What Is Tax Resolution?

Understanding tax resolution

Tax resolution is the process of satisfying your tax debts through means other than paying them in full. It usually involves speaking with the appropriate tax authority about your financial situation and coming to an agreement that satisfies all or part of your tax debt.

It’s crucial that you resolve problems with your taxes as quickly as possible to avoid additional penalties, tax levies and even criminal charges.

Tax relief can take many forms, but all of them can help you avoid financial hardship and repay your debt. Some issues that the process can resolve include:

• An inability to pay back taxes from prior years
• Financial hardship that may be caused by tax levies
• Negatively affected credit due to tax liens
• Penalties related to late tax filings or failure to file
• Errors in the amount of taxes due
• Problems related to or discovered during audits
• Issues resulting from a spouse who filed incorrectly
• Financial hardship that leaves you unable to pay your tax debts

Common tax resolution strategies

The tax resolution strategy that works best in your case depends on the tax issue and your financial situation. While the tax authority you’re dealing with will determine eligibility, the following are typical tax relief options:

• Enrolling in payment plans if you can make some upfront payment
• Agreeing to an offer in compromise, in which case both you and the tax authority agree to a lower payment amount
• Delaying collection, which can classify you as Currently Not Collectible and defers your tax payment but may not reduce it
• Claiming spouse relief, which can reduce penalties or even lower your amount due if your spouse made errors on your jointly filed return without your knowledge
• Appealing if you believe the amount you owe is inaccurate
• Halting collection temporarily if you or your business has filed for bankruptcy

Installment agreements are some of the most common types of tax resolution. If you can make some payment upfront, you may be eligible for a payment plan that allows you to pay your debt in installments over time. The length of the agreement depends on what your tax authority approves. You should weigh the pros and cons of IRS payment plans carefully before deciding on an option.

Offers in compromise are also standard options, but they may require getting legal aid from a tax lawyer. Offers in compromise will still satisfy your debt but don’t require you to pay the entire amount you owe. Eligibility requires a review of your income, expenses, assets and your ability to pay.

» MORE: What Is an Offer in Compromise?

Role of tax resolution professionals

Tax resolution professionals act as intermediaries between you and tax authorities to clarify legal processes and negotiate on your behalf. They can help find the best tax resolution options for both parties. These experts can advocate for you when proposing offers in compromise, rectifying errors on your tax returns or challenging the amount you owe.

The Taxpayer Advocate Service (TAS) is part of the IRS but operates as an independent organization of tax professionals who offer resolution services. They fill many roles, including:

• Helping taxpayers pay taxes and find solutions to tax issues
• Setting up IRS payment plans
• Negotiating with tax authorities to come to mutually beneficial agreements
• Advocating for changes to tax law that benefit taxpayers
• Expediting delayed refunds
• Filing tax returns and correcting errors on previously filed returns

In addition to experts who work for the TAS, certified public accountants (CPAs), attorneys and experts at low-income taxpayer clinics may be able to help you with tax issues, including finding tax resolution solutions.

Tax relief options and programs

Depending on your situation, there may be several options for tax relief, which is when you settle your tax debt without paying the full amount due.

• Offers in compromise: Offers in compromise, which used to be called the IRS Fresh Start Program, can offer relief for some of your tax debt. It’s best to have a tax resolution professional negotiate on your behalf to get the maximum reduction to your amount owed. The tax authority you owe will determine eligibility based on income, assets and ability to pay.
• IRS hardship program: If paying your tax debts would result in financial hardship, you may qualify for the IRS hardship program, resulting in currently not collectible status. The IRS will defer collection until your financial situation has improved. It may not lower the amount due, and you may also have to pay interest or penalties in the future.
• Spouse relief: You may qualify for injured spouse relief or innocent spouse relief, depending on your situation.
  • Injured spouse relief: You may get back all or part of a tax refund that went toward a spouse’s debts, including past-due child support and tax debt.
  • Innocent spouse relief: You may be able to reduce the amount you owe if your spouse inaccurately filed your joint tax return and you didn’t know about the errors.

Depending on the options available to you, tax relief may result in a lower amount due to your tax authority, or it may grant additional time to pay the debt. In both cases, these options can help avoid financial hardship as a result of tax debt.

» CONSIDER: 3 Best Tax Relief Companies

Steps in the tax resolution process

The process of getting tax relief will depend on your situation and the options available to you. Generally speaking, you can follow the steps below to find a resolution to your problem.

1. Contact the IRS: You may be able to resolve your tax issue yourself by contacting the IRS directly. Individuals may be able to rectify errors on their returns or enroll in a payment plan that defers payment and eases the burden of their tax debt.
2. Get help from a tax resolution professional: If you’re unable to get a resolution on your own, or if you’re uncomfortable doing so, contact a tax resolution expert. You can hire an attorney or a CPA, or you can contact the Taxpayer Advocate Service to get help at no cost. The expert will help you come up with a strategy for tax resolution.
3. Provide necessary documentation: Depending on the tax relief solution you employ, you may need to provide additional documentation to your tax authority or to your tax resolution expert.
4. Monitor the status of your dispute or resolution: Keep in touch with your tax resolution pro about your tax forgiveness or resolution strategy to ensure it’s approved by your tax authority. You can also check the status online or contact your tax authority directly.
5. Plan ahead for future tax years: After the IRS approves the resolution strategy, you should begin planning ahead for future tax years to avoid issues and nonpayment going forward.