How to Succeed at Income Tax Resolution

Pamela Kock
Expert Contributor
Last Updated:
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It’s amazing but true — the Internal Revenue Service (IRS) estimates that around 8.2 million U.S. taxpayers owed back taxes as of 2009, and that figure probably hasn’t changed a lot in the years since. If you are one of them, you understand the stress it can cause. Knowing how to find an income tax resolution to unpaid taxes can help alleviate that stress.

Fortunately, the IRS has established many ways that taxpayers can put their worries behind them. Methods range from the quick and simple to complicated strategies that require professional assistance. No matter what you do to find an income tax resolution with the IRS, the main thing is that you need to do something. Failure to make payment arrangements could result in the loss of your assets, investments, credit, and maybe even your job.

Reasons People Get Behind on Their Taxes

Why do so many people get behind on paying their income taxes? Some reasons are completely avoidable, while others are legitimate mishaps. Here are just a few:

Quarterly payments. If you are self-employed or have income from a source besides a traditional job, you may need to make quarterly income tax payments. If you have a job, your employer will withhold taxes from every paycheck — federal income tax as well as state income tax, local tax, Social Security, and Medicare. Employers don’t do this just to make the tax payments easier to handle; the IRS wants your tax money as soon as you earn it.

If your taxes aren’t automatically withheld, you must pay quarterly. However, many people are unaware that they are expected to pay quarterly, and if they don’t, they accrue interest and penalties. The first year you get a pass, but after that your quarterly payments are due on the 15th day of April, June, September, and January. The IRS rule is that if you will owe more than $1,000 in taxes during the year, you must pay quarterly taxes.

How to Succeed at Income Tax Resolution

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Mistakes. Computer-based tax preparation tools make it easier than ever to do your taxes. If your tax situation is complicated, though, you might still consider hiring a tax professional or an accountant to do the job — or to at least look it over before you click “submit.” Such mistakes are commonly due to misunderstanding the tax rules and claiming credits and deductions that are not allowed. Errors on your income tax returns can trigger IRS audits, which often result in back taxes and possibly even penalties.

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Hardship due to large tax bills. If you are faced with an unexpectedly large amount due on April 15, you might not be able to pay it all at once. The IRS is usually willing to work out payment plans and extensions, but you need to take the initiative and ask. Many people don’t and end up in serious trouble with interest and penalties accruing every month it isn’t paid.

Life disruption. A taxpayer might be facing a death in the family, divorce, cancer or other illness, job loss, natural disaster, or other problem that keeps him from taking care of normal financial responsibilities. It’s easy to understand why; if someone is facing a health crisis or cleaning up after a hurricane, filing and paying taxes might be the last thing on their mind.

Procrastination. According to the IRS, 25 percent of U.S. taxpayers wait until the last two weeks before Tax Day to file. People may claim they are “too busy” or overwhelmed with the amount of work involved in organizing statements and other paperwork. They might say, “I’ll do it tomorrow,” but tomorrow never comes.

The IRS is relentless in its efforts to identify and collect the taxes it is owed. Still, remember that the IRS is run by real people who understand that life often throws curve balls. Although the IRS insists on collecting back taxes, the organization will do its best to help you resolve tax issues if you cooperate with the process.

Tax Resolution Scams

We’ve all heard the TV and radio commercials offering to help you settle your back taxes for “pennies on the dollar.” Unfortunately, many of these are scammers and don’t offer any help to the taxpayer.

Some income tax resolution firms obtain prospects’ names and addresses from the Notices of Federal Tax Lien from local Recorder of Deeds offices. These include information on collections attempts including threats from the IRS to seize property to satisfy back taxes. Predatory tax resolution firms then contact these taxpayers with offers to help them settle their tax problems, often promising to reduce the amount owed.

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Unfortunately, what usually happens is that the taxpayer is required to pay a large retainer fee, sometimes $5,000 or more, and little is done to settle the IRS back taxes.

The IRS allows three types of individuals to represent clients — licensed attorneys, licensed CPAs, and Enrolled Agents. CPAs and Enrolled Agents are not allowed to litigate, so if the IRS matter should go to court, they can’t help you.

To become an Enrolled Agent, that person must pass a three-part test administered by the IRS covering tax returns from individuals and businesses. They may bypass this requirement through their experience as former employees of the IRS. They are also required to have 72 hours of continuing education classes every three years.

Most Enrolled Agents are reputable, but this is not always the case. Even if a tax resolution firm says that it has Enrolled Agents on staff, this is no guarantee that you will be represented by one. Most people who work for tax resolution firms have no special licensure and are not subject to any professional regulation.

How to Find a Reputable Tax Resolution Firm

In most cases, it’s better to work out your back taxes problems directly with the IRS on your own, rather than hiring an agency to do it on your behalf. Depending on your situation, the process can be surprisingly simple — either pay the taxes due or set up an installment agreement to make monthly payments.

However, there are legitimate income tax resolution firms that can help you with your tax burden as advertised. It is possible to reduce the amount of tax you need to pay the IRS in certain circumstances. A qualified tax resolution firm can get tax levies and liens removed quickly and painlessly and help you work toward true solutions.

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If you do choose to hire a professional, there are several things to look out for when making your choice:

  • How long has the firm been in business?
  • Does the firm have licensed attorneys, licensed CPAs, or Enrolled Agents on staff?
  • Do these professionals promise a drastic reduction of your back taxes without first looking over your financial background in detail?
  • Did the professionals ask you the reason you’re in debt to the IRS in the first place? If not, the firm will probably not be able to file a proper appeal to the IRS for the tax reduction it promises.
  • Did the firm promise a quick income tax resolution? While it’s possible to resolve problems right away, the process can take months.
  • Is the firm’s fee structure clear and reasonable?
  • Check with the Better Business Bureau to see if there are any complaints and read customer reviews.

How Tax Resolution Works

If the IRS has notified you that you owe a large tax bill, there are three main ways to get it resolved:

  • Pay the tax bill in full
  • Work out a monthly payment agreement
  • Negotiate an Offer-In-Compromise

The easiest and quickest income tax resolution to your back back taxes problem is to pay the bill in full. This immediately releases any liens or levies the IRS may have issued on your assets and lets you put the whole unpleasant experience behind you. This is a good time to access any emergency funds at your disposal — this is an emergency. You could sell your assets, such as a vehicle, boat, stocks and bonds, or other personal property. You might also ask friends or relatives to help you out.

Another option is the installment plan. The IRS’ goal is to collect your taxes, not punish you for nonpayment. Therefore, it is more than willing to help you set up a payment plan. If you have any tax liens or levies on your assets due to IRS back taxes, setting up a payment plan will get them released immediately.

If you owe $25,000 or less, you can qualify for the IRS’ streamlined installment agreement, which does not require any financial disclosures and is a simple process to set up. Some people who owe more than this amount will work to pay it down to $25,000 specifically so they can qualify for the streamlined agreement. To do this, go to the IRS website and download Form 9465, Installment Agreement Request. It can also be submitted online.

The strategy promised by most of those shady tax resolution firms who say you can pay “pennies on the dollar” is the Offer-In-Compromise (OIC). This is a legitimate plan offered by the IRS, and, when it succeeds, taxpayers can end up paying 20 percent or less than the amount of their full back taxes.

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Keep in mind, however, that the success rate for the OIC is around 40 percent, according to the IRS. That’s not bad but far from the success rate that a disreputable tax resolution firm advertises. You can visit the OIC pre-qualifier on the IRS website to see if it’s an option for you.

If you decide to use this method of income tax resolution, we recommend consulting with a tax attorney, CPA, or a reputable tax resolution firm such as Solvable. The process requires several complicated forms with information about your assets, back taxes, and income to be submitted to the IRS along with other documentation. The most common reasons for rejection of OIC applications include errors on applications and incorrect calculations of taxpayers’ asset valuations and cash flow, and a professional can make sure it’s all done properly.

Prevention of Future Problems

As the saying goes, “an ounce of prevention is worth a pound of cure.” The best method of income tax resolution is to fill out tax forms properly and pay taxes on time. If you have had trouble with taxes in the past, or are currently struggling with this issue, it’s important to be honest with yourself and determine why the problem occurred.

If you are a freelancer who needs to make quarterly income tax payments, stay current with them. When money is tight, it’s tempting to skip a payment, intending to make it up next time, especially when you haven’t earned a lot of money during that quarter. To avoid trouble, however, bite the bullet and make the payment. You can make these payments using IRS Form 1040-ES, which includes quarterly payment vouchers, or pay the IRS online using a credit card or bank account with its Direct Pay system.

If errors on your tax forms plague you, it might be time to hire a professional tax preparer. Many people proudly do their own taxes without any issues for years until something changes in their lives that makes tax preparation more complicated — investments, inheritances, marriages, business ownership, etc. You might even be surprised by getting a larger tax refund than you anticipated. If you do this, it’s a good idea to have your tax advisor look over your last few years’ returns, too.

IRS audits can be random, but most of the time they happen when the IRS notices an entry that might indicate suspicious activity. Only about 1.5 percent of all U.S. tax returns are audited per year, but if yours is one of them, you could be facing big problems — and a big tax bill. Avoid audits by making sure you report all income, documenting everything, conservatively reporting your deductions, and above all, looking carefully for errors.

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No matter which strategy you use to find an income tax resolution, Solvable can help. IRS rules and processes can be complicated, and mistakes can cost you big. We’ve helped tens of thousands of clients solve tax problems and eliminate other types of owed amounts, as well as showed them strategies to prevent problems from occurring in the future. Give us a call at (855) 324-1775 today or visit our website. Answer a few simple questions, and you’ll be on your way to back tax assistance and financial serenity.


Pamela Kock
Expert Contributor
Last Updated: