One of the most daunting responsibilities expats face when living and working abroad is dealing with complicated taxes. It’s difficult and overwhelming enough for citizens living and working in the U.S., but it’s a confusing maze that is twice as hard to navigate for expats.
In the Fiscal Year (FY) 2019, roughly 61 million taxpayers were assisted by calling or visiting an office for help with handling their taxes. However, if you are notified that the Internal Revenue Service (IRS) will audit your taxes, don’t panic. An IRS audit doesn’t necessarily mean you’ve done something wrong.
This article will provide a detailed top-to-bottom guide to tax resolution and equip you with the knowledge you need before, during, and after working with a tax resolution service provider. Let’s get started.
Table of Contents
What is Tax Resolution?
Tax resolution is an umbrella term for services structured to aid taxpayers through the complex task of resolving tax problems. Essentially, a tax resolution company will assist you with any tax issues, such as debt, you have with the IRS.
Tax resolution is typically required when U.S. citizens working abroad need professional help to settle their expatriate tax matters and prevent the IRS from taking their assets in exchange for the taxes owed or other actions such as passport revocation.
Some of the tax resolution provider’s responsibilities will include evaluating your tax problems, analyzing your financial information to discern which resolution you qualify for, and speaking on your or your business’s behalf.
Tax Resolution: Purpose and Benefits
1. Solve your easy-to-difficult tax problems
Whether you’re in the middle of a serious tax issue (e.g., you haven’t filed your return in years) or need a hand to ensure your taxes are in order, working with a tax professional can reduce the stress and pressure of dealing with taxes. In addition, tax resolution companies can assist you in filing present-day returns and help you devise a tax plan.
2. Keep your taxes in line
The IRS charges interest and penalties on those who pay their taxes late or fail to pay at all. Tax resolution firms can determine if the taxpayer is eligible for tax penalty abatement, prepare and submit unfiled returns, ensure that the back taxes charged line up, and make paying the taxes owed more manageable.
3. Have an audit representative
Expat or not, dealing with the IRS is frightening. By working with a tax resolution professional who knows better how to explain the information on your tax forms, you won’t have to speak with the IRS on your own. Instead, your audit representative will present your case on your behalf, which is immensely helpful for expats.
4. Update tax documents and files
A tax resolution service provider will assist you through the entire process of preparing your tax documents and necessary files for the audit. They can also help manage your tax return and check whether or not you’re due to pay certain fees. You can find comfort in knowing that you have a tax specialist who has your back and can ensure that you pass the audit successfully.
5. Avoid legal liabilities
If you’re being audited and the legal repercussions of the tax mishaps and errors terrify you, a tax consultant can help you create a plan to resolve the situation and work with the IRS to reach an agreement. Your tax resolution partner can put up a defense for your situation and come up with a repayment plan that shows you can repay what you owe.
6. Protect your property from tax liens
A tax lien means legally claiming against an asset, such as a house, imposed for delinquent taxes. If you have trouble paying your taxes owed to the government, the federal, state, or local government can put a lien on your property and assets as security.
Working with a tax resolution company can avoid such foreclosure, helping you discharge and protect your property from liens by assisting you in establishing conditions in the best interest of you (the taxpayer) and the tax agency.
Tax Resolution: Stages and Steps
Tax resolution doesn’t happen overnight. With the help of your tax resolution specialist, you can start working on these stages and steps:
Tax Resolution Stages
Taxpayers can schedule a consultation with a tax resolution provider to discuss their situation, including their concerns and reasons for seeking help with their taxes. The specialist will give a rundown of the possible course of action and discuss the process. This can be done in a video conference or over the phone.
Once the Power of Attorney (POA or 2848) has been obtained, the important government bodies will be notified, showing that you are now taking your tax matters seriously. The investigation involves getting access to your private IRS file and reviewing it in full, gauging how much you owe along with any additional compliance issues.
After proper analysis comes the compilation and accomplishment of all necessary documents and forms. They will also assist you in catching up on your missing tax returns and make sure that all the documents needed are recorded.
This is the stage where the tax representative will do the legwork in resolving your tax problem within the IRS guidelines and putting up a repayment plan to settle the tax owed for the least amount possible.
This is where the waiting game starts, which can take several months. The IRS may reach out now and then to your tax representative for additional documentation, so it’s important to stay updated with the status of your case and see the negotiation process through.
Tax Resolution Process
1. Work with a tax resolution specialist
First, you will need to discuss your tax situation with the tax resolution professional for an initial assessment and weigh your resolution options. If the professional sees they can move forward with your case, then on to the next step.
2. Tax problem investigation
Once a tax agent reviews your situation and decides they can help you, an engagement letter will be provided that outlines the understanding and agreement between you and the tax provider.
A probe into your case will also begin, which means diving deep into your IRS tax records and informing the IRS that your representative is working on a settlement for you.
3. Gather requested documentation needed for the recommended resolution
You will provide all necessary documents the tax representative asks you to help with the process. The tax representative can also apply for a collection hold to stop the IRS from seizing your assets and wage and end any liens on your property. Then, they will plan for a settlement that benefits you and the IRS.
4. Tax resolution preparation
The tax representative will work to determine all possible outcomes following your case. They will look into how much you can pay, what plans you qualify for, how much you owe, and other possible questions that can come up when resolving the case. Once a resolution is reached, it will be submitted to the IRS for approval.
5. Tax resolution case filing, negotiation, and settlement
The case filing, negotiation, and settlement paperwork will be served to the IRS by the representative. The client will be briefed on the turnaround times of approval and what to do while waiting to reach a mutual resolution.
6. Achieve tax resolution
Once a mutual resolution has been reached, the tax resolution provider will guide you to the end of the tax resolution process and help you end your tax issues for good.
To learn more about the entire process involved in this, read Follow the Tax Resolution Process in 6 Easy Steps.
Tax Resolution Issues
What are the types of tax issues a tax resolution specialist can help you with? Here are some sample scenarios you might encounter:
1. Audit Notice from the IRS
You may be wondering or unsure about why you received an Audit Notice from the IRS and what to expect. Typically, auditors will require you to submit additional documentation to confirm and validate your income and deductions. However, whether you are confident that you’ve done your taxes correctly as an expat or not, securing tax representation can help smooth out the process and protect your interests.
2. Issuing lien as security against debt
The IRS can assert a legal right to your property by placing a lien. A tax lien is a claim the government puts on your assets—real estate properties, bank accounts, vehicles, and more—in an attempt to collect your outstanding debt. Tax liens are issued before a tax levy—the actual seizure of the assets.
3. Seizure of property
If you owe back taxes or fail to meet your tax obligations, the IRS has the authority to place a levy on your property, assets, bank accounts, and wages. When this happens, your paycheck will be cut significantly, your bank accounts will be frozen, and your assets may be sold by the IRS.
Simply put, a tax levy is the exercise of liens. However, with a proper tax resolution, you can stop the seizure of property and eliminate any action taken against your assets.
4. Delinquent back taxes
This pertains to the taxes you did not pay, hence, owe to the IRS. Remember that the IRS hardly forgets about unpaid taxes, so if you know you have outstanding payments, you need to consult with a tax resolution agent to learn more about installment agreements and settle your tax debt as soon as you can.
5. Your paycheck may be cut
Wage garnishment is a common maneuver that comes with a tax levy. This is when the IRS goes after your source of income, where your employer must reduce a portion of your earnings every payday to settle the tax debt.
For a more in-depth discussion about tax resolution issues, check out 5 Tax Resolution Issues (and How to Solve Them).
Tax Relief vs. Tax Resolution
To smoothly solve your tax issues, it’s important to know which tax solution fits your situation by differentiating tax relief and tax resolution.
Tax resolution is the process of working with a tax resolution provider and the IRS to resolve your tax issues, such as unpaid back taxes and confirming the reported tax deductions.
Meanwhile, tax relief pertains to setting up a payment plan or negotiating a settlement with the IRS to help repay the tax debt easier. Often, taxpayers in distress or victims of natural disasters are offered tax relief.
2. Payment plans
The IRS may allow those who qualify for tax relief to break down their tax balance into smaller payments. However, there are particular qualifications and disclosure requirements for a repayment plan, depending on the tax balance owed.
Meanwhile, a partial payment installment agreement (PPIA) can be filed for tax resolution. A PPIA is like an installment agreement, but considering a combination of the statute of limitations and your capacity to pay can conclude the tax debt doesn’t have to be repaid in full.
3. Offers in compromise
If your tax debt has ballooned to an amount more than you could pay, you can look into the IRS Offer in Compromise program (OIC), which can be considered when the taxpayer cannot pay the debt or if it leaves them with an immense financial burden. However, not everyone qualifies for an OIC as there are certain conditions to be met.
4. Collectible finances
Another option of tax relief is to ask the IRS if it’s possible to put your account on a “Currently Not Collectible” status. This is when the IRS evaluates your living situation and expenses within reason. If the taxpayer’s finances are in a bad state, debt collection can be temporarily halted until they can afford to repay the tax debt.
If you’re still a little confused, this blog post entitled Tax Relief vs. Tax Resolution: 4 Key Differences You Need to Know breaks down the differences between the two.
Tax Resolution Mistakes
Once the tax resolution process starts, you need to be really careful with the data and information you provide. Work closely with your tax resolution specialist to avoid loopholes and possible road bumps along the way.
1. Not knowing your filing status
The primary factor in claiming your correct filing status is your marital status, or whether or not you got married on the last day of the tax year. Knowing your corresponding filing status will determine your filing requirement, deductions, credits, and tax rate.
The different filing statuses are single, married filing jointly, married filing separately, head of household, and qualified widower.
2. Getting the data wrong
Miscalculation may sound like a simple mistake, but the IRS won’t let that go. To avoid mathematical errors, make sure to triple-check your forms and review them before filing, ensuring that the records add up. Remember that the IRS audits those who have discrepancies in their reports, so your calculations must be accurate.
3. Not filing extra source of income
If you have a full-time job, part-time work, and several freelance or per-project-basis gigs, know that all your income is taxable; thus, you must include them in your report. If you’re confused about which form to report your other sources of income, you may ask for help from a tax professional.
4. Wrongly itemizing finances
Often, taxpayers itemize deductions more than or below what is qualified. It’s important to know that there are rules that apply to tax deductions. You will be required to provide proof for the deductions enumerated on your tax return, such as your charitable contributions and moving expenses.
Additionally, research the rules for itemized deductions or consult with your tax advisor to ensure you’re doing it right.
5. Missing filing dates
One of the common tax mistakes expats make is not filing a tax return due to missing the filing dates. Remember that all income must be reported to the IRS, even when it’s not taxable where you work or reside. Moreover, ensure to sign and date the return correctly. The IRS will send back unsigned and undated returns for signing.
Find out how you can avoid making these mistakes and more here: How to Stop Making These 5 Tax Resolution Mistakes.
Tax management for expats is twice as complicated. That’s why many expats work with professionals to do their taxes right and ensure that issues are resolved as quickly as possible so that they can move forward to more important things in life.
If you or someone you know needs assistance from a tax resolution company, feel free to reach out to Tax Samaritan. Tax Samaritan is a tax resolution provider that offers excellent service with tax specialists equipped with the knowledge and expertise to plan the best resolution for your tax situation.