Small business owners have five options available to help settle tax issues that could arise with the IRS. These methods may not all work for every business, but as an owner, you should know that there are options to resolve tax issues.
As a small business owner (SBO), you most likely will not enjoy any audits from the IRS. Things can become intimidating when the business owner is issued a letter for a tax audit or it addresses another tax concern.Outcomes for Tax Issues with the IRS
Amy Lynn Keimasch, the head of Border 7 Studios recently had an experience with the IRS. She states, “We recently received an outstanding balance from the IRS for an amount just under $3,000 for the year of 2008. As a small business and while dealing with our current taxes for 2009, this was an unexpected e-mail. They sent us the notice because the IRS stated they did not receive our K-1’s and sent us back our entire 2008 tax returns. The K-1 was in the Tax Return and so we sent them a letter letting them know and re-sent our tax return. After speaking with some representatives at the IRS, they said that they didn’t receive our letter.”
Her situation was unsettled for a number of months. The IRS could have made various decisions on whether the company would have to pay the $3,000 tax adjustment which the form K-1 would have annuled. The issue was finally resolved. Keimasch explained that is took a few months and a lot of talking to representatives. The case originally had no prospect of resolution and it appeared as though the company would have to pay the $3000. Things changed for Keimasch while speaking to a representative who disgarded the $3000 tax fee since this was the first tax return sent for the company.
By being familiar with some of the possible outcomes from the IRS, you can make having to deal with the agency a little easier. Always keep an open line of communication with the IRS with any tax issues and try and resolve the situation quickly. If there is a disagreement regarding your taxes, the IRS could use some less desirable means to resolve the issue. Solving any tax issue with the IRS will allow you to reach one of the following five conclusions:
1. Resolution Without Headaches with IRS
When the IRS has all of the information they need, they may simply find the result is in the favor of the taxpayer. When locating certain tax issues and then resolving them, the IRS is not infallible. In addition, the IRS handles tens and millions of tax filings and it is not uncommon for a piece of tax filing to be misplaced. If you learn of a tax problem, know that the situation can usually be remedied and the result could possibly be a nice tax refund.
2. IRS Lump Sum Payments
Many tax issues of a business owner will be about how much tax the IRS thinks is owed. Resolving your tax problems could be as simple as paying the tax to the IRS for all taxes owed including the accumulated penalties. Of course, this is not an ideal situation, but it can get rid of the tax problem. To prevent any further penalties or interest charges, if you can afford it then it’s best to just pay your taxes as a lump sum payment.
3. Payment Plans to the IRS
You may have tax charges that you cannot afford as one lump sum. To resolve this, you can create a payment plan or agreement of payment installations over a period of time with the IRS. When requesting this, you will be able to set the date on which you will make the payment and propose a monthly amount. The IRS will either accept or deny the request. When paying on a payment plan, you will also incur interest. When you owe up to $25,000 in taxes, interest and penalties, you will usually qualify for a payment plan. Higher liabilities may also be authorized for payment plans but more paperwork will be involved.
4. What is “Offer in Compromise” with the IRS?
Should the IRS claim you owe money, a settlement may be accepted. One of the settlement agreements is called an “offer in compromise.” This agreement will settle the stipulations of the repayment as well as the amount. You must meet one of the following three criteria for the IRS to agree to this arrangement: (1) the IRS does not believe you can pay the amount in a lump sum or payment plan. This is called the “doubt as to collectability”; (2) the IRS does not believe the determined liability and penalties are accurate, in which case, the IRS will accept an agreement instead of re-assesing tax liabilities and penalties. This is called “doubt as to liability.”; and (3) the offer could be accepted if you successfully defend your case that the imposed tax is not impartial or that paying the tax would create a personal and financial destitution.
5. Appealing to the IRS
You can appeal the final decision of the IRS and receive the Taxpayer Advocate Service which will help you resolve tax issues that cannot be resolved by using normal IRS methods. The Taxpayer Advocate Service is an independent panel part of the IRS that helps resolve tax problems that cannot be resolved when dealing directly with the IRS and also ensures that all individuals have equitable treatment.
Helpful resources: Common follow-up reading includes QPRT Trust Guide, BDIT Trust Guide, and official IRS estate and gift tax guidance when comparing planning options.
Questions that usually come up next
People exploring IRS Tax Issues & Tax Audits often move next to the practical questions: when to act, what to fund, and how much control can stay with the original owner.
Details that often change the outcome
- Timing matters because tax planning usually works best before a crisis or audit pressure appears.
- Control matters because retained powers can change how the IRS views a trust or transfer.
- Funding matters because moving the right asset, in the right way, often matters more than the label on the document.
What usually helps after the main answer
Many readers narrow the decision by comparing Irrevocable Trust, Asset Protection Trust, and What Is a Grantor. When government rules shape the decision, many readers also review official IRS estate and gift tax guidance.
