If you owe back taxes and don't file on time, you are subject to failure-to-file and failure-to-pay penalties, and you'll be charged interest on unpaid balance. After that, consider your alternatives for making your IRS payment.
In this article, we describe the repercussions of failing to file or file back taxes on time and your options when you owe the IRS money.
How to handle back taxes and IRS debt
Knowing your alternatives can help you decide what else to do when you are owing the IRS money. In this manner, you could devise a strategy. The following are the most popular options for those who owe money on IRS back taxes but are unable to pay.
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Total Cost: USD 69
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6 Practical Ways to Proceed When You Owe IRS Back Taxes:
Installment settlements are payment schedules that taxpayers might set up with the IRS. The kind of arrangement you qualify for will depend on your circumstances. It includes things like how much you owe in back taxes and when you can make the remaining payments.
It would be best if you didn't establish an installment arrangement when you can pay the remaining payment in full after 120 days.
Cost: The registration price for digital payment arrangements is $149, or $31 if installments are paid digitally. For individuals with modest incomes, the cost is $43. Form 13844 requests a low-income processing fee for IRS back taxes.
What must be done: Fill out Form 9465 or a digital payment agreement. An income report is not required for payment deals of $50,000 or less. Additionally, you may hire a specialist to analyze your problem and choose the best course of action.
Benefits or drawbacks: When you set things up in an installment arrangement, the charge on your outstanding debt drops to 0.25 percent each month unless you repay the entire total according to schedule.
Interest is assessed at the national short-term level + 3%. Generally, the IRS Back Taxes may cancel contracts when you don't make your payments on time.
File 433-A and Document 433-F are needed if the amount is more significant than $50,000. You may make a payment via payroll taxes: direct payment arrangement, Form 2159.
The IRS will give people almost 120 days to collect their whole back tax bill.
- Cost: There is no charge for requesting the extension. The unpaid debt is subject to a 0.5 percent monthly penalty.
What must be done:
- Contact the IRS at (800) 829-1040.
- Fill out the online payment arrangement.
- Hire a professional to manage this.
- Benefits or drawbacks: This method is practical for taxpayers who only have a limited time to settle their whole tax burden.
The IRS back taxes will tack on credit at the national short-term total rate of 3%. (Every three months, interest may fluctuate.) Using short-term renewals, you can save the registration cost for installment payments but not the missed payment interest charges.
The IRS provides choices, such as the presently not collectible status and the proposal in the settlement, for people in difficult situations.
You will only be eligible for a hardship delay when you demonstrate that, according to IRS Back Taxes financial guidelines, paying higher taxes you owe might put you in a difficult financial situation.
Fees: There is no cost to request a hardship prolongation. There are no fines, although interest is computed at the national short-term rate plus 3%. (Every three months, interest may fluctuate).
What must be done: Apply for a time extension to pay the back taxes because of hardship using Tax Forms 1127. A list of your financial assets is required.
You might request the financial assistance of a close friend or relative. Fees and expenses will differ significantly based on the lender. Although it could be a cheap choice, you should exercise caution.
When your 401(k) program allows this type of borrowing, you are usually limited to a 50% loan with a $50,000 maximum and five years to repay it.
Cost or fee: There may be a small charge. The strategy also has to include interest. For further information, speak with the plan manager.
Benefits and drawbacks: If it's legal, borrowing money through your 401(k) plan might be a quick and affordable way to cover any taxes you owe now or in the past. If you don't return a loan, it might harm your pension funds in the future.
When you don't complete regular payments of back taxes, quit your job without paying off the loan, and your plan expires, the loan is considered a prohibited payout. A taxable payout is also subject to the 10 percent premature transfer penalty unless you're under 59.5 years of age.
There are several commercial entities for this choice that offer back tax help.
- Fees or costs: Vary; typically between $2.49 and $3.95 (bank card) or 1.87 to 2.35 percent of the outstanding tax debt (credit card). What must be done: For a group of service companies, contact the IRS Back Taxes.
- Benefits or drawbacks: This payment is practical and allows taxpayers with back taxes help and more control and repayment flexibility.
- It gives excellent IRS back tax relief. They might also earn points, mileage, or other incentives with their credit card.
A higher account balance, meanwhile, could negatively influence your credit rating, and those with overwhelming consumer debt might not want to pay using credit.
8 critical considerations for selecting IRS tax professional for tax debt relief
Not Every IRS Tax Professional is Alike When Needing Tax Debt Relief
Choosing the IRS tax professional for tax debt relief is as confusing as reading an IRS tax transcript.
When you are ready to use successful and valuable methods of resolving your problematic tax matter, hire an IRS tax professional to advocate and guide you. You can use these tactics to find best tax debt relief companies for your needs.
Here are 8 critical considerations for selecting an IRS tax professional for tax debt relief.
EXPERIENCE IN IRS TAX DEBT RELIEF SERVICES
As you search for the best tax debt relief companies to take your case, you want to look for those that have years' worth of experience in the industry.
You do not want a novice CPA firm or IRS tax professional to gain experience at the expense of your case. You need a tax expert who has been in the tax debt relief industry for several years if not longer.
This amount of experience benefits you because you get a tax professional who has more than likely handled cases just like yours or perhaps even cases that were more complicated.
This individual also will know how the current tax laws apply to your case and will use them to your advantage when dealing with the IRS.
LENGTH OF TIME DOING TAX DEBT RELIEF
We tie the experience that a tax resolution firm can offer to you to how long it has been in business. The industry standard for determining whether a firm has experience is if it has been in business for at least five years. Depending on the experience you are looking for, hire a company that has been in business for longer than five years.
The time an IRS tax relief professional has been in business also correlates with how experienced the staff is to assist clients like you with their tax matters. You may ask the firm you are interested in hiring, how long it has operated. A newer company may lack the experience needed to resolve your complex tax case to your satisfaction.
WHEN FINDING THE BEST TAX DEBT RELIEF COMPANIES QUALIFICATIONS ARE CRITICAL
As a client, you want the staff of an IRS tax relief professional to assist you to your satisfaction.
You should look for tax resolution companies that use people who are Certified Public Accountants (CPA) or licensed as an Enrolled Agent (EA) or certified as tax attorneys as one of these are the only IRS tax professional that can represent you before the IRS.
They should also belong to professional organizations like the American Society of Tax Problem Solvers or the American Institute of Certified Public Accountants. Tax attorneys should be members of their state bar.
TAX DEBT RELIEF COMPANY REVIEWS
As a potential client, you may look for an IRS tax relief professional reviews before engaging its services.
Getting behind on your taxes can have serious financial repercussions, such as asset seizures and wage garnishment.
The good news is that there are a number of tax relief firms that might be able to assist you in working out a tax debt settlement with the IRS for less than what you owe.
The credibility of the entire tax debt relief industry has been damaged, however, as a result of numerous tax debt relief organizations taking advantage of desperate people by employing dubious methods.
The good news is that there are numerous trustworthy IRS tax debt relief organizations accessible to assist in reducing the burden of tax debt. Finding reputable, experienced tax relief providers that provide the services you require for a cost you can afford is the challenging part.
THE BEST TAX DEBT RELIEF COMPANIES OFFER NO GUARANTEE
Some firms offer guaranteed satisfaction. In reality, a tax resolution company cannot guarantee the outcome of your case or that you will get the resolution you want from the IRS.
A good firm will tell you upfront that the outcome of your case will depend on factors like:
-How much you owe to the IRS
-The age of your debt
-Any penalties and interest you owe
-If the IRS has moved to garnish your wages or seize your assets
-Whether the case is resolvable with an Offer in Compromise, installment agreement, or other payment option.
These factors make it challenging for any firm to guarantee how your case will be solved.
As a client, you want to hire a tax professional who will offer you personalized service. You want to say informed and in charge of your case as it unfolds.
Personalized service allows you to meet face-to-face with the person handling your tax situation, so you know the most intimate details of it well before you meet with the IRS in an audit or court hearing. You also want to know that the tax professional handling your case will answer your phone calls and emails whenever you have questions or concerns.
YOUR ROLE IN THE TAX RESOLUTION CASE
Finally, you want to find out what your role will be in your own tax resolution case. You should find out what the company expects from you from Day One so you can act and prepare accordingly.
You can find out these details by insisting on speaking with the professional representing you before you put him or her on retainer. You should ask how you can say proactive in your IRS tax debt case and how you can say informed as the case gets underway.
These criteria allow you to search for and find a tax professional or tax resolution firm that is qualified to handle your tax debt case. You will retain representation to guide and advise you as you approach the IRS. You also may get the desired outcome of your tax debt situation.
The Top Myths regarding Tax Pros can be found here myths.
For more information regarding IRS tax relief visit KeithJonesCPA.com.
IRS Tax Form 941 for Payroll Taxes
Here is everything you need to know about tax, payroll tax filing, quarterly returns and form 941.
Remember the thrill of your first paycheck?
Remember feeling less thrilled when you discovered that your employer held some money for income taxes and Social Security?
That is employment tax. Likewise now it it’s your turn for payroll tax filing and to file form 941 and be the bearer of bad news.
Certainly, you have employees, therefore, you pay into their income & FICA (Social Security & Medicare) taxes by withholding some of their paycheck.
Here, we’ll go over IRS Form 941,the tax form that makes all this possible.
What is Form 941?
Employers must submit IRS Form 941, also known as the Quarterly Federal Tax Return, to report three different taxes via payroll tax filing:
Most noteworthy, is the federal income tax in addition to other taxes withheld from employee paychecks like social security and Medicare. Finally the employer’s portion of social security or Medicare tax.
You use Form 941 quarterly to report these taxes on your payroll filing.
Most likely, you’ll make the tax payments themselves monthly or every two weeks through direct deposits (more on that below), depending on the dates wages are paid.
Who must file Form 941?
If you pay wages to an employee (remember: there’s a difference between employees and independent contractors) you have to withhold or ‘hold onto’ some of their pay to cover things like income taxes, social security and Medicare therefore you have to file Form 941.
If you’re a seasonal employer, you only need to File Form 941 in quarters where you’ve paid employee’s wages.
If you’re paying less than $1,000 in employment tax in a tax year, you’re off the hook (but you must file Form 944 instead).
And if your employees are “household employees” (a house cook or nanny, that kind of thing), you’ll just fill out Schedule H from Form 1040.
How do I withhold payroll taxes?
If you’re a new employer, have never withheld money from an employee’s paycheck and never filed Form 941, talk to an accountant to make sure your bookkeeping and payroll are set up and that you’re signed up for EFTPS deposits.
You can do this over the phone by calling the IRS at 1-800-555-3453 (have your bank account info ready) or online EFTPS website.
You’ll then have to create a password for your Electronic Federal Tax Payment System account, which you then must login here..
Do I have to make a filing if I have no employees working for me this quarter?
You still have to file Form 941. Only seasonal and agricultural employers who show their status on line 18 of the form don’t have to file Form 941. (See the IRS’s instructions to Form 941 for more information about who doesn’t have to file.)
What do I need to have ready before payroll filing?
Have your tax and payroll records on hand, and information
about taxable tips your employees collected this quarter (here’s the IRS’s guide to tip record keeping).
How do I submit payroll tax filings?
You can e-file Form 941 yourself online, or you
can have someone else do it for you.
What does a form 941 look like?
The current Form 941 PDF from the IRS contains a two page form, a voucher, and a fourth extra page of instructions. Besides the employer information section at the top, the form contains five parts.
The employer information section
Here you’ll show which period you’re reporting
for, your name, address and employer identification number (EIN). Don’t use your social security number (SSN) or individual taxpayer identification number (ITIN) here. You can apply for an EIN online at IRS.gov/EIN.
Line 1 asks you for the number of employees working
Line 2 asks for any wages, tips or other
compensation you paid them.
Line 3 asks for income taxes you withheld from
If you have no wages, tips or other compensation
subject to social security or Medicare to report this quarter, check the box on
Line 5 is the heart of form 941. It’s all about
calculating your tax obligations and making sure they’re up to date.
Line 5a will ask you to multiply total wages by
12.4% to calculate your social security tax obligation on wages.
Line 5b ask you to do the same thing for tips.
Line 5c is all about calculating Medicare taxes. The
current rate of 2.9% covers both your portion and the employees’ portion.
Line 5d is about any additional taxes on employee
compensation over $200,000, which is taxed at 0.9% and paid by employees.
Line 5e will ask you to total up all the amounts
Line 5f is for employers who have been asked
by the IRS to pay additional taxes on unreported tips. (See the instructions for 941 for more.)
Lines 6-10 will walk you through calculating your
total taxes after adjustments, which you’ll make to account for things like sick pay and group-term life insurance.
Line 11 is about the qualified small business tax credit for increasing research activities, which you can read more
about Instructions for form 941.
Lines 12-14 take your total taxes and subtract any
payments you’ve already made to come up with your total balance due.
If you overpaid (i.e. line 13 is greater than line
12) you report that on line 15.
This part is where you’ll figure out how often you
must send the IRS the taxes you calculated in part 1. Most employers will have to deposit monthly or every two weeks. If you deposit semi-weekly, you must explain your tax liability on Schedule B of Form 941.
If you owe more than $100,000 in taxes for the quarter, you must deposit these taxes immediately.
Here you’ll show whether you’ve stopped paying wages altogether, and whether you have any seasonal employees. If you do, you might not need to file 941 every quarter.
If you want to let an accountant, lawyer or tax prep professional discuss this form with the IRS on your behalf, this is where you’ll give them permission to do so.
Sign and date here to ensure everything you’ve
entered is correct.
Payment Voucher form 941-V
If you have a total balance due (i.e. line 14 contains a positive number) use this voucher to pay any taxes you owe to the IRS.
When do I need to form 941?
If you’ve never filed form 941, you must file your first copy at the end of the quarter in which your business first started
paying employee wages. You then must file on the last day of the month that follows the end of every quarter after that.
If you’re not sure when the quarter begins and ends, consult the following chart from the IRS:
|The Quarter Includes…||Quarter
941 Is Due
quarter: January, February, March
quarter: April, May, June
quarter: July, August, September
quarter: October, November, December
If you’ve already made all your tax deposits for the quarter, you have an additional ten days after the above due dates to get your form 941 filed.
Is that all I must worry about payroll tax filings?
Not quite. If you withheld taxes from an employee’s paycheck, you might also need to file Form 940, and there are some state and city-specific taxes you might have to collect depending on where you do business.
Talk to your accountant to make sure you’re clear on these obligations.
What if I don’t submit tax filings?
If you don’t file 941, check out How The IRS Can Make Your Life Miserable. You will pay the IRS 5% of the tax due for each month you don’t submit your tax filing ,to a maximum of 25%.
You could also incur a second penalty for making your tax payments late, which run between 2 and 15% of the underpayment, depending on how late your payments are.
Filing issues can also be found at Payroll Tax Issues and Pitfalls
Do federal tax liens expire?
The answer is yes! The Collection Statute Expiration Date (CSED) marks the end of the collection period, the time period established by law for the IRS to collect taxes. The CSED is normally ten years from the date of the assessment.
The Collection Statute Expires After 10 Years.
The collection period, which refers to the time period allowed by law for the IRS to collect taxes, expires on the Collection Statute Expiration Date (CSED). The CSED is typically ten years from the date of the assessment..
Tax assessments that have a specific Collection Statute Expiration Date include, but are not restricted to:
- Original tax assessments from voluntarily filed returns
- Tax assessments arising from amended return filings
- Substitute for Return tax assessments made by the IRS
- Audit assessments
- Civil penalty assessments
The IRS’s Time to Collect can be Suspended and/or Extended.
Certain circumstances have the potential to delay or lengthen the original ten-year CSED.
In general, when the IRS is unable to collect tax, the CSED or Collection Statute Expiration Date is suspended. The term it is suspended for extends the time the IRS has to collect. In other words, you have a maximum of ten years to collect after the first ten years. Although there are rare exceptions, the IRS typically refrains from taking levy action while the collection period is stopped.
In contrast, the collection period is tolled when the IRS is allowed by law to add additional time to the initial ten-year collection period. The IRS is allowed to continue collecting when the collection period is extended.
Typical Events That May Have an Impact on the CSED
The CSED is impacted by a number of statutes. The completion of the collection period may be tolled by more than one action. The time for multiple events is not added more than once where one event may overlap another one because overlapping conditions take place simultaneously.
The initial ten-year collection period is postponed or put on hold during the time that you are filing an Installment Agreement (IA). Until an IA may be reviewed, established, or the request is withdrawn or rejected, an IA request is usually in the pending status.
The collection period is suspended for 30 days if the proposed IA is denied. Similar to this, the running of the collection period is halted for 30 days if you fall behind on your IA payments and the IRS decides to terminate the IA.
Last but not least, the collection period is suspended from the time it begins to run until the day the appealed decision becomes final if you use your right to appeal either an IA rejection or termination. Please see Topic 202.
The running of the collection period is stopped while your bankruptcy is still pending if you file for bankruptcy. A bankruptcy is often considered pending from the moment a petition is filed until it is discharged, dismissed, or closed. Upon the conclusion of the bankruptcy, the collecting time is further extended for a further 6 months. Check out Publication 908.
The collection period is suspended if you submit an Offer in Compromise (OIC), from the time it is pending to the time it is accepted, returned, withdrew, or refused. If your Offer is turned down, the collection period will be postponed for an additional 30 days and for the duration of the appeal process if you decide to appeal the denial. Please see Topic 204.
When the IRS receives a request for a Collection Due Process (CDP) hearing, the collection period is put on hold until either the taxpayer withdraws the request or the CDP determination is final, including any court appeals. The collecting period is extended to 90 days from the date of the final determination if there are less than 90 days until the CSED at the time the determination becomes final. Please consult Publication 1660.
If you submit an innocent spouse claim, only the running of the requesting spouse's collection period is suspended from the date the innocent spouse claim was submitted until the earlier of the dates a waiver is submitted, the 90-day petitioning tax court deadline expires, or, if tax court is requested, the date the tax court decision becomes final, plus, in each case, the collection period is extended by an additional 60 days. Observe Topic 205.
The IRS is prohibited from starting an administrative or judicial collection process for the assessed debt once a particular collection period has passed.
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There are three main IRS collection alternatives taxpayers use to solve back taxes: Installment Agreement, Currently Not Collectible and Offer-in-Compromise.
IRS collection alternatives if you cannot pay the back taxes
We know the story: things are tight financially, so you either (1) do not file the tax return, or (2) file the return but don’t pay the balance due. But do not worry, you tell yourself, next year will be better.
Now it is 2-3 years later and a letter arrives from the IRS, and the threats start, and maybe it has even gotten to the point of actual levy and seizure activity.
Now the IRS is wreaking havoc on your financial life and you simply do not know what to do.
We know. We have helped many clients through that exact scenario. Fear not, there is a light at the end of the tunnel.
The most commonly used alternatives are extensions of time to pay and streamlined installment agreements. That’s because most individual taxpayers just need a few weeks to get the funds to pay their tax bill, or they can pay monthly.
As it turns out the IRS is usually only too happy to work with taxpayers, but there are some ground rule you need to be aware of and a roadmap to follow.
1. Tax Compliance
The first step in resolving your tax issue is to get into “tax Compliance.” Compliance means that you have filed all tax returns due for the last 6 years and have made your current tax payments. Once you are in tax compliance we can now work on resolving the back-tax issue.
2. Collection Alternatives
There are three main collection alternatives to resolve a back-tax debt: Installment Agreement, Uncollectable Status, and Offer-in-Compromise.
An installment agreement is an agreement to pay the taxes back over time. There are three variations of the installment agreement: Regular, Streamlined, and Partial-Pay.
Which type of agreement works best for you will depend upon your personal circumstances and is something we can help you address when you are ready.
Uncollectable status is when the IRS determines that you are unable to make current tax payments.
When a taxpayer is deemed uncollectable the IRS may still file a Notice of Federal Tax Lien to secure its position in the taxpayer’s assets but will not otherwise take enforcement action to seize (or levy) the taxpayer’s assets or income streams.
If you cannot pay the IRS, you can request currently not collectible (CNC) status, which strictly limits allowable expenses to necessary living expenses limited by IRS collection financial standards. CNC status is usually temporary; the IRS uses manual and automated procedures to determine whether your client’s financial situation has improved.
For CNC arrangements, the IRS will file a tax lien if more than $10,000 is owed. To request a CNC arrangement, you must contact the IRS by phone, in writing, or in person.
An Offer-in-Compromise is an agreement where the IRS agrees to accept less than the total amount owed to it and the taxpayer agrees to pay the amount negotiated, as well as maintain his or her tax compliance for 5 years following the acceptance of the Offer-in-Compromise (“Offer”).
The basis for an Offer is a formula referred to as “Reasonable Collection Potential” or “RCP.” RCP is effectively the net equity in assets plus the taxpayer’s excess future income for 12 or 24 months, depending upon how the Offer is structured.
There can be significant planning done to help a taxpayer maximize the potential for the Offer acceptance.
If you or someone you know has an issue with paying their federal taxes and needs help to end their IRS nightmare, please contact us by either phone at 844-888-1040.
TFRP or Trust Fund Recovery Penalty
What does TFRP mean? Trust Fund Recovery Penalty also known as TFRP, basically means you can be held personally liable for a penalty for not properly managing the employment taxes of a business. This is known as the “trust fund recovery penalty” (TFRP).
The TFRP is not a penalty in the traditional sense of being an amount added to a deficiency in tax due by an individual, corporation, or another taxpayer. Rather, the TFRP is a collection device that permits the IRS to impose liability on a “responsible person” who “willfully” failed to remit the employment taxes that were held in trust for the government.
TFRP cases rely heavily upon the fact pattern, and your success in defeating the penalty depends on the presentation of the evidence and knowledge of the IRS’s TFRP procedures.
The Two Prongs of the Trust Fund Recovery Penalty
There are two statutory components that must be established under IRC section 6672(a) before a person can be held liable for the TFRP.
First, the individual must be a “responsible person” for withholding and paying employment taxes to the IRS. Second, the person must have “willfully” failed to collect and remit the employment taxes due.
For purposes of IRC section 6672(a), the liability of a responsible person who has acted willfully is equal to the federal income taxes withheld from the employees’ wages and the employees’ share of the Social Security and Medicare (i.e., FICA) taxes.
These are the taxes that the employer is required by law to hold “in trust” and pay over to the government, hence the term “trust fund recovery.”
Under IRC section 6671(b), a “responsible person” includes any officer or employee of a corporation, or member or employee of a partnership, who has the duty to collect or pay employment taxes.
The mere holding of a corporate title, or the lack thereof, is not controlling on the issue of a person’s liability; the test is one of substance that asks whether the person had the status, duty, and authority to control the company’s financial affairs [Godfrey v. U.S., 748 F.2d 1568, 1575-76 (Fed. Cir. 1984)].
IRC section 6672 requires significant control over the business's financial operations and the ability to decide which creditors will and will not be paid; therefore, if a person’s financial authority is circumscribed by, for example, a senior officer who has the final say on which creditors will be paid, TFRP liability will not apply.
The principal factor that the IRS considers when examining which individuals may or may not be liable for the TFRP is who signs company checks. The IRS also investigates whether the person is an owner, officer, or director of the company; has the right to hire and fire employees; signs contracts with lessors/vendors or otherwise is active to the day-to-day affairs of the business; makes payroll tax deposits; or is responsible for the disbursement of payroll.
In defending putatively responsible persons, it is crucial to demonstrate that they lacked the requisite financial control exhibited by the foregoing factors through such things as company business records, e-mails, court pleadings in litigation involving the business, and affidavits from third parties, combined with effective written and oral advocacy.
An individual who qualifies as a “responsible person” is not necessarily liable for the TFRP; it must also be established that the responsible person acted “willfully” in failing to collect, account for, or pay the employment taxes. Under IRC section 6672, willfulness has been defined as a “voluntary, intentional, and conscious decision” to pay other creditors rather than remit the trust fund taxes to the government (Godfrey).
Courts have held that a reckless disregard of the duty to collect and pay employment taxes satisfies the willfulness prong, but mere negligence is never a sufficient basis for liability.
An advisor must be prepared to prove with evidence and arguments that even if a client was a responsible person, she did not have knowledge that the taxes were not paid, did not have the authority to decide the priority of payments to creditors, or otherwise was not willful with respect to the nonpayment of the employment taxes.
The Trust Fund Recovery Penalty Investigation
The TFRP investigation is conducted by a revenue officer from the IRS’s collection function. The revenue officer typically requests bank signature cards, canceled checks, and other business records to identify potentially responsible persons. If the company does not provide these documents voluntarily, an administrative summons will be used to demand the records from the business or from third parties.
The revenue officer will examine the records and then schedule interviews with persons who may be responsible for the failure to pay the employment taxes. If a potentially responsible person does not voluntarily agree to appear before the revenue officer, he is likely to receive a summons to command his presence for an interview. The individual will be told that he can bring an IRS-authorized representative to the meeting.
The purpose of this interview is to secure from the individual Form 4180, Report of Interview with Individual Relative to Trust Fund Recovery Penalty or Personal Liability for Excise Taxes. Form 4180 is a critically important document, and it can be perilous if an individual attends the interview or completes Form 4180 without legal representation and thorough preparation by counsel.
The document contains direct questions specifically designed to elicit responses that show whether the individual was a responsible person and whether she acted willfully. It is often necessary for the individual and her counsel to provide the revenue officer with a full description of the individual’s limited role and responsibilities in the business and to resist responding to questions in the “yes” or “no” format established by the interview form.
The individual should also make certain that Form 4180 includes an accurate written statement of the individual’s defense to the TFRP. When the interview has been completed, the revenue officer will ask the individual to sign Form 4180.
Challenging a Proposed Trust Fund Recovery Penalty Assessment
At the conclusion of the investigation, the revenue officer will decide which individuals will receive notices of their potential liability for the TFRP. Revenue officers are notoriously overbroad in their TFRP determinations, often including persons with marginal liability exposure. The revenue officer will mail Letter 1153(DO) and Form 5471, Proposed Assessment of Trust Fund Recovery Penalty, to the individuals determined to be liable for the TFRP. The TFRP notice must be sent to the individual’s “last known address” to be enforceable [IRC section 6672(a)(2)].
An individual who qualifies as a “responsible person” is not necessarily liable for the TFRP; it must also be established that the responsible person acted “willfully.”
An individual receiving Letter 1153(DO) and Form 5471 has 60 days to file a written protest with the IRS Appeals Office to challenge the TFRP determination. The protest should contain a complete discussion of the facts and legal authorities that show that the individual was not a responsible person for the company’s employment taxes or that he did not act willfully. The protest, or subsequent submission to the Appeals Office, should include documentary evidence, such as business records and affidavits, that supports the individual’s case. At the conference, an authorized representative will present arguments that the individual should not be held liable for the TFRP or that the penalty should be compromised on the basis of hazards of litigation.
Trust Fund Recovery Penalty Post-Assessment Procedures
If the Appeals Office upholds the TFRP, the IRS will assess the penalty against the individual and issue notice and demand for payment of the trust fund taxes. The individual can dispute the IRS’s decision in court, but first must pay a “divisible” portion of the penalty for each quarter of the employment tax assessment and file a claim for refund with the IRS.
The divisible amount of the tax is equal to the withholding taxes attributable to a single employee for each payroll tax quarter covered by the penalty assessment. If the IRS issues a Notice of Disallowance of the refund claim or takes no action on the claim for a period of six months, the individual can commence a refund suit. The lawsuit must be initiated within two years of the date that the divisible tax was paid, or two years from the date that a Notice of Disallowance was issued. The action can be filed in the local United States District Court or the Court of Federal Claims.
Fighting the Law and Winning-Trust Fund Recovery Penalty
Preparation is crucial to winning a TFRP case. A professional advisor must exhaustively develop the facts and review company business records, correspondence, and e-mails. These documents, together with affidavits from third parties, should be used to show the limitations on the authority and the lack of willfulness of the potentially responsible person.
If you are facing a TFRP, and need more information, you can get expert Advice from TheCPATaxPRoblemSolver for free. 844-888-1040.
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What is the IRS Fresh Start program initiative?
You've worked hard, but for whatever reason, you find that your tax debt cannot be paid on time and you don't know how to resolve it.
Owing the IRS for back taxes is a nightmare you never thought you would take part in. Yet, here it is. The penalties are accumulating and the threatening letters have arrived.
You're not alone. The IRS collects millions from taxpayers in penalties for failure to pay. Yet, many taxpayers are unaware that the IRS does have programs to help you get back on track.
Curious about the IRS Fresh Start Program? Check out our informative article for a helpful overview of what you need to know.
In 2008, The United States experienced a housing crash. Even before the official declaration of a financial crash, many homeowners were struggling with inflatable interest rates on mortgages and finding themselves in financial distress.
The IRS Fresh Start Program was started in 2008 as an initiative to help its citizens who were struggling to pay taxes.
The IRS Fresh Start Program was expanded in 2012 to offer more assistance for the unemployed and businesses that were still recovering from a struggling economy that began with the housing crash.
In simplest terms, The Fresh Start Program offers a few options for individuals and businesses to pay off back taxes over time. Each option has specific requirements and regulations that must be met in order to participate in this tax relief program.
Ways to Settle Back Taxes with IRS Fresh Start program.
First, understand that although sorting through forms and filing procedures can feel very cold and frustrating, the IRS is run by people. It is not a machine.
These are people who have financial responsibilities, too. If there is a reasonable way to assist you in legally reducing your tax burden or offer payment plans, the IRS wants to do it.
With that said, working with the IRS is challenging. If you have ever tried to file your taxes on your own, you know it is time-consuming and often confusing.
Much of the difficulty in trying to resolve a tax problem on your own is due to legal terminology that requires some study and knowing which forms to file correctly.
Now imagine negotiating your back taxes on your own. This article is intended to give you a basic understanding of your options, but it is strongly recommended that you consult with a tax professional who has experience with forms and filing requirements.
Extended Installment Plan
This is a repayment agreement that allows you to pay off your tax debt in monthly payments. It is designed for people who owe $50,000 or less in taxes. With an extended installment plan, taxpayers have up to 6 years to make payments until the balance is paid in full.
The amount of monthly payment will depend on the total back taxes and accrued interest. You will also have to file financial disclosures so that an affordable monthly payment can be determined for your situation.
Businesses that owe less than $25,000 in combined taxes, interest, and penalties are also eligible to apply for an extended installment plan called an In Business Express Installment Agreement.
There are filing fees for this type of repayment plan. You may have options to negotiate penalty payments and halt tax liens.
Short Term Streamlined Repayment Plan
If you owe back taxes but will be able to pay them in a shorter extension time than 6 years, you can enter a direct debit plan for up to 180 days.
Businesses that owe between $10,000 and $24,999 are enrolled in a short-term Direct Debit Installment plan. You must have employees to be eligible.
Having monthly payments directly deposited with the IRS from your bank will help keep you on track and avoid default on your repayment plan. There are also reductions in fees and penalties by entering into a short-term direct debit plan.
Offer In Compromise (OIC)
There are situations in which a taxpayer may not be able to pay the full amount owed within 6 years. There is no limitation on the amount of tax owed to apply.
An OIC agreement is complicated and requires extensive filings and documentation to prove that your financial hardship is so severe that full repayment in full is not possible.
In this case, the taxpayer fills out application forms with financial documentation. In the application, an offer is made. This is your offer of what you can pay when filing for a reduction in the total tax debt owed.
Through filings for tax debt relief, it may be determined that your tax debt is uncollectible at this time.
This is an extreme circumstance in which you are unemployed and have no assets, suffering a major illness with large medical bills, or any other situation in which you are barely affording your most basic needs and cannot pay on the tax debt.
If your tax debt is filed as an uncollectible status, that does not mean that the debt is forgiven.
Once you are earning income again and/or acquiring assets, you will be expected to pay your back taxes. Then, you may be able to negotiate with the IRS on repayment plans.
How Can You Qualify for Tax Relief?
Before you can begin to apply for payment plans or an OIC through the IRS Fresh Start Program, you must be in compliance. The following outlines your steps to qualify for tax relief.
- Owe Less Than $50,000
To qualify for a repayment plan under the guidelines of The IRS Fresh Start Program, your tax debt must be under $50,000. This does not include an OIC. An Offer In Compromise can be submitted for any tax amount.
Businesses are also eligible to apply if they owe less than $25,000 and are able to meet monthly payments. The business must have employees.
- First Time Delinquent Tax Payer
In order to receive some of the benefits given under repayment agreements, you must not be a repeat offender. This means opportunities to apply for removal of Federal Tax Liens and penalties will not be given.
- Tax Filings Are Up To Date
This means that all of the years that have not been filed must now be up to date regardless of your ability to pay. The IRS will not accept an application for The Fresh Start Program until all filings are complete and accurate.
- Maintain Compliance For 5 Years
If you are approved for an installment plan or OIC, you must continue to pay your taxes on time for the next 5 years.
If you fail to pay on time within 5 years, the IRS has the authority to find you out of compliance and reinstate the full amount previously owed. This includes the full-back tax, penalties, and interest.
Why Should You Consult With a Professional Tax Service?
The fact that you do owe back taxes and have not been able to resolve the amount owed and return to compliance with the IRS is a serious problem.
It may make you feel that you are in over your head. In truth, you are.
Gathering all of your necessary documents to file previous years' returns, following guidelines for late filing fees, and determining the correct forms to submit are going to be a lot of work and study on your part.
What happens if you submit forms incorrectly? Have you had tax notices reviewed to see if they are accurate? What if you enter into an agreement and do not fully understand the requirements and then default?
A professional who is experienced with various tax relief programs can help you to negotiate your tax debt with the IRS in a manner that is done right.
Knowing the law and your rights under tax relief is important to avoid future problems.
A qualified CPA can assist you with financial planning that keeps you on track. They can also help you with further negotiations if you fail to meet deadlines in your repayment agreement.
Get Expert Advice For Applying to the IRS Fresh Start Program
Getting behind in filing your taxes or being unable to pay the full amount of your tax debt on time is a situation that happens to millions of Americans. It is a stressful problem because of legal terminology that most of us cannot figure out on our own.
This article has outlined some of the repayment options you may be eligible for with The IRS Fresh Start Program. There are both immediate and long-term requirements that must be met to qualify.
Keith L. Jones, CPA specializes in IRS tax debt relief, tax resolution, and back tax filing. There is a no-cost obligation with your consultation.
Get your financial freedom back. Gather your tax documents and any IRS notices and make an appointment today.
You can pay your taxes via the IRS Fresh Start program also known as IRS fresh start initiative program.
Sometimes, we forget to file our returns. Some people have it worse—they go through difficult times and no longer have the financial means to pay their taxes.
If you are facing an IRS tax debt problem, what should you do? I am often asked, “what are the IRS fresh start programs and how can I get them?” Today, that is exactly what I am sharing with you. IRS fresh start programs reviews are also available.
Offer in Compromise
The Offer in Compromise is a tax program from the IRSirs fresh start initiative program where you can settle your tax debts less than the full amount that you owe.
It allows you to settle your financial burden without paying your entire tax liability.
The thing with this program is that the IRS considers several factors before your application gets approved.
When you apply for the IRS offer in Compromise, here are some of the things you need to think about:
- Ability to pay – the IRS will determine your capacity to pay. Among other things, they will investigate your financial status, your assets, and many other things.
- Income – the government needs to know whether or not you have a source of income. If you do, they need to know how much you are earning.
- Expenses – they also check what expenses you have. If you are in debt, they need to validate this with creditors.
- Asset equity – the government will check if you own properties such as cars, lots, and houses. If there is a possibility of selling these assets legitimately, they will take this into the equation before they decide whether you qualify for the IRS payment plan or not.
Not everybody is eligible for this program. The first thing you have to do is to apply for it. However, you cannot apply for eligibility if you did not file tax returns for the previous year. It is best to consult a professional to get help.
Who qualifies for the IRS Fresh Start Program?
|Use this tool to see if you may be eligible for an offer in compromise (OIC).|
Tax Debt Relief
Tax debt relief is a government program that makes it easier to pay your back taxes. It allows people to avoid huge penalties and jail time. We can call it the IRS hardship program since it is for people going through financial troubles.
The tax debt relief comes in the form of a payment plan or a settlement. In a payment plan, the IRS will give you some months to pay what you owe. In return, you have to pay what you owe in increments.
In a settlement, the IRS will charge less than what you owe. You will pay a lump sum for now and then pay the rest within several months.
Before you even consider doing this, you need to have a plan. For example, you need to know your options before the deadline, which is April 15. The last thing you want is to go to the IRS because someone taught you how to settle with the IRS by yourself and then realize that you do not qualify.
Also, I want to point out that the tax debt relief program is not for everybody. At best, it is reserved or people who:
- Went through a disaster like a hurricane or an earthquake
- Have an unexpectedly high tax because of a surge in income
There are several options if you apply for tax debt relief programs, which I will describe below.
- Installment Agreement – you pay your back taxes in multiple increments. Usually, the IRS could grant you up to 72 months to pay all your debts. Please note that this only applies if what you owe is less than $50,000.
- Innocent Spouse Relief – if you went through a divorce and you can prove that you have no liability with your ex-spouse’s taxes, you can get relief. Before you qualify, you must file taxes jointly and then prove your innocence.
- Offer in Compromise – in this situation, you make an offer to the IRS. You will pay less than what you should pay.
- Currently Not Collectible – you can only get this if you can prove that paying any amount of tax is detrimental to your living condition. It does not absolve you from paying, but the IRS will not bug you for not paying until you have recuperated financially.
If you think you cannot qualify for the tax debt relief program, your only course of action is to pay what you owe. You can use a credit card, get a HELOC, or borrow from your 401K. You can also learn a new skill like freelance writing and earn money on the side.
While there are ludicrous stories of people paying only $10 for a tax debt of $10,000, this kind of settlement rarely happens. If at all, these stories get highlighted by the media because they are fantastic stories that get a wide audience.
However, it is rather an exception than the norm. The IRS will do what it can to charge you what you owe. You can only get significant abatement from your tax debts if you can prove that you are in deep financial trouble.
IRS Fresh Start Program Initiative
Some people asked me about the IRS one time forgiveness 2021. I thought I might as well explain it here.
It is the same as what I have explained earlier. Some people think that they can get away with taxes, and some even call it the IRS fresh start program.
This information is wrong. If anything, the IRS does not cancel out your debt. You still have to pay what you owe, or at least a portion of it.
For this forgiveness program to work, the following things must happen:
- You have to apply to the program and secure an acceptance.
- You must agree to stay current in your tax returns moving forward
- You must agree with the terms that the IRS asks of you
- You must allow the IRS to review your financial status from time to time
- You pay your taxes as agreed with the IRS
As you can see, your only recourse is to settle. There is rarely any instance that the IRS will forgive your taxes. Even businesses that file for bankruptcy have to pay. They sell their assets, and they pay part of their due taxes from this sale.
You cannot get away from taxes. The first thing you have to do right now is to change your mindset. Save money so if something bad happens, you can still pay what you owe. The last thing that you want is to deal with the government.
Make it a regular habit to set aside money from what you earned. Keep them and then consult a professional accountant who will guide you through the entire process. Get an accountant you can trust, not one who would embezzle your money.
Summary: What Are the IRS Tax Relief Programs?
The tax debt relief programs of the IRS come in many forms. While you can apply for these things on your own, it is best to consult an accountant. It is not unusual for me to hear from clients how they got misinformed.
They have expectations that never came to fruition, all because they relied so much on advice from the internet or people who made unusual claims. Remember that the IRS deals with tax cases on a case per case basis—what worked for one person does not mean it will work for you.
UPDATED FOR 2022
As long as your kids are doing legitimate work for your business you can hire your child tax free.
How much can I pay my child to work for my business 2022 IRS?
As long as they’re doing legitimate work for your business, you can hire your child tax free and pay each of them up to $12,000 per year tax-free.
It’s true. And all of this while they earn a little money AND start saving for college or that first business. And it’s all tax-free.
So you may want to hire your child(ren) to work in your business. And you want to do it for many good reasons: to teach them about entrepreneurship, develop a strong work ethic, AND for the tax-free income — up to $12,000 per child.
You can hire your kids and pay each of them up to $12,000 per year tax-free. If you hire your son to stuff envelopes and your daughter to update your website then you get to lower your personal income by $24,000! Simply by engaging your children in the family business.
If they stay under this limit, they don’t even have to file a tax return, which means they don’t pay any income tax on it. And you get to deduct their wages, which lowers your business’ taxable income.
BUT WAIT. THERE'S MORE.
The IRS ACTUALLY Rewards You For It! Source: Publication 929 (2020), Tax Rules for Children and Dependents)
If you have children between the ages of 7 - 22, you can use this strategy to save some money. Here is how it works:
- Each of your children can be employed by your business and paid an annual wage of $12,000. This is an important amount because it is the standard deduction amount for single individuals.
- Your business gets to take a deduction for the payment, thus decreasing your taxable income.
- Your children will then file their own tax return, & since they only made $12,000 they pay no federal income tax because of the standard deduction of $12,000, their taxable income is ZERO.
- So the business gets to take a deduction, but the kids pay no federal income tax. It does not get much easier than that!
This strategy can also be combined with IRA and 401k strategies to really maximize the benefit. For instance, if you paid each child $12K each as salary. You could put $6K into an IRA that is deductible, and you can use their standard deduction to take their taxable income to zero.
In that case, your business can deduct $18K per child, but again, no taxable income.
If you want to save money then hire your kids and make sure you have them actually work!
Keep track of the hours and tasks your children perform and make sure it’s age-appropriate. DOL Rules Regarding Youth & Labor The IRS isn’t going to believe your 5-year-old earned $12,000 analyzing dental records. But that 5-year-old can model those pearly whites in photographs to be used on your website or brochure! It’s easy to document an “image agreement” that pays an ongoing licensing fee right from the start.
Using this strategy, rather than just dumping change into their jar, (money you likely paid personal taxes on) you’ve moved those taxable dollars from your tax rate to your child’s tax rate and bracket, which, is zero, and you still keep the money in the family!.
There are countless jobs kids can do for you, and remember, you can pay them at the SAME RATE you would pay any other employee or outsourced company.
- Cleaning the office
- Washing company cars
- Updating customer lists on the computer
- Simple to advanced Data-entry
- Transcribing video or audio
- Trips to the post office or general errands
- Helping at the office, passing out handouts, and more
- Walking door to door, placing fliers for your business
- Updating your social media accounts (They won’t even equate this as work!)
But then, let’s say after reading the guide, you find out that this strategy “doesn’t work” if your business is a corporation.
The Corporation “Problem,” and Its Simple Solution to Hire You Kids
There are different rules for different types of businesses. And that when the owners of a corporation hire their child, there are still payroll taxes like FICA to deal with.
We even pointed this out in your free guide. See for yourself:
FICA tax may not have to be withheld on work performed by a child under the age of 18 while employed by a parent in an unincorporated business (sole-proprietorship, single member LLC or a partnership where the only partners are the child’s parents). However, there is no FICA or FUTA exemption for employing a child in an incorporated business (S or C Corp) or in a partnership that includes non-parent partners. In these cases, the children are subject to the same withholding rules that apply to all other employees.
So you DO NOT have to pay payroll taxes for employing your kids if your business is a sole-proprietorship, a single-member LLC taxed as a disregarded entity, or an LLC taxed as a partnership and owned solely by you and your spouse.
But if your business is a corporation, the IRS’s rules are clear. You must pay payroll taxes on income given to your children.
So are you stuck if your small business is set up as an S or C Corp? Or if you’re planning on switching to an S Corp like we normally recommend for maximum tax advantages?
Well, it turns out there is a workaround.
As one high-profile tax strategist says: in order to lower your tax, just change the facts.
Here’s how to do it:
The Payroll Tax Workaround to Hire Your Kids
If your business is set up as an S or a C corporation, or as a partnership with other non-parent partners, the IRS says you have to withhold payroll taxes when employing your kids.
But there is a way to get around this restriction utilizing a little creativity and a “hybrid” approach.
Instead of paying your children directly from your S Corp, you pay them out of a family management company.
You can create this simple family management company as a Sole Proprietorship separate from your S Corp, and owned by yourself or your spouse.
Its only purpose is to support the operations of your Corporation, which can include the scheduling and monitoring of jobs done by your child(ren) — and all the bookkeeping and documentation necessary to keep the jobs within IRS standards.
The family management company charges the Corporation a management fee for these services and can then pay your child — which removes them from your corporate payroll.
And since the family management company is a Sole Proprietorship owned by a parent, you, or your spouse, it falls under the IRS exemption where payroll taxes don’t have to be withheld.
By following this workaround, you’ve found a way to truly pay your kids $12,000 per year tax-free using nothing but the IRS’s own rules.
For more tax-saving tips check out how my blog on Tax Deductions VS Tax Credits! Then put on your HR hat, because you've got some little new hires to train!
How to Pay Less Tax Like The Rich
The richest Americans pay less tax via overall a lower tax rate than average due to what the IRS shows they do differently.
The ultra-rich save the most tax, according to IRS statistics. And over 90% of them have one thing in common. They do not sign their own returns. They hire tax pros instead. It shows they paid at a combined 24% rate on average, down 1% compared to the 25% national average.
The more money you make, the more complicated the returns. But it also means the more money you have for tax planning, to pay someone to navigate the complex tax system. They find ways to legally avoid paying tax.
Pay Less Tax
Most less wealthy Americans don't pay for tax planning. Thus they miss out on the various ways of legally avoiding paying taxes. Tax avoidance is finding ways within the law to keep taxation at its smallest amount. That, after all, is what the paid professionals are there to do.
What you need to know to how to pay less taxes
What Tax Planning Really Does
Tax planning is the art of arranging your affairs in ways that postpone or avoid taxes as allowed through the ever-changing tax regulations. By employing effective tax planning strategies, you can have more money to save and invest or more money to spend.
Put another way, tax planning means deferring and flat out avoiding taxes by taking advantage of beneficial tax-law provisions, increasing and accelerating tax deductions and tax credits, and generally making maximum use of all applicable breaks available under our fabulous IRS Code.
While the federal income tax rules are now more complicated than ever, the benefits of good tax planning to owe less tax are arguably more valuable than ever before.
BOOK YOUR NO-COST NO-OBLIGATION APPOINTMENT HERE TO SCHEDULE A CONFIDENTIAL VIRTUAL MEETING FROM THE COMFORT OF YOUR HOME OR OFFICE!
You might ask yourself if you can afford Tax planning, but the real question is - Can you afford not to practice tax planning and learn how to pay less in taxes?