Business Tax, Tax Planning, Tax Resolution

• Tax Resolution is finding mutually agreeable resolutions to past tax debts

• Offers in Compromise is settling a tax debt for less than you owe

• Installment Agreements are paying either some or all of your tax debt over time.

• Back-door Offer in Compromise is using a combination of an installment agreement with the IRS statute of limitations to collect a debt to pay less than you owe

• Strategies to reduce the amount you pay are often most effective when you own a business and require a professional that understands what monthly expenses you’re allowed to reduce the amount the IRS can collect from you.

Navigating the complex world of tax resolution can be overwhelming for many individuals and businesses. As a dedicated tax attorney, I specialize in offering a wide range of tax resolution services designed to help clients resolve their tax issues efficiently and effectively.

This is an overview of the most common tax resolution services I offer, including Offers in Compromise, Installment Agreements, and more.

1. Introduction to Tax Resolution

Tax resolution encompasses a variety of strategies and services aimed at resolving tax debt issues with the Internal Revenue Service (IRS) and state tax authorities. Whether you’re an individual struggling with back taxes or a business facing payroll tax issues, the right tax resolution approach can provide relief and a path to financial stability. The primary goal of tax resolution is to find the best possible outcome for the taxpayer while ensuring compliance with tax laws. For the most part, a taxpayer with past-due debts should NOT attempt to resolve their issues on their own, or use a ‘tax resolution mill’ that promises the moon and isn’t prepared to deliver.

Let me also start out with I have a bias. I’m a tax attorney, and both CPAs and tax attorneys can represent you in front of the IRS. However, most CPAs don’t work in the field of tax resolution. In fact, some CPAs may know little regarding taxation and may not even file tax returns as part of their practice. If you have a serious tax problem that requires serious skill and knowledge, you ONLY want to work with someone that focuses on taxation.

My law practice focus is on taxation, including tax advisory, tax preparation (filing tax returns), and tax resolution. I don’t focus my attention on family law, speeding tickets, DUIs, etc… my focus is on taxation and business law (including trademarks, albeit that’s secondary). Also, CPAs aren’t taught the same skill sets as attorneys in so much as understanding US Code, case law, and regulations in the same way as attorneys (just as attorneys aren’t necessarily trained corporate finance and bookkeeping).

In other words, different professionals have different skill sets. And because tax resolution isn’t difficult from a bookkeeping (or math for that matter), the skill set in my opinion that is best for resolving an issue with a taxing authority is one where the professional is trained to understand the law and how to apply the facts to it in the capacity to represent someone in the best possible light.

I should also add for completeness that there is a third category called an Enrolled Agent (EAs) that is licensed by the IRS to represent people. And while there are many very very good EAs (and I know a few), my experience is that on average, a CPA or Tax Attorney will have a higher level of training, knowledge, and ability to resolve your tax problem.

Also, a taxpayer will never have the same level of attorney-client confidentiality that is enjoyed by having a tax attorney represent you. This becomes especially true when you’re facing potential criminal liability exposure. If you discuss your tax issue with an attorney regarding criminal concerns, you likely don’t have a worry that an attorney can be made a witness against you, unlike potentially the case with a CPA or EA. In fact, only a tax attorney can represent you in a criminal matter and is bound by the highest level of confidentiality protection you can have.

Therefore, while I may have a bias in favor of using a tax attorney to represent you against the IRS, it doesn’t change the fact that the one person who can represent you in both civil and criminal matters (or civil matters that may unfortunately turn into criminal) is a tax attorney, and not a CPA or EA.

2. Offers in Compromise

Definition and Purpose

An Offer in Compromise (OIC) is a tax resolution option that allows taxpayers to settle their tax debt for less than the full amount owed. This option is typically available to those who are unable to pay their full tax liability or if paying the full amount would create a financial hardship. This type of tax resolution is the most commonly advertised on TV and the radio because (in my opinion) it preys on a taxpayer’s stress and worry while also giving ‘hope’ that your tax debt can be settled for pennies on the dollar….

While it’s true that sometimes a tax debt can be settled for next to nothing, what is more often the case is you don’t want to be a ‘real candidate’ for settling for pennies on the dollar because it means your assets and income relative to the tax owed is very small. The entire purpose of the IRS is to collect money from taxpayers to fund the government, and they are not about to allow someone to live a lavish lifestyle while also circumventing the tax owed.

Eligibility Criteria

To qualify for an OIC, taxpayers must meet specific eligibility criteria, including:

• Inability to pay the full tax debt within a reasonable period.
• All required tax returns have been filed. The taxpayer must be considered ‘in compliance’ with the reporting requirements. This generally means that the taxpayer must have at least filed for the last SIX YEARS of tax returns.
• All necessary estimated tax payments have been made for the current year.
• No ongoing bankruptcy proceedings.

Types of Offers in Compromise

1. Doubt as to Collectibility: This is the most common type of OIC, used when the taxpayer cannot pay the full amount due to financial hardship.
2. Doubt as to Liability: Used when there is a genuine dispute about the amount or existence of the tax debt.
3. Effective Tax Administration: Applicable when the taxpayer can pay the full amount, but doing so would create an economic hardship or would be unfair or inequitable.

Process and Documentation

The process of submitting an OIC involves:

• Completing and submitting Form 656, Offer in Compromise.
• Providing detailed financial information using Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses.
• Paying an application fee (unless qualifying for a low-income waiver).
• Making an initial payment with the offer.

Benefits and Drawbacks

Benefits:

• Potentially significant reduction in tax debt.
• Relief from the burden of unmanageable tax liabilities.
• Improved financial stability and peace of mind.

Drawbacks:

• Rigorous qualification process.
• Extensive documentation and financial disclosure required.
• Impact on credit score and financial history.
• Tolls the statute of limitations on collections.

You should have at least a 90% or more certainty of being approved BEFORE applying. A good tax professional should be able to know this ahead of time. This is where many of the ‘tax mills’ fail people in my opinion. It’s not difficult to know what the outcome should be ahead of time because the math is relatively simple.

3. Installment Agreements

Definition and Purpose

Installment Agreements (IAs) are arrangements that allow taxpayers to pay their tax debt over time in manageable monthly payments. This option is suitable for those who cannot pay their full tax liability upfront but can afford to make regular payments.

Types of Installment Agreements

1. Guaranteed Installment Agreement: Available to taxpayers who owe $10,000 or less, have filed all required returns, and agree to pay the full amount within three years.
2. Streamlined Installment Agreement: For taxpayers who owe $50,000 or less and can pay the full amount within 72 months.
3. Partial Payment Installment Agreement (PPIA): Allows taxpayers to make reduced monthly payments over a longer period, potentially resulting in partial forgiveness of the remaining debt.
4. Non-Streamlined Installment Agreement: For taxpayers who do not meet the criteria for the other types of agreements and require negotiation with the IRS.

Application Process

The application process for an Installment Agreement involves:

• Submitting Form 9465, Installment Agreement Request.
• Providing financial information if required (Form 433-F or Form 433-A).
• Making an initial payment with the application.
• Setting up direct debit payments for convenience.

Benefits and Drawbacks

Benefits:

• Avoidance of collection actions such as liens and levies.
• Ability to pay off tax debt over time without severe financial strain.
• Maintenance of compliance with IRS requirements.

Drawbacks:

• Accrual of interest and penalties on the unpaid balance.
• Potential impact on credit score.
• Requirement to stay current with future tax obligations.

4. Currently Not Collectible Status

Definition and Purpose

Currently Not Collectible (CNC) status is a temporary relief option for taxpayers who cannot pay their tax debt due to financial hardship. When a taxpayer is placed in CNC status, the IRS temporarily suspends collection efforts, such as wage garnishments and bank levies.

Eligibility Criteria

To qualify for CNC status, taxpayers must demonstrate that paying their tax debt would cause significant financial hardship, leaving them unable to meet basic living expenses.

Application Process

The process of obtaining CNC status involves:

• Providing detailed financial information to the IRS using Form 433-A or Form 433-F.
• Submitting documentation of income, expenses, and assets.
• Requesting CNC status from the IRS, which will review the information and make a determination.

Benefits and Drawbacks

Benefits:

• Temporary relief from IRS collection actions.
• Opportunity to improve financial situation without the pressure of immediate tax debt payments.
• Protection of essential assets and income.

Drawbacks:

• Accrual of interest and penalties on the unpaid balance.
• Periodic review of financial status by the IRS.
• Potential loss of CNC status if financial situation improves significantly.

5. Penalty Abatement

Definition and Purpose

Penalty abatement is the reduction or removal of penalties assessed by the IRS for various tax-related infractions, such as late filing, late payment, or failure to deposit taxes. This option is available to taxpayers who can demonstrate reasonable cause for their non-compliance.

Types of Penalties Eligible for Abatement

1. Failure to File Penalty: Assessed for not filing a tax return by the due date.
2. Failure to Pay Penalty: Assessed for not paying the tax owed by the due date.
3. Failure to Deposit Penalty: Assessed for not depositing payroll taxes on time.

Criteria for Penalty Abatement

The IRS may grant penalty abatement if the taxpayer can demonstrate reasonable cause, which may include:

• Serious illness or injury.
• Natural disasters or other catastrophic events.
• Inaccurate advice from a tax professional.
• Inability to obtain necessary records.

Application Process

The process for requesting penalty abatement involves:

• Submitting Form 843, Claim for Refund and Request for Abatement.
• Providing a detailed explanation and documentation of the circumstances that led to the penalty.
• Supporting the claim with relevant evidence, such as medical records or insurance reports.

Benefits and Drawbacks

Benefits:

• Reduction or elimination of significant penalty amounts.
• Potential reduction in overall tax liability.
• Opportunity to resolve tax issues without severe financial consequences.

Drawbacks:

• Strict eligibility criteria and documentation requirements.
• Potential denial if reasonable cause is not adequately demonstrated.
• Accrual of interest on the underlying tax debt.

6. Innocent Spouse Relief

Definition and Purpose

Innocent Spouse Relief provides protection for individuals who have been unfairly held responsible for their spouse’s or former spouse’s tax debt. This relief is available to taxpayers who can demonstrate that they were unaware of the erroneous or fraudulent actions of their spouse.

Types of Innocent Spouse Relief

1. Traditional Innocent Spouse Relief: Available to taxpayers who were unaware of the understatement of tax due to their spouse’s actions.
2. Separation of Liability Relief: Allocates the understatement of tax between the spouses, providing relief to the innocent spouse.
3. Equitable Relief: Available to taxpayers who do not qualify for the other types of relief but can demonstrate that it would be unfair to hold them responsible for the tax debt.

Eligibility Criteria

To qualify for Innocent Spouse Relief, taxpayers must meet specific criteria, including:

• Filed a joint tax return with the spouse.
• Understatement of tax was due to the spouse’s erroneous or fraudulent actions.
• Lack of knowledge or reason to know about the understatement.
• Request for relief made within two years of the IRS initiating collection actions.

Application Process

The process of applying for Innocent Spouse Relief involves:

• Submitting Form 8857, Request for Innocent Spouse Relief.
• Providing detailed information about the circumstances and supporting documentation.
• Responding to IRS requests for additional information and participating in interviews if required.

Benefits and Drawbacks

Benefits:

• Relief from joint liability for tax debt caused by a spouse’s actions.
• Protection of personal assets and financial stability.
• Opportunity to resolve tax issues without undue hardship.

Drawbacks:

• Complex and lengthy application process.
• Requirement to disclose personal and financial information.
• Potential denial if eligibility criteria are not met.

7. Payroll Tax Issues

Definition and Purpose

Payroll tax issues arise when businesses fail to properly withhold and remit payroll taxes, including federal income tax, Social Security, and Medicare taxes. Failure to comply with payroll tax requirements can result in significant penalties and interest.

Common Payroll Tax Issues

1. Failure to Withhold and Remit Taxes: Businesses are required to withhold taxes from employee wages and remit them to the IRS.
2. Failure to File Payroll Tax Returns: Businesses must file payroll tax returns, such as Form 941, on time