If your business has an outstanding tax liability, the licensed professionals at Los Angeles Bookkeeping can evaluate your financial situation and help you determine the most effective course of action to resolve it. As with any tax debt, it is best to face the problem head on rather than ignoring it while the back tax balance continues to increase due to the accumulation of penalties and interest. In addition, the IRS will initiate more aggressive collections techniques such as the imposition tax liens or tax levies if the debt is left unresolved over time.
The following are some of the most common tax settlement alternatives offered by the IRS. Each option has advantages and disadvantages and may come with special qualifying criteria. The tax professionals at Los Angeles Bookkeeping are fully knowledgeable about the wide range of tax settlement alternatives available and stand ready to help clients select the one that will offer the best possible resolution.
Pay the Full Balance of the Tax Debt
The most straightforward way to clear an outstanding tax liability is to use one of any number of methods to pay the full amount owed. When sufficient cash is not readily available, it may be possible to pay the back tax balance by drawing on an existing line of credit, taking out a bank loan, or charging the amount due to a credit card.
Request a Short Term Administrative Extension
When a business expects to have the necessary funds to pay an outstanding tax liability within 120 days of the due date, they have the option of applying for a short term administrative extension. Such extensions are granted almost automatically but are only helpful in cases where the cash shortage is temporary. Although interest will continue to accrue at a monthly rate of one-half of one percent of the tax amount due, no additional penalties will be assessed during the extension period and no collection activities will be initiated.
Request a Penalty Waiver
A penalty waiver is a tax settlement option whereby the IRS either eliminates or reduces tax penalties that were previously assessed on a back tax balance. Such waivers, which are sometimes granted when a business is able to provide evidence that they were unable to meet their tax obligations due to circumstances beyond their control, can amount to a significant reduction in the total amount of an outstanding tax liability.
Apply for an Installment Agreement
When sufficient funds are not readily available to pay the full balance of a back tax balance at one time, a business may apply for a tax settlement option called an Installment Agreement. This allows a business to pay an outstanding tax liability by making regular monthly installment payments, with the amount of the payment and length of the installment period determined by the tax amount due and the financial situation of the business in question. Approval for this tax settlement option is almost automatic as long as the applicant is in good standing with the IRS and the total amount owed is less than $10,000.
Negotiate a Partial Payment Settlement Option
If a business is able to show that it will be unable to pay the full balance of a tax debt within a reasonable period of time, they may qualify for a partial payment tax settlement option. Such options, which include the IRS Offer in Compromise and the IRS Partial Payment Installment Agreement, are agreements whereby the IRS agrees to settle a back tax balance for less than the full amount owed. These agreements are harder to obtain, have very specific qualifying criteria and require extensive documentation of the requesting party’s financial situation.
If your business has an outstanding tax debt, the tax professionals at Los Angeles Bookkeeping will help you resolve it.Our CPAs and Enrolled Agents have extensive tax settlement experience and will use it to help you negotiate the best tax settlement option available for your company’s specific set of financial circumstances.