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Hiring a tax lawyer to deal with the IRS on your behalf can help a lot. Dealing with the Internal Revenue Service (IRS) and the California Franchise Tax Board (FTB) without legal representation can involve a lot of bureaucracy and lead to unfavorable outcomes despite your best efforts. Having a tax lawyer as your representative ensures the best chance that you’ll understand the process and secure tax resolution. Tax lawyers will also give advice on how to limit your liability by taking advantage of relief programs such as installment payments or offers in compromise.
Sacramento tax attorney Jin Kim helps clients get out of tax debt with the IRS. Specifically, she helps clients secure not collectible status, installment plans, and offers in compromise. In addition, she works to stop the IRS collection process so clients can pursue a tax resolution strategy in an organized manner. To learn more about how tax attorney Jin Kim can help you get out of tax debt for a flat fee, call her office at (916) 299-9913 for a free consultation.
Advantages of Hiring A Lawyer
Tax law can be confusing. Even professional tax preparers like certified public accountants (CPA) won’t fully know the intricacies of tax law. Most tax specialists focus on one particular area of tax law and specialize in it. If you’re undergoing an audit, the person most qualified to give advice is a lawyer who specializes in audit defense. The IRS recognizes the taxpayer’s right to have representation. In fact, it’s one principle under the taxpayer’s bill of rights.
Appearance
One advantage of having a representative is that you don’t have to personally appear before the IRS unless you’re specifically summoned. This means that you’ll have more time to attend to your business and monitor it. Time, after all, is one of the most precious things in the world. If you hire a representative like a tax lawyer, you won’t have to close shop for the day just so you can make it to a meeting with the IRS agent.
Communication
Another advantage of hiring a tax attorney is that all communication with the IRS will go through your lawyer. There’s no risk that you’ll miss the notice from the IRS. You wouldn’t have to worry about checking your mail and anxiously waiting for a response from the IRS regarding your request. Furthermore, having a tax lawyer fighting on your side means that you’ll have advice and guidance regarding the process.
Location For Meetings with the IRS
If you’re a business owner who’s been selected for a field audit, your lawyer can request for the meeting to take place in their firm’s office instead of your regular place of business. This ensures that your business won’t be interrupted by the auditor and it also lessens the risks involved for you as the owner. Agents will be prone to snoop around your business premises if the audit takes place there, and they might even interview your workers or customers about your business.
Mitigate Tax Liability
Perhaps the most important advantage of hiring a lawyer is that they can make sure that you don’t overpay. Lawyers can help clients secure tax abatement programs and tax resolution options such as offers in compromise, delayed payment, and not collectible status. Each of these relief programs will be discussed briefly below.
Having a tax liability is an enormous burden, but there are ways to address it. A good tax lawyer who fights for you and protects your interest will make the process easier and enhance your chances of success.
Offers In Compromise and Installment Payment
An offer in compromise is one form of tax relief that taxpayers can utilize under certain conditions. Offers in compromise are a viable tax resolution strategy when the taxpayer can only afford to pay a certain portion of the debt, but not all of it. It’s a form of settlement where the IRS agrees to reduce the total tax liability in exchange for prompt and full payment. In order to qualify for an offer in compromise, the amount offered must not be lesser than the taxpayer’s reasonable collection potential (RCP) and the taxpayer must meet the other personal qualifications under the law. A taxpayer is said to be qualified to apply for an RCP if the following are true:
- The taxpayer has consistently and regularly filed all tax returns
- The taxpayer has made the required estimated tax payments for the current year
- If the taxpayer is a business owner with employees, the taxpayer must have made all the required federal tax deposits for the current year.
The next issues to consider are whether or not the amount offered by the taxpayer is greater than the RCP, and whether or not the taxpayer has a valid reason for the offer. The RCP is used by the IRS to compute the ability of the taxpayer to pay, and is taken from the value of the properties and assets owned by the taxpayer. A good lawyer will be able to help you ensure that your offer is more than your RCP, otherwise your offer will be declined by the IRS. Moving forward, there are three reasons which a taxpayer may claim in their offer in compromise, as follows:
- Doubt As To Liability – The IRS can’t fully prove that the taxpayer is indeed liable for the amount. The dispute, in this case, is the very existence of the liability itself. This may be used to prevent a prolonged and protracted battle with the IRS.
- Doubt As To Collectibility – There’s no dispute regarding the existence of the liability in this case. Instead, there is doubt as to the possibility that the taxpayer will be able to pay the liability at all. It may be because the taxpayer doesn’t have enough assets or property to cover the tax debt in question.
- Effective Tax Administration – There are no doubts in this case; in short, the taxpayer is liable for the amount and has enough property to cover the tax liability. However, a compromise may be reached based on the reason that forcing the taxpayer to pay the entire bill would result in unnecessary economic hardship – for example, requiring the taxpayer to sell their only remaining asset or business to cover the tax bill. In the interest of fairness and equity, a compromise may be reached.
If you’re interested in making an offer, your tax lawyer can assist you with the necessary forms to submit. Offers in compromise require the submission of the following forms:
- Form 656, Offer in Compromise,
- Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals; and/or
- Form 433-B (OIC), Collection Information Statement for Businesses.
There are also several options regarding the payment schedule of your offer. One relief that’s available for taxpayers is to have their payments spread out over several periods. A lump-sum payment, for example, is one that is payable for five or fewer than five installments within a period of five or fewer months. If this isn’t feasible for a taxpayer, another option is to make use of the periodic payment offer, which is payable within two years, for six or more installments. Businesses that may not have the liquidity or the necessary cash flow at the moment but expect to see an uptick in earnings later on can take advantage of this to help settle their tax liability with the IRS.
In some instances, the IRS may reject the offer in compromise. When this happens, the taxpayer will be informed through a notice detailing the rejection and the reasons therefor. However, a taxpayer is also given the right the appeal the decision; the appeals process will usually be detailed in the notice rejecting your offer, but a seasoned tax lawyer will be able to easily walk you through the process as well.
A returned offer is different from a rejected offer. A returned offer simply means that the taxpayer has not been able to fully comply with the necessary documents and fees in submitting an offer. If you receive a returned offer, you will be given the opportunity to cure the defect and resubmit the offer once again. In order to avoid this situation, engaging the help of a tax professional in submitting your offer will be helpful.
Even if you’re not sure that the IRS will accept your offer, it’s still worthwhile to submit one because the collection of tax liability is suspended while the offer is pending before the OIC, which will helpfully buy you more time to get your assets in order.
Liens and Levies
A lien is a claim against you and your assets filed by the federal government. This lien attaches to every property you own, including future property. This means that even if you don’t own any property now, the IRS can still go after you and any property you come to own in the future. It’s not an ideal situation, but there are ways to legally avoid tax liens and protect your assets. A tax lawyer will be able to advise you regarding the best course of action to take if ever you’re subject to a tax lien.
Under the law, there are four ways through which the tax lien may be extinguished. The first is through payment of the taxes owed. The second method is through a bankruptcy discharge. The third is to make an offer in compromise as discussed above. Lastly, If the time limit for collecting the amount has already passed, then the lien can longer be enforced. The usual time limit is ten years after the tax was first assessed.
In some instances, you might be issued a tax lien in error. This means that although you’ve properly paid your taxes, there was a mistake on the part of the IRS. If this is the case then the proper solution is to request for the issuance of a Certificate of Release. As a taxpayer, you are entitled to this relief under the Taxpayer Bill of Rights if the tax lien was in error. In order to request this document, you should place a phone call at 800-913-6050 which is the number of the IRS lien center.
Another possible solution to this problem is for the issuance of an IRS Withdrawal of the Notice of Federal Tax Lien. This is different from the Certificate of Release which was discussed in the previous paragraphs because in this case there is no release from the tax liability altogether. The following are circumstances where the IRS might issue a Withdrawal of the Notice of Federal Tax Lien:
- Failure to observe the proper procedure in the issuance of a tax lien (fault on the part of the IRS)
- Entering into an installment agreement with the IRS for the payment of the tax, but the installment agreement did not provide that a lien can be filed.
- The collection of the tax will only be possible if the lien is withdrawn;
- When the Taxpayer Advocate Service provides its consent, believing that it is in the best interest of the taxpayer and the government.
Liens are different from levies. The levy process is used when the government wants to take an asset to satisfy your indebtedness, while a lien is just a notice that a taxpayer owes money to the government. Property that is most often levied by the IRS includes financial accounts, such as savings in banks, stocks, or even your salary from your employer. The IRS has to follow strict rules when levying property and it cannot levy exempt properties.
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