Tax Dispute Resolution
A tax dispute occurs when the IRS and/or a state department of revenue or taxation claims that you owe taxes regardless of whether you forgot, failed, or refused to file tax returns and/or you did not pay taxes when due. The most common ways to resolve taxes that are owed are to pay them in full, pay them in part (i.e. an offer in compromise), pay them over time (i.e. an installment agreement), or dispute them by filing a tax court petition or requesting an appeal (i.e. after an audit determination).
An offer in compromise is simply an agreement between you and the IRS or state government to pay an amount less than what you originally owed. There are very strict requirements and parameters that must be met before an offer in compromise can be successfully submitted and accepted. Not only must you file all back tax returns, but you must demonstrate that full payment of your taxes owed would create an economic hardship, that you have unusual expenses, that due to unforeseen circumstances your income has been reduced and/or you have little or no assets or equity.
The IRS and state government tax departments can use various collection efforts such as bank levies, wage garnishments, and tax liens to collect unpaid taxes. In many instances, reaching out to them and requesting a hold so that back tax returns can be prepared and filed will result in a halt to otherwise aggressive collection efforts.
If the IRS or state tax department is unsure about your tax return or other items pertaining to your tax situation, they will likely issue an audit notification letter. These notices have specific time deadlines that require a prompt verbal or written response. Usually, an in-person meeting is required to resolve the audit and nothing but competent, professional advice and representation is the best way to resolve audits.
In most cases involving a tax debt, interest and penalties accrue and become a very significant portion of the amount due. Many penalties can be abated (i.e. eliminated) or reduced provided certain steps are taken and an acceptable and legitimate reason exists for the failure or delay in payment of the original taxes due. The most commonly acceptable reasons to justify penalty abatement are reliance on a tax professional, medical illness, natural disaster, significant financial hardship, and/or a death in the family.
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