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:
- The sheer value of your tax debt, your likelihood to try and bail on it.
- Your inability to pay on time, as per a previous agreement.
- 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.
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.