Are you interested or worried about paying tax debt? There are options to help manage or even reduce the amount you owe. Consider the following reasons why hiring a tax attorney can help you find tax debt relief.
8 Ways an Attorney Can Help with Tax Debt Relief
- Negotiate an Installment or Payment Agreement
- Make an Offer in Compromise
- Consolidate Tax Debt with Loans and Credit Cards
- Prevent the IRS from Seizing and Levying Property
- Give Advice About Bankruptcy
- Attorney-Client Privilege
- Other Relief Options
- Appeal Decisions
The Internal Revenue Service (IRS) is the tax administrator of the Department of Treasury in the United States and offers federal tax debt relief programs for taxpayers with tax problems. There are also third-party organizations like debt settlement companies that offer tax debt relief help. Be aware that there are also tax debt relief scams, so be sure to choose a reputable company with experienced tax lawyers, Certified Public Accountants (CPAs), and other tax professionals.
Penalties and Interest
The IRS can charge steep penalties and interest on taxes not paid by applicable due dates. Interest rates are based on the federal short-term rate plus 3% and calculated daily on past due amount and penalties. Paying late can accrue a penalty of to 25% of the amount owed. Failure to file a return can result in much higher rates in addition to a late payment penalty. Regardless of your ability to pay taxes due, it is very important to file your tax return. Keep in mind that filing an extension does not avoid late payments which will accrue.
Small business owners, freelancers, and self-employed contractors are at risk of tax debt since their taxable income does not automatically have taxes withheld. They are usually subject to self-employment and payroll taxes. Those who earn over certain amounts of untaxed income are expected to pay estimated taxes quarterly. Failing to pay estimated taxes can also accrue interest and penalties which are calculated daily and based on 3-month periods. These amounts can quickly become unmanageable if ignored. First-time penalty abatement or preemptive request for penalty abatement may help lower your tax liability. However, these do require you to be proactive in managing tax issues. Finally, an IRS audit may result in underpayment penalties and interest that accrues from when the tax was initially due.
Tax Liens and Levies
If you have an unfiled tax return or do not pay your taxes in full, the Internal Revenue Service (IRS) may start the collection process on the unpaid amount. This can result in a federal tax lien, a public claim against your property. This has serious consequences, such as impacting your credit and ability to manage your assets. If the debt is still not satisfied, the IRS can legally seize or levy your property to pay off the tax debt.
In the event of a tax levy, the IRS has more options than typical lenders. They can garnish wages, salary, commission, dividends, and even reach into bank and retirement accounts, take your house, car, and other property. Undergoing the collection process can be frustrating and emotional, but it is important to know there are legal steps you can take to protect yourself and your property. To find out more about what legal options are available, reach out to Acadia Law Group today.
8 Ways an Attorney Can Help
1. Negotiate an Installment or Payment Agreement
Before considering your best options, you must ensure you have filed your tax return, including any applicable deductions, exemptions, and credits. Most of the tax liability relief options available require your return to be filed first. If you cannot pay the entire tax debt, the IRS may consider alternative options, some with more consequences than others.
For some taxpayers, monthly payments are an option. Negotiating an installment agreement with the IRS can help in a variety of ways such as releasing a levy or returning seized property. Establishing an agreement may also stop penalties and resolve issues with obtaining loans. For short-term plans, there are usually no fees for applying for the agreement. However, long-term payment plans do involve application fees.
2. Make an Offer in Compromise
In some cases, it will cause undue hardship to pay the tax debt in full or even make monthly payments. In these circumstances, the IRS may consider partial debt forgiveness. An Offer in Compromise (OIC) is an agreement that may reduce the overall amount owed to a more reasonable amount in specific situations. This can be either a lump sum or periodic payment. Again, you must have filed a tax return to be eligible for this option.
When considering your eligibility, the IRS will look at your ability to pay through income, expenses, and assets. There are also a variety of forms that may need to be filed, such as Forms 433-A for individuals or 433-B for businesses. You might also be required to file Form 656(s) for certain individual or business debt. You might also need to pay a nonrefundable fee depending on what route you take.
The Internal Revenue Code is complex and includes many different forms, fees, filing deadlines, and other issues to consider. In an effort to streamline the process, the IRS has launched the Fresh Start Initiative which offers many benefits to taxpayers. Unfortunately, you cannot submit an OIC when undergoing bankruptcy proceedings.
3. Consolidate Tax Debt with Loans and Credit Cards
IRS tax debt relief options include using loans and credit cards to pay the balance due. While these do incur interest as well, they may be at lower rates than you would face from the IRS. For example, a home equity line of credit might be used since the cost can be spread over many years at typically lower interest rates with lower payments.
If the IRS has already placed a federal tax lien on your property, it may make it hard to obtain any loans or credit. This is another area where a tax lawyer can help temporarily remove the lien in order to obtain the loan needed to pay off the tax debt. Before consolidating your tax debt with a credit card, consider other loan options with lower rates.
4. Prevent the IRS from Seizing and Levying Property
Unpaid taxes may lead to a tax levy, which can result in the IRS seizing property, ranging from bank accounts, wages, a home, and vehicles. Before that, the IRS will issue a Notice of Intent to Levy as well as a Notice of Your Right to a Hearing. A tax attorney can help prevent a levy or even negotiate the return of seized property in exchange for an IRS tax payment plan on your behalf. A lawyer may be able to claim that your assets are uncollectible due to financial hardship and seizing your property will cause undue harm. Ignoring levy notices from the IRS will not help your situation. The best thing to do is be proactive and communicate with the IRS.
For those busy running a business, it only makes sense to hire a tax professional to navigate these tricky situations. Once property has been seized, there are options to get it back, even if it has been sold. Enacting an installment agreement or other IRS tax payment plan can also help stop a levy on your property.
5. Give Advice About Bankruptcy
When tax problems and financial issues are simply too much to handle, you may need to consider bankruptcy. A tax attorney can help here as well. Filing bankruptcy may not remove the federal tax due, but it may stop wage garnishment and other levy issues. Your unique financial situation will determine what route would be best, but you may be left setting up a payment arrangement after bankruptcy. Consider your options carefully and consult with a lawyer to find the best route.
6. Attorney-Client Privilege
Seeking help from a tax lawyer offers many benefits. Experienced professionals can help determine the best path toward paying off your tax debt for your unique situation. Besides knowing what forms are required, these tax lawyers and CPAs will also know what timeframes you have to appeal decisions, deadlines for specific documents, and the right information to provide to give you the best chances of reaching a debt settlement that is advantageous. While the desired outcome from tax relief services might be canceled debt, it is important to remain realistic. The IRS will require payment on unpaid taxes or at best offer partial debt forgiveness.
In addition to tax debt relief, a tax lawyer provides attorney-client privilege which means your personal information has legal protections that other tax relief companies may not be able to match. Finally, tax professionals can help you look at your tax return and ensure you filed using the best deductions and exemptions. In some cases, you might be able to amend previous year tax returns, such as when carrying back business losses.
7. Other Relief Options
Besides federal taxes, you may also be facing state and local tax debt and tax liens. You may also be able to reach payment agreements or have some debt forgiven in these situations as well. There are also special situations that may give you some tax debt relief. For example, if a spouse filed a joint return with errors, you may not be subject to the tax burden.
In other cases, involving divorce or separation, or when it would be unfair to hold you responsible for underpayment, there are relief options as well. Students who have taken out federal student loans that go into a collections process may also see IRS action which will impact their income tax return. If your spouse has unpaid student loan debt, your portion of a joint return may also be liable. Tax relief services can help challenge the tax offset or pursue other tax resolutions.
8. Appeal Decisions
When dealing with the Internal Revenue Service, they may calculate a return for you to determine taxes due. After requesting a relief plan and the response is negative, there is an appeal process for each step. The sooner action is taken to establish a payment agreement, the more options are available. As time continues, these options expire, which is why it may be worth your time to consult with a tax professional as soon as possible. Each appeal process may have different deadlines and requirements.
The IRS also has a timeline for how long they can attempt to collect back taxes. State and local taxes may follow different guidelines, with different deadlines for appeals. To ensure you are following the correct procedure, reach out to a tax lawyer today.
Does Tax Debt Relief Work?
Facing a heavy tax burden or tax levy from the IRS, as well as state and local administrations, can be daunting. Remember, there are options available if you cannot pay these taxes in full. Do not wait and let the penalties and interest make the tax problem worse. Unfiled tax returns accrue heavy interest and penalties. File your tax return and determine the options available to you. The Internal Revenue Service offers many options under the Fresh Start Initiative to aid struggling taxpayers. Start with negotiating an installment agreement to make monthly payments. If the burden is still too high where it would cause undue hardship, you may be able to have some of the tax debt forgiven through an Offer in Compromise (OIC).
There are requirements to meet either of these relief options and deadlines to file certain forms. To avoid penalties and high interest, it might be beneficial to use loans or credit cards to consolidate the tax debt and pay it off over time. If you ignore the collection process, you may face tax liens which will impact your credit score and prevent you from either securing loans or selling certain property. The IRS can also seize property for a variety of reasons. This can include your home, bank account, and property that other creditors have a lien on. Don’t let it get this far because there are other options that are usually much better for you.
Seek out a trusted tax attorney to help you prevent the IRS or other agency from seizing your assets with a levy. If you have any liens, you can often get them removed. If the property has already been seized, you can get it returned or even buy it back from who it was sold to. However, the longer you wait, the more expensive it will be. Various relief services may result in forgiven debt. Besides payment agreements and OICs, there are other tax relief options in special cases. Finally, you can appeal decisions made by the IRS throughout the collection process.
If you need tax debt relief, call Acadia Law Group today. We are an ally in your struggle, drawing on decades of experience dealing with these issues, and we can provide the best solution for your unique tax situation.