TYPES OF TAX PROBLEMS AND HOW TO RESOLVE THEM
Tax problems (such as IRS notices, audits, and penalties) can be stressful. If you ignore them, they become even more stressful. Below are some of the most common tax problems and how to resolve them.
- Unfiled Taxes
Failure to file a federal tax return can lead you to penalties, interest, and other collection activities; the consequences can be severe and financially crippling.
The penalties for failing to file your state return vary depending on where you live but states frequently use the same collection methods as the IRS. These methods include tax liens, wage garnishments, and asset seizures. In addition, some states suspend driver’s licenses, real estate licenses, and other licenses.
Note: Each year that taxes remain unfiled, the consequences change. It can often mean a loss of a refund, but other times it can lead to severe tax penalties and collection problems.
How to resolve unfiled taxes
● Assess the impact of IRS enforcement on late returns and take the required steps (If the IRS has begun or finished an investigation into an overdue return, you should ask for additional time to file or take steps to undo previous IRS actions.)
● Identify the years in which you must file.
● Put together the evidence required to submit a valid return. You may be lucky to get help from the IRS on this.
● Follow any specific filing guidelines to submit a correct return to the IRS and your state’s department of revenue (if applicable) (Be careful; you might need to employ specific filing techniques.)
- Tax Penalties
The various reasons for which IRS charges a penalty include:
– Not filing your tax return on time.
– preparing an inaccurate return.
– Failure to pay your tax debt when expected and correctly.
The magnitude of the tax penalties may vary based on your circumstances.
If you file late tax returns or fail to pay your taxes on time, you sure would face harsh penalties from the IRS. These penalties are severe and can quickly mount up, making it challenging to settle the balance while still owing penalties.
Note: Both individuals and businesses are subject to IRS penalties.
Two of the most common penalties are the Failure to Pay (FTP) Penalty & the Failure to File (FTF) Penalty.
Although, there may be many reasons for your tax debt and how you are being penalized. Thankfully, you can resolve all of these with the IRS.
How to resolve a Tax Penalty.
Before asking the IRS to forgive your penalties, it is necessary to take these steps:
The first step is to get all of your tax filings in order before requesting that the IRS forgive the penalties. If you have already completed this step, proceed to the next.
However, if you have missed previous tax years, you will need to catch up on all tax filings, have them submitted, and the IRS will process all last years.
The second step before requesting that the IRS forgive the penalty is correcting the original error of owing a tax to the IRS. This means that you will not owe the IRS any money the next time you file.
If you are self-employed, you must make Estimated Tax Payments (ES) that serve as deposits for tax season. Every time you file your current taxes, a new cycle of ES begins.
The third step is to either be on an installment plan, like the Fresh Start agreement or to fully pay the remaining debt owed to the IRS before asking the IRS to waive the penalty.
The penalty waiver does not apply if you are eligible for another IRS tax resolution program or settlement. This means that the penalty abatement will not be applicable if you are eligible for an Offer in Compromise because the program eliminates all taxes, interest, and penalties.
If there are good reasons, or “Reasonable Cause,” the IRS will waive the penalty. If there is no Reasonable Cause, the First Time Abatement may be used to request that the IRS waive the tax penalties.
Note: The IRS may grant you the first-time penalty abatement (FTA) waiver if you meet specific requirements. This waiver provides relief from failure-to-file, failure-to-pay, and failure-to-deposit penalties.
- Tax audit.
I agree that dealing with tax issues such as an audit can be frightening, expensive, and intimidating. However, like many problems, there is also a workable solution to tax audits.
You can appeal for an audit in the same way that lower court rulings are. In many cases, the Office of Appeals overturns (or at least modifies) the original audit’s findings in favor of the taxpayer.
How to resolve a tax audit
After completing your audit, the IRS sends you a detailed examination report. It outlines all proposed assessments and changes and categorizes them according to interest, penalties, and taxes.
The first step in the appeals process is simply refusing to sign and return your copy of this report, which usually results in issuing a 30-day letter outlining how to appeal the audit. You must file your official protest within 30 days of the letter’s date.
According to the IRS tax tips, your formal protest must include:
- Your name, address, and daytime telephone number.
- A copy of the letter you received that shows the proposed change(s).
- The tax period(s) involved.
- A statement that you want to appeal the IRS findings to the Office of Appeals.
- A list of each proposed item you disagree with and your reasons for opposing it. You should also state the facts that support your position on each item.
- The relevant legal or authoritative text, if any, that backs up your arguments.
- The penalties-of-perjury statement is as follows: “Under the penalties of perjury, I declare that the facts stated in this protest and any accompanying documents are true, correct, and complete to the best of my knowledge and belief.”
- Your signature under the penalties of perjury statement
Note: Self-employed individuals and small business owners typically experience audits more frequently than other taxpayers. The danger increases whether you declare no income or more than $10 million in earnings.
To sum up, regardless of your problem with the IRS, there is a feasible solution(s). However, you should seek the help of a tax Enrolled Agent to make things easy for yourself.