two forms: Form 656 and Form 433-A (OIC) (or Form 433-B (OIC) for businesses). The former is the offer in compromise itself, alongside instructions on filling and filing it. At the same time, the latter is the collection Information Statement (CIS), consisting of the financial information the IRS requires to determine your eligibility.

The IRS verifies the information provided on a CIS and cross-references it with information returns obtained by banks and businesses before its deliberation. Once you’ve finished filling out the information needed, you must send it to the IRS alongside a non-refundable application fee of $205 and the initial payment of your proposed offer. The IRS expects you to calculate what you can offer to pay within a reasonable period and requires you to make the first payment alongside your application.

Even if it rejects your offer, the first payment sent alongside the application is non-refundable. Because it can take multiple weeks to deliberate an offer because tax debt grows through penalties and interest, and you have to send in an initial payment with each new offer (alongside the $205 fee). It’s generally a good idea to be sure about your offer in compromise before you go ahead and make one.

IRS Tax Resolution and Collection Actions

Why work so hard to settle your debt with the IRS? Because if you do not, the IRS may enforce collection actions against you and your tax accountIRS collection actions include federal tax liens and assets, property, and wage levies. A federal tax lien is a public notice informing creditors of the IRS’s superior claim on everything you own, freezing your ability to satisfy other debts or seek financing until you settle your debt with the government. In the past, this process would also leave a black mark on your credit score equivalent to bankruptcy – this has since changed, and credit agencies no longer report tax liens.

On the other hand, Levies are a more direct form of action. They involve taking what you own and selling it to satisfy your tax debt. While the IRS won’t kick you out of the family home, they can come to collect your car or all but empty your bank account. They can contact your employer to claim a portion of every paycheck until you pay your debt if you are employed. Liens and levies can be harsh. Payment plans, such as an offer in compromise, can avoid them. Furthermore, specific payment plans can even lead the IRS to release a lien or reverse a recent levy before your property is sold if the circumstances permit it.

Choosing a Payment Plan 

In addition to an offer of compromise, the IRS accepts payments in a few different ways:

  • Direct payment involves satisfying your tax debt today with a single charge. 
  • A short-term payment plan is any payment plan that satisfies your debt within 180 days via multiple lump sums (the first one should usually be worth 20 percent of your total debt). 
  • A long-term payment plan is an installment agreement consisting of monthly payments made to the IRS over a set period (usually 72 months). 
  • Streamlined installment agreements are the quickest to set up but may require that you authorize the IRS to withdraw money automatically, and they need that your tax debt totals no more than $50,000. 
  • Non-streamlined installment agreements are still simple and may not require an in-depth look at your finances, but you may be subject to a lien determination and resulting tax lien.
  • Verified financial installment agreements are for taxpayers with substantial tax debt, requiring a thorough investigation of your finances to determine the viability of a monthly payment plan. 
  • Suppose a tax debt has been hanging over your head for multiple years. In that case, you may be able to enter into a partial payment installment agreement, where you make monthly payments for as long as the tax debt remains valid (based on your Collection Statute Expiration Date). 
  • Direct Debit installment agreements allow the IRS to withdraw money automatically each month, reducing the likelihood of defaults and providing certain perks, such as potentially lifting a lien. 
  • Payroll deduction installment agreements take money out of your paycheck rather than your bank account if this works better for you. 

What If You Don’t Qualify for an Offer in Compromise? 

If your offer of compromise was rejected, consider consulting a tax professional about drafting a better proposal or picking a better payment plan that suits your circumstances. The beauty of an offer in compromise lets you settle your tax debt for less than you owe. The caveat is that very few people qualify for an offer in compromise. While the IRS has been throwing taxpayers a bone by relaxing the requirements for an offer in compromise, it remains in the spirit and practice the last resort for taxpayers who lack the financial means to pay their total tax debt within a reasonable period.

That doesn’t mean you do not qualify for an offer in compromise. Depending on what you own and what you owe, you may be able to be eligible for an offer in compromise. You may still be able to get a reduced total tax debt via a partial payment plan if your debt is about to expire, or you could create a more realistic offer with the help of an experienced tax professional. At Rush Tax Resolution, we can help you quickly figure out the best way to deal with your tax debt.

IRS Payment Plans: How to Pay Back Tax Debt Over Time

Tax debt can cause significant stress, and dealing with it can be a very daunting process. Here’s how to pay back tax debt with IRS payment plans.

Tax debt is special in the most insidious way – it follows you everywhere, is almost impossible to get rid of, and can continue to grow at rates that would make most banks and financial institutions blush.

Dealing with your tax debt isn’t something you should ever put off until tomorrow, and it’s crucial to know that the sooner you commit to paying your debt, the less the IRS can do to coerce payment.

Now, we know that no one is ever stoked about seeing a notice from the IRS in their mailbox. But it’s important that you heed every single one, and pay attention to the dates. There is a system for how the IRS notifies and engages with taxpayers who are behind on their payments, and knowing when, how, and what you owe can help you get rid of your debt faster with IRS payment plans.

 

How Tax Debt Occurs

Maybe you made a mistake. Maybe the IRS made a mistake. At the end of the day, any time the IRS discovers that the information they received from banks and employers doesn’t match up, or if the return you filed yourself indicates that your estimated tax payments didn’t cover your entire tax liability for the year, they send in a bill for the overdue balance. It could be a few hundred dollars, or a debt of several thousand. The last thing you want to do is ignore that bill.

While the IRS automates most of the processes involved in catching and rectifying basic math errors and returns that don’t quite match up, there are still human auditors working behind their desks to process the information and make sense of the situation.

By getting in touch with a tax professional, you can work your way to an IRS agent and rectify the situation by explaining the missing numbers, or even pointing out that you did, in fact, qualify for that deduction.

If and when the IRS makes the mistake that costs you a tax debt, acting quickly and decisively can help you clear things up and get back on Uncle Sam’s good side.

But when the mistake was yours, or when an unfortunate set of circumstances led to missed deadlines and an unexpected tax debt, there are a few things you will have to know before you can set things straight.

 

Can I Pay Tax Debt Immediately?

Yes, provided you are up to date with your tax returns. One common source of unexpected tax debts is the missed return. Some people may have struggled with unemployment as a result of the current crisis – and they may have missed the chance to file their taxes, which is something many unemployed people must do as long as their gross income surpasses the IRS’s filing threshold.

Unfiled tax returns will flag the IRS and lead them to file a surrogate return for you, based on information returns provided by financial institutions and banks, as well as your previous tax returns. This leads to a debt and subsequent failure-to-file penalties, for five months or until your returns are sent in.

If you have a tax debt and aren’t up to date with your returns, you will not be able to negotiate an IRS payment plan to get your debt settled. If you’ve missed more than one return, it’s crucial to contact and speak to a tax professional. You may only need to send in returns for the last three to six years or recreate a return for every year you’ve missed since you’ve began missing returns, depending on your situation.

Once you’re in the clear with your basic paperwork, you can pay off your tax debt in a single payment via the IRS’s online portal. You can also write a check or payment directly to the IRS, with the instructions on the IRS’s webpage on payment plans.

If this was your first offense, and your circumstances allow it, you may be able to argue for penalty relief. This can significantly cut down on your total tax debt.

 

What If I Can’t Afford to Pay?

If your debt has accrued over time and grown into a substantial sum, then you might be better off trying to make multiple payments rather than a single payment.

There are two types of IRS payment plans for taxpayers unable to make a single direct transfer.

      1. The first is a short-term payment plan lasting no more than 180 days.
      2. The second is a monthly installment plan lasting longer than 180 days.

 

What If I Can’t Afford IRS Payment Plans?

You can end up paying the IRS for years, depending on what you can afford to pay per month, and the total size of your debt.

Before the Fresh Start Initiative lowered the bar for entry on alternative payment solutions, the IRS would require you to calculate whether you would be able to pay off your total debt through monthly payments before your debt expires before agreeing to reduce your total debt.

Nowadays, the IRS allows you to argue for an offer in compromise if you’re unable to pay off your debt within as few as two years.

However, making a compelling offer that the IRS will accept is still tricky, and it can take weeks for the IRS to deliberate your offer – while your debt continues to grow.

If you cannot afford to cover your debt through IRS payment plans or installment agreements, consider going through a tax professional to create an offer in compromise the IRS will accept.

 

What If I’m Completely Broke?

It is unethical to coerce someone to pay their tax debt if they are going through financial hardship. That is why the IRS offers taxpayers the option to declare themselves as currently not collectible. Doing so will temporarily halt all collection actions by the IRS, including liens and levies, until your financial situation improves.

 

What If I Refuse to Pay?

The IRS has multiple means of coercing payment and works with a select few debt collection companies to contact and talk to taxpayers about their debt.

Refusal to pay is technically illegal, but aside from the threat of a criminal charge, the IRS often uses government liens to pressure taxpayers by reducing their ability to seek financing or liquidate their assets without first satisfying their debt, and they can ultimately start levying accounts, assets, and even wages to cover a taxpayer’s tax liability.

 

Why You Need Professional Tax Help

You can’t get rid of tax debt by declaring bankruptcy, or by trying to hide for a decade. Getting it over with by negotiating and setting up IRS payment plans for the best possible deal is ultimately the quickest and most painless way to handle your tax debt.

However, working with the IRS can be confusing and difficult, and there are a lot of forms to fill and questions to answer on your way to total financial freedom from the IRS. Get in touch with us at Rush Tax Resolution for a free consultation, and to get a better grasp of your options.

Understanding Small Business Tax Deductions and Relief Options for 2022 

Small business tax deductions can help your business continue to run smoothly. Here’s what to know about relief options for your small business.

The IRS defines small businesses – within the context of tax relief and deduction options – as any business with assets under $10 million. These businesses, including self-employed professionals and independent contractors, can avail of certain tax credits and deductions to help minimize their tax liability and stay afloat during the COVID pandemic. Let’s dive into the current tax relief programs and general small business tax deduction options for the new year.

Basic Business Tax Deductions and Tax Credits

Tax credits are money the IRS lets you omit from your tax liability. When a tax credit is described as refundable, the IRS lets you withdraw the remainder of as cash if your tax liability is more than covered. Most tax credits require businesses to meet certain eligibility requirements to avail for a tax credit.

The IRS provides multiple different forms for small business tax credits, from ones designed to provide special benefits to carbon dioxide sequestration programs to a tax credit for paid family and medical leave, in addition to basic tax deductions.

Tax deductions for businesses essentially allow companies to minimize their tax liability by writing off eligible business expenses, from office supplies to fuel.

Not all business expenses can be deducted. Capital expenses generally cannot be deducted, for example, unless the startup of a business fails (in which case they become capital losses). These include assets that continue to generate value for the business, such as buildings, equipment, or vehicles. In this case, the business hasn’t really lost any value – it simply moved it around, from liquid cash to an asset.

Knowing what your business can and cannot deduct can require great attention to detail and a thorough understanding of federal and state tax laws. Be sure to consult a professional when dealing with tax credits and deductions.

Coronavirus-Related Tax Relief for Small Businesses

Following the beginning of the coronavirus crisis, the government and US Treasury rolled out multiple different relief programs aimed to aid American workers, families, and small businesses, providing economic relief to keep companies and households afloat during the harshest and hardest months of the crisis.

Most of these tax relief programs ended in early to late 2021, and very few are slated to be extended into 2022, if at all.

For small businesses, in particular, coronavirus-related tax relief and financial assistance programs took on the form of an

      • Employee Retention Tax Credit
      • A Paid Sick and Family Leave Credit
      • A Paycheck Protection Program
      • An Emergency Capital Investment Program

Among these four, the first two are tax-related, in that they provide refundable tax credits, which can be used to minimize a business’s tax liability and even provide a cash infusion if withdrawn.

Employee Retention Tax Credit

The Employee Retention Tax Credit began in 2020 as a refundable tax credit equal to $5,000 per employee, or 50 percent of eligible wages paid, whichever was less. Eligible businesses that took out PPP loans are also allowed to claim an Employee Retention Tax Credit for 2020, provided they do not use the eligible wages calculated for the tax credit for their PPP loan forgiveness application.

In 2021, the Employee Retention Tax Credit was extended – first into the first quarter of the year and eventually throughout the entire fiscal year. This time, employees received a tax refund equal to the lower of either $7,000 per employee or 50 percent of eligible wages paid. Eligibility to receive an Employee Retention Tax Credit in 2021 was lowered to a 20 percent decline in gross receipts during a single quarter compared to 2019.

The Employee Retention Tax Credit has not been extended into 2022, however eligible businesses can still claim their tax credit retroactively, provided they file their amended payroll tax forms.

Paid Sick and Family Leave Tax Credit

The other major coronavirus-related tax credit was the Paid Sick and Family Leave Tax Credit, or the Paid Leave Credit.

This tax credit was provided to offset the requirement that businesses with 500 or fewer employees were required to provide paid sick and family leave for employees struggling with the results of the pandemic. It initially took on the form of wages paid over an 80-hour paid leave per employee, either:

      • At a cap of $511 per day per employee (or $5,110 over the full ten days) if the employee was sick or quarantining, or;
      • Two-thirds of an employee’s wages, at a cap of $200 per day per employee, if the employee was taking care of someone else who was quarantining, or if their child’s school or child care was closed due to COVID.

In addition, employers were obligated to provide employees with ten weeks of paid leave to take care of their children while school or child care was unavailable due to COVID, receiving an incentive tax credit equal to two-thirds of their employee’s wages, capped at $200 per day per employee, or a total of $10,000 per employee.

The tax credit was extended throughout 2021, but the requirement to provide paid leave was not. This means only businesses that continued to provide paid leave to their employees for COVID-related obligations were eligible for a tax credit. If you have not received your tax credit, you can file amended payroll tax forms to claim the tax credit and receive a refund for your business.

The Paid Leave Credit is not being extended into 2022.

Child Tax Credit

While not strictly relevant to small businesses tax deductions, the Child Tax Credit was relevant to millions of self-employed and working Americans with dependents, as it was slated to be extended into 2022 – remaining one of the only coronavirus tax relief offerings that might have made it into the new year.

As many as 35 million families across the US relied on the tax credit, with many using it for school supplies and childcare. With cases surging and a new variant looming on the horizon, news of Congress’ inability to extend the program has caused many lawmakers to try and figure out state-level solutions instead to help families retain an important safety net ahead of yet another wave of economic uncertainty. So far, seven states have their own implemented Child Tax Credit, with another nine states having seen proposals for one in the past two years.

While small business owners with dependents and other families might not see an expansion of the Child Tax Credit in 2022 – the jury is still out on whether Congress will be able to vote in a revised version of the Build Back Better bill next year – there are still other deductions and tax credits to take advantage of, both for individual taxpayers and small businesses working to survive the ongoing crisis.

Other Important Tax Relief Tips

Running a small business is a monumental task. Most small business owners are struggling to make ends meet, nowadays more than ever.

There’s payroll to worry about, increasing fuel costs, supplier rates, and unprecedented supply chain issues. Everything from lumber to server space is becoming more expensive, and there are a million balls to keep juggling in the air.

Why let one more worry pile up and cost you precious capital? Get in touch with a tax professional to help you minimize your business’s tax liability, from providing sensible and actionable tax credit information to tax return filing services down to advice on restructuring. Let Rush Tax Resolution help. Get in touch with us today and find out more.

Private Debt Collectors & IRS Collection Agency: Understanding the IRS’ New Private Contracts

The IRS has recently awarded new contracts to private collection agencies, but what exactly are private debt collectors and what do they do?

The IRS has been plagued by a drop in employees and resources for years, leading to lower and lower auditing rates, and increased concern over the fact that the agency may be becoming toothless when it comes to pursuing the biggest tax criminals in the country. In part to combat these issues, and help lower the tax gap, Congress passed a law requiring the IRS to work with private debt collectors from time to time.

Let’s go over what that means exactly.

Does the IRS Use Private Debt Collectors?

Yes, it does, albeit sparingly. The IRS is currently only working with three private debt collection agencies as of September 2021, and previously used four (two of which they still outsource debt collection too).

These private debt collectors do exactly as you’d expect – they pursue taxpayers with outstanding tax debt to the government. According to the IRS, a taxpayer’s account may be approached by a private debt collector if:

      • The IRS doesn’t have the resources to tackle their case.
      • The IRS cannot find them.
      • Over a year has passed and there has been no movement on the account.
      • Over two years have passed since the initial tax assessment that determined a delinquent payment or debt, and the account has not been assigned for collection.

Rule Out Private Debt Collection

If any or multiple of these factors apply to any given tax account with an unpaid tax liability, the IRS may put one of its three partnered private collection agencies to work on the case.

Just as there are factors that call for private debt collection, there are also factors that rule out private debt collection. You should not expect to hear that the IRS has asked private debt collectors to take care of the process if:

      • The taxpayer is/has
        • dead.
        • a minor.
        • in a combat zone.
        • a victim of tax-related identity theft.
        • receiving supplemental security income or social security disability insurance.
        • total adjusted gross income (AGI) is less than 200 percent of the current poverty level.
        • under levy.
        •  is under criminal investigation.
        • under legal examination or litigation.
        • waiting on a pending offer in compromise.
        • in an installment agreement with the IRS.
        • has chosen to exercise their right to appeal.
        • is classified as an innocent spouse in tax fraud or evasion.
        • is currently in a disaster zone as declared by the president, and is requesting relief from tax collection.

Who does the IRS Use as Private Debt Collectors?

As of September 2021, only these three companies may act as private debt collectors for the IRS:

This means that if any other company contacts you pretending to collect taxes for the IRS, it may be a scam. Please be sure to check the up-to-date information on the IRS’s website regarding private collection agencies, to ensure that you’re being contacted by a legitimate private collection agency.

The IRS also notes that a private collection agency will NEVER:

      • Charge a fee prior to a payment agreement.
      • Request that a payment is made to them directly, especially through gift cards, etc.
      • Collect your financial information.
      • Try to issue a federal tax lien or levy.
      • Determine whether or not to accept a payment plan or offer in compromise.

A private collection agency will ALWAYS:

      • Contact you via letter first.
      • Explicitly identify themselves as IRS contractors.
      • Will set up payment arrangements for you, with a total term length of seven years OR the debt’s expiration date (ten years from tax assessment date plus tolling period).

Aside from the aforementioned letter from the private collection agency, the IRS itself will also send you a letter if your case has been transferred to a private collection agency. This letter is called a Notice CP40.

What Does This Mean for Me?

If you have a debt with the IRS, you should take whatever measures you can to resolve it. For substantial debt,  be sure to contact a tax professional for help.

If there hasn’t been any activity on your tax account for some time, or if the IRS hasn’t taken any action against you, or is presently backed up, you may be pursued by a private agency. All this really means is that you will receive a series of letters, first from the IRS and then from the private agency, followed by phone calls by the agency.

While the agency cannot place a lien or levy on you, the IRS can and will if you continue to ignore your tax bill. Furthermore, tax debt is subject to certain penalties and interest.

What Can a Tax Professional Do?

Getting in touch with a tax professional can help you resolve the issue as swiftly and cost-effectively as possible. If your bill feels insurmountable, you can rely on a professional to help you work through the steps needed to have it reduced, or to minimize and temporarily halt collection efforts, until you can get back on your feet.

Reduced Tax Debt

Once you’re able to pay your bill, you have the option of choosing to pay in monthly installments, in lump sums over less than six months, or all at once. However, If you cannot pay your debt in monthly installments before it expires, you can consider getting a reduced tax debt from the IRS in the form of an offer in compromise. You must make this offer first.

The IRS is very particular about offers in compromise, and there are stringent qualifications. A tax professional can help you determine whether it’s an option you should consider and can help you navigate the IRS’s requirements. Alternatively, you can work with a tax professional to pursue an appeal if you find that your tax debt has been erroneously attributed to you.