Find the answers to common questions regarding back taxes, unfiled taxes, and more. If you need additional assistance, be sure to take our short quiz to see if you qualify for any of the available tax relief programs.
Back taxes are unpaid taxes from a previous year (or years). These unpaid taxes could be federal, state, or local taxes.
Q:How much do I owe in back taxes?
The notice you receive from the IRS about your back taxes total amount owed, including penalties and interest. If you’re still not sure how much you owe the IRS, we can help you figure it out.
Q:How far back can I file taxes?
You’re allowed three years from the deadline to file your previous year’s return and claim your refund. Generally, you’ll have to go back and file your last six years of tax returns and pay any back taxes to return to good standing with the IRS.
Q:Can back taxes hurt my credit score?
Having a back tax bill doesn’t necessarily mean your credit report will take a hit. In fact, dealing with back taxes doesn’t directly impact your credit anymore. If you are struggling to pay your outstanding tax debt, however, it may be difficult to pay other bills. Falling behind on other credit obligations (like credit card bills or car payments) can negatively impact your credit score. Back taxes may indirectly affect your credit, depending on your situation.
Q:If I owe back taxes, can it delay my refund?
Yes. Back taxes can delay or prevent you from receiving your refund. If you owe back taxes, your refund will be automatically applied to an existing tax debt.
Q:What can the IRS seize for back taxes?
The IRS can take almost anything that is in your name. The rule of thumb? If you can access those funds, the IRS can too.
While your retirement accounts can’t be touched by creditors, the IRS can seize your 401k, pension, or other retirement accounts. If you don’t have the rights to the funds in these accounts (like if your employer owns the fund and you don’t have access), the IRS won’t be able to levy them.
Any inheritance funds in an estate account that have not been distributed to you should not be accessible to the IRS. However, that doesn’t mean your inheritance is safe from a levy. The IRS can still seize part of your inheritance in order to satisfy any outstanding tax debt. Once your inheritance is placed in your name and you place assets from an inheritance into a personal account, the IRS can levy upon those inherited assets.
Q:How far back can the IRS go to collect taxes?
The IRS back taxes statute of limitations is ten years. During the ten years from the date your back taxes were assessed, the IRS can try to collect what they are owed through collections methods including liens, levies, and wage garnishment. Once those ten years are up, the IRS is not allowed to continue these collections methods.
Q:Can I be arrested for owing back taxes?
Let us clear up this common tax myth: You can’t go to jail in the U.S. just because you owe a tax debt. It is possible to go to jail for cheating on your taxes or committing tax fraud. If you’re simply struggling to pay a hefty tax bill, however, you won’t be threatened with jail time.
Q:How do I pay back taxes?
If you have the money needed, paying back taxes to the IRS is easy. There are many ways to pay the IRS, including Direct Pay, the Electronic Federal Tax Payment System (EFTPS), and payments by check or money order.
Q:What steps should I take once I decide to close my business?
There are many details to address when closing your business. Some are obvious and others may easily slip through the cracks, especially if you don’t have a plan in place. Download our to help you stay on track. Tax Defense Network can also help with the various tax filings required.
Q:Am I required to notify my creditors once I decide to close my business?
Yes. Many states require that you place a notice in your local newspaper alerting people that your business is closing. You should also send letters to your creditors explaining that your business is closing and provide a mailing address for those that wish to file a claim. Be sure to include the deadline for submitting a claim (generally 120 days from date of notice), as well as a list of what information must be included in the claim.
Q:Can I dissolve my LLC if my partner(s) don’t want to close the business?
Unless you have a buy-sell agreement, you will need to petition the court for judicial dissolution if your partner(s) do not want to close the business.
Q:Should I pay my taxes or creditors first?
When closing a business, you should always pay your taxes (sales, income, and employment-related) before any other debts, especially if you owe payroll taxes. If you don’t, the IRS can hold you and any other owners personally responsible for the payroll taxes, even if you were operating as an LLC or corporation.
Q:What are delinquent taxes?
Delinquent taxes are a result of a failure to file taxes or a missed tax return payment. A delinquent tax return notice from the IRS is the first of many, so you still have time to fix things before they escalate.
Q:Can I file an appeal to dispute my delinquent taxes?
Maybe. Appeals can be complicated, so it’s best to consult a licensed tax professional, like those at Tax Defense Network, to see if you have grounds to dispute your delinquent taxes.
Q:What can happen if I’m on the IRS tax delinquent list?
If you’re on the IRS delinquent list, the following may happen;
The IRS can file a return on your behalf called a Substitute for Return (SFR). This does not include any credits and deductions for which you may be eligible. It also enables the IRS to move forward with a debt assessment.
Delinquent payroll taxes can elicit more severe action, such as prosecution for tax evasion or incarceration.
If your delinquent tax bill remains unpaid, the IRS can pursue collections activities. They may issue tax liens against your personal property and assets. They can also levy your bank accounts, garnish your wages, and seize personal assets.
Q:Can the IRS hold my tax refund to satisfy any delinquent taxes?
Yes. The IRS can legally hold any refunds until any unfiled tax returns are submitted to ensure you don’t have a tax debt. They can also use your refund to satisfy any delinquent taxes you may owe.
Q:What do I do if I receive a delinquent tax notice?
If you file your tax return within eight weeks from the date of the notice, congratulations – you don’t need to do anything else. Here are alternative options for those dealing with tax delinquency:
To send your tax return: Use the response form with your notice and mail to the address listed.
If you disagree with the notice’s claims: If the contents of the notice or the reason for receiving it aren’t compatible with your records, you will need to contact the IRS via phone or in writing. If you don’t respond, the estimated tax may become final despite the accuracy of the IRS’s claims.
If you cannot pay: Whether you are unable to afford the full, partial or any amount of the owed tax debt, we can help you apply for a tax payment plan.
Q:I have delinquent property taxes. Can you help me?
Yes. Tax Defense Network can help you with your federal and state tax issues, as well as delinquent property taxes.
INDIVIDUAL TAX PREPARATION
Q:What Type of tax preparation services does Tax Defense Network offer?
At Tax Defense Network, we can help with personal tax preparation, as well as small business tax preparation. We also offer customized packages to help those dealing with unfiled tax returns, back taxes, wage garnishment, and other tax debt problems.
We employ licensed tax professionals (LTPs), as well as tax analysts, certified public accountants (CPAs), enrolled agents, and tax attorneys. Depending on the complexity of your case, you may have one or more of these individuals assigned to work with you.
Q:I haven’t filed my taxes in several years. Can you help me?
Yes! Unfiled tax returns can be difficult to deal with on your own, not to mention the potential of any unknown back taxes that could arise once you file. Whether you need tax debt relief or just some filing guidance, we’re here to help. Our professionals have a collective 250 years of experience. We know how to handle any difficult tax situation.
Q:Are the tax preparation service fees deductible?
Prior to 2018, you could claim tax preparation fees as a miscellaneous deduction. Due to the new tax bill, tax preparation fees are no longer tax deductible for the tax years 2018 through 2025. This isn’t limited to just the fees you might pay a tax preparer; the deductible is also no longer available for the cost of tax software. If you are self-employed, however, you may be able to claim a deduction on your tax prep fees.
Q:What do I need for my taxes?
To file your federal taxes, you’ll need to know your Social Security Number (SSN) and the SSN of your spouse and any dependents. If you do not have an SSN, you will need to know your Individual Taxpayer Identification Number (ITIN).
The forms needed for taxes and filing include the W-2 forms from all the employers you worked for during the tax year and any 1099 Forms if you earned more than $600 in contract work. You will need to gather any information on:
Income from local and state tax refunds from the tax year
Rental property income
Social security benefits
Any other miscellaneous income
You will also need any information for income adjustments. This includes homebuyer tax credit, mortgage interest, IRA contributions, student loan interest, and more.
Make sure to gather information for any credits and deductions. This includes medical expenses, childcare costs, education costs, job and moving expenses, and more.
If you want to have your tax refund directly deposited into your bank account, you’ll also need your bank’s account and routing number.
Filing your state return will require different information depending on the state.
Q:What is an ITIN?
ITIN stands for Individual Taxpayer Identification Number. An Individual Taxpayer Identification Number is a nine-digit tax processing number that the IRS uses. It is only available for certain nonresident and resident aliens and their spouses, as well as dependents who can’t get a Social Security Number (SSN). ITINs begin with the number “9,” and are formatted like SSNs.
Q:What is a PTIN?
PTIN stands for Preparer Tax Identification Number. A Preparer Tax Identification Number is an identification number for paid tax return preparers, including Enrolled Agents (EAs) and Certified Public Accountants (CPAs). Tax preparers will use their PTIN when filing federal tax returns.
Q:Do you have a personal tax preparation checklist I can download?
Yes! You can access it .
Q:Do you have any tips for filing personal taxes?
Yes. Here are some great individual tax filing tips:
In preparing for tax season, look over your tax returns from the previous year to look for any entries that will be similar and identify any fields that may be very different, especially if you had a big life event occur.
Know whether you need to file and what your filing status is (single, married filing jointly, etc.)
Make sure you have all the tax preparation documents and tax forms you need to prepare your tax return.
Figure out which expenses you can and cannot deduct.
Avoid making silly mistakes by checking over your entries a few times with a careful eye.
If you live in a state with a separate income tax return, don’t forget to file it.
Report all your income, down to the cent.
Do not fall prey to tax scammers who may call you pretending to be the IRS.
File before the deadline to avoid any penalties or unnecessary interest.
If you find yourself confused or uncertain of what you’re doing when preparing your tax return, know that there are tax professionals like the ones at Tax Defense Network who can use their years of experience to help you file your taxes correctly and efficiently.
INNOCENT SPOUSE RELIEF
Q:What is the difference between Innocent Spouse Relief and Injured Spouse Relief?
Innocent spouse relief is what you seek when you realize that there is a federal tax debt that the IRS is holding you liable for, and you believe it belongs completely to your spouse or former spouse. In many innocent spouse cases, the taxpayers in question are no longer married to each other.
Injured spouse relief tends to be for taxpayers who are still married to each other. This type of relief comes into play if your share of your joint tax refund was or may be applied to cover your spouse’s federal debts (which could include student loans), state taxes, or child or spousal support payments.
Q:What are the Innocent Spouse Relief requirements?
Like any other tax debt relief program, there are qualifications you must meet and provide the IRS with adequate information to prove your case and request relief. As an innocent spouse, you aren’t responsible for your spouse or former spouse’s tax due if the following are true:
You filed a joint return for the year(s) in question
The tax liability resulted from erroneous items of the person with whom you filed the joint return (like unreported income or an incorrect deduction, credit, or basis)
You can show that you did not participate or possess any knowledge of the existence of the understated tax existed
Taking all facts and circumstances into account, it would be unfair to hold you responsible for the tax debt
Our qualified tax professionals will collect the necessary documentation and work with you to file the IRS Innocent Spouse Relief request on your behalf, ensuring no important detail is overlooked.
Q:How long does Innocent Spouse Relief take?
Once you’ve filed Form 8857 and formally requested relief, the IRS may take up to six months to make a decision on your case. During that time, the IRS will be reviewing your tax information and contacting the spouse or former spouse with whom you filed a joint tax return.
Q:If I am separated or divorced, am I still responsible for my former’s spouse’s tax debt?
Unfortunately, whether you’re married, separated, or divorced, the IRS will not let you off the hook if the tax debt was assessed during your marriage and you filed jointly. IRS Innocent Spouse Relief, however, can relieve your liability for the due balance.
Q:Is there a time limit for filing Innocent Spouse Relief?
Generally, you must file Form 8857 no later than two years after the first IRS attempt to collect the tax debt. There are exceptions to this rule, however, and our tax professionals can help you navigate those confusing guidelines.
Q:Where can I find Form 8857, Request for Innocent Spouse Relief?
Q:Will the IRS contact my spouse/former spouse if I file for Innocent Spouse Relief?
Yes. The IRS is required by law to reach out to your spouse/former spouse. That person will be able to provide information for consideration regarding your IRS Innocent Spouse Relief claim.
Q:What is my portion of our joint tax refund was taken?
If this happens, you may want to request Injured Spouse Relief. To do this, you’ll want to file Form 8379, Injured Spouse Allocation. This form will help you make the claim that you qualify for Injured Spouse Relief and will allocate you and your spouse’s wages, income, expenses, and credits. This will help the IRS determine what amount of the refund is owed to you, the injured spouse.
Keep in mind: If you’re seeking Innocent Spouse Relief, you will not want to file Form 8379. Instead, focus on filing Form 8857.
Q:What if I don’t qualify for Innocent Spouse Relief?
If you don’t qualify for relief and are held responsible for the due balance, our consultants are well equipped to find an alternative solution for you to resolve your tax issues. For example, you may qualify for an agreement that allows you to make monthly payments over a period of time, or you may even qualify for Currently Not Collectible status, which allows you to make no payments to the IRS until your financial situation improves.
Q:What is the IRS appeal process like?
If you disagree with an IRS decision, you may wish to pursue an appeal. Like most experiences you will have with the government agency, the IRS appeals process requires meticulous attention to detail and an understanding of the limited timeframe for tax-related matters. Like a challenge to a court’s ruling, the IRS appeal process is used to contest the decision about your tax issue and possibly reverse it. Unfortunately, the IRS doesn’t always rule in the taxpayer’s favor when it comes to appeals reviews.
Our licensed tax professionals do more than show you an IRS appeal letter sample and where to send the IRS appeal letter. We’ll work within the narrow timeframe to examine every aspect of your tax dispute, protect your IRS appeal rights, suggest additional information to include, and execute your IRS tax appeal according to tax law, even if that means taking it to tax court.
Q:Are most IRS appeals successful?
Successful IRS appeals are dependent on many things, including the case in question and how much effort is put into the appeals process. While there’s no guarantee that an appeal will succeed, it always helps to have experienced professionals working on your behalf with the IRS.
Q:What do I need to include in my IRS appeal letter?
In your IRS appeal letter, you must include the following information:
Your name, address, and a daytime telephone number
A statement that you want to appeal the IRS findings to the Office of Appeals
A copy of the letter you received that shows the proposed change(s)
The tax period(s) or year(s) involved
A list of each proposed item with which you disagree
The reason(s) you disagree with each item
The facts that support your position on each item
The law or authority, if any, that supports your position on each item
The penalties of perjury statement 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
Q:Where do I send my IRS tax appeal letter?
There isn’t necessarily a centralized IRS Office of Appeals. You’ll need to send your written request to the specific office you’re working with. This information can be found in the initial letter informing you of your right to appeal.
Q:What is the phone number for the IRS Office of Appeals?
While a specific IRS appeals phone number isn’t available to the Office of Appeals, you can call Taxpayer Service for help at 800-829-1040. If it has been more than 120 days since you filed your IRS appeal, you can also call the Appeals Account Resolution Specialist function at 559-233-1267. If you’re looking for an IRS appeals form, you can call 800-829-3676.
Q:What are my IRS appeal rights?
Your IRS collection appeal rights are typically outlined in the letter the IRS has sent you. You have a right to request a conference with an Appeals or Settlement Officer. These conferences are informal meetings. You can represent yourself or have a licensed tax professional like ours represent you to resolve tax controversies.
IRS FRESH START INITIATIVE
Q:What is the IRS Fresh Start Program?
The Fresh Start IRS program was introduced by the IRS to help taxpayers afford back taxes. It can also help taxpayers avoid consequences of tax debt like IRS tax penalties, interest, liens, and garnishment.
While we call it a “program,” the Fresh Start Initiative is actually an updated set of guidelines for pre-existing IRS programs that help more people qualify for some much-needed tax debt relief. These programs include installment agreements, offers in compromise, penalty abatements, lien release requests, and business and payroll tax problems.
Whether you qualify for these programs and which would be more helpful for you are dependent on your unique situation. Ultimately, these programs take off the weight of one, big tax debt amount and make it easier for taxpayers to face tax issues.
Q:Is the IRS Fresh Start Initiative real?
Yes, the IRS started its Fresh Start Initiative in 2008. In 2011, it expanded the initiative to be even more beneficial to taxpayers who owe less than $50,000 in unpaid taxes. Its updated guidelines can help both individual taxpayers and business owners in paying back taxes.
Q:How do I qualify for the Fresh Start Initiative?
Because the Fresh Start Initiative is not a single program, the qualifications for the programs updated by Fresh Start vary. You’ll want to speak to a tax debt relief professional who can walk you through the qualifications of each program and which one would be the most helpful for your current tax situation.
Q:Can small business owners benefit from the Fresh Start Program?
Yes. Businesses who owe under $25,000 can set up a payment plan to pay off their tax liability over a two-year period.
Q:If I have a federal tax lien, can the Fresh Start Initiative help me?
Fresh Start increased the threshold for filing a notice of federal tax lien. While it used to be $5,000, now the threshold is $10,000 for the IRS to file a tax lien. Also, taxpayers may get a lien withdrawal once their balance is either paid in full, or their balance comes under $25,000 and they are in a Direct Debit Installment Agreement.
Q:How do I apply for the IRS Fresh Start Initiative?
Because the Fresh Start Initiative is not a single program, and the qualifications vary, you’ll want to speak to a tax debt relief professional who can walk you through the application process.
Q:Are there different types of Fresh Start installment agreements?
Yes, there are different payment plans for different situations. Here are two common installment agreements the IRS offers:
Direct Debit Installment Agreement (DDIA): In this agreement, you pay through direct debit, which is automatic monthly payments from your checking bank account.
Streamlined Installment Agreement (SIA): These plans are meant for businesses with up to $25,000 in tax debt or individuals with up to $100,000 in tax debt. The terms and timelines of a streamlined agreement may vary depending on your situation.
IRS PAYMENT PLANS
Q:Does the IRS have a payment plan option for my tax debt?
Yes. And IRS payment plan options aren’t always one-size-fits-all solutions – for instance, some plans are built around how much you owe and your ability to pay. One of our licensed tax professionals can determine the best monthly rate for which you may be approved, request the IRS installment agreement online or by phone, and finalize the details of your arrangement.
Q:Can I apply for an IRS payment plan online?
Yes. If your tax debt balance is below $50,000 (including penalties and interest), the IRS has an online payment agreement application that you can use to get immediate notification if you’ve been approved for a payment plan. Depending on the type of plan you’re approved for, you could also be charged a setup fee.
If your debt is above $50,000, you won’t be able to use the online application. Instead, you’ll need to complete Form 9465, Installment Agreement Request Form, and Form 433-F, Collection Information Statement. You’ll need to send these completed forms to the IRS to finish your application.
Q:Do you have an IRS payment plan calculator that I can use to estimate my monthly payments?
During your initial consultation, we’ll discuss with you what your current financial situation is and what you’re able to pay monthly. Afterward, when we investigate the complicated waters of IRS payment plans with your current tax situation in mind, we’ll be able to tell you realistically what you can expect from your IRS payment plan.
Q:What is the IRS payment plan form and where can I find it?
You’ll have to submit Form 9465, Installment Agreement Request Form. You can find Form 9465 here.
Q:How do I make my installment agreement payments?
There are many ways to pay the IRS:
IRS Direct Pay: This method can be used for filing individual tax bills or making estimated tax payments directly from your bank account (checking or savings) to the IRS. To use Direct Pay, you need to have a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN). There is no additional cost to pay via Direct Pay. You’ll receive confirmation that your payment has been submitted. The bank account information you provide is not stored in the IRS systems.
Electronic Federal Tax Payment System (EFTPS): Both businesses and individual taxpayers can use EFTPS to make income tax payments, employment tax payments, and estimated and excise tax payments. The site is available 24/7 and can be accessed via computer or smartphone. Additionally, you can schedule payments for up to 365 days in advance. To access the EFTPS website, you must have a secure Internet browser with 128-bit encryption. Use the following three items to sign up:
EIN or SSN
EFTPS Personal Identification Number
Payment by Check or Money Order: If you choose to pay via mail, then you can make your check, money order or cashier’s check payable to the U.S. Treasury. Include your name, address, SSN, daytime phone number, tax period, and the tax notice or form number on your method of payment. Do not affix your check or money order to other documents.
Payment by Debit or Credit Card: To process payments made by debit or credit cards, the IRS uses standard service providers and business/commercial card networks. There is a processing fee (amount varies by provider), which may be tax-deductible. The IRS does not charge any fee for the transfer or the processing of the payment.
Q:Can you show me how to set up a payment plan with the IRS?
Negotiating with the IRS is a vigorous process, requiring hours on the phone and complex paperwork. Tax Defense Network does more than teach you how to make a payment plan with the IRS; we’ll do all the legwork for you. We’ll apply for your IRS payment plan and work on your behalf with the IRS to get you a resolution that works for you.
Q:What if I can’t afford to make any payments?
If you are unable to make any payments, you shouldn’t request an IRS payment plan at this time. Depending on your situation, there could be other tax relief available to you. Give us a call and we can review all your available options.
Q:What is the phone number to request an IRS payment plan?
Individual taxpayers can contact the IRS at 800-829-1040. If you need help with an installment agreement for your business, you can call 800-829-4933.
Q:What are the different IRS tax penalties?
There are so many types of IRS tax penalty, it can be hard to keep them all straight. Here are some of the most common penalties:
IRS penalty for late filing: This penalty occurs if you don’t file your return by the due date or extended due date if you have an approved extension.
IRS penalty for late tax payment: This penalty is incurred when you don’t make your tax payments in time. This includes the IRS estimated tax late payment penalty.
IRS penalty for underpayment of taxes: This penalty is charged when you don’t pay enough taxes for the year.
IRS accuracy-related penalty: The IRS charges this penalty if they discover inaccuracies in your return that lead to an increase in your tax liability.
IRS payroll tax penalties: These penalties are charged mainly to employers who fail to collect, report, and pay their payroll taxes appropriately.
Each penalty is calculated differently, so you can’t assume failure-to-pay penalties will play by the same rules as failure-to-file penalties.
Q:What are the consequences of IRS tax evasion penalties?
The penalty for not filing tax returns can be financially burdensome. The IRS assesses not only a punitive charge but adds interest for failure to file tax returns, which accrues on any liability not paid by the filing deadline. These charges are difficult to get removed and can quickly inflate the total debt you owe.
If you don’t file a return, you haven’t got away with anything yet – the IRS can file for you through a Substitute for Return (SFR) in addition to charges.
Other consequences beyond monetary fees include IRS liens, bank levies, and wage garnishment. Among these IRS tax fraud penalties, the most severe but possible if you fail to file tax returns is imprisonment for each year that is unfiled.
Q:Is interest relief available?
Interest charged on a penalty that is waived may be reduced or removed from your tax balance. Interest on your unpaid taxes, however, will continue to accrue until you pay your taxes in full.
Q:Can I pay my tax penalty online?
Yes. You can pay your IRS tax penalties online alongside your tax debt. You can make tax payments online using a variety of different methods including Direct Pay, debit or credit card, and the Electronic Federal Tax Payment System.
Q:Are tax penalties and interest deductible?
No. Federal tax penalties and interest are not deductible.
Q:Can I pay my IRS penalties in installments?
It is possible for you to pay your tax penalty in installments, but you will have to set up an installment agreement to do so first with the IRS. Tax Defense Network professionals are skilled at setting up an IRS penalty payment plan that works for you.
Q:What is IRS tax penalty abatement?
Tax debt can be an unwelcome and overwhelming financial strain, often leading to sleepless nights and worries about what the IRS will do next. One option to mitigate the financial strain is to submit an IRS tax penalty abatement form (Form 843, Claim for Refund and Request for Abatement). This form can reduce your liability if approved. Even with abatement, interest attributable to the unpaid debt will remain.
There are two main types of IRS tax penalty abatement:
First-time Abatement: Taxpayers with a good compliance history may qualify for a one-time abatement of late filing and late payment penalties. The IRS will look at the prior three years, and if there are no instances of late payment or late filing, abatement may be granted. Accuracy-related penalties do not qualify for this type of abatement.
Reasonable Cause Abatement: Life happens. The IRS will consider forgiving late payment, late filing, and accuracy-related penalties based on reasonable cause. So, you’ll have to explain what circumstances led to the late filing, payment, or inaccuracy of your return (and there’s a high standard).
Q:Can tax penalties be waived?
Tax penalty relief may be available to you, which can include tax penalty waiving. The best way to get your tax penalties waived is to consult with an experienced tax professional, who can lay out your options and help you achieve the desired solution.
IRS TAX DEBT FORGIVENESS
Q:What is tax debt forgiveness?
IRS tax debt forgiveness allows your debt amount to either be significantly reduced or canceled, which can be life-changing for those who qualify. If you’re wondering, “Does the IRS forgive debt?” the answer is a resounding yes, depending on your current situation.
The federal tax forgiveness program is based on your present financial condition and means the IRS can’t collect on more than you can pay. If you have other questions about taxes, forgiveness of debt, or any other topics, our experienced professionals are happy to share their knowledge.
Q:What types of IRS tax debt forgiveness exist?
Tax relief comes in many forms. You may qualify for various IRS payment plans, such as an Installment Agreement, which allows you to make monthly payments until your tax bill is paid in full. Alternatively, if you’re eligible for an Offer in Compromise, you can settle your debt for less than the total owed.
Q:How can I get my tax debt forgiven?
Qualifications for each tax debt forgiveness program will vary. For most, you’ll need to provide plenty of evidence supporting the fact that you don’t have the ability to pay the balance of your tax liability. The application process can be overwhelming, so it’s best to work with a tax professional to ensure the best outcome.
Q:Isn’t tax debt forgiveness automatic after 10 years?
The IRS has 10 years from the date of assessment (the date they determined that you owed a debt) to collect. However, this isn’t exactly an easy way out. The IRS will still take collection actions against you and you will still encounter liens, levies, wage garnishment, and other unfortunate consequences.
Q:Which tax debt forgiveness form should I use?
Every IRS tax debt forgiveness program has its own form. You’ll need to know which program you want to apply to before finding and completing the correct form.
Q:Where can I find a tax debt forgiveness calculator?
The internet is full of misleading tax debt calculators that don’t provide reliable results. Consult with a tax professional to get the most accurate understanding of how IRS tax forgiveness could help you.
Q:What program offers tax debt forgiveness for veterans?
While there has recently been a new executive order calling for student loan debt forgiveness for disabled veterans, there isn’t currently a program specifically offering veterans tax debt forgiveness. The IRS does offer many benefits to veterans, and veterans are encouraged to apply for any of the existing tax forgiveness programs if they find themselves struggling with tax debt.
Q:What’s the difference between tax debt forgiveness and Currently Not Collectible?
Full or partial IRS debt forgiveness like an Offer in Compromise, Innocent Spouse Relief, or Penalty Abatement means your liability is reduced from the original owed amount, but you’ll still make payments promised to the IRS.
If you truly can’t afford any payment without landing in financial hardship, you could be considered Currently Not Collectible (CNC), or in an IRS non-collectible status. A non-collectible status means the IRS will suspend collection efforts until you’re able to pay something toward your back taxes. If your financial situation doesn’t improve, however, you may be able to avoid paying your tax debt indefinitely.
IRS TAX LEVY
Q:What is a levy?
If you have an unresolved tax liability with the IRS, your bank accounts, income sources, and personal property could be in jeopardy. The official tax levy definition is a legal seizure of your property to satisfy a tax debt. Even when you have already received multiple letters, a levy can be devastating to your already-strained finances.
Q:What is a notice of levy?
An IRS Notice of Intent to Levy is a notice that the IRS sends you if you have not paid your outstanding tax debt and they have already placed a lien against you. This IRS levy notice is meant to let you know that the IRS is planning to pursue levying actions against you to collect the back taxes they’re due. A Notice of Levy on Your State Tax Refund will let you know that the IRS will be state tax levy and taking your state tax refund.
Q:How does a bank levy work?
Your money can be seized with an IRS bank levy. The IRS collects what it needs to satisfy the delinquent tax balance, up to the entire amount owed, while freezing your funds Any bank account with your name on it is up for grabs – even if it belongs to or is shared with others.
You typically have 21 days to act from the time the bank receives a notice of levy on a bank account, including submitting for a formal resolution with the IRS. This agreement must be established before the 21-day time frame ends. After a bank levy release, IRS return-of-funds approvals are unlikely.
Q:How much of my paycheck can the IRS levy?
The IRS bases how much it will garnish from your wages on how many dependents you have and your standard deduction amount. The tax code limits what the IRS is required to leave for you to pay for basic living expenses. You can see how much of your wages are protected here.
Q:How do I stop a tax levy on my paycheck?
Resolving the back taxes you owe is the best way to get your benefits – and way of life – back on track. If you can’t pay your taxes or aren’t sure where to start, tax professionals like ours at Tax Defense Network will be able to walk you through your options, like an offer in compromise or installment agreement.
Q:Can the IRS take your home or car?
As a last resort, the IRS can seize personal property and assets (including your home, vehicles, and boats) to sell at public or private auctions. That’s why you don’t want to ignore any notices of levy. The longer you ignore the problem, the more likely the IRS is to seize your property and assets.
Q:Can a tax levy affect your credit score?
A tax levy itself should not directly affect your credit score since IRS levies are not public record. The consequences of a bank levy or wage garnishment can impact your credit score though, especially if you don’t have enough money to make your regular monthly payments (e.g., mortgage, student loan, and credit card payments).
Q:What’s the difference between a tax lien and tax levy?
A tax lien is a legal claim against your property to ensure the payment of back taxes. A tax levy, however, takes your property to satisfy any outstanding tax debt.
Q:What’s a wage levy?
Your paycheck is at stake if you’ve got an outstanding tax bill. The IRS can garnish various income sources including your wages. In addition to a tax levy on your paycheck, they can also garnish:
IRS TAX LIENS
Q:What is a tax lien?
Any action from the Internal Revenue Service can be daunting, especially when your possessions are at stake. A federal or state tax lien is the government’s claim against any property that you own or that you obtain while you have an outstanding back tax bill. This secures the IRS’s interest in your assets (both personal and business), including real estate, property, and financial, should you fail to resolve the liability in question.
Q:Are tax liens public record?
Yes, the Notice of Federal Tax Lien issued by the IRS is public record.
Q:How do tax liens work?
After the IRS puts your balance on the books and sends you a bill outlining your taxes due and you do not fully pay the debt in time, the IRS will file a Notice of Federal Tax Lien. This document will let creditors know that the government has a legal claim to your assets and property. Unlike an IRS tax levy, a lien does not involve immediate asset-seizure or wage garnishment; however, should you neglect to address the lien, the IRS may begin to seize and auction your belongings.
Q:When do tax liens expire?
The IRS has 10 years from the date of assessment to collect on your tax debt, so you won’t necessarily see a Notice of Federal Tax Lien letter right away (but consider this a possibility if you’re aware of an existing tax debt).
Q:Can as state tax lien prevent employment?
Your tax liens may show up on any background checks that potential employers run on you. While this may not be a big deal to some employers, others may view your credit history as a gauge for trustworthiness and responsibility. If you’re applying for a job that requires security clearances, delinquent tax debt can be considered a security risk. If you have a federal or state tax lien, any job with access to security or sensitive information may be out of the question for you. Your best bet is to contact a tax professional before your lien affects your employment and livelihood.
Q:Can I buy a car if I have a tax lien against me?
If your IRS tax lien is included in your credit report when you go to purchase a car, it could leave you with poor rates and terms or, even worse, keep you from being eligible for an auto loan.
Q:What are tax lien certificates?
A tax lien certificate is a form that describes a lien on your property for not paying taxes. These certificates are issued in certain states when the property owner fails to pay their taxes on time. Tax lien certificates are sold through auctions to investors who will then basically act as the taxing authority over the property.
As opposed to a tax deed sale wherein an investor buys the title to your property, an investor with a tax lien certificate is given the right to collect full payment of the taxes due plus interest from you, the property owner. If you don’t pay on time, the investor then can foreclose the lien and take the title to your property.
Q:Do tax liens affect my credit?
Federal tax liens are no longer considered in a credit score.
IRS TAX NEGOTIATION
Q:Can you negotiate tax debt with the IRS?
Yes. If you can’t pay your taxes, tax negotiation is an option for you. If you owe the IRS and can’t afford to pay, you can attempt to settle your tax liability in a way that works for both you and the IRS. Tax professionals like ours have years and years of experience negotiating with the IRS in a variety of different cases.
Q:Will penalties and interest continue to accrue while I am negotiating my tax debt?
Yes. Even if you apply for an Offer in Compromise, your IRS penalties and interest will continue to accrue.
Q:Can I negotiate with the IRS on my own?
Yes. You are more likely to get a better outcome, however, if you work with an experienced tax debt resolution company, such as Tax Defense Network. We will be able to assess your situation and determine which proposals have the best likelihood of being accepted by the IRS.
Q:I’m in the process of filing for bankruptcy, can I still seek a tax settlement with the IRS?
No. You can’t file for a tax settlement if you’re in an open bankruptcy proceeding.
Q:How much are tax negotiation services?
Prices will vary. Make sure you go with a company that is transparent about pricing upfront. Tax Defense Network professionals will outline costs and financing options as part of your free consultation.
IRS TAX RELIEF
Q:How do I avoid IRS tax relief fraud?
There are many fraudulent tax relief companies trying to take advantage of taxpayers who need help. Keep an eye out for tax debt relief scammers who:
Guarantee specific results every time
Demand full payment up front
Aren’t transparent about their pricing or billing
Don’t include a full financial analysis
Q: What should I look for in a tax relief company?
The best IRS tax relief companies never charge upfront for an in-depth IRS review and consultation. Many companies will charge upwards of $1,000 for an “IRS Review” or “IRS Consultation.” These are scams. Tax Defense Network, however, provides this service free of charge.
The best IRS tax relief services will also have tax attorneys and licensed professionals who have the experience and expertise you need to get the tax resolution you deserve.
Q:How do IRS tax relief companies work?
In general, the tax relief companies should gather information about your situation, show you what options are available, and pursue the best option available to you.
With Tax Defense Network, you’ll undergo a free initial consultation. During this consultation, you’ll provide the information our tax professionals need to investigate your case, which may include previous tax returns, any IRS notices you’ve received, your ability to pay, and other financial information.
Next, our team of tax professionals will launch into investigation mode. They’ll discover all the options you could be eligible for and present them to you with personalized recommendations. They will also provide transparent pricing for each option. You’ll discuss which route you’d like to take, and your tax team will begin the final phase: resolution.
During resolution, our tax experts work with the IRS on your behalf to achieve the desired tax debt result. We always keep you in the loop every step of the way until a satisfactory solution is reached.
Q:How much do IRS tax relief services cost?
Every case is unique, so prices will vary. We provide customized plans for our clients with affordable fees based on the complexity of the case and estimated time to resolve it.
Q:What are the various IRS tax relief programs?
Tax debt relief from the IRS comes in many different forms. Some tax debt relief programs include:
Installment Agreement – You may qualify for an installment agreement or payment plan to set you back on track with paying off your tax debt. These agreements offer you the chance to make monthly installments that you can afford to pay instead of requiring you to pay the full amount of your tax liability all at once.
Offer in Compromise – Depending on your current tax situation and financial hardship, you may be eligible for an Offer in Compromise (OIC), which would mean you could settle your debt for less than is owed. Once approved for an OIC, you can either pay in lump sums or monthly payments until your offer amount is paid in full.
Innocent Spouse Relief – If your spouse or former spouse’s tax debt is haunting you, you may be able to find relief in the Innocent Spouse Relief program. If you qualify for this program, you could no longer be liable for the balance due.
The Fresh Start Initiative has also updated the requirements for many of these programs so that they are accessible to more taxpayers dealing with tax debt and its consequences, like liens, levies, penalties, and interest.
OFFER IN COMPROMISE
Q:What is an Offer in Compromise?
An Offer in Compromise (OIC) is a settlement agreement between you and the IRS that allows you to settle your debt for far less than you owe. It may sound too good to be true, and for some taxpayers, it is. But if you qualify, an IRS OIC can be the fresh start that you have been waiting for.
You’ll be expected to pay a reduced amount (also known as the offer amount) within a limited timeframe, and failure to do so can result in termination of your agreement, forcing you to start over. But you may have options – the IRS allows separate payment terms to meet your specific circumstances.
Q:Where can I find the IRS OIC form?
You’ll want to fill out Form 656 when applying for an OIC, which includes instructions, Form 656, Form 433-A (OIC), and Form 433-B (OIC).
Q:Can I request OIC if I’m going through bankruptcy?
No. If you’re in an open bankruptcy proceeding, you are not eligible for an OIC. Once the case is discharged and closed, however, you may file an offer.
Q:Is there an Offer in Compromise calculator or tool I can use to see if I’m qualified?
The IRS doesn’t hand out OICs to just anyone seeking tax debt relief – you’ll be required to submit a detailed financial report that itemizes your revenue streams, monthly expenses, and more to prove you do not have the ability to pay your full debt. If approved by the IRS, OIC conditions must be kept on your part or your settlement will be invalidated, and all remaining liability will go back on your account.
Q:What happens if the IRS rejects my Offer in Compromise?
If the IRS rejects your OIC application, you may choose to appeal that rejection within 30 days. To make this IRS appeal, you’ll need to use Request for Appeal of Offer in Compromise, Form 13711.
If your appeal doesn’t work, and you still can’t pay the full amount of your tax liability, you still have some tax debt relief options. You could choose to apply for a payment plan or you might be eligible for Innocent Spouse Relief. A tax professional will be able to go over all your tax relief options to find the one that works best for you.
Q:How long does Offer in Compromise take?
Submitting an OIC application isn’t your typical tax negotiation situation. The IRS may take up to two years to thoroughly investigate your financials and the merits of your case before making a determination. Since the expiration date for your back taxes owed is 10 years from the date of assessment, the clock is paused for however long it takes for your request to be evaluated and a decision made.
Q:What are my payment options with an Offer in Compromise?
There are two tax payment options:
Lump Sum Cash – Once your offer is accepted (along with the initial payment of 20 percent of the total offer amount), you’ll get written confirmation. Then, any remaining balance due on the offer amount will be paid in five or fewer payments.
Periodic Payment – Once your offer is accepted (along with the initial payment), you’ll keep paying monthly until the offer amount is paid in full.
Q:Is an Offer and Compromise different from an Offer in Compromise?
No. “IRS Offer and Compromise” is a misnomer for IRS Offer in Compromise. If someone mentions an “Offer and Compromise form,” they’re referring to an IRS Offer in Compromise form.
Q:Are payroll taxes federal or state?
Payroll taxes are both federal and state taxes that employers must withhold and pay on behalf of your employees.
Q:What are the payroll tax penalties?
If you don’t make your payroll tax deposits on time, there are many penalties you could face depending on your situation. These include:
Failure-to-File Penalty: If you don’t file Form 941 or a similar form (like Form 945 and Form 944), you could be hit with this penalty. This penalty is 2 percent for forms filed 1-5 days late, 5 percent for 6 to 15 days late, 10 percent for more than 16 days late (but before 10 days from the date of the first notice from the IRS asking for the balance due), 15 percent for any amount still unpaid more than 10 days after the date of the first notice from the IRS.
Trust Fund Recovery Penalty: This penalty may occur when there is a failure to pay payroll taxes when they’re due. It will fall on the responsible party and is 100 percent of the unpaid tax, including any penalties and interest.
While the IRS offers many easy payment options, payroll taxes must be made electronically through the Electronic Federal Tax Payment System (EFTPS). When using this system to file your payroll taxes quarterly or monthly, your funds will be withdrawn directly from your checking or savings account. Therefore, you cannot pay your federal payroll taxes with a credit card.
Q:What happens if I don’t pay my payroll taxes?
The IRS doesn’t take unpaid payroll taxes lightly. Like other types of tax debt, unpaid payroll taxes can also trigger aggressive IRS collection actions including levies, liens, or even criminal prosecution for employment tax fraud.
Even if you avoid escalated IRS actions, the ultimate cost of your unpaid payroll taxes may be more than you can afford after mounting interest and IRS payroll tax penalties. This puts you, your business, and even your employees in a bad spot.
Q:How much does payroll tax relief cost?
Our pricing is very affordable, even for new business owners. We can give you a quote during your initial free assessment.
Q:Are payroll taxes deductible?
Most businesses can deduct payroll tax expenses, regardless of entity structure. However, you will not be able to deduct your personal part of any payroll tax liability.
Q:How do I avoid payroll tax penalties and interest?
Payroll tax penalties and interest come about when your business fails to pay payroll taxes on time.
Here are some ways to avoid those consequences:
Withhold appropriate taxes from employees’ wages every time you run payroll
Contribute any employer-paid payroll taxes every time you run payroll
Don’t borrow from your payroll tax account
Hire a payroll service to ensure tax deposits and returns are paid and filed in a timely fashion
Hire an accountant to keep track of important deadlines and quarterly due dates
SALES TAX NEXUS
Q:What is the South Dakota v. Wayfair ruling?
In 2018, the U.S. Supreme Court ruled that states can apply sales tax rules on an out-of-state business even if the business does not have a physical presence in the state. The South Dakota v. Wayfair ruling ultimately opened the flood gates, allowing states to collect sales tax for companies that establish either an economic or physical nexus. Each state has the power to define and determine what constitutes an economic nexus in their state.
Q:Does every state collect sales tax?
No. At this time, 45 states and Washington, D.C. have sales tax. The five states that do not collect sales tax include Alaska, Delaware, Montana, New Hampshire, and Oregon.
Q:Once I determine that I have a sales tax nexus in a state, what are my next steps?
If you are responsible for collecting and remitting sales tax in a particular state, you will need to take the following steps to ensure you stay compliant:
Register for a sales tax permit in that state
Collect sales tax at the appropriate rate from any customers within that state
Determine when and where you must file the sales tax returns for that state
If you need help with any of these steps, don’t hesitate to contact Tax Defense Network. We offer affordable rates to help you with sales tax compliance and filing.
Q:Should I collect sales tax if I haven’t established a nexus?
No. It is illegal for you to collect sales tax from a customer if you have not registered or established a nexus in their state. It is the customer’s responsibility to remit any sales tax due on purchases made from your company. In some states, however, there are notice and reporting requirements for businesses that are not required to collect or remit sales tax. For these states, you will need to include a disclaimer/statement on your customer’s invoice. It should explain that you did not collect sales tax and that the customer will owe use tax. At the end of the year, you’ll also be required to send a statement to each customer in the state and remind them of taxes owed. This is in addition to the list of customers (and their purchase totals) that must be sent to the state.
SMALL BUSINESS BOOKKEEPING
Q:How much are your bookkeeping services?
We offer customized solutions to fit your specific needs, so we do not have a flat fee. In most cases, however, monthly rates start at $99 or higher. To receive a quote, simply schedule a free consultation with one of our business team members.
Q:I lost all of my financial records. Can you still help me?
At a minimum, we need access to your bank statements in order to create a profit and loss statement. Thankfully, many other documents are also housed online. With a little bit of sleuthing, we may be able to piece things together, but there’s no guarantee.
Q:I have a small online business. Can I use your bookkeeping services?
Yes! We work with a variety of different business owners, including online retailers, independent contractors, sole proprietors, c-corporations, and more.
Q:Is payroll included with the bookkeeping service?
No. We do, however, offer payroll services for an additional fee.
SMALL BUSINESS STARTUP
Q:What kind of books/records do I need to keep?
There are multiple types of records you will need to keep while operating a business. These may include financial statements, invoices, contracts, creditor records, bank statements, and tax filings. If you have employees, you’ll also need to handle payroll and other employee records. At Tax Defense Network, we offer additional small business services, such as payroll taxes, tax preparation, and bookkeeping, to help you stay organized and compliant.
Q:Do I need a lawyer to start a business?
If you are the only owner, you do not need a lawyer to start your business. You can do it on your own or enlist the help of a consultant, such as those at Tax Defense Network. If there are multiple partners, however, we encourage you to seek the advice of a business lawyer.
Q:Which business entity is best for me?
There are pros and cons to every type of business entity. To determine which one may be best for you, it’s best to consult a business or tax expert, like those at Tax Defense Network.
Q:Where should I incorporate my business?
Generally, you’ll want to incorporate your business in the state where it is located.
SMALL BUSINESS TAX PREPARATION
Q:What business taxes do I have to pay?
The answer to this question is dependent on the size of your business and your business structure. Most businesses must pay an income tax, though the rate of that tax will vary depending on your business’s entity type. Corporations face a flat income tax rate of 21 percent. However, if a business is a pass-through entity, they will pay income tax at the personal tax rate of the owner instead of at a business rate.
Some other common tax bills for businesses include:
Workers compensation taxes
Property taxes on any property owned by your business
Capital gains taxes
Q:Do you offer tax preparation for online businesses?
Yes, our tax professionals are experts in preparing taxes for online businesses. Tax Defense Network’s professionals know the ins and outs of the sales tax laws in every state, so we’ll help prevent problems in the future and track your sales nexus liability in this rapidly evolving state tax environment.
Q:How much does small business tax preparation cost?
Small business tax preparation fees vary depending on your business type, size, and other factors. During your initial no-cost, no-commitment consultation, we’ll let you know what our fees will be for your specific situation.
Q:Do you have a downloadable copy of your small business tax preparation checklist?
Yes! You can download a PDF version
Q:What business tax deductions can my business get?
There are many tax deductions for businesses that you might be able to take advantage of when you’re filing your return.
Here are a few common business deductions:
Salaries, wages, bonuses, and commissions to employees (note that this won’t apply to payments made to partners, sole proprietors, and LLC members)
Supplies used for business
Rent for your business property
However, the rules for business deductions vary depending on your business entity. Interested in any of these deductions? One of our professionals can help figure out how to best prepare your tax return with the appropriate deductions.
Q:Are tax preparation fees tax deductible?
Before 2018, you could write off your tax prep fees. Thanks to the Tax Cuts and Jobs Act (TCJA), however, tax preparation fees are not deductible in tax years 2018 through 2025.
There is an exception to this change for those who are self-employed. Self-employed taxpayers are still able to deduct their tax prep fees (including tax software) as a business expense.
Q:What small business tax forms will I need?
The small business tax forms you’ll need will depend on your business structure. Our professionals can let you know which forms you will have to file, and then file them for you.
Q:Do you have any tips for filing business taxes?
Yes. Here are our top business tax tips:
Ensure you pay your estimated quarterly tax payments on time.
Maintain good, detailed notes of your expenses. Recording everything well will not only give you a good foundation when tax season comes around, but it will also offer you support should a tax audit arise.
Solid accounting and bookkeeping are key. Keep documents like your balance sheet and income statement correct and regularly updated.
Use technology to keep track of things like receipts and accounting records. This will help consolidate everything in one place and get rid of that unnecessary stack of paper.
All business structures have particular tax perks (like pass-through businesses with their 20 percent deduction). Make sure your business entity is right.
Separate your business and personal expenses as much as possible. This includes having distinct business bank accounts and personal bank accounts, and making sure your home office is only used for business purposes.
Consider professional, personalized tax preparation. It could save you and your business time and money.
Q:Can I file my business taxes online?
If you’d rather not file a paper tax return, there are electronic filing options for many taxes and forms that small business owners must file. Want help filing your taxes or confused about the process? One of our small business tax preparers can help you through the process and even do it for you.
Q:What is an EIN?
EIN stands for Employer Identification Number. Employer Identification Numbers are what the IRS uses to identify a business entity for federal tax purposes. If you own a business, you likely need an EIN for your business. You can apply online for an EIN for free.
Q:Do you offer small business tax preparation near me?
There are Tax Defense Network locations in nearly every U.S. state. Check out the list of our locations to find the one closest to you.
STATE TAX RELIEF
Q:What happens if I forget to file my state taxes?
If you’ve forgotten to file state taxes, you could get slammed with interest and penalties. New York state charges a late filing penalty of 5% of the tax due for each month the return is late, up to a maximum of 25%, which can lead to many taxpayers who have fallen behind in filing to need New York state tax relief.
Remember: Better to file late than to never file at all! If you continue to ignore the debt for your state taxes, you could even face wage garnishment, garnished federal refunds, and liens.
Q:Is there tax relief for state taxes?
Yes. Each state has its own tax code, which differs from other states and the code of the IRS. Tax professionals like ours can help you find relief with any of these taxing authorities. We offer both state and federal tax relief.
Q:What state tax relief do you offer?
Our tax professionals have a combined 250 years of experience in the business, so they’ve seen it all. From penalty abatement to installment agreement to tax settlement, we offer many state tax debt solutions to help you out when you need it most.
Q:When are my state income taxes due?
Generally, the state income tax return deadline is the same as the federal filing deadline, which is April 15. It is best, however, to check with a tax professional to verify you state’s specific date.
Q:In which states does Tax Defense Network provide services?
Tax Defense Network offers state tax relief help in all 50 states.
Q:Is it possible to get a payment plan for my state taxes?
Making monthly payments may be a much more feasible way to pay off your tax liability. If that’s the case for you, you may be able to get a payment plan from your state taxing authority. If you need help setting up an agreement, our team of experts can step in and do the legwork for you.
Q:Can I get an Offer in Compromise on my state tax debt?
Some states do have an Offer in Compromise program, which allows state taxpayers to settle for less than the tax balance owed. If your state has this program, tax professionals like ours can negotiate with the appropriate taxing authorities to see if you qualify.
TAX AUDIT PENALTIES
Q:How do you get tax audit penalties?
You can receive tax penalties for many different reasons, from accuracy issues to an outstanding balance. Here are some of the most common reasons you might get a tax audit penalty:
Underreporting on your tax return
Failing to follow IRS rules, regulations, and deadlines
Filing your tax return late
Not paying your taxes on time
Understating a gift, estate, or another tax liability
Misstating the value of your property
If the IRS has recently contacted you about an audit, you may want to seek tax audit representation. Tax experts like ours have experience providing top-notch tax audit help to ensure you’re prepared for any penalties that may come.
Q:What is the IRS civil fraud penalty?
The IRS civil fraud penalty is a common tax audit penalty that is defined in IRC Section 6663. The IRS applies a civil fraud penalty if they can prove with clear and convincing evidence that any part of an underpayment of tax owed is due to fraud. If it can be applied, this penalty adds 75 percent of your tax liability to your overall balance due. There is no statute of limitations on assessment of additional tax in cases where a portion of underpayment is due to fraud.
Q:Can you go to jail for not paying your taxes?
You can’t technically go to jail for unpaid taxes. There are a few things a tax audit can uncover, however, that are considered criminal offenses. These include filing a fraudulent tax return, evading taxes, refusing to file a tax return, or intentionally failing to pay estimated taxes. Committing a criminal offense can lead to jail time.
Q:What happens if you fail an IRS tax audit?
If the IRS finds issues during the audit process, they will propose changes to your tax return. These changes may include any tax audit penalties that apply. If you accept them, you’ll have to pay any charges required, including any penalties and interest. Failing an IRS audit isn’t the end of the world though. If you disagree with the findings of an IRS audit, you can always consult a tax expert to determine if an IRS appeal is the best next step.
Q:What happens if I can’t pay my tax audit penalties?
If you are unable to pay your taxes, penalties and/or interest in full, you may be able to request first-time penalty abatement. If approved, the IRS may waive some of all of the penalties assessed. Other options include payment plans or requesting an Offer in Compromise. Contact Tax Defense Network for a free consultation to see which option is best for you.
Q:What are the different types of tax audit penalties?
There are accuracy-related tax audit penalties, which are imposed if you filed a seriously inaccurate return. These penalties include:
IRS negligence penalty: Imposed if your negligence or disregard of the rules or regulations caused the underpayment.
Substantial Understatement Penalty: Imposed if you understated your income by $5,000 or 10 percent, whichever is greater.
Substantial misstatement of the value of property: Imposed if you either overvalued donated property or undervalued depreciating property. If you overvalued or undervalued by 200 percent, you’ll receive a 20 percent penalty. If you overvalued or undervalued by 400 percent, you’ll receive a 40 percent penalty. If the overstatement is $1,000 or less, you will not receive a penalty.
Substantial overstatement of pension liabilities: Imposed if you made an overstatement of your pension liabilities over $1,000. If you overstated by 200 percent, you’ll receive a 20 percent penalty. If you overstated by 400 percent, you’ll receive a 40 percent penalty.
Substantial understatement of a gift or estate: Imposed if you understate the value of any property claimed on a gift or estate tax return. You will not receive a penalty if the understatement causes a tax underpayment of $5,000 or less.
Understatement related to reportable transaction: Imposed if you understate tax liabilities because of a tax shelter or tax avoidance transaction that is disclosed. Understatements result in a 20 percent penalty, while inadequate disclosures result in a 30 percent penalty.
Outside of accuracy-related tax audit penalties, you can also face a failure-to-file penalty if you fail to file your return on time and a failure-to-pay penalty if you fail to pay the taxes you owe after an audit.
Q:What are the most serious tax audit penalties?
You could face a tax fraud punishment if the IRS can prove you filed late, which can include hefty fines and up to three years in prison. There are also tax evasion penalties that you could face if the IRS finds that you have willfully concealed or misrepresented financial resources and assets to avoid paying taxes. Tax evasion punishments include 5 years in prison and up to $250,000 in fines for individuals.
TAX AUDIT PROCESS
Q:How do I know if I’m being audited?
You should receive a Notice of Audit letter by mail, which will give you information about your audit. It should include details about the items that are being reviewed on your tax return, the records the IRS will need to review, and the deadline for the documents requested. This notification will go to your last recorded address, so be sure the IRS has your current address on file.
Keep in mind that the IRS will never call or email you. Be wary of any “audit notices” that come through via phone call or email.
Q:What can trigger the tax audit process?
The IRS conducts audits using a random selection and computer screening process, which basically looks for tax returns that may seem unusual compared to normal tax returns. There are a few things that can stand out to the IRS in this selection process:
Failing to report income
Reporting too many losses on a Schedule C (for self-employed taxpayers)
Making math mistakes
Rounding numbers up or down
Deducting too many expenses for work or mixing business and personal expenses
Claiming the home office deduction
Taking unusual deductions
The best way to avoid these common tax audit triggers is to seek professional tax preparation help and use trustworthy and helpful tax software when filing your tax return.
Q:How long does the tax audit take?
It really depends on the type of audit, the complexity of the issues, the availability of information, your availability, the auditor’s schedule, and whether you agree with the findings. Most tax audit processes, however, are completed within a year.
Q:How long does the IRS have to audit you?
Per the tax code, the IRS has three years from when you filed your return to charge you any additional taxes. The only exceptions to this assessment statute of limitations are when fraud or a back tax return is involved. The IRS can legally undergo the tax return audit process with you until those three years pass.
Q:How many years back can the IRS audit?
The IRS usually doesn’t go back more than the last six years when they are auditing you. They tend to include returns filed within the last three years, but will add additional years, if a substantial error is identified.
Q:What if the audit results in additional taxes?
While not every audit ends in a balance due, the IRS may determine at the end of your audit that you owe more taxes. They also may apply any relevant audit penalties and interest.
If you agree with these changes, you’ll need to pay your outstanding balance in full or request a payment plan.
If you disagree with the changes the IRS proposes, you should discuss your options with a tax professional. This may include requesting reconsideration or filing an appeal.
Q:Is the business tax audit process different from the audit process for individual tax returns?
Because a business tax return requires different tax forms than an individual tax return, the audit process is bound to be slightly different.
Small business audits tend to take a little more time because the auditor will likely have more records to review and examine. To track a small business’s income and ensure the business reported all income, auditors will need access to bank accounts, websites, and client records. The more records needed and the more income flowing through a business, the longer an audit will likely take.
Businesses can have some specific audit triggers, too. If your business partners or investors are being audited and problems are found, you may also be audited. There are also some distinct small business tax audit triggers that can cause the IRS to take a closer look at your business return.
TAX AUDIT REPRESENTATION
Q:Do I need a tax attorney for an IRS audit?
If you just receive a letter in the mail requesting information for your audit (e.g. a form or some receipts you have readily available), you can usually satisfy the IRS by sending along whatever they’ve requested. However, if you can’t find the information they want or if they aren’t satisfied with what you’ve sent, you should seek audit representation services like ours.
Q:What should I look for in a tax audit representative?
You’ll want to ensure that the audit professional you hire is:
Authorized to practice before the IRS and/or state
Has experience dealing with the IRS and IRS agents
Transparent about their pricing upfront
Knowledgeable about tax codes and how they apply to your situation
If you’re dealing with a small business tax audit, you’ll want to ensure your tax professional has experience with business tax returns and audits.
Q:I’m in the middle of a tax audit. Can Tax Defense Network still help?
Maybe. We would need to see all relevant documentation and review your tax returns before we could determine if our services would benefit you.
Q:How much does tax audit representation cost?
Fees will vary based on the complexity of your case. Please schedule a free consultation to discuss your specific situation.
Q:Why should I hire TDN instead of an attorney?
There are three main reasons why it makes more sense to work with Tax Defense Network (TDN): (1) we’re more affordable; (2) we have more experience; and (3) we can help with any and all tax issues.
Q:Can I dispute the results of a tax audit?
If you disagree with the proposed changes to the return, you can request a conference with an IRS manager or file an appeal. Challenging audit results can turn into an appeals process. Experienced tax professionals at a resolution company like ours can give you top-notch assistance in dealing with the IRS if you disagree with their findings.
TAX DEBT RESOLUTION
Q:How much does tax debt resolution cost?
Each client’s case is unique. After your initial free consultation, our tax experts will create a customized tax resolution plan that will give you the best possible outcome. At that time, we’ll review your options and the cost of those services.
Q:Do you offer payment plans?
Yes! Most clients are eligible to take advantage of our easy and affordable financing options.
Q:How long does the tax debt resolution process take?
On average, most of our clients’ cases take between six to twelve months to resolve. Once we’ve determined the best options to resolve your tax debt issues, however, a more definitive timeline will be provided.
Q:Can the IRS seize my business and/or personal assets?
Yes. If you do not address your unpaid taxes, the IRS will take steps to seize your property and/or wages to satisfy the debt.
Q:What types of taxes will I be required to pay as a business owner?
Depending on the type of business you own, you may be responsible for paying some or all of the following business taxes:
Income Taxes (state and federal)
A tax consultant, like those at Tax Defense Network, can help you understand your tax liabilities and avoid unexpected tax bills.
Q:What is the Section 199A deduction?
The 2017 Tax Cuts and Jobs Act created a qualified business income (QBI) deduction, also known as the Section 199A deduction. This deduction allows non-corporate taxpayers to deduct up to 20% of their QBI, as well as 20% of qualified real estate investment trust dividends and publicly traded partnership income.
Q:What is AMT?
The alternative minimum tax (AMT) requires certain taxpayers with high incomes to calculate their tax liability twice, once under regular income tax rules and also under AMT rules, and then pay the higher amount. The AMT has two tax rates (26% & 28%) compared to the seven federal income tax brackets.
Q:How does my business entity affect my taxes?
Determining which entity you will incorporate your business under is a very important decision that can have significant tax consequences. Review the chart below for a general overview of what tax forms are required for each specific entity.
Separate from Owners?
Federal Tax Forms
Owner reports income/losses
Form 1040, Schedule C or C-EZ
Owner(s) report income/losses
Form 1040, Form 1065
Limited Liability Company (LLC)
Owner(s) report income/losses
Form 1040, Form 1065, Form 1120-S, Form 1120
Owner(s) report income/losses
Form 1040, Form 1120S
Corporate tax and potential double taxation (if owners receive dividends)
Form 1120 (dividend income reported on Form 1040)
We strongly recommend meeting with a business tax consultant to weigh the pros and cons of each entity type and to help you decide which is the best fit for your business goals.
Q:What is tax settlement?
A tax settlement is an arrangement between you and the IRS or state taxing authorities. This tax settlement agreement can include a reduced balance (or a settlement offer amount) and occasionally a completely removed liability for any outstanding tax debt.
Q:How does tax settlement work?
Tax settlements are based on your current financial situation. First, you’ll have to decide which tax settlement program you’d like to apply for and then begin the corresponding application process. Many choose to have a tax professional assist them to offer insight and guidance into the programs and their application processes.
The IRS will review the application and then make a decision. You may have to negotiate a tax settlement with the IRS to come to an agreement, which a licensed tax professional can do on your behalf.
Once a tax settlement agreement is reached, the IRS will consider you in good standing for the time that the settlement covers. Should you default or break the tax settlement agreement in any way, you would no longer be considered in good standing.
Q:Are tax settlement companies legit?
Some tax debt settlement companies are legit, and some are scams. Fraudulent tax settlement companies will promise you a specific resolution for pennies on the dollar with no understanding of you or your tax debt.
In contrast, the best tax settlement companies will get a good grasp on your current tax situation before ensuring that a specific resolution (like an Offer in Compromise) can be reached. These reputable companies will also be upfront about their fees and employ many experienced tax professionals, including CPAs, EAs, and tax attorneys.
Tax Defense Network will do more than tell you how to get a tax settlement; once our tax professionals understand your financial background, they will be able to outline resolution options and associated fees, and then do the work on your behalf.
Q:Will the IRS settle my tax debt?
As much as we wish we could, we can’t answer this question without a good understanding of your current financial situation. You can always call us for a free, no-commitment consultation, which will give us the foundation we need to figure out how to best settle your tax debt with the IRS.
Q:Can I get tax settlement for my state taxes?
Similar to the IRS, state tax authorities will also consider tax settlements for those who can’t pay their existing tax debt. Tax Defense Network can assist with both federal and state tax settlement.
Q:Can I settle my tax debt on my own?
Yes, you can try to settle your tax debt on your own. It is a difficult process, however, with lengthy and complicated paperwork and processes. The IRS doesn’t mean to make it hard to get tax settlement; they just need thorough proof and documentation that you meet the eligibility requirements, which includes a qualifying financial hardship.
Q:What are unfiled tax returns?
An unfiled tax return is a tax return that has not been filed for the tax year in question. If multiple tax years have passed and you didn’t file taxes for those years, you likely have multiple unfiled tax returns.
Q:What happens if you don’t file taxes?
If you have unfiled taxes, you can face a failure-to-file penalty and built-up interest charges. You also risk losing your refund and any credits toward Social Security retirement or disability benefits. Loan approvals may be delayed. You could eventually experience IRS collection activities. These actions include liens, levies, and wage garnishment. You can also face up to 5 years in prison and a fine of $250,000 if you are convicted of tax evasion, which includes not filing your taxes.
Q:How far back does the IRS go for unfiled tax returns?
The statute of limitations on unfiled tax returns is six years. That means that the IRS can’t bring criminal charges against you once six years have passed since the date your previous taxes were due. The IRS, however, can continue to demand the payment of taxes owed on non-filed returns after those six years.
Q:How many years back can I request a refund?
You can only recover tax refunds for the past three years. Any tax refund older than three years will not be refunded to you or used to credit your tax obligation. Don’t lose money that belongs to you. File your past due returns ASAP.
Q:Can I file last year’s taxes with this year’s return?
Ideally, you should file last year’s taxes as soon as possible, instead of waiting until you file this year’s taxes. You’ll need to file your back tax returns on the original forms for the tax year you’re filing, so you won’t be able to use the same tax forms for last year as the ones you’re using this year. If you need help figuring out how to file taxes late, our tax professionals are always available to help you sort it out.
Q:Who can help with unfiled taxes?
There are many different companies and services that say they offer unfiled taxes help. We may be a little biased, but our tax professionals are skilled and experienced in tax preparation and dealing with unfiled taxes. They’ll work to file any late taxes on your behalf, and help you figure out the best course of action moving forward.
Q:What if I file my unfiled returns and I have tax debt?
This can happen, especially with any accrued penalties and interest. If you can pay what you owe, use one of the IRS’s many ways to pay taxes. If you can’t pay your unpaid tax debt, don’t shy away from finding a resolution. You may be eligible for an Offer in Compromise or Installment Agreement. One of our tax professionals can review your tax situation and help you find the solution that works best for you.
Q:Can you go to jail for not filing taxes?
Yes. If you are convicted of evading the assessment of taxes (which can include intentionally not filing your taxes), you can face 5 years in prison.
Q:What is wage garnishment?
Wage garnishment is when a portion of your income is legally taken to resolve any outstanding debt. The IRS can garnish wages to pay off back tax debt. Check out our What is Wage Garnishment? post for more information.
Q:How does wage garnishment work?
A wage garnishment is like a levy, which is when the IRS seizes your property and assets. In wage garnishment, the IRS will seize part of your wages each pay period to pay off your overdue taxes.
The IRS will mail the wage levy and the IRS wage garnishment table to your employer to let them know how much will need to be garnished. Your employer will then give you a form (a Statement of Dependents and Filing Status) to complete and return within three days.
If you don’t return the form in time, your exempt amount is figured as if you are married filing separately with no dependents. If you make income outside of your main job, the IRS may allocate the exemptions to the other income source and levy on 100 percent of the income from a specific employer.
Q:Is wage garnishment every paycheck?
Yes. Wages will be garnished on every paycheck until the wage garnishment ends.
Q:Who can garnish your wages?
The IRS can garnish wages through your employer. Your employer may also receive a court order to garnish wages for child support, delinquent federal student loans, unpaid medical bills, and outstanding consumer debt from credit cards.
Q:Can I be fired due to IRS wage garnishment?
There are federal laws, like Title III of the Consumer Credit Protection Act (CCPA), that protect you from being fired because your wages are being garnished for one debt, regardless of the type of debt.
This is not always the case with state laws. In some states, there are no protections for those who are having their wages garnished for two or more debts.
Q:I am due a separate bonus check. Can the IRS take it as part of the wage garnishment?
Yes. The IRS is entitled to take your bonus check to help satisfy your tax debt.
Q:How can I avoid IRS wage garnishment?
The best way to avoid garnishment is to address any IRS notices about your tax debt ASAP. If you can’t pay your total tax bill, contact a tax professional. At Tax Defense Network, we can help you set up a plan of attack for your tax debt, which could include relief solutions like an Offer in Compromise or an IRS payment plan. The quicker you deal with the federal tax problem, the more likely you are to avoid wage garnishment.
Q:Is wage garnishment pre-tax?
No. The IRS will garnish your disposable income, which is the amount left after legally required deductions are made, including taxes and Social Security.
Q:When does wage garnishment stop?
. If the IRS is garnishing your wages, the wages garnished will be sent to the IRS until one of the following occurs:
The amount of outstanding tax debt is paid
Other arrangements are made to pay your outstanding tax debt
The wage garnishment is released
A tax professional or wage garnishment lawyer like the ones at Tax Defense Network can work with the IRS on your behalf to have a paycheck garnishment released so you can get back to living your life.
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