Options for Resolving Common IRS and State Tax Problems

Having tax problems is very stressful, but the good news is that there are solutions. The IRS and the state tax agencies offer a range of relief options to help people pay off their tax bills or catch up on unfiled returns. A tax attorney can help you figure out which programs you qualify for, and they can guide you through the application process. 

An attorney can also help you resolve issues related to audits, incorrect tax assessments, enforced collections, and other issues. At Seattle Legal Services, we help our clients identify the best solutions for their unique tax and financial situations. Then, we work with them to resolve their tax issues. 

To get help now, contact us for a free consultation today. Or check out the following solutions to common tax problems.

Tax Relief Services

Tax relief services are when tax attorneys, accountants, and enrolled agents (EA) help people find solutions to their tax problems. When someone has a tax problem, they reach out to a tax resolution firm and talk with a tax pro about their situation. 

The tax pro learns as much as possible about the tax issue and the relevant aspects of the taxpayer’s financial situation. Then, they help the taxpayer identify and apply for the most effective solutions for their situation. 

Tax relief professionals have extensive knowledge of the tax code and the processes used by the IRS and the state tax agencies. They specialize in this aspect of tax representation, and thus, they are often better positioned to solve complex tax problems than accountants who focus on tax prep or business accounting. 

The IRS Fresh Start Program

You may have heard of the IRS Fresh Start program, which refers to the IRS’s collection of tax resolution options. This language makes it sound like there is one relief program you can apply to for tax forgiveness, but it is misleading. Read on for your actual tax resolution options that make up the IRS Fresh Start program.

Relief Options for Unpaid Taxes

If you have unpaid taxes, you are not alone. Approximately 2.5% of Americans, one in 40 people, owe taxes to the IRS. The combined tax bill for these people is estimated to be $1 trillion. People get unpaid taxes by filing and not paying, making mistakes on their returns that lead to tax bills, or receiving tax assessments after audits.

Not paying your taxes can lead to expensive penalties that ratchet up your bill, and if you don’t pay, the IRS or state tax agency may forcibly collect the money through wage garnishments, tax liens, or levies. However, you can avoid this by setting up an arrangement with the IRS. Here are the main options:

Payment Plans

Can’t afford to pay your taxes in full? Then, you can apply to make monthly payments. As long as you pay at least $25 per month and meet other requirement criteria, the IRS will allow monthly payments. However, interest and a 0.25% monthly failure-to-pay fee will apply to your balance while you make payments, and depending on how much you owe, the IRS may issue a tax lien against you. Here are the different types of payment plans. 

• Short-Term Payment Plan — If you can afford to pay off the balance within 180 days of the due date, you can request a short-term payment plan online, over the phone, through the mail, or in person.
• Guaranteed Installment Agreement — Approval for this payment plan is guaranteed if 1) you owe less than $10,000, 2) you can pay off the balance in three years, and 3) you have filed all returns on time for the last five years. 
• Streamlined Installment Agreement — You can apply for streamlined agreements online, and you don’t have to provide any financial information. To qualify, you must owe less than $50,000, be able to pay off the bill within six years, and set up direct debit payments. If you can’t set up direct debits for the monthly payments, you can only qualify if you owe less than $25,000.
• Installment Agreement — If you owe more than $50,000, you can apply for a monthly payment plan over a six-year term, but you must provide the IRS with details about your finances. The application requests info about your income, assets, debts, and expenses.
• Partial Payment Installment Agreement — The application for this payment plan also requires detailed financial information, but if you qualify, you only have to make payments for a limited amount of time. Then, the IRS writes off the rest of the bill.

Tax Debt Forgiveness (Settlements)

The IRS and many state tax agencies will occasionally forgive taxes. This is called a settlement, and you must meet very specific criteria to qualify. Here are the main IRS tax forgiveness programs.

• Offer in Compromise Doubt as to Collectibility — If you cannot pay the tax bill out of your disposable income or the equity in your assets, the IRS will let you settle for less than you owe. 
• Offer in Compromise Effective Tax Administration — The IRS may reduce your settlement or waive your tax bill completely if you can convince them that doing so is in the interest of effective tax administration. 
• Offer in Compromise Doubt as to Liability — When there is a legitimate doubt that you should owe a tax liability, you may qualify for a settlement through this program. 
• Innocent Spouse Relief — If you have a tax liability due to actions that your spouse or ex-spouse took without your knowledge, you may be able to split the liability on a jointly filed tax return. If you qualify, you will only be responsible for your portion of the tax bill. 
• Penalty Abatement — Penalties can quickly increase your tax bill, but the IRS is willing to remove penalties in several different situations through its penalty abatement program.
  • First-Time Penalty Abatement – Sometimes referred to as “one-time forgiveness” by companies, allows taxpayers to request removal of certain penalties for the first time. To qualify, taxpayers must have a good compliance history for the past few years.

You can also get forgiveness on many state taxes, but the rules vary from state to state. If you have both state and federal tax debt, you should contact a resolution firm that has experience in your state. For example, in WA state, you may be able to apply for a Rule 100 settlement if you cannot pay your tax liability.

Stopping Enforced Collections

There are numerous steps that you can take if you need to stop a collection action such as a lien, wage garnishment, or asset seizure. Here are some of the main options. 

• Currently Not Collectible Status — If you qualify for currently not collectible status, the IRS will stop collection actions against you. To apply, you must prove to the agency that you cannot afford to pay, and you generally have to update your financial information every two years.
• Collection Appeals — You have the right to appeal proposed collection actions such as liens, wage garnishments, or asset seizures through a Collection Due Process or equivalent hearing. 
• Bankruptcy — When you file for bankruptcy, the courts issue a stay which prevents all creditors including the IRS from taking collection actions against you. However, this is temporary, and you should keep in mind that bankruptcy can only help you eliminate very specific types of tax debts. 
• Lien Release, Withdrawl, Discharage, and Subordination — To get a lien released, you usually must pay your tax debt in full. A withdrawal is when the IRS removes the public record of your lien, and a discharge is when the agency detaches the lien from a specific piece of property. Subordination is when the IRS puts its lien behind another creditor’s lien. A tax resolution firm can help you apply for any of these options. 

Keep in mind that it is always easier to stop collection actions before they take place. Once the IRS starts garnishing wages or taking assets, it can be a lot harder to stop the process — but even, then, it’s not impossible. Also, note that states have different processes that you can use to stop enforced collections — so again, it’s critical to use someone experienced with the Department of Revenue in your state.

Help With Tax Audits

A tax audit is when the IRS or a state tax agency requires you to verify the information on your tax return. This may include everything from residency status to dependents claimed on your tax return to financial information. Some audits only look at a specific element of your return, while others analyze every detail of your return. 

Whether you’re dealing with personal or business taxes, audits can be stressful and time-consuming. They can also be very confusing if the auditor rejects your documents or disagrees with your interpretation of the tax law. To help you through the process, tax relief firms provide the following services. 

Audit Representation

Audit representation is when a tax professional communicates with the auditor on your behalf. They provide the auditor with the requested documents, answer follow-up questions, and respond to proposed assessments. They work with you to ensure that you pass the audit, and if you don’t, they help you set up payments or appeal the audit results.

Tax Audit Defense

Tax audit defense is often used interchangeably with the phrase audit representation. You can hire someone to help defend your interests through every step of the audit. However, many people specifically look for audit defense services after they have “failed” an audit. 

They go through the audit on their own, but the auditor doesn’t agree with their supporting documents and makes changes to their return. Then, they reach out to a tax attorney to help them defend their position. 

Audit Appeals

After the audit releases the audit report, you have a limited amount of time to respond. If the auditor rejects your response, the proposed assessment from the audit will become final, and then, you can appeal. A tax resolution firm can help you navigate the appeals process. 

Criminal Tax Fraud Defense

If you are accused of criminal tax fraud, tax evasion, or other federal tax crimes, you need an experienced criminal tax attorney. An attorney can help you deal with the IRS and represent you in Tax Court. They can provide you with critical guidance and attorney-client privilege. They can also be critical if you’re facing civil fraud charges.

Tax Relief Forms — How to Apply for Tax Resolution Programs

To apply for the above tax relief programs, you need to file the correct tax forms. Here is an overview of the most common IRS tax relief forms. 

• Form 9465 (Installment Agreement Request) to request monthly payment plans if you don’t want to apply online or aren’t qualified to apply online. 
• Form 433-F (Collection Information Statement) for people who want to apply for monthly payments on over $50,000 in tax debt.
• Form 433-D (Installment Agreement) to agree to the terms of your payment plan and set up direct debits.
• Form 656 (Offer in Compromise) for individuals and businesses that want to apply for an IRS offer in compromise.  
• Form 433-A (Collection Information Statement for Wage Earners and Self-Employed Individuals) for individuals who are applying for an offer in compromise. 
• Form 433-B (Collection Information Statement for Businesses) for businesses that want to apply for an offer in compromise. 
• Form 656-B (Offer in Compromise Booklet) — a booklet containing instructions, Form 656, and Forms 433-A and B. 
• Form 656-L (Offer in Compromise Based on Doubt as to Liability) for people applying for an offer specifically based on doubt as to liability. 
• Form 1127 (Application for Extension of Time for Payment of Tax Due to Undue Hardship) for when you can’t afford to pay your taxes and you want the IRS to stop collection actions against you.
• Form 8857 (Request for Innocent Spouse Relief) for people who need relief from tax liabilities due to their spouse, ex-spouse, or late spouse’s actions. 
• Form 843 (Claim for Refund and Request for Abatement) to request a waiver of tax penalties or ask for refunds of certain taxes in very specific situations. 
• Form 12153 (Request for Collection Due Process or Equivalent Hearing) if you want to contest tax liens or levies being taken or proposed against you. 
• Form 9423 (Collection Appeals Program) to appeal collection actions such as liens, levies, or seizures; can also be used to appeal IRS rejection, termination, or modification of installment agreements. 
• Form 12277 (Application for Tax Lien Withdrawal) for when you want the IRS to withdraw a publicly filed notice of federal tax lien. 
• Form 911 (Taxpayer Advocate Assistance) to request help from the independent taxpayer advocate program because an IRS employee has infringed on your rights and/or you haven’t been able to resolve your tax issue through the usual channels. 

There are also several different forms that you can use to apply for relief programs on the federal level. In some cases, you can skip the above forms and apply for relief options online. In other cases, you can write the IRS a letter in lieu of using some of the above forms. A tax resolution specialist can help you figure out the right steps to take. 

How to Choose a Tax Resolution Firm

When looking for a tax resolution firm, look for a small group of professionals who have experience with your tax problem and who are committed to finding a personalized solution for you. Try to avoid firms that make big promises before they know much about your financial situation — unfortunately, the tax relief industry is full of big firms that charge large sums of money and make promises they can’t keep. 

To get the best resolution possible, look for a local group of tax attorneys or a small firm committed to truly helping their clients. When talking with different firms, ask who will handle your case. You deserve to work with a tax professional such as a tax attorney, a CPA, or an enrolled agent, not a salesperson or an inexperienced intern. 

Ask how billing works to get a sense of what to expect, but keep in mind that paying for tax relief is an investment into a better outcome. Someone who has experience in tax relief knows how to get you the lowest payments, the best settlement, and the most extensive penalty abatement. Unfortunately, most people who take a DIY approach often can’t get these types of results. 

Tax Resolution Process: What to Expect

The exact process varies based on the firm that you select, but at Seattle Legal Services, we work closely with our clients to help them get the best resolution possible for their unique situation. 

With us, the process starts with an initial free consultation. You tell us about your tax problem. Then, we look at your personal information through the lens of our experience, and we help you select the best resolution for your situation. Then, we collect the necessary information from you and file the required forms with the IRS. We also do the same process to deal with your state tax problems. 

If needed, we help with tax planning so that you can avoid this situation in the future. We also help you ensure that you understand the rules of your relief program and know what to do to stay compliant. 

Find Solutions to Your Tax Problems Now

Need help resolving your tax problem? Want to talk about the best solution for your situation? Then, contact us today. At Seattle Legal Services, we know how mentally exhausting and financially damaging tax issues can be, but we’re here to help. We have extensive experience with all of the above solutions, and we’ll help you find the right path forward.