Tax Relief Solutions
While Offer in Compromise is considered the most advantageous IRS tax relief solution for delinquent taxpayers, not everyone can qualify. If this occurs, there are still other IRS tax solutions that can provide some much needed relief either in terms of reducing the tax liability or offering a way to pay the back taxes “over time”. Getting the IRS to reduce, compromise or “waive” IRS tax penalties or interest is a very effective way to lessen your back tax liability and is called tax penalty and interest abatement. The IRS Installment Agreement serves as a workable solution to “spread out” the payment of your delinquent tax debt into more manageable monthly amounts. Comprehensive information about these IRS relief options is outlined below. Refer to our Resources page for additional helpful information about how to reduce tax penalties and IRS interest.
IRS Tax Penalty Abatement – This type of tax relief either reduces (“abates”) or waives the tax penalty amount to a lesser amount due. When the IRS assesses tax penalties, those penalties are automatically added to the taxpayer's account by a computer system. Sometimes tax penalties and interest can be inaccurate or even unwarranted. IRS penalties are most commonly added to a taxpayer's tax debt without taking individual circumstances into account. These penalties can quickly turn a somewhat manageable tax debt into a heavy financial burden. IRS penalties assessed can be as high as 25% of the tax liability amount (at a rate of 5% per month if your IRS tax return is more than 60 days late). This tax penalty is called the Late Filing Penalty and it is clear why it will create rapid financial damage.
It is possible to reduce IRS tax penalties through a process called Tax Penalty Abatement. You can present your own reasons for falling behind on your taxes to the IRS and you may not have to pay the full penalties assessed to you. This presentation of “your reason” for falling behind is called reasonable cause by the IRS. The Internal Revenue Service is actually willing to listen to the reason why they should consider removing or accepting an abatement of your IRS penalties. According to the IRS, there are seven categories in which your reasonable cause may be classified. These are: serious illness of you or a family member, death of a family member or yourself, civil disturbance, unavoidable absence, lack of funds, reasons beyond your control that caused an inability to determine your tax, and “other reasons” for not complying within the time limit. It is also permissible to request tax penalty abatement when you rely on incorrect advice given by the IRS over the phone. You must be able to prove to the IRS that your reliance was reasonable and that it caused you to suffer more taxes and/or tax penalties.
Reducing your IRS tax penalties certainly has the potential to provide some significant tax relief. If you have already paid your tax debt in full, you may even be eligible for a refund of those IRS penalties. A formal submission, called the Penalty Abatement Request is required for the IRS to consider your reasonable cause. It is important to keep in mind that a proper Tax Penalty Abatement requires specific wording and a solid understanding of the relevant IRS procedures and code. Oftentimes a specially drafted penalty abatement letter can be effective. Even if you have a good reason (reasonable cause) for not paying your taxes on time, it can be extremely difficult to get these IRS penalties waived or reduced. Our tax advisors can help you aggressively pursue the abatement of penalties and interest. They are experts in drafting the IRS Letter of Abatement of penalties. Keep in mind that convincing the IRS to abate penalties is not as easy as you may hope, and your success or failure to secure this IRS abatement of penalties can have a major impact on your financial situation.
IRS Tax Interest Abatement – IRS interest abatement, a form of tax relief very much like tax penalty abatement, is an elimination or reduction (“compromise”) of accrued interest amounts that ultimately result in a lesser tax liability for the taxpayer. Similar to IRS tax penalties, accrued interest is automatically calculated based on what is owed, and added to the taxpayer's account via a computerized system. Interest rates change every three months. Currently, the IRS interest rate is 5% per year for underpayment of tax. The interest is calculated for each day your tax debt is not paid in full.
There is a chance that the interest added to your tax liability may be inaccurate or unwarranted. You are allowed to request a Tax Interest Abatement whenever you have had interest applied to your account as a result of an IRS error of a managerial or ministerial task (i.e. paperwork loss) or an IRS delay of a managerial or ministerial task (i.e. delay in processing paperwork). It is important that you be able to show that you could not have caused any significant impact upon the error or delay. Keep in mind that interest abatement will not be applied (granted) if the error or delay can be attributed to the taxpayer involved.
The Notice of Deficiency is the IRS notification that interest has actually been accrued. In order to proceed with a formal Interest Abatement Request, you must complete IRS Form 843. This “Claim for Refund and Request for Abatement” should be filed with the IRS Service Center where the taxpayer filed the original tax return. While these procedures appear straightforward, the IRS does not easily grant an interest abatement request. Using IRS tax advisors can make the difference in being granted the IRS Interest Abatement.
IRS Installment Agreements – The installment agreement is designed for those taxpayers who are simply not able to pay their back tax liability in a single lump sum payment. Oftentimes, those individuals who didn't meet the requirements for an Offer in Compromise will be eligible for this form of tax relief. An installment agreement is actually the most common method for individuals to arrange payment for back taxes owed to the IRS. The Streamline IRS installment agreement is structured for tax debt under $25,000 with the full tax debt being paid off in 5 years or less. It is not particularly difficult to qualify for this type of IRS installment agreement. Long term installment agreements for larger tax debt problems (in excess of $25,000) are more challenging. The most important objective is to insure that the IRS does not impose unreasonable repayment demands that could leave a taxpayer unable to meet their other monthly obligations. It is suggested that professional IRS tax help be sought for both types of installment agreements to insure the taxpayer does qualify and that the payment plan established is realistic and fair.
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