Income Tax Law

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 What Is Income Tax Law?

Congress passed the 16th Amendment to the U.S. Constitution in 1913. Before that, the federal government did not collect any taxes from the citizens. One of the primary purposes of the Amendment was to give Congress the power to collect an income tax.

This led to the creation of the Internal Revenue Code (“IRC”), which is the body of law that contains the tax code. The IRC is enforced by the Internal Revenue Service (“IRS”), the federal government agency responsible for collecting taxes.
According to the IRC, “income tax” is a type of tax that the government imposes on personal income. For instance, when you receive a paycheck, you may notice certain deductions from your pay. These deductions are for federal, state, and local income taxes and state or federal programs (e.g., Social Security).

Your employer deducts income taxes from your paycheck, which will be reflected when you file your state and federal taxes for the year. If the amount your employer takes out is too much or too little, you will be entitled to a refund, or have to pay more taxes.

Not everyone has to pay income taxes. For instance, the federal government does not collect income tax from unemployed persons. Certain states also might not subject their residents to state income taxes.

To learn more about federal income tax laws and the rules for paying income taxes in your particular state, contact a local tax law attorney for further advice. A tax law attorney will also be able to discuss your rights and protections under federal and state income tax laws.

What Happens If I Don’t Pay All of My Taxes?

If you do not pay all your taxes by the end of the tax year, you may be subject to paying fees as a penalty. If you have a legitimate reason as to why you did not pay your taxes, then the IRS may waive the fees, and your or your attorney can negotiate for an extension of time to file or a payment plan to pay taxes still owed in monthly installments.

On the other hand, if you do not have a valid reason as to why you did not pay all of your taxes or deliberately avoided paying off your taxes, you could not only be charged fees, but you could also be charged with a felony. In general, it is illegal to refuse to pay taxes. A person who engages in an intentional scheme to avoid paying taxes to the IRS is committing tax evasion. Tax evasion is a felony offense that can lead to serious fines and a prison sentence of up to five years or longer.

What Is an Income Tax Audit?

A taxpayer who only pays a portion of the taxes they owe may be subject to an audit by the IRS. An audit is a detailed review of your financial information. The IRS uses audits to confirm that taxpayers accurately report their taxes and comply with federal tax laws. Negative results of an audit could lead to criminal consequences, amended tax returns, or no changes at all. Audits can be for the last tax year or for more than ten years back.

If you get audited, you will meet with an IRS representative who will ask specific questions about your tax returns. This meeting is to ensure that you did report all of your income and that any deductions declared were lawful and appropriate. If the IRS representative determines you were honest, then the case will be closed.

However, if the IRS discovers that you lied in some respect or did not report all of your income that should have been reported, you will likely be subject to supplemental taxes and monetary penalties. You will be allowed to present any evidence that documents your income or deductions to defend yourself during an audit. For this reason, you must keep records of your tax returns and income information, as well as expense records to support your deduction claims.

If the IRS charges you for not paying your taxes appropriately, you can file an appeal with the U.S. Tax Court to review the matter. Tax Court decisions are final. If you lose one or more of your issues, you must pay those taxes. On a positive note, if you win one or more of your issues, the IRS cannot appeal either.

What Is an Offer in Compromise?

An offer in compromise is an agreement between an income taxpayer and the IRS. If accepted, an offer in compromise will permit a taxpayer to pay less than the full amount of back taxes that they owe.

However, an offer in compromise is not available for all taxpayers or income tax situations. Thus, it may be in a taxpayer’s best interests to consult a tax law attorney about whether an offer in compromise is available and if it is the right arrangement for their situation.

What Is an Installment Payment Agreement?

The fees and interest that might accrue when an individual has failed to pay their income taxes can be as high as several thousand dollars or more. That is, of course, added to the back taxes owed. Many income taxpayers find that they cannot pay the full amount they owe all at one time. In most cases, the IRS will agree to enter into an installment payment arrangement to make it easier for taxpayers to pay their back taxes. The installment agreement usually creates a monthly payment plan that is based on a certain percentage of the total amount of taxes, interest, and fees that are owed.

If you need help with the process or do not understand your installment payment agreement, or if you cannot pay the amount your agreement indicates (for example, if you lose your job or become disabled and need a new installment plan), you may contact a tax law attorney for further assistance. A tax law attorney can initiate contact with the IRS on your behalf and is skilled in negotiating a reasonable installment payment agreement.

Do I Need an Income Tax Law Attorney?

Both federal and state tax laws are notoriously difficult to understand. To make tax matters even more complicated, the IRC is amended yearly. State and local tax laws are subject to frequent change as well.

Because of this, you may consider hiring a local tax law attorney if you are experiencing issues with paying your income taxes. This is especially true if you have neglected to pay your income taxes for several years. An experienced tax law attorney can communicate with the IRS on your behalf and can negotiate an offer to compromise. The attorney may be able to get the IRS to waive interest costs and fees or penalties. Your attorney can also ask the IRS if it would be willing to extend your payment deadline or, if it would sign an installment plan agreement.

If the IRS is auditing you, your attorney can ensure that the audit is properly conducted and that your rights as a taxpayer are rigorously protected. If the IRS is wrong on one or more issues, your attorney could petition the U.S. Tax Court and provide representation in court.

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