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Common Tax Resolution Methods To Consider

Common Tax Resolution Methods To Consider

There are many ways to resolve taxes that tax professionals can use to help their clients at the state, local, and federal levels. Tax agencies offer a variety of these tax resolution methods because they want their taxpayers to pay their tax debts. We have compiled some of the most commonly used tax resolution methods so you can decide which options are best for your clients:

Currently, Not Collectible

A taxpayer can stop all billing activities if he is in the "Currently Not Collectible" state. This law only affects taxpayers whose expenses exceed their income. The IRS will review national standards to determine if the taxpayer can afford necessary living expenses.

Installment Agreement

Under this form of agreement, the taxpayer agrees to pay the entire debt in monthly installments for a maximum of six years. This method allows the taxpayer to pay small manageable amounts so that the debt is not overwhelming. Once the tax debt is fully paid, the IRS will release the federal tax guarantee imposed on the taxpayer.

Partial Payment Contract

An incomplete payment contract is identical to a standard payment contract, except that it allows taxpayers to pay lower monthly payments than those paid under a standard payment contract. If the taxpayer's monetary condition does not change, he/she will continue to pay reduced monthly payments until the expiration of the limitation period (generally for ten years). After the expiration of the status, the IRS will no longer be able to collect the debt, and the taxpayer will be free from his/her monthly payments. If you qualify, you will do a full financial review every two years. Based on the results of the IRS, you have the power to increase your payments if you have increased your income.

The Innocent Spouse

Innocent spouse's relief can be used when an additional tax is applied to one of the spouses in a joint return based on the other spouse's erroneous filing. This method can be a bit complex and usually requires the help of a tax lawyer, but it can be a viable option, depending on the circumstances.

Offer in Compromise

An offer in compromise allows the taxpayer to pay a lower amount to meet the total tax liability. During the approval process, the IRS investigates the taxpayer's financial situation and compares the entire taxpayer's tax liability with the current financial situation. If accepted into the offer in compromise program, the taxpayer will be subject to continuous review of his financial statements to ensure that he cannot afford to pay higher taxes.

File Return

Often, the tax debt can be paid off first by filing arrears. The IRS generally imposes fines and interest on commissions due to non-return, so if you don't make a reduction in fine, you'll likely have to pay them. In addition, the customer may be entitled to a refund due to the lack of return. The only way to find out is to collect this year's financial documents and present the arrears.

Penalty Abatement 

The IRS and many public bodies allow fines to be reduced for penalties imposed on tax liability. Many fines can be staggering, so the tax agency occasionally reduces or eliminates these fines for good reason.

Status of Limitation

Typically, the IRS law regarding limitations on collecting overdue taxes is ten years after the IRS has assessed tax liability. This method is rarely useful because the IRS can continue to collect a tax guarantee. The only circumstance in which this could work (if any) is if the taxpayer has no assets, wages, or assets that the IRS can look for throughout the ten years.

This list is not restricted to what is here, but it covers the main areas of tax resolution that a tax practitioner can implement in his or her tax practice. The appropriate method of tax resolution depends on your client and your particular situation. Consider each option carefully before proceeding so that your clients can receive the best possible tax solution. 

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