With tax day 2019 coming up, the last thing you want to think about is an IRS notice telling you there’s a problem with your filing. Usually, when you get one of these notices, it’s because the numbers in your return don’t match what the IRS has calculated on their end, and that will occasionally result in an audit.
While tax avoidance within the guidelines is legal and acceptable, premeditated tax evasion is illegal when the Internal Revenue Service can provide sufficient evidence to press a case strongly. And when they do, they are serious. Very serious.
This leaves the audited delinquent taxpayer in a very precarious situation, to say the least, and the only recourse is to either pay up in full or retain an experienced tax attorney who understands how a tax lien can impact their estate. Here are a few steps that anyone being audited should consider.
Negotiating a Reduction During the Audit
The first step in stopping a potential tax lien is discussing the issue with the Internal Revenue Service agent during the audit. However, this should only be done with experienced legal counsel who can help mediate the discussion and evaluate the government claims based on existing tax laws. There is no code in the federal law statutes quite as extensive as the tax code, and the IRS has wide latitude when selecting a rule to apply.
Sometimes, those rules are technical and do not account for common mistakes, but sometimes minor differences could be negotiated away when the agent sees an opportunity to actually collect a significant portion of the delinquent amount in short order and settle the account quickly. This happens more often than taxpayers realize when they are honest about their return.
Bargain for an Installment Agreement
Installment agreements are a common method of settling a tax liability. An installment agreement allows the tax bill to be paid over an agreed-upon amount of time, which can work well for tax levies of under $25,000, because tax liens are not typically filed below the $25,000 threshold. However, taxes beyond the threshold can result in certain property being placed in lien and cause other issues with your estate.
Submit an Offer in Compromise
An offer in compromise, also known as an OIC, is a common method that many couples use when their tax debt is of any amount, but the delinquent taxpayer must prove they are qualified for this agreement. It is important to note that nearly two-thirds of all OIC submissions are denied. But, it can be a good faith step in getting a classification from the IRS that a debt is collectible but does not rise to the level of a lien motion.
They could also determine the tax debt is not collectible. The primary difference in these two rulings is that payments can be made toward the debt, which can help when there may be extenuating tax problems in following years, or that nothing is required to be paid. However, outstanding tax obligations are always filed against a couple’s credit report and stay in place until the debt is satisfied.
Paying in Full
The best method of settling an IRS tax debt to avoid a lien is paying the debt in full in any way possible, including applying for a loan that could make the matter one of a personal budget. While this may not work for all people, this is actually what the Internal Revenue Service prefers. This will also stop any damage the tax debt may have regarding personal credit ratings as well as ending a tax lien possibility.
One thing is for certain when dealing with the Internal Revenue Service – not paying taxes can assuredly result in final outcomes that no one wants to face. It is always important to address the problem as a serious life event, including how long it may take to emerge from the debt in good financial condition. Having an experienced estate planning and tax attorney who has dealt with estate planning issues and tax liens before can be the difference in an acceptable outcome or a lingering financial problem.