Do you owe the IRS money? Do you have back taxes due? You might think you’re alone and your situation is unique. After all, it feels like such a hassle owing the government money for this tax year on top of previous years’ taxes. Well, it turns out you’re not alone.
In fact, so many Americans find themselves in the same situation as you that the Internal Revenue Service itself has come up with a system that helps taxpayers get out from under their tax obligations-this system is called tax relief. Read the guide below so you can figure out how the government’s tax relief system can help you say good-bye to those pesky back taxes. Use this information to finally get a fresh start on your personal finances. A debt-free life awaits you.
Definition of Tax Relief
The term “tax relief” is a blanket term that refers to quite a number of programs and legal arrangements that help citizens reduce the amount of taxes they owe to Uncle Sam. These can take the form of plain tax reduction, penalty and/or interest removal, or debt consolidation/repayment plans that are easier on individual tax payer’s finances.
According to the IRS’ internal figures, approximately $458 billion in tax liabilities are left unpaid year after year. Dubbed the ‘tax gap,’ this amount is what’s left when money actually paid by taxpayers is deducted from the total amount due to the Treasury.
Given its budget priorities, the US government can’t just let tax gaps go. The US government itself is under quite a bit of budgetary stress since the shortfall between its revenues and expenses continue to grow year after year. This is called the federal budget deficit. As of 2018, the government’s budget deficit increased to $779 billion (a massive 17% rise from the previous year) and continues to rise. Indeed, the total amount of money the US government owes stood at a mind-blowing $21 trillion as of 2018 with no signs of slowing down. The government has no choice but to increase its tax collection efficiency.
To maximize tax collection so as to fix the larger government’s ‘cash flow’ issues, the IRS uses a system that features both incentives and penalties. Most taxpayers are familiar with the penalties used by the IRS: interest assessments for tax payers who file late or failed to file at all, wage garnishment, levies and liens on assets, fines, and the dreaded IRS audit.
Thankfully, the US government also offers incentives. This is the tax relief system-a series of programs intended to minimize tax payers’ financial burdens so they can discharge their debt to Uncle Sam.
What motivates the IRS’ tax relief system?
The IRS’ tax relief program is not a free money give away. Far from it. Instead, it is intended to maximize the amount of taxes it collects from taxpayers who are facing financial challenges. The government rolled out this program purely out of self-interest.
The IRS’ own experience shows that the longer any tax liability remains unresolved and uncollected, the lower the chance the government will ever collect anything.
By making it easier for taxpayers to get rid of their back taxes, the US government increases its chances of collecting at least a portion of what it is owed. Something, after all, is better than nothing!
Tax relief programs began in 1998 when the US Senate passed RRA 98 or the IRS Restructuring and Reform Act. Legislators wanted the government’s tax agency to use a “liberal acceptance policy for offers to provide an incentive for taxpayers to continue to pay their taxes.”
The law aims to give a new start to taxpayers who have been sincerely working to pay off their tax obligations in compliance with existing federal law. The lawmakers behind RRA 98 understood that existing IRS penalties have limited effectiveness. For example, levies, penalties, and interest payments are effective only with taxpayers with income or assets to lose. Similarly, sending people to jail for tax deficiencies may be a strong deterrent but impractical. If the government pursued incarceration of all tax delinquents, the US will quickly run out of prison space.
Tax relief programs provide the government a realistic alternative to penalties while incentivizing taxpayers to get their taxes in order. The law aims to make the whole process affordable to taxpayers so they are motivated to wipe their financial slate with the government.