The Internal Revenue Service assesses penalties for failing to file returns on time where taxes are owed and for non-payment of taxes when due. The IRS also will file substitute returns on behalf of taxpayers when no return has been filed. The substitute return does not take into account any allowances or deductions and always results in a higher tax. In other words, all the taxes on which penalties are based are always inflated and can go away with a properly filed return. We at 6 Lakes Legal Services strive to obtain the very best result for our clients by petitioning the IRS to decrease total tax debt by minimizing penalties for failing to file where taxes are owed or for non-payment of taxes or due to non-reporting of income. In some instances a classification of unable to pay will relieve taxpayers of any tax responsability whatsoever.
Persons or companies with tax problems often run into trouble with the IRS when they either don’t timely file returns or they fail to pay taxes when due. While those in business who fail to properly classify their employees and become responsible for any shortfall, the failure to file or pay on time for individuals are the most prevalent. Although no penalty can be assessed if no taxes are due, if taxes are due, late payment or failure to file penalties attach depending whether a return was timely filed. In the absence of a filed return the agency may file a Substitute for Return (SFR), in which taxes will be assessed pending filing of a proper tax return. Further, even if taxes are owed at filing taxpayers may obtain an installment agreement in which the IRS will accept repayment over time at minimal interest.
However, if taxes are owed at time of filing and no extension or installment is sought, penalties can be hard to swallow. According to the IRS tax guidelines, tax penalties are designed “to encourage voluntary compliance by supporting the standards of behavior required by the Internal Revenue Code”. In other words, they are intended to make noncompliance—neglecting to pay the right amount of taxes, on time, in the right way—more painful than paying voluntarily. Of the two main causes that penalty attaches, the penalty for failing to file returns when taxes are owed are the most extreme at 5% of the unpaid tax per month where the penalty for non-payment of tax is 0.5% of the unpaid tax. In addition, sometimes an offer in compromise to settle unpaid taxes will work to decrease total indebtedness. The IRS assesses penalties for failing to file returns on time where taxes are owed and for non-payment of taxes when due. The recognized programs we have at our disposal are as follows:
First Time Penalty Abatement
Under First Time Penalty Abatement if taxpayer has always filed taxes on time and paid when due the IRS has no problem abating penalties. However, although penalties are abated, the interest keeps rolling.
Good Faith Penalty Abatement
Under Good Faith Penalty Abatement, specific conditions attach to the request in which taxpayers must qualify. These conditions spell out what constitutes good faith avoidance of taxes when due.
Offers in Compromise
All Offers in Compromise examine debt and asset structure of the taxpayer to determine what they will accept. This amount can be obtained through liquidation of assets such as annuities and savings and through refinance. The Internal Revenue Service may accept partial payment of taxes in settlement of total outstanding tax debt under certain circumstances. Although I would never recommend trading higher priority debt such as mortgage debt for lesser priority such as taxes, sometimes when we run the numbers they favor obtaining pay off through compromise through any means solely because of the savings gained.
Under a category known as Cannot Pay, a taxpayer is deemed uncollectable and taxes may be forgiven.
A Bankruptcy Discharge will eliminate tax debt including penalty and interest if the tax was owed beyond three (3) years prior to filing in which returns were filed beyond two (2) years.
We at 6 Lakes Legal Services strive to obtain the best possible results for our clients by petitioning the IRS to decrease tax debt by minimizing penalties for failing to file where taxes are owed or for non-payment of taxes or through representation in Bankruptcy.