We know just how quickly tax debts can spiral out of control, and the common stress of not having the means that is desperately needed to take care of you and your family. However, if you hire a tax lawyer before the situation has gotten out of hand, this can be avoided. There are options and possible solutions available.
The Internal Revenue Service audits tax returns to verify the correctness of income, exemptions, credits, or deductions so reported. The tax returns that the Internal Revenue Service thinks have the highest probability of error are selected for audit.
Audits are handled either by mail or by a face to face interview.
The audit may or may not result in an additional tax liability. An audit may be closed without change or the taxpayer may even receive a refund.
The audit process will include all or some of the following steps:
- (i) initial audit;
- (ii) supervisor’s review;
- (iii) administrative appeal; and
- (iv) court.
The taxpayer may request audit reconsideration in order for the Internal Revenue Service to re-evaluate the results of a prior tax audit.
Audit reconsideration is not automatic. In general, in order to receive audit reconsideration, the taxpayer must provide additional information not considered during the prior tax audit.
Currently not collectible
The Internal Revenue Service will not pursue a delinquency that is not economically profitable.
The Internal Revenue Service will categorize the taxpayer as currently not collectible if he has no ability to pay the delinquency. Currently not collectible status results in the de-activation of the collection file.
The taxpayer’s improved economic circumstances can remove the finding of currently not collectible and result in the re-activation of the collection file. A re-activated collection file results in a larger delinquency due to the accrual of penalties and interest over the time period that the collection file was de-activated.
Statute of limitation for assessment
Before any collection activity can occur, the Internal Revenue Service must first (1st) timely assess the tax prior to the expiration of the statute of limitation for assessment. The Internal Revenue Service must assess the tax within three (3) years of the date that the tax return is filed.
Statute of limitation for collection
If the Internal Revenue Service timely assesses the tax, then it has ten (10) years in which to conduct any and all collection activity.
Various penalties, such as the failure to file and the failure to pay penalties, can be abated if the taxpayer’s failure to comply was due to reasonable cause and not due to willful neglect. Reasonable cause is the exercise of ordinary care and prudence. Willful neglect is a conscious intentional failure or reckless indifference.
The failure to deposit penalty can be abated by performing a complex mathematical calculation that results in the re-designation of the taxpayer’s tax deposits. There is no reasonable cause standard that must be satisfied in order to abate a failure to deposit penalty.
If a husband and wife file a joint tax return, then each spouse is jointly and severally liable for the amount of the tax due, any penalties, any interest, and any later determined deficiency, regardless of the separate taxable income of each of the spouses.
The innocent spouse rule is an exception to this type of joint and several liability. Statutory innocent spouse relief is available for qualified joint filers and equitable innocent spouse relief is available for qualified joint filers and for qualified separate filers.
Offer in compromise
The Internal Revenue Service can accept less than the full payment of the delinquency.
The Internal Revenue Service’s policy is to compromise the delinquency when it is unlikely that it can be collected in full and the amount offered by the taxpayer reasonably reflects the collection potential.
An installment agreement is a viable option for the taxpayer who does not qualify for an offer in compromise.
If the taxpayer cannot timely pay the full amount of the delinquency, then the Internal Revenue Service has the authority to enter into an installment agreement in order to allow for full payment in monthly installments.
Partial payment installment agreement
A partial payment installment agreement is a viable option for the taxpayer who does not qualify for an offer in compromise and who also cannot full pay the delinquency by way of an installment agreement.
If the taxpayer cannot timely pay the full amount of the delinquency, then the Internal Revenue Service has the authority to enter into a partial payment installment agreement in order to allow for payment, in monthly installments, until the statute of limitation for collection expires.
In some limited circumstances, a bankruptcy can discharge the delinquency. In such circumstances, the taxpayer is referred to a bankruptcy attorney.
In some situations, the option to litigate, in the federal court system, is available and appropriate.
The taxpayer may seek legal review in the United States Tax Court, the United States Federal District Court, or the United States Court of Federal Claims.