Buying a House with IRS Tax Debt? Know What to Expect

How Can a Tax Attorney Help You?

Hiring a tax attorney to help you with your tax situation is one of the best things you can do to protect your legal rights as a taxpayer. It is in your best interest to engage the services of an experienced tax attorney, so you can have a favorable outc

When you’re planning to buy a house, various financial factors come into play, and one key consideration is whether you owe taxes. The simple answer is: “maybe.” The situation can be very complex, and working with a tax professional is always the safest route. Let’s consider your options and various important issues that come into play if you’re trying to buy a house and have tax debt.

Identifying the Issue: Tax Lien or Tax Debt?

Before we go any further, you need to understand the difference between a tax lien and tax debt.

A tax debt refers to the amount you owe the IRS after filing your income taxes. This can happen when you’re unable to pay your tax bill in full or when you have unfiled taxes for a particular year. Tax debt doesn’t necessarily prevent you from buying a house, but it can make the process more challenging.

On the other hand, a federal tax lien is a claim made by the government against your property when you neglect or fail to pay a tax debt. An IRS tax lien is not just limited to federal tax debt; if you owe state taxes, the state can also impose a tax lien on your property. This tax lien can greatly impact your ability to buy a house, and dealing with it should be a priority if you’re planning on becoming a homeowner.

How Tax Debt Affects Mortgage Approval

Mortgage lenders take on a considerable amount of risk when they approve a home loan, and they evaluate an applicant’s financial profile carefully to ensure they can meet the monthly payments. When you apply to get a mortgage, the lender will examine your financial standing, including any outstanding debts, tax debt, and, of course, any federal tax lien. They will also look to see if you owe tax debt to a state as well as at your IRS tax bill.

Lenders often consider tax debt as a negative mark on your creditworthiness, mainly because it indicates a history of financial irresponsibility or hardship. This can affect your debt to income ratio, a key factor in the loan approval process. This ratio compares your monthly debt payments to your gross monthly income. If you owe a substantial amount of tax debt, your debt to income ratio might exceed what most lenders are comfortable with, complicating your mortgage approval process.

The type of mortgage also matters. For instance, if you’re applying for a conventional loan, you might face stricter requirements. Conventional loans are usually issued by private lenders, and they often have stricter credit score and debt-to-income ratio requirements than government-backed loans, such as FHA loans or VA loans.

How Does a Federal Tax Lien Affect Buying a House?

A tax lien can cause a significant drop in your credit scores, making it harder for you to secure favorable mortgage loans. Additionally, if a tax lien is filed against you, it’s public information and will appear on your credit reports, making it known to potential lenders that you have unpaid taxes.

Having a tax lien can hamper your home buying process in multiple ways. Not only does it damage your credit, but it also attaches to all your property, including any new property you acquire while the lien is in place. This means that if you do manage to buy a house while a tax lien is still in effect, the house will automatically have the lien attached to it.

Most lenders will not approve a mortgage application while there’s an active tax lien. The presence of a lien indicates to mortgage lenders that their claim on the property may not be first in line, as the government’s claim would come first in the event of a sale.

Other Ways a Tax Lien Affects Buying a House

Besides affecting your ability to secure a mortgage, a tax lien can also affect other facets of the home buying process. For instance, a tax lien can cause difficulty in securing home insurance—a requirement for most mortgages. Also, you may face challenges when trying to sell the home later, as any proceeds from the sale might be used to pay off the tax lien first.

Furthermore, a tax lien can limit your options when seeking other forms of credit necessary for homeownership, such as home improvement loans or lines of credit. With a tax lien affecting your credit score, obtaining these could be challenging.

Even after the lien is resolved, its impact can still linger. Credit bureaus may keep tax liens on credit reports for seven years from the date of payment, affecting your ability to secure favorable interest rates long after the tax issues are resolved.

Can You Get a Mortgage if You Have IRS Tax Debt?

Federal tax debt is a serious issue that can hinder your ability to get a mortgage, but it’s not necessarily an insurmountable obstacle. Lenders require applicants to be financially responsible and capable of making their mortgage payments. Therefore, having unpaid taxes can cast doubt on your financial stability and make it harder to buy a house: but not necessarily impossible.

The key lies in how you handle your tax debt. If you agree to a payment plan with the IRS, make your monthly payments consistently, and prove that you can manage the debt while affording a house, you may be able to convince lenders to approve your loan. You may need to go through a manual underwriting process, where the lender takes a closer look at your financial situation to make an informed decision.

When entering into a repayment agreement, make sure the additional monthly payment won’t negatively impact your debt-to-income ratio or your ability to make your mortgage payments. Also, it’s important to note that some mortgage programs, like FHA loans and VA loans, have specific rules about delinquent tax debt and may require you to have a repayment plan in place before approving your loan application.

How Do Lenders Know You Owe Taxes?

Mortgage lenders typically require applicants to submit tax returns for the past two years as part of the home loan application process. This can reveal if there’s federal tax debt.

Moreover, unpaid taxes will show up on your credit reports. Mortgage lenders check these reports thoroughly before deciding to approve or reject your application.

Even if you have tax debt, it’s crucial not to hide this information from your potential lenders. Being upfront about your situation can provide an opportunity for you to discuss your payment plan and demonstrate your commitment to handling the debt responsibly.

So, while owing taxes can make the home buying process more complex, it’s not necessarily a deal-breaker. The critical factor is how you manage your tax liabilities.

If you’re in this situation, talk with a tax professional: an experienced tax attorney. They can provide advice tailored to your unique circumstances, helping you navigate the process and work towards your goal of homeownership.

Is It Possible to Get an FHA Loan With Back Taxes Owed?

The Federal Housing Administration (FHA), part of the U.S. Department of Housing and Urban Development, provides mortgage insurance on loans made by FHA-approved lenders.

These loans are popular with first-time homebuyers due to their low down payment requirements and more lenient credit score standards. But what happens if you owe back taxes?

The FHA has clear guidelines for applicants with delinquent federal tax debt. To be eligible for an FHA loan, you must either:

1. Have entered into a valid repayment agreement with the Internal Revenue Service and made at least three months’ worth of timely payments
2. Have received permission from the IRS to delay payment on the tax debt.

The lender will need to verify this information during the underwriting process. Having unpaid taxes doesn’t automatically disqualify you from an FHA loan, but it does necessitate an approved payment plan.

Can You Get a Conventional Loan With a Tax Lien?

Conventional loans are mortgages not guaranteed by the federal government. They are often considered more challenging to qualify for because they generally require higher credit scores and larger down payments.

While it’s possible to secure a conventional loan with a tax lien, it’s generally more difficult. Most lenders see a tax lien as a significant risk because it shows you’ve defaulted on a federal debt.

Additionally, in the case of foreclosure, the government’s lien will take precedence over the lender’s claim to the property.

However, just like with FHA loans, having a payment plan in place can make a significant difference. If you’re current on your payment plan and can demonstrate that you can handle both the plan payments and your potential mortgage payments, some lenders may consider your application. If you already own property sufficient to pay off your tax debt in the event you cannot make the payments, and if you have no other major debts, this may also be taken into consideration.

Can You Buy a House If You Owe State Taxes?

Just like owing federal taxes, state tax debt can also impact your ability to buy a house. State tax liens, like federal tax liens, can be attached to your property, making it difficult to secure a mortgage loan.

State tax debt is usually revealed during the mortgage application process when you submit your tax returns or during a credit check.

Once again, the key lies in having a structured payment plan with the state tax authority. Demonstrating that you’re actively handling your state tax liability can increase your chances of securing a mortgage loan.

How Federal Tax Liens Affect Selling Your Home

A federal tax lien on a home can make selling the property more complex because the lien often needs to be paid before transferring ownership.

Upon the sale of your home, the proceeds will typically go towards settling the tax lien first before you receive any funds. However, if the proceeds from the sale are not enough to cover the lien, you’ll still be responsible for the remaining tax debt.

In some cases, the IRS might agree to discharge a tax lien to allow the sale to proceed, but this often requires substantial negotiation and the assistance of a tax professional.

Decide on a Plan

When facing tax debt and seeking to buy a house, it’s essential to have a comprehensive plan. Your plan should not only consider your current financial situation but also your future financial responsibilities, including potential mortgage payments and any current repayment agreement with the Internal Revenue Service or state tax authority.

This plan should be built in consultation with a qualified tax lawyer. Purchasing a house is a significant financial commitment, and your plan should account for the additional monthly payments, as well as other homeowner expenses like property taxes, home insurance, and maintenance.

Before proceeding with a home purchase, you should also consider the impact of a mortgage on your debt-to-income ratio.

Set up a Payment Plan with the IRS

If you have tax debts, agreeing to a payment plan with the IRS can significantly improve your chances of obtaining a mortgage. An installment agreement allows you to make manageable monthly payments towards your tax liability, demonstrating to lenders that you’re actively addressing your tax issues.

There are several types of payment plans, including short-term payment plans and long-term payment plans (also known as installment agreements). Depending on the amount of tax debt and your financial situation, you may be eligible for one of these plans.

How Tax Debt Affects Refinancing a Home Loan

If you owe taxes and are looking to refinance your home, you may encounter some hurdles. Similar to the initial mortgage approval process, most lenders will consider your current tax situation during refinancing.

A lien can pose significant issues as it signifies a higher risk level to lenders. As with buying a house, having an approved and active payment plan can increase your chances of getting approved for a refinance.

Selling or Refinancing When There Is a Lien From the IRS

Selling or refinancing a home when there’s an IRS lien can be complicated. The proceeds from selling the house will normally be used to pay off the lien first before you see any profit. In the case of refinancing, the lender may insist the lien be paid off with the refinanced amount to ensure their loan is fully secured by the property.

In some cases, you may apply for a “discharge” of the lien to sell your home. This is a process in which the IRS removes the lien from the property to allow the sale to proceed. Alternatively, for refinancing, you can apply for “subordination,” where the IRS allows other creditors (like your refinancing lender) to move ahead of the IRS claim on your property.

Both options require significant negotiations with the IRS and the assistance of a tax professional like an experienced tax attorney.

Tips for Buying a House With Back Taxes Owed

If you owe back taxes and are considering buying a house, here are some tips to increase your chances of success:

Understand Your Tax Liabilities

Know how much you owe and how it’s affecting your credit score. Understanding the state of your tax liability is the first step to addressing it.

Set Up a Payment Plan

As discussed extensively, a payment plan with the IRS or state tax authority shows mortgage lenders that you are actively addressing your tax debt.

Consult a Tax Professional

Tax issues can be complex, especially when you’re trying to navigate the home buying process. Consulting with a tax professional or an experienced tax attorney can provide valuable insights and advice tailored to your situation. Your tax lawyer can also negotiate for you and show you’re taking the situation seriously and have a plan to deal with it.

Be Proactive

Take meaningful steps to manage your debt and improve your overall financial health. This might mean working on improving your credit score, reducing other debt, or saving more for a down payment.

Tips for Selling a Home with a Lien

If you need to sell your home and you have a lien from the IRS, consider the following steps:

Contact the IRS or State Authority

Reach out to discuss your situation and explore your options. You might be able to agree to a payment plan or apply for a discharge or subordination.

Consult a Tax Professional

An experienced tax professional or attorney can provide advice and guide you through the process.

Disclose the Lien to Potential Buyers

Being upfront about the lien can help avoid potential issues down the line.

Choose Your Real Estate Agent Carefully

Work with a real estate agent who is experienced in selling homes with liens. They can provide valuable guidance and support throughout the process.

While owing taxes can create challenges when trying to buy or sell a home, it’s not an insurmountable hurdle. With the right plan, professional advice, and active steps to address your tax debt, homeownership can be within reach. To learn more and get the help you need to buy a house, contact us at Damiens Law Firm, PLLC right away at (601) 957-9672. We know how stressful dealing with the IRS can be: and we can help!

ome after your IRS tax audit.

An attorney will fight for you, advocate on your behalf when communicating with an IRS agent, and make sure the IRS complies with all procedures. It is advisable to hire a lawyer with experience in handling both correspondence and in-person audits, particularly if your audit needs to be settled at an IRS office.

Guidance Through the IRS Audit Process

A tax audit lawyer can assist you throughout the entire process, from gathering the necessary documents for submission to the IRS, to negotiating favorable terms for your tax resolution strategy, and addressing any inquiries from the IRS regarding your returns..

A lawyer will have knowledge about the relevant tax law and tax codes that apply to your case, which can ensure your audit results are optimal. Additionally, a tax audit lawyer can provide guidance on future tax planning to minimize your tax liability and reduce the likelihood of future audits.

Find IRS Audit Defense Strategy

Carefully analyzing the details of the Internal Revenue Service tax code is essential in formulating an effective defense strategy for your IRS tax audit.. Your IRS tax audit defense strategy can include limiting the scope of the audit, reviewing possible income reporting issues, and correcting tax returns. The goal of your IRS audit defense strategy is to reduce the financial impact of your tax issues, such as minimizing tax penalties.

Protect Your Credit Score

Along with defending clients, a tax lawyer can also help protect your credit score. While the IRS does not report audits to any of the three credit reporting bureaus, legal actions from the IRS can potentially impact your credit score. If the IRS decides to place a lien on your property because of unpaid back taxes, the lien becomes public record, and this can hurt your credit overall.

Why Is a Tax Attorney Better Than a CPA?

When you have tax problems, it’s better to hire a tax lawyer instead of other tax professionals. Although a CPA can assist you during the audit process, it is important to note that they are not bound by attorney-client privilege, unlike a tax attorney.

Ultimately, this means that tax attorneys will protect client interests and keep your correspondence confidential. This can offer you more protection if your tax issues have to be settled in tax court, since your attorney cannot testify against you.

Why Does an IRS Audit Happen?

An IRS tax audit is much rarer than most taxpayers assume. The likelihood of being audited is approximately 0.3% in most years. Of that small number of people who are audited, many of them are chosen by random selection based on a computer algorithm used by the IRS. Other reasons you may be selected for an IRS tax audit include:

• Failure to Report All Income

Failing to report all of your income is a major red flag that can trigger a tax audit. The IRS uses a program that automatically checks to see if all the amounts on your income tax return match the data the IRS has about your income. If there are discrepancies, the IRS may conduct a review or a tax audit of your tax return.

Some taxpayers who file taxes by themselves may also accidentally forget to report income from side hustles or cash income. You should always report income from 1099s, W-2S, interest and earnings from your bank accounts, and gains on your stocks. Ensuring accurate reporting of all income on your tax return is the most effective way to safeguard against a tax audit.

• Digital Asset Transactions

If you have any digital asset transactions from the year, these transactions will also need to be reported when you file your tax return. Digital asset transactions are associated with cryptocurrency. As part of your federal return, you will need to report these transactions on your 1040. Failure to report income from cryptocurrency transactions may be considered tax fraud.

• Certain Deductions

Taking out certain deductions can also flag the IRS as an unusual activity that needs to be reviewed. While you are entitled to claim deductions you are qualified for, you must be sure that you are following the tax rules correctly. For example, if you are taking the home office deduction, you cannot deduct expenses that are solely personal. You will also need to be able to prove that your deductions were business-related.

• Foreign Assets

Finally, if you have any foreign accounts, you are required by tax law to report these foreign bank accounts on your annual federal return. You are required to file a Foreign Bank Account Report to account for all of your foreign income. Failure to report information about your foreign assets can trigger a tax audit to assess tax evasion.

What Should You Do When You Get an IRS Audit Letter?

If you get a letter from the IRS about a tax audit, the first thing you should do is contact a tax attorney. Although some IRS audits can be handled without tax attorneys, it’s still better for your tax audit compliance to work with a tax attorney who can ensure you are meeting all the IRS requests. After contacting a tax attorney, you will want to take the following steps:

Review Details in the Letter

First, you will need to review the details of the letter sent by the Internal Revenue Service. The IRS letter will contain information about why you were selected for an audit under tax law, the type of documentation you will need to send back to the IRS, and the proposed changes the IRS suggests you make to your tax return to close the audit.

You should always double-check that the numbers on your tax return match the numbers the IRS wants to update, so you can understand your tax liabilities. Usually, the difference in these numbers is the same sum as the money the IRS believes you owe.

Only Send Copies of Documents

When you gather documents to send to the IRS, you should only send copies. Sending original documents does not allow you to keep any documents for your records. You should send copies of your documents via certified mail or fax for the most expedient resolution. You can also check your local IRS agency locations to submit your documents in person.

Sign and Return the Agreement Document

If the IRS accepts the documents you have sent to support your case or update your return, your IRS audit will be resolved. The only thing you will need to do is sign an agreement document that states you agree with the changes proposed by the IRS and you will comply with any further actions you need to take, such as paying your taxes or reporting additional income.

Pay Remaining Taxes, Penalties, and Interest

The IRS charges penalties and interest on delinquent tax returns, so if you have been selected for an IRS audit, you will likely have to pay these fees to clear your tax debt. You may also have additional tax liabilities now that all of your income has been reported.

Fortunately, the IRS offers several payment programs to help taxpayers pay off taxes owed to the state or federal government. As part of your audit agreement, you may need to sign up for one of these installment agreements to resolve your taxes. If you don’t qualify for any of these plans, you can work with an attorney to find another way to settle your tax debt, such as with an Offer in Compromise.

What If You Don’t Agree With the Conclusion the IRS Makes?

If you don’t agree with the conclusion the IRS makes about your audit, you can work with a lawyer to review your options. Your tax attorney will help you send additional documentation or request a conference with the IRS agent in charge of your case. You can also file an appeal in writing.

Even if you don’t agree with the changes proposed by the IRS, you must respond in some way to an IRS letter by the specified due date. If you fail to give a response, the IRS is entitled to file a Statutory Notice of Deficiency under the tax law. This is a legal notice informing you about your unpaid balance. You will have 90 days to respond to this notice.

When Will the IRS Finish the Audit Review?

It can usually take three to six months for the IRS to complete an audit review. Your process may be delayed if the IRS agent requires more information or if your audit needs to be expanded to include returns from other years. An office audit is usually faster than a correspondence audit.

How Many Tax Audits Can the IRS Review?

Sometimes, the IRS may be concerned that you owe more money to the state or federal government. The IRS has the right to look at returns from the last three to six years to assess your return for unusual patterns.

How Can IRS Audits Affect You?

While an IRS audit can usually be resolved quickly, some audits can have extreme consequences because tax fraud and tax evasion are against the law. If the audit determines that you have engaged in tax fraud, the IRS may take legal action, including pursuing tax court proceedings, imposing liens and levies on your property, and potentially even leading to criminal charges.

In the event that the IRS pursues criminal charges against you for unpaid taxes, it is crucial to promptly secure legal representation for your defense. The penalties for fraud can include imprisonment of up to a year, while the jail time for evasion can be three to five years. With the right person representing you, you may be able to reduce these charges.

What Is the Most Common Way People Are Audited?

In the majority of cases, audits are conducted through correspondence. In-person audits are usually only for evasive taxpayers or sometimes small business owners with a lot of information that needs to be reviewed. If you do need to work with IRS agents for an office audit, the IRS will provide this information in your audit letter.

If you receive a notice of an IRS audit, it’s in your best interests to contact a tax professional such as a tax attorney as soon as possible. When you work with an audit lawyer, you can minimize your tax liability, provide guidance on tax planning, and alleviate the burden and stress of an IRS audit. 

Get in touch with Damiens Law Firm, PLLC at 601-957-9672 to learn more about defense strategies for IRS audits today.

It isn’t unusual for independent contractors or owner-operators to struggle when it comes time to file their tax returns.

There are numerous reasons truckers don’t file the

Many taxpayers are concerned when they are notified about tax matters, such as an IRS audit. However, while audit issues can certainly be alarming, you can minimize the impact on your life when you hire a tax attorney to help you with your case.Seeking legal representation from a tax attorney is crucial for effectively resolving your tax audit. Learn more about the ways a tax attorney can help you, why IRS audits happen, and the entire auditing process.

How Can a Tax Attorney Help You?

Hiring a tax attorney to help you with your tax situation is one of the best things you can do to protect your legal rights as a taxpayer. It is in your best interest to engage the services of an experienced tax attorney, so you can have a favorable outcome after your IRS tax audit.

An attorney will fight for you, advocate on your behalf when communicating with an IRS agent, and make sure the IRS complies with all procedures. It is advisable to hire a lawyer with experience in handling both correspondence and in-person audits, particularly if your audit needs to be settled at an IRS office.

Guidance Through the IRS Audit Process

A tax audit lawyer can assist you throughout the entire process, from gathering the necessary documents for submission to the IRS, to negotiating favorable terms for your tax resolution strategy, and addressing any inquiries from the IRS regarding your returns..

A lawyer will have knowledge about the relevant tax law and tax codes that apply to your case, which can ensure your audit results are optimal. Additionally, a tax audit lawyer can provide guidance on future tax planning to minimize your tax liability and reduce the likelihood of future audits.

Find IRS Audit Defense Strategy

Carefully analyzing the details of the Internal Revenue Service tax code is essential in formulating an effective defense strategy for your IRS tax audit.. Your IRS tax audit defense strategy can include limiting the scope of the audit, reviewing possible income reporting issues, and correcting tax returns. The goal of your IRS audit defense strategy is to reduce the financial impact of your tax issues, such as minimizing tax penalties.

Protect Your Credit Score

Along with defending clients, a tax lawyer can also help protect your credit score. While the IRS does not report audits to any of the three credit reporting bureaus, legal actions from the IRS can potentially impact your credit score. If the IRS decides to place a lien on your property because of unpaid back taxes, the lien becomes public record, and this can hurt your credit overall.

Why Is a Tax Attorney Better Than a CPA?

When you have tax problems, it’s better to hire a tax lawyer instead of other tax professionals. Although a CPA can assist you during the audit process, it is important to note that they are not bound by attorney-client privilege, unlike a tax attorney.

Ultimately, this means that tax attorneys will protect client interests and keep your correspondence confidential. This can offer you more protection if your tax issues have to be settled in tax court, since your attorney cannot testify against you.

Why Does an IRS Audit Happen?

An IRS tax audit is much rarer than most taxpayers assume. The likelihood of being audited is approximately 0.3% in most years. Of that small number of people who are audited, many of them are chosen by random selection based on a computer algorithm used by the IRS. Other reasons you may be selected for an IRS tax audit include:

• Failure to Report All Income

Failing to report all of your income is a major red flag that can trigger a tax audit. The IRS uses a program that automatically checks to see if all the amounts on your income tax return match the data the IRS has about your income. If there are discrepancies, the IRS may conduct a review or a tax audit of your tax return.

Some taxpayers who file taxes by themselves may also accidentally forget to report income from side hustles or cash income. You should always report income from 1099s, W-2S, interest and earnings from your bank accounts, and gains on your stocks. Ensuring accurate reporting of all income on your tax return is the most effective way to safeguard against a tax audit.

• Digital Asset Transactions

If you have any digital asset transactions from the year, these transactions will also need to be reported when you file your tax return. Digital asset transactions are associated with cryptocurrency. As part of your federal return, you will need to report these transactions on your 1040. Failure to report income from cryptocurrency transactions may be considered tax fraud.

• Certain Deductions

Taking out certain deductions can also flag the IRS as an unusual activity that needs to be reviewed. While you are entitled to claim deductions you are qualified for, you must be sure that you are following the tax rules correctly. For example, if you are taking the home office deduction, you cannot deduct expenses that are solely personal. You will also need to be able to prove that your deductions were business-related.

• Foreign Assets

Finally, if you have any foreign accounts, you are required by tax law to report these foreign bank accounts on your annual federal return. You are required to file a Foreign Bank Account Report to account for all of your foreign income. Failure to report information about your foreign assets can trigger a tax audit to assess tax evasion.

What Should You Do When You Get an IRS Audit Letter?

If you get a letter from the IRS about a tax audit, the first thing you should do is contact a tax attorney. Although some IRS audits can be handled without tax attorneys, it’s still better for your tax audit compliance to work with a tax attorney who can ensure you are meeting all the IRS requests. After contacting a tax attorney, you will want to take the following steps:

Review Details in the Letter

First, you will need to review the details of the letter sent by the Internal Revenue Service. The IRS letter will contain information about why you were selected for an audit under tax law, the type of documentation you will need to send back to the IRS, and the proposed changes the IRS suggests you make to your tax return to close the audit.

You should always double-check that the numbers on your tax return match the numbers the IRS wants to update, so you can understand your tax liabilities. Usually, the difference in these numbers is the same sum as the money the IRS believes you owe.

Only Send Copies of Documents

When you gather documents to send to the IRS, you should only send copies. Sending original documents does not allow you to keep any documents for your records. You should send copies of your documents via certified mail or fax for the most expedient resolution. You can also check your local IRS agency locations to submit your documents in person.

Sign and Return the Agreement Document

If the IRS accepts the documents you have sent to support your case or update your return, your IRS audit will be resolved. The only thing you will need to do is sign an agreement document that states you agree with the changes proposed by the IRS and you will comply with any further actions you need to take, such as paying your taxes or reporting additional income.

Pay Remaining Taxes, Penalties, and Interest

The IRS charges penalties and interest on delinquent tax returns, so if you have been selected for an IRS audit, you will likely have to pay these fees to clear your tax debt. You may also have additional tax liabilities now that all of your income has been reported.

Fortunately, the IRS offers several payment programs to help taxpayers pay off taxes owed to the state or federal government. As part of your audit agreement, you may need to sign up for one of these installment agreements to resolve your taxes. If you don’t qualify for any of these plans, you can work with an attorney to find another way to settle your tax debt, such as with an Offer in Compromise.

What If You Don’t Agree With the Conclusion the IRS Makes?

If you don’t agree with the conclusion the IRS makes about your audit, you can work with a lawyer to review your options. Your tax attorney will help you send additional documentation or request a conference with the IRS agent in charge of your case. You can also file an appeal in writing.

Even if you don’t agree with the changes proposed by the IRS, you must respond in some way to an IRS letter by the specified due date. If you fail to give a response, the IRS is entitled to file a Statutory Notice of Deficiency under the tax law. This is a legal notice informing you about your unpaid balance. You will have 90 days to respond to this notice.

When Will the IRS Finish the Audit Review?

It can usually take three to six months for the IRS to complete an audit review. Your process may be delayed if the IRS agent requires more information or if your audit needs to be expanded to include returns from other years. An office audit is usually faster than a correspondence audit.

How Many Tax Audits Can the IRS Review?

Sometimes, the IRS may be concerned that you owe more money to the state or federal government. The IRS has the right to look at returns from the last three to six years to assess your return for unusual patterns.

How Can IRS Audits Affect You?

While an IRS audit can usually be resolved quickly, some audits can have extreme consequences because tax fraud and tax evasion are against the law. If the audit determines that you have engaged in tax fraud, the IRS may take legal action, including pursuing tax court proceedings, imposing liens and levies on your property, and potentially even leading to criminal charges.

In the event that the IRS pursues criminal charges against you for unpaid taxes, it is crucial to promptly secure legal representation for your defense. The penalties for fraud can include imprisonment of up to a year, while the jail time for evasion can be three to five years. With the right person representing you, you may be able to reduce these charges.

What Is the Most Common Way People Are Audited?

In the majority of cases, audits are conducted through correspondence. In-person audits are usually only for evasive taxpayers or sometimes small business owners with a lot of information that needs to be reviewed. If you do need to work with IRS agents for an office audit, the IRS will provide this information in your audit letter.

If you receive a notice of an IRS audit, it’s in your best interests to contact a tax professional such as a tax attorney as soon as possible. When you work with an audit lawyer, you can minimize your tax liability, provide guidance on tax planning, and alleviate the burden and stress of an IRS audit. 

Get in touch with Damiens Law Firm, PLLC at 601-957-9672 to learn more about defense strategies for IRS audits today.

ir taxes, but the outcome is the same. If the IRS files on your behalf, they base their calculation solely on your income, which results in tax returns that are rarely accurate.

Find Local Tax Attorneys

While you may consider talking to a tax relief company about your issue, you should discuss your situation with tax attorneys first. Having a tax debt attorney on your side will ensure you’re prepared if the IRS files an investigation into your finances or tries to garnish your pay. 

The IRS will seek you out if you fail to pay your tax liability. State and Federal tax agencies will collect tax debt at all costs, and you’ll want a lawyer representing you if you face bank levies or Federal or State tax liens. 

Are You a Self-Employed Truck Driver?

A truck driver who is a W-2 employee will have taxes pulled from their paycheck by their employer. However, independent contractors are responsible for withholding their taxes. 

Truck drivers often don’t file their taxes, resulting in the IRS filing on their behalf. Avoid this by contacting an attorney as soon as you struggle with your taxes.

Talk to an Expert

Tax season can be frustrating if you are a self-employed truck driver. You may not know how to ensure eligibility for tax relief programs or be confused by tax deductions, self-employment taxes, and quarterly taxes. Instead of letting back taxes grow, take control of your financial situation.

If the IRS is already contacting you about owed taxes, don’t despair. A skilled tax debt lawyer can help you find a resolution.

Tax Debt Relief for Truck Drivers

For truck drivers facing tax debt, tax relief offers a chance to regain their financial footing. Tax relief occurs when the IRS or local tax agency agrees to reduce tax debt owed.

Your attorney will work closely with the IRS to find a solution for your tax problem. They may request a payment plan, propose installment agreements, or negotiate to lower your tax debt. 

Tax Relief Services

Your specific circumstance will determine if you’re eligible for tax relief. Some tax relief options include:

• Installment agreements
• The Fresh Start Program
• Offer in compromise 
• Penalty abatement
• Currently non-collectible status

Understanding Truck Driver Tax Deductions

Your work-related expenses aren’t tax deductible if you drive for a trucking company as a W-2 employee. The Tax Cuts & Jobs Act of 2017 removed the majority of deductions for drivers who are trucking business employees.

Still, you’ll want to track your expenses and out-of-pocket costs. Many employers will compensate you for these expenses since they deduct them when they file business taxes.

Know That Tax Law Constantly Changes

This act and others like it can cause truckers to be surprised by tax bills. Misreporting your income is easy if you are unaware of law changes. 

Tax law changes frequently enough that the average individual can lose track of the policies that impact their tax filing, causing them to incur tax debts. Contact an attorney immediately if you have an unexpected tax debt.

Track Everything

If you are self-employed, you’ll want to keep track of your expenses. Truck drivers often fail to deduct trucking expenses because they don’t keep records when traveling over the road.

Although holding on to receipts and invoices may feel inconvenient initially, the difference it will make when filing your tax returns is worth the aggravation. However, resist the urge to claim deductions you don’t have documentation for, no matter how tempted you may be.

Protect Yourself

If IRS agents choose to audit you because you have an excessive amount of deductions, they will want records. In addition to paperwork proving your expenses, you’ll need to verify deductions were not used for personal purposes.

Tracking your expenses will require record keeping which can feel tedious. However, you’ll be glad you did if the IRS audits you. 

Common Deductions for Truck Drivers

You can enjoy significant tax breaks by claiming deductions on your tax returns. Some deductions you don’t want to overlook include:

Education

If you paid for training to acquire your CDL, your education expenses could be deducted. However, the education you received must benefit your current line of work or be required for your career.

Trucking-related publications like instructional materials may be deductible as well. To ensure the eligibility of any publications, contact a tax professional.

Trucking Expenses

Since the Internal Revenue Service views your truck as a qualified non-personal use vehicle, you can claim many of the expenses accrued by operating the vehicle. Fuel, insurance, registration fees, repairs, and tires are deductible.

Many truck drivers forget to deduct parking fees, tolls, and the heavy highway vehicle use tax. Every business expense counts, and being able to deduct the full cost of a trucking expense will save you money on your return.

Travel Expenses

In order to deduct expenses such as meals or lodging, you must be away from your tax home, typically overnight. Your tax home is your place of business.

For some drivers, this may be their business headquarters or residence, while for local drivers, it may be an entire city. Since the trucking industry is based on travel, often cross country, some drivers’ tax home may be across multiple states. 

Lodging

If you’re familiar with lodging deductions in other industries, you’ll need to remember the IRS handles lodging differently for truckers. Instead of claiming a per diem rate per day, truck drivers must claim the actual lodging expenses.

Meals

Drivers deducting meals can claim the per diem rate or the actual expenses. Truck drivers bound by the Department of Transportation’s time limits for work cannot claim the total cost of their meals. 

However, they can claim 80% of their actual meal expenses. To do so, they must be away from their tax home.

Association Dues

If your career requires you to join a union or association, membership fees can be deducted from your income. Unfortunately, many truck drivers are unaware that voluntary memberships may qualify if they directly benefit your work.

Avoid Unfiled Tax Returns

If you have unfiled tax returns, your priority should be hiring a lawyer to help you file them. When you don’t file a tax return, the IRS might file an SFR (substitute for return) for you. 

Truck drivers rank among the highest group for missing filing and having an SFR filed on their behalf. This statistic is unfortunate because if the IRS files for you, they calculate off the income reported, which results in a bigger bill.

File Even if You Can’t Pay

When the IRS files on your behalf, it can negatively impact your chances of obtaining benefits like loans, the Payroll Protection Plan, the economic injury disaster loan, and receiving stimulus checks (when applicable). To avoid this, file your taxes even if you will have a remaining balance.

Since the IRS bases its calculation on the income on your 1099, they don’t get an accurate representation of your actual income after expenses. This miscalculation results in you paying a greater tax bill than you should.

Contact a Tax Resolution Attorney

Hire a tax relief attorney to prevent aggressive collection attempts. Even if you only have profit and loss statements for your tax year, an attorney will find the best outcome for your situation.

Don’t let tax debts cast a shadow on your future. Instead, contact Damiens Law Firm, PLLC, at (601) 957-9672 today.