Owing back taxes or falling behind on tax payments to the IRS is a problem millions of Americans face at one time or the other. Owing money to the IRS can be quite intimidating, but there are ways to obtain tax relief that could get you out of debt and well on your way to financial security.
An experienced Arizona tax relief lawyer can help you explore your options, assist you through tax audits, help reduce your IRS tax debt and stop wage garnishments and tax levies that could swallow up your valuable, hard-earned property. Our tax relief attorneys can also help you determine if bankruptcy is a viable option to reduce your tax debt. Call us at (480) 745-1770 to find out how we can help you.
Methods to Obtain Tax Relief
There are several factors that could contribute to your tax debt. There are several tax relief options available to taxpayers and here are a few methods to get that relief, explained.
Arizona’s Fee Abatement System Can Help
When you are hit with a tax bill, it will include interest charges and additional fees, which could all add up and overwhelm you. For example, IRS can slap a 75 percent fee if it finds that you failed to report certain income with the intent to deceive. They may impose a 20 percent penalty if they find that you significantly minimized your taxes or were negligent in filing your taxes.
But, the good news is that you can get relief from these penalties by letting the IRS know that you had a good reason why you didn’t pay on time. The IRS refers to this process as “an abatement.” Roughly one third of tax fees are eventually abated. However, telling the IRS that you don’t want to be penalized or can’t afford to pay them won’t cut it.
You need to demonstrate a valid reason and enclose strong evidence to make your case. A good example of such proof is perhaps a letter from your doctor including lab reports or hospitalization documents showing that your medical condition caused the delay in filing your tax return. An experienced Arizona tax relief lawyer can help you resolve your tax debt and associated fees.
Why An Installment Agreement Might Be A Great Choice
Your attorney can also help you negotiate and work out an agreement with the IRS so you can pay off your tax debt with monthly payments. Through such an agreement, taxpayers may be able to reduce or even eliminate the payment of interest and fees. Coming to such an agreement with the IRS requires that all necessary tax returns are filed in a timely manner. Also, the taxpayer cannot have unreported income in order to qualify for such an agreement.
Clearly, an agreement is beneficial to a person who is facing significant tax debt. Life will be much simpler without the stress of IRS notices and collection activity. It is also easier to plan your monthly budget and finances when you know how much you will need to pay toward your tax debt. In addition, you save money by not paying interest and penalties. However, it’s important to remember that if you default on these payments, tax liens could be reinstated.
An Offer in Compromise
An Offer in Compromise is an agreement between you and the IRS, which essentially settles a tax debt for less than the full amount owed. The offer program provides eligible taxpayers with a path toward paying off their tax debt and getting a fresh start. An Offer in Compromise could save you a significant percentage on your back tax debts owed. However, not all taxpayers who owe back taxes qualify for an Offer in Compromise Agreement.
In order to qualify for an offer, you must:
- File all tax returns you are legally required to file.
- Have received a bill for at least one tax debt included on your offer.
- Make all required estimated tax payments for the current year and
- Make all required federal tax deposits for the current quarter if you are a business owner with employees.
Can Bankruptcy Eliminate My Tax Debt?
You may be able to discharge your tax debts under Chapter 7 or Chapter 13 bankruptcy codes. Chapter 7 allows for a full discharge of allowable debts while Chapter 13 provides a payment plan to repay some debts, with the remainder discharged. However, not all tax debts are eligible for discharge under bankruptcy. The bankruptcy petitioner must meet the following criteria:
- The tax return’s due date should have been at least three years ago.
- The tax return must have been filed at least two years ago.
- The tax assessment must be at least 240 days old.
- The tax return was not fraudulent.
- The taxpayer was not guilty of tax evasion.
Also, before filing for bankruptcy, you will be required to provide a copy of your most recent tax return to bankruptcy court.
How To Eliminate Taxes on Debt Forgiveness
When debts are canceled or forgiven, the IRS considers those canceled debts as taxable income. So, when the amount of a loan or mortgage is canceled or forgiven, the IRS taxes that amount as if were earned income. However, the law does allow exemptions in certain situations.
If you need to pay taxes on your canceled debt, you will get a form 1099-C (Cancellation of Debt) from the lender indicating the loan amount that was forgiven. It is also important to remember that not all canceled debt is subject to income tax.
Some notable exceptions may include gifts or inheritances, student loans that qualify, any paid debt that would have been a deductible item for the borrower, and certain mortgage payments under the Home Affordable Modification Program.
What Our Attorneys Can Do To Help
If you are looking for tax relief, are wondering if bankruptcy is an option to eliminate your tax debt, or if you have been through bankruptcy and are looking to eliminate taxes on forgiven debt, the experienced Arizona tax relief attorneys at The Pew Law Center, PLLC. Can help you evaluate your options.
We can help guide you through what can be an intimidating and stressful process to help you minimize your tax burden. Call us at (480) 745-1770 for a free, comprehensive and confidential consultation.