Tax debt can be crippling burden for Arizona taxpayers. Unlike other forms of debt, many tax debts cannot be discharged in bankruptcy. And the IRS, unlike other creditors, has sweeping powers, including the threat of criminal sanctions, that it can bring to bear to collect unpaid taxes.
The Arizona tax attorneys at Pew Law Center help taxpayers cope with their tax debt. If you need help, contact us now by phone or form to get help with your situation immediately.
The IRS assesses a penalty against taxpayers who fail to file a return. A separate penalty is assessed against taxpayers who fail to pay their taxes in full and on time.
The late filing penalty is 5% of unpaid taxes for each month (or part of a month) that the return is filed late. The maximum penalty is 25% of the unpaid taxes. The minimum penalty for tax returns filed more than 60 days late is usually $135.
The late payment penalty is one-half percent of the unpaid taxes for each month (or part of a month) that the payment is late. The maximum penalty is 25% of the unpaid taxes.
The late payment penalty may apply when taxpayers make quarterly payments and have not paid at least 90% of their tax liability by the time their taxes are due.
When both the late filing penalty and the late payment penalty apply in a month (or part of a month), the maximum penalty for that month is 5% of the unpaid taxes.
Taxpayers also pay interest on tax debt that is not paid on time. The interest rate compounds daily. The rate changes quarterly and is computed by adding 3 percentage points to the federal short-term rate.
The IRS can assess additional penalties for:
- Negligently preparing a tax return
- Filing a frivolous tax return
- Filing a fraudulent tax return
- Paying your taxes with a bounced check
Taxpayers may also be exposed to criminal penalties if the IRS decides that a taxpayer willfully misreported or fraudulently concealed income, or deliberately failed to file a return or pay taxes.
Tax Penalty Remedies
Taxpayers who are facing tax penalties may have remedies. Taxpayers who have a good history of complying with tax laws may be able to receive a one-time penalty abatement. In other cases, the IRS may agree to abate the penalty if the taxpayer had a reasonable excuse for failing to file a return or failing to pay taxes in full.
The starting point is usually to file missing tax returns as quickly and accurately as possible. The next step is to negotiate with the IRS. The experienced Arizona tax lawyers at Pew Law Center help taxpayers negotiate with IRS agents.
Tax Debt Settlement
Tax debt can be overwhelming, particularly when taxpayers have lost their jobs, incurred unforeseen medical expenses, or lost money on unfortunate investments. The lack of financial resources to pay a tax debt causes stress and anxiety for taxpayers who are worried about aggressive tax collection, including wage garnishment, tax liens, and tax levies (seizures of the taxpayer’s property).
Arizona tax attorneys help taxpayers work out settlements of tax debt. One mechanism used to resolve tax debt is an “offer in compromise.” A negotiated settlement protects taxpayers from the mechanisms that the IRS uses to collect tax debt. Instead of garnishing wages, taking money from bank accounts, or seizing the taxpayer’s property, the IRS agrees to accept a lump sum payment, or a short series of payments, to resolve the tax debt.
The IRS benefits from an “offer in compromise” because it does not need to spend time locating and seizing the taxpayer’s property. The compromise also allows the IRS to collect the debt quickly, rather than waiting for wage garnishments to satisfy the debt. In exchange for that convenience, the IRS is typically willing to accept a smaller sum than the taxpayer owes.
Other options include making an installment agreement (with or without a partial lump sum payment in advance), seeking “innocent spouse relief” (if the debt was caused by a spouse or former spouse), and convincing the IRS that no debt is actually owed. In some cases, bankruptcy may relieve other debt burdens, freeing up funds that can be used to pay back taxes.
All options should be explored with the assistance of an Arizona tax attorney. A comprehensive tax debt settlement plan allows taxpayers to move on with their lives without facing the constant worry that aggressive IRS tax collection methods will cause them to lose everything they have.
State Tax Debt
The failure to pay Arizona income tax and other state taxes can lead to collection efforts by the Arizona Department of Revenue (ADOR). The ADOR often relies on private debt collection agencies that earn money through their collection efforts. That privatization of collection can lead to aggressive collection efforts.
Fortunately, private debt collection agencies are required to obey the Fair Debt Collection Practices Act (FDCPA) when they attempt to collect a tax debt. Experienced tax lawyers in Arizona can use the FDCPA to challenge unscrupulous tax debt collection practices. In addition, Arizona tax attorneys can negotiate with debt collectors to obtain favorable outcomes for clients who owe back taxes to ADOR.
Few things are as frightening as receiving a notice of a tax audit. Saying the wrong thing at a tax audit can lead to misunderstandings and criminal prosecutions. Thorough preparation for a tax audit is essential, yet many taxpayers show up for an audit with no understanding of the auditor’s expectations or of the consequences they may be facing.
The IRS uses tax audits to verify information that appears on a tax return. Most tax audits occur after an IRS computer program determines that information on a tax return falls outside the “norm” for similar taxpayers. For example, a taxpayer whose charitable contributions are unusually high as compared to other taxpayers in the same tax bracket may be audited. Some deductions, such as those for home office expenses, may also be viewed as a “red flag” by IRS auditors.
The fact that a taxpayer is audited does not mean the taxpayer did anything wrong. It often takes some effort, however, to persuade auditors that income and deductions on a tax return were accurately stated.
In addition, while auditors may assure a taxpayer that an audit is “routine,” taxpayers always face the risk that an audit will evolve into a criminal investigation. For example, if auditors spot evidence that a business understated its income (for example, by failing to include cash receipts in its accounting of revenues), the business owner may face criminal prosecution for willfully filing a false tax return. Helping taxpayers head off those problems at an audit is an essential function of an Arizona tax lawyer.
Every taxpayer has the right to be represented by an attorney during a tax audit. Rights have no value if taxpayers do not use them. Representation by an attorney helps taxpayers face an auditor without feeling intimidated. More importantly, careful preparation before an audit helps taxpayers avoid making critical mistakes that lead to misunderstandings during an audit. Audits proceed more smoothly when taxpayers are represented by an IRS audit attorney from Pew Law Center.
Need Help? We’re Here For You
If you have questions about your tax debt, speaking with one of our attorneys will help you to better understand exactly what kind of trouble you are facing as well as what you need to do to help limit the damage. Those in need can contact us at (480) 745-1770 to obtain a free consultation from compassionate attorneys with no obligation to retain our services.