Tax liabilities are the category of debt that has the potential to haunt you. The IRS has strong collection tools, such as filing a notice of federal tax lien against your property or garnishing your wages. In addition, taxes are typically not discharged in bankruptcy, and they can seriously damage your credit score.
All of these reasons underscore the importance of consulting with a tax attorney about your back taxes. Tax debt won’t go away, but an attorney can review your particular situation and help you better understand your options for addressing outstanding tax debt.
Options for resolving, or at least reducing, back taxes include amending past tax returns, obtaining penalty abatement from the IRS, or entering into installment agreements or offers in compromise. We discussed the latter two options in a previous blog post. Today’s post focuses on penalty relief and filing or amending returns.
One of the quickest ways to incur IRS penalties is failing to file a return. The IRS responds to this situation with a substitute for return filing, which is not in a taxpayer’s best interest because it does not include potential deductions or exemptions. If your tax debt relates to a substitute for return, consult with an attorney about filing an amended or late return. At a minimum, filing your own return may correct any overstatements of tax liability and maximize your eligible deductions and/or exemptions.
Penalty relief may be available in situations where the IRS made an administrative mistake or offered faulty advice. Relief might also be available in situations where a taxpayer’s failure to pay taxes or report income was due to a reasonable cause. An attorney that focuses on tax law can review your situation and explain these requirements.
Source: “Four options for resolving or reducing back taxes,” copyright 2016, Baker Law Firm