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IRS Tax Relief Is Possible For You

Tax debt can occur for any number of reasons. Certain types of workers, for instance, are more likely to slip into tax debt than others. Those who work as independent contractors are a good example. That’s because they commonly calculate their tax liability incorrectly and so fall into tax debt. Independent contractors are those who receive Form 1099 at the close of a tax year. Unlike employees, independent contractors do not have tax automatically withheld at every pay period. Rather, independent contractors are in charge of calculating and withholding their tax burden on their own. This extra responsibility can often be daunting.

It’s all too easy to look at this week’s bills and pay them, rather than the taxman that’s not knocking on the door or threatening to turn off your cellphone service. Consequently, it’s very common for independent contractors to accumulate back tax debt. The same is true for small business owners, for all the same reasons. In some other cases, we see employees accumulate tax debt because they either intentionally, or accidentally, have too little tax withheld. Though the reasons can vary, IRS (and New York State) tax debt is an extremely common phenomenon. Accordingly, IRS tax relief is the focus of today’s blog post.

Not Everyone Can Manage On Their Own

Not every person who accumulates significant tax debt can manage this debt along with their other financial obligations. In some cases, tax debtors need to seek IRS tax relief. There are myriad specific reasons as to why someone may need to seek relief for tax debt. However, two common reasons underly every scenario in which IRS tax relief needs to be sought. In this post, we will go over these two reasons for seeking relief for back tax debt. If either of them apply to your situation, you may want to consider seeking professional IRS tax relief.

Scenario #1: Seek Relief When the Tax Debt Becomes Too High 

One general reason why relief for tax debt may be necessary is the sheer size of the tax debt. Let’s suppose that a taxpayer is keeping up-to-date with all tax liabilities, up to a given point. But then after that point, the taxpayer is suddenly faced with a large tax burden. In such a situation, the tax burden may easily become unmanageable. That’s because of the interest and penalties that the IRS (and again, New York State) tacks on to the underlying tax. This may come about, for instance if, in a given year, a taxpayer performs a transaction resulting in an unusually high tax liability.

For instance, a taxpayer may sell a large quantity of stock or sell an investment property. Or, as we’ve written about in earlier blog posts, it may come about due to a botched Sec. 1031 like kind exchange. As a result of these unusual transactions, a taxpayer may need to seek IRS tax relief in order to manage their rersultant tax debt.

Scenario #2: Sec. 1031 Like Kind Exchanges

Let’s look at a specific scenario. Suppose a taxpayer conducts a 1031 transaction and the relinquished property had significant mortgage debt. Let’s assume that the property was worth $1 million and that the mortgage was $150,000 at the time of the sale. And then let’s also assume that this taxpayer only acquired a property worth $900,000. In this case, the taxpayer would be left with a tax liability based on the mortgage boot of $100,000. This is true even though the taxpayer would not receive any cash from the transaction. In this situation, the taxpayer may be stuck with a tax burden of around $35,000. In such a scenario, this taxpayer might decide that an installment agreement would be a desirable option. Even though the taxpayer may have significant assets, an installment plan might be needed in order to make the tax debt manageable. 

Again, it’s possible to imagine all sorts of different scenarios in which a very high tax burden might necessitate IRS tax relief. Whenever debt becomes too high, a taxpayer may need to seek out an installment agreement, OIC, or bankruptcy. 

Scenario #3: Seek Relief When Financial Circumstances Change

In addition to a very large debt burden, relief may also be necessary if a taxpayer’s financial condition changes. This is very common phenomenon. Very often a taxpayer’s who’s been able to keep up with their tax debt will suddenly suffer a drop in income. For instance, a job loss or medical emergency will often impact a taxpayer’s ability to meet their tax debt obligations. In these cases, seeking IRS tax relief is a perfectly understandable course of action. The sudden drop in financial status creates a problem for meeting preexisting debt payments. It’s not uncommon for a taxpayer to seek relief in order to address such a problem. 

Consider another scenario. Let’s suppose that a taxpayer reaches the end of the tax year and faces a tax liability of $10,000. But then by the time that same taxpayer ends up filing his or her return, the taxpayer loses their job. Normally, managing the tax debt would not be an issue, because the taxpayer would have the financial means to adequately address it. But given the job loss, the taxpayer may now need to request either an installment agreement or submit an OIC. This is particularly true if the taxpayer already has dependents or other preexisting financial responsibilities. To sum up: a significant change in financial status is a primary reason why IRS tax relief may be necessary.

Call Us For A Free Consultation

Here at Mackay, Caswell & Callahan, P.C., we are involved with resolving tax debt on a daily basis. We’ve dealt with countless situations involving back tax debt and so we’re intimately familiar with how to obtain IRS tax relief. We help our clients find the particular type of relief which best suits their particular circumstances. Seeking relief for IRS tax debt requires specialized knowledge and expertise. It is imperative that those with back tax debt procure help from a qualified tax attorney. Hiring a qualified attorney will ensure that all the rules are followed correctly and the particular form of relief is optimal for the taxpayer. If you have a tax debt issue, contact one of our top New York City tax attorneys today for assistance. 

Image credit: Marco Verch