For Tax Relief, Los Angeles Residents Have Options

Graham Snelgrove
Expert Contributor
Last Updated:
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  • You have a number of options for tax relief in Los Angeles.
  • Some tax relief plans could have future consequences.
  • You should seek professional advice on the best option for your circumstances.

Los Angeles is one of the most expensive places in the country to live. The cost of real estate, food, and gas are higher than in other places — and so are the state taxes. L.A may have more than its share of movie moguls and high-flying executives, but most of the citizens are just ordinary people trying to make ends meet.

With costs so high it’s not surprising that so many people get into arrears with taxes. Fortunately, if you need tax relief, Los Angeles residents have several options. The IRS and the state can take a number of actions against you to collect any back taxes you owe, and some of those actions can leave you in financial hardship. If you find yourself in this position, you should seek advice regarding the tax relief options available to you.

What Tax Relief Is Available in Los Angeles?

The most cost-effective and straightforward way of avoiding any penalties is to pay your taxes in full and on time. If you don’t have the means to settle your tax liability yourself, you could try to borrow the money.

If you have a good credit status, you might consider applying for a bank loan. The interest on a loan might be less than the interest and late payment penalties that the tax authorities would add to your tax debt daily. However, you should only get a loan if you are sure that you can make the repayment; otherwise, you will just be moving your debt problem to a different institution.

If you own a house, refinancing the property might be an option to release some equity. This is a serious decision and should be undertaken only if it is appropriate for your situation. If you are unsure whether this is the correct route to paying your back taxes, you should seek debt relief advice.

For Tax Relief, Los Angeles Residents Have Options

If there is no way you can raise the money to pay your taxes in full, you have several options to settle your debt or halt the collection process.

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  • Installment payment plan
  • Offer in compromise
  • Innocent spouse status
  • Currently not collectible status

How Does an Installment Payment Plan Work?

The IRS and the State of California Franchise Tax Board both enable you to apply for an agreement to pay your tax liability in installments, although they impose different conditions. With the IRS, you might be eligible if the following are true:

  • You have filed all of your tax returns
  • For a short-term payment plan (120 days or less), your total debt is less than $100,000
  • For a long-term installment agreement (more than 120 days), your total debt is less than $50,000

The state tax board will consider you if you meet the following conditions:

  • All of your income tax returns have been filed
  • The amount you owe is less than $25,000
  • The installment plan is for no more than 60 months

If you are accepted for an installment payment agreement, interest will be added to the outstanding balance and compounded daily. Late payment penalties will also be imposed. It is advisable to pay as much up front as you can and make the agreement for the shortest period you can manage.

Could You Make an Offer in Compromise?

An offer in compromise is an agreement to let you pay off your debt for a lesser amount than you actually owe. The IRS and state tax board always try to collect the full amount of your tax liability. However, they may approve an offer in compromise if the amount you offer is the most they can expect to collect within a reasonable period of time.

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The factors that will be taken into account include the following:

  • Your ability to pay
  • The equity in your assets
  • Your current and future expenses and income
  • The potential for your circumstances to improve
  • The state tax board will also consider whether the offer is in the best interest of the state

You will need to provide full financial disclosure for the tax authorities to ascertain that you are really not able to pay your entire tax liability. Your offer in compromise could be considered frivolous if you are clearly not eligible, and you may receive additional penalties.

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The Franchise Tax Board will require you to pay the full amount of the offer in a single lump sum. The IRS will allow you to pay by agreed-upon monthly installments.

Are You Eligible for Innocent Spouse Relief?

If you file your tax returns jointly with your spouse, you will both be responsible for your tax debt. But if your spouse, or ex-spouse, has entered erroneous items on the return without your knowledge, you may be able to claim innocent spouse relief.

To qualify for relief from jointly filed taxes, interest, and penalties, you have to meet the following criteria:

  • A valid joint tax return was filed
  • When you signed the return, you did not know or have reason to know about the items that brought about additional tax or penalties
  • Your spouse caused the liability by underreporting income or falsely claiming deductions or credits
  • When considering all circumstances and facts, it would not be fair to hold you liable for the tax understatement

Is Your Debt Currently Not Collectible?

If the IRS or state tax board believe that they will be unable to collect your tax liability now or in the foreseeable future, the debt could be assigned “currently not collectible” status. This is a temporary delay in the tax collection process. You might qualify if the following are true:

  • Your financial situation only allows you to meet basic living standards
  • Collecting the debt would cause you and your family undue financial hardship

Under this status, the debt is not canceled, and it continues to incur interest charges and late payment penalties. If your financial status improves, you will still be liable for the increased debt

Deciding the best course of action for your individual circumstances is not easy. Solvable can match your personal needs with trusted debt relief providers. We will guide you through the debt relief process.

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Graham Snelgrove
Expert Contributor
Last Updated: