Back taxes are any taxes not paid during prior tax years. The United States Internal Revenue Service estimates 8.2 million Americans owe a combined tax debt of $83 million in back tax debt. Owing back taxes can greatly affect the quality of someone’s life, but misinformation, not being able to pay, and fear of penalties prevents many debtors from contacting the IRS. People who owe back taxes often describe this fear and the looming debt as a weight on their chest or a dark cloud that follows them everywhere. This article seeks to shed some light on not only what can happen when back taxes are not paid, but also provide five ways of settling this debt with minimal damage to the debtor.

When back taxes are owed, the Internal Revenue Service will not hesitate to impose fines, put liens on property, garnish wages, and place levies on bank accounts. Federal laws allow the IRS to garnish up to 25 percent of your wages or the amount of your income that is over 30 times the minimum wage until the tax debt is paid. These laws also allow the IRS to place a levy on a debtor’s bank account, which means the IRS can take all of the money in the account towards the tax debt.

The most direct solution for anyone owing back taxes would be to contact the Internal Revenue Service and get them paid, but it can be next to impossible to pay IRS penalties and afford basic needs. However, it is possible to pay back taxes, avoid the harsher penalties, and live a normal life.

Option #1: File for Currently Not Collectible (CNC) Status

Currently Not Collectible status is available through an IRS financial hardship program. The ideal candidate for CNC status is able to prove he or she has little or no money left after paying basic expenses, such as food, rent, and utilities. CNC status ceases collection for a time so that the debtor can gather the resources to pay the debt. Although CNC provides temporary respite from looming tax debt, the debt does not go away, continues to accrue interest, and the IRS will withhold any future tax refunds towards the debt (commonly known as a refund offset).

Anyone interested in determining if CNC status is a good fit for their situation should first contact a qualified tax professional. The second step is to gather the following documents for your appointment:

• A monthly list of expenses (i.e. food, rent/mortgage, utilities, child care expenses, student loan payments, alimony and/or child support, transportation, monthly dues, etc.)
• Three months of bank statements
• Proof of payment for any unusual expenses, such as medical bills

The tax professional will then guide the debtor through determining his or her disposable income and whether to complete Form 433-A or Form 433-F. The tax professional can also help the debtor develop a plan of action to gather the money owed during this deferment period. Once the forms are submitted, the IRS will then evaluate the debtor’s case and determine if he or she is a good fit for CNC status and how long of a deferment period he or she will have.

Option #2: Set up an Installment Agreement

When an individual owes back taxes, the IRS’s main goal is to collect and will often work with him or her to develop a payment plan. The ideal candidate for a payment plan does not meet the criteria for CNC and the combined debt is less than $100,000. Although the fastest way to set up an IRS installment plan is online, applicants can also do so by phone. Applicants will need the following information when applying for an IRS installment plan:

• Name exactly as it appears on the most recent tax return
• A valid email address
• Address as it appears on the most recent return
• Date of birth
• Filing status (i.e. married or single)
• Social Security number of all parties on the return
• Transcript and/or PIN from any previous IRS installment plans

Option #3: Make an Offer in Compromise

An Offer in Compromise (OIC) is exactly what it sounds like: a debtor’s offer to the IRS to settle his or her tax debt for less than the amount owed. An ideal OIC candidate will have filed all applicable tax returns, is unable to pay or does not qualify for other options, and has made all tax payments for the current year. Once the amount is agreed upon by both parties, Offers in Compromise can be paid in lump sums or periodic payment offers. The IRS takes the following factors into account when evaluating an applicant for an OIC:

• Is there doubt or a dispute as to how much is owed?
• Is there doubt regarding the collectibility of the entire debt?
• Would collecting the full amount cause the applicant financial hardship?

Option #4: Ask for a Penalty Abatement

For individuals who have never been delinquent on their taxes before, the IRS offers the First Time Penalty Abatement Program. This program allows debtors to receive some relief from penalty fees while paying back taxes. Abatements only cover fees from a single tax period and will only be granted if:

• Filing a tax return was not previously necessary for the debtor.
• The debtor has not incurred tax penalties for the three previous years.
• The debtor has filed all currently due returns or an extension to file.
• All fees are paid or a suitable payment arrangement has been made.

Option #5: Ask for Full Forgiveness of the Tax Debt

The IRS will grant individuals who owe back taxes full forgiveness of their tax debt, although this is incredibly rare. In addition to demonstrating an inability to pay back taxes owed, an individual who may be a candidate for full forgiveness will have to prove his or her debt is past the statute of limitations. The most common way individuals demonstrate an inability to pay is through Chapter 7 bankruptcy.

Owing back taxes is difficult and anxiety-inducing under the best of circumstances. Individuals who owe back taxes often feel trapped. However, with the help of a qualified tax professional and knowledge of these five options, there is hope for any individual who wants to resolve his or her back tax debt.

President Trump signed The Job Cuts and Jobs Act on December 22, 2017. The legislation that actually passed is quite different from the promised 35 percent tax cut Trump promised on the campaign trail. In fact, the main beneficiaries of this tax law are taxpayers at the top of the heap, specifically, the top five or six percent as published by Newsweek in the article, Trump’s Broken Promise: GOP Tax Bill Fills Wealthy People’s Pockets, Takes Money from Middle Class, Poor.

Important Changes that Impact a Large Segment of Population

– Eliminates moving expenses except for military personnel
– Eliminates deduction for people paying alimony
– Almost doubles standard deduction
– Limits mortgage interest deduction to $750,000
– Eliminates home equity loan interest deductions
– Repeals Obamacare tax penalty for uninsured
– Tax Bill’s Impact on the Middle Class

Newsweek reports that middle-income earners will see taxes lowered by about 10 percent for about eight years, expiring in the year 2025. According to The Tax Policy Center, middle class taxpayers will reap about $1000 in savings. Essentially, the majority of people who reside in the middle class can count on minimal tax relief, with no net benefit from tax cuts by 2027. Additionally, Trump’s promise for a simpler tax system with fewer tax brackets never materialized in the final bill with the three tax brackets Trump said he’d deliver. The tax code still has the same seven tax brackets as it did before the new law was passed.

Financial Prospects for the Poor Under Current Tax Law

While the poor can claim a tiny tax savings, the amount pales in comparison to the benefits gained by higher earners. The taxpayers that represent the lowest income bracket will see an income increase of .3 percent, according to The Tax Policy Center. As a point of reference, Newsweek reports that the highest income earners are gaining a significant 2.9 percent increase. Considering the drastic difference in the income levels between the top echelon of Americans and the lowest earners, this 2.5 percent difference in income benefits is significant and is why so many Americans and journalists are claiming that this bill helps the wealthiest Americans with little benefit for most of the population.

Tax Law Rewards the Wealthiest Americans

The reason wealthy people are happy about Trump’s Tax Plan is because they win big favoring business owners and wealthy people by significantly lowering corporate tax rates and estate taxes. The top one percent of Americans reap the benefits of estate tax exemptions that are double what they were prior to the passage of this law. In 2026, the rate returns to what it was before the Act passed. Currently, the first $11.2 million for a single person and $27.4 million for a couple are tax exempt from estate taxes.

The corporate tax rates have been lowered from 35 percent to a figure that represents the lowest rate since 1939, 21 percent. The tax benefits awarded to businesses by this plan aren’t limited to C-Corporations. The standard deduction applicable to pass through businesses was raised to 20 percent. This includes sole proprietorships, LLCs, partnerships and S-Corps. Many small and medium-sized businesses fall in this category and are certain to benefit.

Another benefit business owners are reaping relates to writing off depreciation. Trump’s New tax bill allows businesses to take a deduction for the cost of a depreciable asset in one years instead of having to amortize it over a longer period of time. When purchasing large equipment assets, this type of asset offers huge tax benefits, sheltering income from taxation due to write offs immediately.

In spite of the $40 billion increase in the deficit that is expected from the elimination of the corporate AMT, Trump’s tax plan included this big change. The AMT imposed a 20 percent tax rate that automatically kicked in when tax credits reduced a company’s tax rate below 20 percent. The AMT guaranteed that corporations had to pay taxes, even when the number of tax breaks grew so substantial as to almost completely eliminate a company’s tax bill.

Territorial System versus Worldwide Tax System

Trump’s tax plan changed the worldwide tax system to a more lenient territorial system allowing US companies that make money overseas, the tax exemption on that money earned on foreign soil. This change is expected to specifically favor pharmaceutical and technology companies. Aligned with Trump’s campaign promise to bring foreign operating American companies back home, this change is expected to encourage entrepreneurs and business owners to bring the money “back home” to reinvest. The justification for this change is based on the idea that the worldwide tax system encourages businesses to leave their money overseas since the money could not be taxed until it came back into the country.

Tax Impact Changes Related to Dependents

Forbes reports, the Child Tax Credit was increased from $1,000 to $2000. Covered income limits were increased from $110,000 to $400,000. Elderly dependents are also considered with a $500 credit allowed under the New Tax Plan.

Medical Deductions and Changes

Nothing garners more interest in today’s volatile healthcare climate than discussions about medical expenses and healthcare costs. Forbes reports that the deduction for medical expenses actually increased for 2017 and 2018 as the result of lowering the floor to 7.5 percent of income from 10 percent of income for qualification purposes. Considering 8.8 million people benefitted from this deduction in 2015, according to Balance.com, this attractive deduction improvement is certain to be one of the few “winners” in the new tax law that can appreciated by taxpayers across the board.

Summary

After dissecting the details related to longevity and benefits that apply to all citizens, it becomes apparent that the wealthy have reason to celebrate while the middle and lower income earners will barely notice a difference, particularly as prices keep increasing and specifically, in light of higher healthcare costs predicted. As the result of Trump’s targeted attack on Obamacare, which will mean the loss of thousands of participants as the result of eliminating the requirements for uninsured Americans to join, the prices of healthcare are sure to go up, disproportionately harming poor and middle-class Americans.

At Tax Group Center, we are committed to providing our clients with results. Clients who retain our services in order to address their delinquent tax returns and debt often come to us in a time of crisis. To best protect their financial interests, it is essential that we evaluate the client’s particular situation and determine the appropriate compliance or tax resolution program to file with the IRS or State Taxing Authority in a timely manner. The cooperation of our clients is vital to our success. Several documents must be submitted to our legal department in order for them to determine the best course of action in handling a client’s tax situation. Form 433A/B is absolutely required by the IRS for resolution qualification. This form outlines your income and expenses which will ultimately determine which resolution program is right for you. If you are a current client, please be sure to fill out this form to the best of your ability and return it back to us as quickly as possible. No work can be done on your behalf until this form is completed. Other supporting documents such as bank statements or proof of insurance may be required as well.

There are several types of tax resolution programs available depending on your qualifications, these include:

Offer in Compromise (OIC)

A settlement of the tax liability for less than the total amount owed

Penalty Abatement
Forgiveness of penalty fees

Installment Agreement (IA)
Small payments of the total tax liability paid over time

Currently Non Collectible (CNC)
Places the tax liability on hold during which time, collection activities and levies are halted

Innocent Spouse
Relieves responsibility of tax debt, interest and penalties associated with your spouse

Levy Release/Modification
Removes or reduces seizure of assets

Wage Garnishment Release/Modification
Removes or reduces seizure of wages

For more information on qualification and other details of these programs please visit our website: www.taxgroupcenter.com.

Tracking our results is a tool that we use to ensure that we are providing the best service to our clients and allows our new clients to see “the light at the end of the tunnel”. We understand that our clients have certain expectations when it comes to their particular case and we want to ensure that those expectations are met or even exceeded. Each month, we determine the total number of tax resolution programs our Enrolled Agents and Attorneys were able to get accepted by the IRS or State. In this way, we can track the effectiveness of our staff and ensure that our clients are achieving their goals.

Example of an Enrolled Agent’s Monthly Results:

Again the results achieved are based on individual circumstances. Our team of professionals evaluates a number of factors to determine which tax resolution program is most likely to be accepted by the IRS or State Taxing Authority. Timely return of all requested documents is essential to starting the process. Keep in mind that programs such as the Offer in Compromise can take up to several months to complete.

We’re working to help an even greater number of clients each month in the future. By constantly evaluating our performance and streamlining our protocols, we’re striving to be the most effective tax service company in the industry. Delivering results for our clients is our business.

If you’re a Tax Group Center client that recently received a successful resolution, we’d love for you to share your experience. When you contact us to give your testimonial, in return for your feedback we’ll send you a $50 gas card! Know someone with unresolved tax issues? Refer them to Tax Group Center. We consider it the highest compliment when our clients are pleased with our work and go on to share their experience with others. Call today to find out about our referral program!

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