When a taxpayer is attempting to settle his debt with the IRS, the taxpayer is required to be “in tax compliance”
The Burden Is Upon The Taxpayer To Prove Tax Compliance for the Current Tax Year
The Taxpayer Must Show That His Past Tax Non-Compliance Transgressions Have Ceased In Order to Be Eligible for an Installment Agreement or OIC
The taxpayer owes money to the IRS and is ready to work out a deal to resolve that debt. In order to do so, the first thing the IRS will insist on is that the taxpayer get into tax compliance.
This means that all tax returns need to be filed and that the taxpayer is properly making their current year tax payments.
If a taxpayer is not in tax compliance, the IRS will not work with the taxpayer to settle the debt. We often refer to this as the taxpayer must show that the bleeding has stopped. If the taxpayer can demonstrate to the IRS that he has filed his current tax return and is making the necessary tax payments for the current tax year, then the IRS will discuss how best to resolve the tax debt associated with the earlier tax years.
What Does It Mean to be in Tax Compliance?
All tax returns are filed. If there are back year tax returns that have not been filed, they must be prepared and submitted to the IRS. Typically, this means that the last six years of tax returns must be on file with the IRS. The IRS can request that returns beyond the last six years be filed. If an IRS Revenue Officer is handling the case and believes that significant tax liabilities may exist in those earlier years, the RO may request that those earlier tax years be filed. If no return is filed for any year, the taxpayer needs to realize that the statute of limitations remains open indefinitely and the IRS has the right to assess and collect those taxes. IRS rules do not apply to the states.
Most states require that tax returns be filed for ALL unfiled tax years.
Whereas the IRS has 10 years to collect an assessed but unpaid tax, many states have enacted a 20-year collection period as they often learn of the tax liability from their sharing of tax information agreement with the IRS.
If the taxpayer is a W-2 employee, sufficient income taxes are being withheld on a regular basis and are sufficient to cover the tax bill at the end of the year.
If the taxpayer is self-employed, that quarterly estimated taxes are timely filed and in the proper amount.
A business with employees must make sure that all payroll taxes are deposited on time and that all quarterly filings are timely.
Future tax returns are timely filed during the resolution period. For OICs, that time period is five years. For installment agreements, it is during the term of the installment agreement. Failure to meet this requirement will result in any settlement plan to be voided. The IRS position is that if the taxpayer cannot remain compliant, there is no reason to keep in place any agreement for the future.
It is always a good practice to accumulate your tax records and information contemporaneously during the tax year and have your tax return prepared ASAP after December 31 in the following tax year, but no later than April 15 (unless an extension to file has been submitted to the IRS).
If you have insufficient funds to pay your tax liability in full by April 15, file your tax return by April 15 without the tax payment. The failure to file a timely tax return is subject to a 5% monthly penalty; whereas, failure to pay carries a 0.5% penalty.
If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.
About F. Bryan Haarlander, EA, CTRS:
Bryan Haarlander, an Enrolled Agent and a Certified Tax Resolution Specialist, is an affiliate member of the Suburban West Realtors® Association, a member of the American Society of Tax Problem Solvers (ASTPS), PA Society of Tax & Accounting Professionals (PSTAP), the National Society of Accountants (NSA) and the National Association of Tax Professionals (NATP). He is the author of “How to Resolve Your IRS Tax Debt Problems” as well as a book on how to start your own business. He has been practicing in Exton for 19 years. His firm serves clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.
For individual tax payers, real estate professionals, contractors and other self-employed individuals with IRS tax debt issues or tax planning issues, feel free to contact me at (610) 594-2601 or by email at firstname.lastname@example.org.
Keystone Financial Solutions, Inc. specializes in providing innovative tax planning, tax preparation, and solving IRS tax debt problems. The company’s web site is https://www.keysolutions.us and its telephone number is (610) 594-2601.
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