If you have ever worked with the Internal Revenue Service to resolve a tax debt or tax liability, you may have heard the term “current & compliant” in the context of taxation from an IRS revenue officer, your tax attorney or another tax professional. So what does it mean to be current and compliant and why is it so important? The article below has been drafted by a Denver tax attorney at The McGuire Law Firm to explain what it means to be current and compliant, and the importance.
Current and compliant means that you, as a taxpayer, have properly filed all tax returns that would currently be due and that you have timely made all necessary tax payments in full. Thus the exact filings and payments required to be current and in compliance will depend upon the taxpayer. For example, a taxpayer who is self employed would be current and compliant if they have filed the most recent 1040 individual income tax return and are timely making the necessary estimated tax payment. A business with employees, would be current and compliant if they have timely filed the most recent income tax return and have timely filed their quarterly 941 tax returns and made the necessary federal tax deposits. Now that we have a better understanding of what it means to be current and compliant, we can look at why it is so important to be in compliance.
First, if you have tax debt to the IRS, the IRS will require that you are current and compliant to accept any type of agreement to resolve the tax debt. For example, if you are not in compliance, the IRS will not accept an installment agreement proposal and would likely return (not accept) an offer in compromise if you had submitted an offer in an attempt to settle your tax debt. The reasoning for this is sound. Why would the IRS accept an agreement if you were not currently abiding by the tax laws and requirements? Thus, to resolve a tax debt, you must be current and compliant.
Second, remaining current and compliant is mandatory to comply with the terms of your agreement. For example, if you established an installment agreement with the IRS to resolve your tax debt, if you accrue further tax debts in the future or do not timely file a tax return, this can default your installment agreement. Moreover, if the IRS has accepted an offer in compromise to settle your tax debt, the terms of the offer generally include that you will remain current and compliant for a period of five years after acceptance of the offer in compromise. Thus, the accrual of a future tax debt or failure to timely file a tax return could default the terms of your offer in compromise. If you defaulted on your offer in compromise, the remaining tax debt would be due to the IRS and you would have to resolve the liability again.
Third, if you are out of compliance by not timely filing tax returns, or timely making tax payments, you are accruing tax penalties one way or another and thus increasing your tax debt. For example, if you are not timely filing your tax returns, you are likely accruing the failure to file penalty which can be assessed at 5% per month up to 25%. Thus, if you owed $10,000 in tax, you could owe $12,500 if you filed your tax return 6 months passed the due date. If you are not timely making your tax payments, the IRS can assess you the failure to pay penalty, which accrues at .5% per month and maxes out at 25%. Thus, although the failure to pay penalty will accrue much slower, the penalty can become quite large if you fail to pay your tax debt over a period of time. If you are not timely making your tax deposits for your 941 taxes, you can also be assessed the failure to timely deposit penalty, which is larger than the failure to pay penalty. Thus, by not remaining current and compliant, you are accruing tax penalties and increasing your tax debt to the IRS. Thus, the you are paying more to the IRS!
A Denver tax attorney at The McGuire Law Firm can assist you in becoming current and compliant by helping you understand your tax requirements. Moreover, if you owe taxes to the IRS, we can help you resolve this tax debt through an installment agreement, offer in compromise (tax settlement) or other resolution option.
You can schedule a free consultation with a Denver tax attorney by contacting The McGuire Law Firm. We offer a free consultation to all potential clients and allow payment plans on fees. Please contact our law firm with any questions- offices in Denver and Golden Colorado.