Earning income is terrific, paying taxes not so much. However, unless you fall under the few exemptions for paying state or federal income tax, paying taxes is an unavoidable part of functioning in modern society.
Unfortunately, just paying taxes is often not a simple matter. The federal tax code can be a complicated and treacherous landscape for taxpayers who often find themselves encountering pitfalls.
These pitfalls can be daunting, particularly for taxpayers who wish to minimize their tax liability, find themselves with unpaid tax debt or want to ensure compliance. Under any of these circumstances, an experienced South Carolina tax lawyer will have a firm grasp of state and federal tax regulations and be able to advise their clients on the best strategy moving forward.
When is a Tax Lawyer Needed?
The need for a tax lawyer arises in two situations. The first involves issues that relate to maintaining compliance with Federal and State tax regulations. In the second situation, a tax lawyer may be required to respond to a problem with a taxing authority such as an audit or guiding negotiations on an unpaid tax debt.
One of the more pressing matters a tax lawyer can intervene on involves handling situations in which a taxpayer owes back taxes, has unfiled returns or must respond to efforts to collect a tax debt by the IRS or South Carolina Department of Revenue.
Unpaid Tax Debt
Unpaid taxes that evolve into a tax debt are subject to collection by the taxing agency. Generally, the IRS or the South Carolina Department of Revenue will send the first notice demanding payment in full. The balance reflected in the letter will include the amount of the tax, any penalties, and interest accrued. The unpaid balance is subject to compound interest and if not paid, can balloon into a substantial amount.
If a taxpayer is unable to pay the full amount due at the time of the first notice, there are several options available to resolve tax debt.
One of the most common methods to address unpaid tax debt involves entering a repayment plan. For example, the IRS offers a long-term payment plan (more than 120 days). To enter into a long-term repayment, plan a taxpayer must have filed all required returns and owe less than $25,000 in combined tax, penalties, and interest.
Offer in Compromise
A second option for resolving unpaid tax debt involves an offer in compromise. An offer in compromise allows a taxpayer to settle your tax debt for less than the full amount owed. The IRS generally does not accept settlement offers but will consider an Offer in Compromise based on its standards for qualification and repayment. Before applying for an Offer in Compromise, a taxpayer must file all required tax returns.
When applying for an Offer in Compromise, a taxpayer may need to make an initial payment. Further, the IRS will look at several factors regarding the tax debt, such as whether there is a doubt as to liability:
– If there is a doubt that the amount owed is fully collectible
– Where collecting a bona fide tax debt would create an economic hardship
– Would be unfair and inequitable because of exceptional circumstances.
Wage Garnishment, Bank Levy and Liens
If you ignore a tax debt, both state and federal tax authorities are authorized to collect the amount owed through wage garnishment, levies against bank accounts, and liens against real property. Just like any other creditor who has a collectible judgment, the IRS or South Carolina Department of Revenue may attach a taxpayer’s assets to secure the collection of a debt.
The most common and intimidating encounter individuals or businesses entities often find themselves in involves a situation in which you do not report required tax filings, underpay taxes resulting in tax debt or the taxing agency calls into question information included in a tax filing thus resulting in an audit.
IRS Audits or South Carolina Department of Revenue Audits
An audit examines an organization’s or individual’s accounts and financial information to ensure information is reported correctly according to the tax laws and to verify the reported amount of tax is correct.
An organization’s or individual’s accounts and filings are often selected randomly. Therefore it does not mean the target of the audit has done anything wrong. In other cases, the IRS/SCDR will conduct an audit because something in a tax filing has raised a red flag requiring a further examination for compliance with tax laws.
Audits can be conducted by mail or through an in-person interview. When an audit is conducted by mail, the taxpayer must send in documentation to support the taxpayer’s filing. In many cases, this type of documentation is used to prove the validity of tax deductions or credits. An in-person audit is a more intensive process whereby a tax examiner will question the taxpayer and review documents in person.
State and Federal Payroll Tax Compliance
Employers must comply with state and federal payroll tax responsibilities, including making sure withholdings for state taxes, federal taxes, Social Security and Medicare taxes under FICA are accurate.
For individual taxpayers and business owners, hiring the right Tax lawyer is an important decision made with the choice-tax lawyer’s professional expertise in mind.
A tax lawyer can provide guidance when an individual taxpayer or business fails to file tax returns when required. Generally, taxpayers are required to file an annual tax return unless the IRS/SCDR grant an extension to file a late return. Business filers often are required to file returns more frequently, thus placing a more significant burden for compliance on them.
In either case, failing to file a tax return can result in penalties and further scrutiny by the IRS or South Carolina Department of Revenue. If a taxpayer or business has unfiled tax returns, it is essential to seek advice from an experienced tax lawyer who can guide your tax filings back into compliance and minimizing the cost of doing so.
Call a South Carolina Tax Lawyer Today
An experienced South Carolina tax lawyer can offer guidance in several areas of tax law, including the best strategies for compliance and managing unpaid tax debt or unfiled returns. Our practice can provide advice to individuals across all facets of tax law. Contact our Lexington office today at (803) 271-0909 to discuss how we can assist with your needs.