Tax Resolution: What You Need to Know


Garrett Firestone, JD, EA


Reviewed by

the Bench Tax Team


August 23, 2022

This article is Tax Professional approved


Tax Resolution and Tax Relief are services designed to help taxpayers through the complicated task of resolving back tax problems. Taxpayers tend to seek help once they’ve ignored the problem so long that the IRS or state has lost all patience and decided to forcibly recover unpaid taxes. This can take the form of a tax lien on your property or a bank levy. The most common method the IRS uses to take your assets is a bank levy, where the government issues a levy to the taxpayer’s bank demanding the taxes owed be turned over.

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What are the warning signs that I’m about to be levied?

Before any levy can occur, a taxpayer must be given notice of the action taken against them. The IRS will attempt to contact the taxpayer through written notices. These notices can be contested or appealed to prevent the levy from occurring. And if the levy does occur and causes an economic hardship or you enter into an installment agreement (payment plan), you can have it released before the funds are removed from your account. If those notices are ignored, the case can escalate through “collections” where the taxpayer may receive phone calls or in-person visits from the agent or officer assigned.

Rather than ignore these communications, it’s always better to communicate with the taxing authorities and work together to resolve the issue.

How do tax resolution companies help?

When you engage the services of a tax resolution company, you are hiring them to assess the entirety of your tax problem and speak on behalf of you or your business. A good tax resolution representative will know exactly what is allowable on a financial disclosure and be able to analyze your financial information to determine exactly what resolution you qualify for.

Many taxpayers may only qualify for an installment agreement. While it sounds awful to pay old taxes in addition to paying current taxes, the reality is that your representative will be able to negotiate the lowest possible installment payments by arguing on your behalf that you simply cannot afford to pay more. The installment agreement amount can be the difference between keeping the doors of a business open or closed.

How much do tax resolution services cost?

Tax Resolution companies generally operate in two ways.

The first approach is to connect you with an unlicensed and inexperienced salesperson that will pitch an investigation phase where you can pay thousands of dollars simply to conduct an investigation into what needs to be done. After the investigation, you are asked to pay an additional fee to actually address the issue.

The second (and better) approach is to have an initial consultation with an individual licensed to represent clients with the IRS before any fee is paid. The licensed consultant will ask you questions specific to your situation and assess what needs to be done from the information you provide. From there, you can expect a fee of at least a thousand dollars for the simplest resolution strategies up to tens of thousands of dollars for the most complex cases with liabilities ranging into the millions of dollars. Before consulting with any tax resolution specialist, make sure you ask the individual you speak with if they are licensed to practice before the IRS.

Communicating with taxing authorities

When the IRS or state first make contact, they will often inform the taxpayer what is owed and ask them to repay the liability. Recognizing that most taxpayers with outstanding tax debt don’t have the ability to repay their debt all at once, the IRS and states typically offer taxpayers a few resolution options. But in order to qualify for anything other than full payment of the tax debt, a taxpayer must be current and compliant.

What does it mean to be current and compliant?

To be “current and compliant” means a taxpayer has filed all past tax returns. Moving forward, the taxpayer must remain compliant on all filings in order to maintain an installment agreement. Scheduled payroll deposits, self-employment estimated payments, or any tax due must be paid on time or the installment agreement is likely to be terminated. Filing all missing returns and not accruing additional taxes are the most important components to resolving back taxes and can also be the most difficult step for any business to accomplish.

Why is filing missing returns the most difficult step?

In order to file years of missing business tax returns, your business needs to have well-documented financial records showing its income and expenses. Many business owners in this predicament don’t keep accurate monthly or annual financial records documenting their income and expenses. Without this data, businesses can often feel helpless as they have no idea where to start the daunting task of preparing years of financial records.

Without this basic financial information, a tax preparer will be unable to complete an accurate return. And if the return is prepared using guesswork, the risk of audit, fines, and penalties goes way up.

If you’re trying to resolve unfiled tax returns, you’ll need some historical bookkeeping done in order to file back taxes. If you’re not up for doing this work yourself, check out Bench. Their historical bookkeeping team will get your business’s financial records in order, allowing your business to file missing tax returns that accurately account for all expenses incurred. By not missing any expenses, your tax preparer will have no trouble accounting for every penny spent, which will reduce your business’s tax liability.

What do I do after I’m current and compliant?

Once all returns have been filed and the scope of the liability is known, the elephant in the room is ready to be dealt with. The next step in reaching a resolution is determining whether your business, (or in some cases, you personally) can repay what is owed. In order to make this determination, the IRS or state will ask the taxpayer to complete a financial disclosure that accurately represents assets, liabilities, income, and expenses.

Financial disclosure is the ultimate weapon in tax resolution. Unfortunately for many taxpayers, this is where the process becomes so difficult to comply with, they simply cannot move forward without help. This is where tax resolution companies can help those struggling to resolve their tax liability.

What is an offer in compromise?

If even the lowest installment agreement won’t be affordable due to extreme hardship, the representative may be able to qualify you or your business for an offer in compromise. An offer in compromise (‘OIC’) is an agreement between the IRS and taxpayer to settle unpaid taxes for less than the full amount owed. An OIC is usually submitted on the grounds that the taxpayer cannot afford to pay the taxes owed and it is in the best interest of both the government and taxpayer to forgive the debt. The IRS forgives these debts, not out of their own goodness, but to promote future compliance. When the IRS agrees to forgive taxes, they do so with the condition that the taxpayer must remain current and compliant for the next five years. Any failure to remain in good standing will result in the full liability being reinstated.

What about all the penalties the IRS or state assessed?

In addition to providing a resolution to your taxes, it is very common for tax resolution services to eliminate some or all of the penalties you’ve been assessed. The IRS and most states will agree to forgive penalties where the taxpayer has reasonable cause for failing to file or pay their taxes. Your representative will listen to your story and hone in on specific details that the IRS/state would consider reasonable cause. In addition to the reasonable cause criteria, a penalty can be forgiven using an administrative waiver called first-time penalty abatement. The first-time abatement is entirely up to the IRS on whether or not the they will approve a waiver based on a set criterions that include having a prior history of good compliance and incurring a penalty for the first time in three years.

What should I do if back taxes are a problem?

Every situation is unique. But if you need tax resolution, you should contact a qualified tax resolution specialist. You’ll probably also need to get historical bookkeeping done so your books are caught up, and accurate to IRS standards.

If in doubt, call Bench. They’ll get your bookkeeping sorted out, and connect you with a reputable tax resolution firm.

Working with Bench, you can be sure your tax liability is as low as possible before starting to negotiate the liability into an installment agreement or other resolution. Tax resolution companies may not be able to make your liability disappear, but they will provide you with the best possible outcome.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.
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