Can Back Taxes and Penalties Be Negotiated?

Can Back Taxes and Penalties Be Negotiated

Back taxes can be financially crippling both to you and your business. If your tax debt is more than you can afford to pay back in a lump sum, or if you think there may be some error on the part of the government in assessing how much you owe, you do have some options at your disposal.

Offer in Compromise to Reduce Back Taxes

One such option is known as the Offer in Compromise, which is an application to reduce your tax liability to less than the full amount you owe, under certain circumstances. Acceptance of an OIC is at the discretion of the IRS and is based on a combination of factors including your ability to pay, income, assets and total expenses. To be eligible to submit an Offer in Compromise, you must be current on all your tax filings and not be in a bankruptcy proceeding.

You can also negotiate an installment agreement that would allow you to pay your back taxes over time. If you have a large tax liability, this option can help you spread payments over a period which is rarely more than ten years. You’ll still have to pay additional penalties and interest that accrue over the term of your installment plan.

Form 843

Sometimes a tax liability is incorrectly assessed due to miscalculations by the IRS. Depending upon the type of tax and other details you can submit a Form 843 Claim for Refund and Request for Abatement, or a Form 1040X to have any penalties discharged and receive a refund for any tax overpayment. Form 843 is used when the IRS has charged you interest or penalties as a result of IRS errors or delaysk, and for non-income taxes, for example payroll taxes.

Certain mitigating circumstances may qualify you for penalty relief from the IRS. The government will recognize certain conditions as reasonable cause for why you were unable to pay your taxes on time. Reasonable cause is based on all of the facts and circumstances of your particular situation, but some typical reasons that the IRS may consider are fires, natural disasters, inability to obtain records, and death or serious illness to the taxpayer or the taxpayer’s immediate family. Your inability to meet your tax obligations for reasonable cause may abate the penalties, but you will still need to pay your back taxes.

Remember that successful negotiations with the IRS are at the discretion of the agent you’re dealing with, and you’re going to have to provide sufficient proof to support your case. A California tax lawyer familiar with the inner workings of the IRS can help level the playing field.

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