Penalties and interest are what can greatly magnify your tax debt. These begin to apply as soon as you owe the money to the IRS. In the event of interest, it can accrue for an unlimited amount of time. If you wait too long to address your tax issues, you could end up in a situation that may be more burdensome to manage. An experienced tax resolution services professional at Moskowitz LLP can both help you get a handle on your tax situation and deal with the IRS and state on your behalf.
You can take the first step towards getting a handle on your tax issue and potentially getting out of debt by scheduling an appointment with the tax attorneys at Moskowitz, LLP. We can review your situation and help you determine your most effective course of action.
There are many instances in which our clients will come to us and present an IRS notice that demands a large amount of money. They are often shocked when they see that the original sum that they owed in the first place is only a small part of the total amount of back taxes. The reason is that IRS debts can quickly spiral out of control, and an amount of money that may have initially seemed manageable has now grown into a crushing burden.
The IRS Can Assess Immediate Penalties
The tax system prioritizes prompt payment of any money that is owed. As soon as the deadline has passed to pay what is owed, the IRS begins to tack on interest and penalties. Your initial bill during tax season can even include penalties if the agency believes that you did not pay money that was due during the prior year. Once interest and penalties begin to accrue, the situation will grow materially worse by the day, and that is not an exaggeration.
Initially, the IRS may assess penalties and add them to the tax due for several reasons:
- When your initial tax return underpays your taxes, whether it is due to negligence or underreporting of income
- You completely failed to file a tax return (in that event, the IRS will charge you a penalty of 5% per month, up to a total amount of 25% of the taxes due)
- You filed a tax return on time, but you did not pay the full amount owed (then, you would be charged .5% per month, up to 25%, beginning the day after the tax was due)
Interest Applies to the Money You Owe to the IRS
Once you owe the IRS money, you will also be subject to interest on the total amount owed. The agency charges interest pursuant to a statutory rate. The rate is based on an addition to the federal short-term interest rate.
Interest on tax debts compounds daily, which means that the debt can increase even more quickly than you think. The interest will continue to compound, so long as you owe the IRS money. If your tax debt persists over several years, you may even find that you owe a considerable amount more than the initial amount of back taxes. Therefore, it is best for you to find a way to deal with tax debt as soon as possible.
You Have Options When You Owe the IRS Money
You may even have options to work with the IRS to reduce the amount of money that you owe. First, you may request a penalty abatement from the IRS that they can grant to you under certain circumstances. This would reduce the initial amount of money to which compounded interest would then apply. If you had a “reasonable cause“ for the tax issue, the IRS could elect to waive penalties.
Second, you can attempt to negotiate with the IRS. If the agency allows you an installment agreement, you may still face the same problems, in that the amount of tax debt that you owe continues to increase over time. What could work best in your circumstances is making an offer in compromise to the agency, which would allow you to pay less money if the IRS accepts what you have proposed. Regardless, you must be vigilant about your own situation because you could find yourself in a perilous tax bind.
Contact Moskowitz, LLP for Tax Resolution Services
Speak to the experienced tax resolution services professionals at Moskowitz, LLP to get a handle on your tax situation and gain an advocate who can work with the IRS on your behalf. Schedule an appointment with a tax attorney by visiting the firm’s website or by calling them today at 888-829-3325.
