On August 16, 2022, the Inflation Reduction Act was signed into law and allocated $80 billion to fund the Internal Revenue Service (IRS) over the next 10 years. With the new funding, the IRS announced plans to hire an estimated 87,000 new employees over the same 10-year span. While social media has propelled rumors concerning the purpose and type of new hires, the IRS stated the newly earmarked resources are designed to help close an estimated $600 billion of annual tax gap. Simply stated, the objective is to collect the taxes that go unpaid. This news will likely have the average taxpayer thinking about their taxes and wanting to avoid any issues with the IRS or even their state taxing authority.
Impact to the Taxpayer
So what does all this information and speculation mean for you? Don’t delay. Believe it or not, a tax liability does amount to a legal concern, and you should strive to identify a resolution swiftly. Contained within Publication 1, the IRS acknowledges the rights of a taxpayer, one of which is the right to legal representation.
One of the biggest challenges accompanying any tax liability, specifically from a financial standpoint, is the daily accrual of interest. According to the IRS, “interest is charged when a taxpayer has an unpaid liability comprised of tax, penalties, additions to tax, or interest.” The interest starts to accrue on the due date of the return and continues to compound daily until payment is made in full. The interest rate (for taxpayers other than corporations) is the federal short-term rate plus 3%, with the short-term rate being determined every three months. The rate scheduled for 1 October 2022 is 6% for underpayments. As such, finding and implementing a resolution for any outstanding balances is crucial to ending the constantly compounding interest.
What to Do
Dealing with a taxing authority, especially the IRS, can be a daunting endeavor. Therefore, the best first step is to seek professional guidance. The IRS and any taxing authority want each taxpayer to pay their liabilities in full, which includes all possible penalties, additions to tax, and interest. While payment in full is the simplest resolution for taxing authorities, it is not always immediately possible for every taxpayer. If you are struggling with a tax liability or are concerned about a potential tax issue don’t wait to seek assistance. For more in-depth information or specific questions, please contact our office.
Revolution Law Group is located in Greensboro, NC, and serves individuals and small businesses throughout the Triad and surrounding areas. To contact us please visit Revolution.law or call 336-333-7907.
The information included here is for informational purposes only, is not exhaustive of all considerations when creating documents, is not intended to be legal advice, and should not be relied upon for that purpose. We strongly recommend you consult with an attorney and do not attempt to create your own documents.