Essential Steps to Successful Tax Resolution

John Hsu
Expert Contributor
Last Updated:
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Having the Internal Revenue Service (IRS) breathing down your neck can be a stressful and unsettling experience. While some tax problems can be solved easily, others may require careful analysis and action. The assistance of a qualified tax professional is always recommended. Regardless of the severity of your tax issue, it’s always best to reach a successful tax resolution as soon as you can.

Nonetheless, fixing a tax problem can be a daunting task if you aren’t familiar with tax laws and the way the IRS works. Then again, there are effective steps you can take to achieve a successful tax resolution and financial freedom.

How to Deal With an IRS Notice

The IRS sends out notices for a variety of reasons, some good and some bad. If you have a tax problem, getting an IRS notice is certainly not good news. The easiest way to deal with this kind of notice is to just put it aside and ignore it, which is what many American taxpayers choose to do. However, ignoring the notice will only make things worse. It’s important that you respond to it as soon as possible.

Before you reply to the IRS, you need to understand why they are contacting you. Usually, it’s a specific issue that needs your immediate attention, such as back taxes, non-filing of tax returns, audit notification, or an impending levy. The notice will also let you know whether you are required to take any action.

If action is needed, read the instructions provided in the notice and then follow up with the IRS. If you have difficulty understanding the notice or following up, it’s best to seek the assistance of a qualified tax professional or attorney.

Essential Steps to Successful Tax Resolution

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Should You Hire a Tax Professional?

If you’re experiencing a significant tax issue that won’t go away regardless of how hard you try, you should consider hiring a tax professional. A tax professional can perform a wide range of tasks to help you resolve your tax problem, including providing guidance during the filing process, negotiating for more affordable tax payment plans, offering valuable tax advice, and devising a successful tax resolution plan.

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While you should work alongside the tax expert and do what you can, you can expect to save a substantial amount of time and effort. Your tax representative will help you handle the most tedious aspects of tax resolution, giving you more free time and greater peace of mind to focus on other things in your life.

How to Hire the Right Tax Professional

Scams are not uncommon in the tax resolution industry. If a tax resolution professional or firm promises to resolve your tax problem for a minimal fee before reviewing your tax situation, you should just walk away. It’s essential that you do some research before hiring a tax expert. Some of the things you should look for in a tax resolution professional include:

  • Adequate qualifications and credentials
  • Substantial experience
  • High success rate
  • Effective tax resolution processes
  • Good reviews and references
  • Excellent reputation with the Better Business Bureau

Steps to Successful Tax Resolution

Step 1: Analyze Your Tax Situation

Taking the first step toward successful tax resolution is probably the most difficult challenge. However, it’s something you must do if you want to attain the freedom you deserve. First of all, you need to find out from the IRS what exactly you need to do to resolve your tax issue.

Ask questions like, “What tax returns are missing and need to be filed?” or “How far along in the collection process am I?” The questions you ask should lead to a clearer understanding of your tax problem, the course of action needed to fix the problem, and the amount of time you have to resolve the problem.

Your tax representative will play a vital role during the analysis stage. To kick things off, he or she can help you prepare the necessary documents, review your financial situation, and contact the IRS. Then he or she will critically assess your tax situation and determine the best options for solving your specific problem.

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To ensure a smooth and effective working relationship with your tax resolution professional, you should provide him or her with clear and honest insight into your tax situation and discuss all the options available. Then, you can work with a tax expert to devise an action plan and a timeline for fixing your tax issue.

Step 2: Apply for a Collection Hold

Once your tax situation is properly analyzed, you can proceed to this step. If you’re in a situation where you need more time to resolve your tax issue, the best thing to do is to apply for a collection hold. The purpose of a collection hold is to stop the IRS from garnishing your wages and seizing your assets, in order to give you more time to execute the plan that you and your tax professional have developed.

The IRS usually doesn’t grant enough time with a single collection hold, so your tax representative will most likely have to apply for several additional collection holds. If the IRS rejects your application for a hold, you can take certain actions to prevent collection, including filing an appeal and setting up a payment plan. Creating a payment plan can be an effective delaying tactic even if your long-term plan doesn’t include making payments. In effect, these measures will compel the IRS to delay the collection process.

Step 3: File Every Missing Tax Return

Next, you need to catch up on all delinquent tax returns. Filing all your missing tax returns will give you more back tax assistance options. A good tax professional will create a proper checklist to ensure that all the documents are in order.

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The way you file your tax returns depends on what you’re trying to achieve. If the tax expert suggests that you pay your taxes in full, you should add all the deductions you have to minimize the amount you owe. If you want to settle your back taxes, you’ll be better off not including the deductions, because it helps to owe more to the IRS in such a situation. Your tax resolution professional can help you choose the best solution to your tax problem and significantly reduce the amount of money you eventually pay to the IRS.

Step 4: Achieve Tax Resolution

This is the most important and rewarding part of a successful tax resolution process. While achieving tax resolution now doesn’t guarantee that you won’t experience tax problems in the future, it can certainly lighten the heavy burden that you may have been carrying for some time.

Methods of Achieving Tax Resolution

A successful tax resolution is different for every taxpayer, both in terms of the method of achieving it and the final outcome. As such, there isn’t a one-size-fits-all solution. However, it’s attainable for almost anyone who owes the IRS. You can be free from your tax troubles once and for all if you’re willing to invest the required time and effort and cooperate with your tax representative.

While there are many ways to resolve your tax issues, you should be able to achieve your desired outcome with one of the following methods:

Currently-Not-Collectible Status

If you’re able to show that you’re currently unable to pay down your back taxes, the IRS may grant you the currently-not-collectible status. Once you gain this status, the IRS won’t be able to garnish your wages, levy your bank accounts, or seize your assets. However, they can still put a lien on your property.

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In order to be eligible for currently-not-collectible status, you need to prove to the IRS that your monthly household income is lower than your reasonable monthly household expenses. Nonetheless, you aren’t allowed to set your own budget. There are standard allowances for different kinds of expenses, such as food, vehicles, clothing, healthcare, and operating expenses.

It’s important to know all these allowances before you start negotiating with the IRS. If the amounts you report to the IRS are lower than the standard allowances, you won’t qualify for currently-not-collectible status. This means that you have to pay your back taxes.

Installment Agreement

Unlike what most people think, the IRS is actually quite patient. In fact, it allows almost anyone to pay taxes in installments. If you aren’t eligible for currently-not-collectible status because your income exceeds your expenses, entering into an installment agreement is probably the best option. There are several different types of installment agreements, including:

  • Standard Installment Agreement

In order to determine how much you have to pay every month, the IRS will analyze your financial situation. If the analysis shows that you have money left after paying your monthly expenses, the leftover amount will typically be the monthly installment you need to pay.

  • Partial Pay Installment Agreement

When you’re negotiating a payment plan with the IRS, the amount you‘re required to pay is usually whatever you can afford. However, this amount may not be sufficient to pay off your back taxes before the time limit for IRS collection runs out, which is typically 10 years. In such a situation, the IRS will just let you pay whatever you can and forgive the remainder of your owed amount when the time for collection is up. This type of payment plan is called a partial pay installment agreement.

  • Streamlined Installment Agreement

The streamlined installment agreement is an available option for taxpayers who owe the IRS less than $50,000. This plan enables you to pay off your back taxes within six years, no questions asked. You aren’t required to undergo financial analysis or show the IRS your bank statements or check stubs. Nonetheless, you need to set up automatic bank withdrawals to make your monthly payments.

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A streamlined payment plan is a suitable option for those who have the ability to pay but prefer not to pay everything they can afford every month. It allows you to pay a fixed amount, even though you can afford to make a larger payment.

Offer in Compromise

If you’re unable to pay off your back taxes before the IRS runs out of time to collect, you can apply for an Offer in Compromise. This is an agreement that requires you to pay a one-off, lump-sum payment that is less than the total amount you owe. The acceptable amount for an Offer in Compromise is dependent on the maximum amount you can pay, not the amount you owe. If you have a very limited capacity to pay, you may get a great tax settlement.

Nevertheless, the IRS has imposed strict eligibility requirements for Offer in Compromise. They’ll only entertain your application for an Offer of Compromise if you’re able to provide substantial evidence that you’ll never be able to pay the full amount you owe. An experienced and competent tax resolution expert can make a significant difference in the outcome of your application for an Offer in Compromise.

Penalty Abatement

If you’re a first-time offender, your tax representative will most likely be able to help you get a penalty waiver. Even if you had been delinquent in the past, a good tax resolution expert can often get penalties waived for “reasonable cause.” In order to determine reasonable cause, the IRS will look at circumstances that cause you to incur the penalties. Examples of situations that are considered reasonable causes include:

  • Unavoidable absence, severe illness, or death
  • Accident, fire, or natural disaster
  • An issue that occurred despite using normal business care
  • Inability to access the required records because of circumstances beyond your control
  • Ignorance of the law, but you’re making a reasonable effort to understand your tax responsibilities

In addition, you and your tax professional can apply for a penalty waiver if the IRS made a mistake or provided bad advice that contributed to the incurrence of the penalties.

Successful tax resolution requires a lot of work and commitment, but you’ll be glad you took up the challenge when you experience the financial freedom and peace of mind that come with being back tax obligation-free. If you want to get the quickest and best financial results, you should work with a reputable tax resolution professional who has extensive knowledge and experience in resolving tax problems. Contact us now for a free, no-obligation consultation.


John Hsu
Expert Contributor
Last Updated: