Overlapping tax treatments with the underlying federal tax law is termed as Macroeconomic Overlapping. The purpose behind this type of tax treatment is to ensure that, to a certain extent, tax liabilities of individuals, business enterprises and even states are treated in the same manner as federal tax liabilities. The name 'overlapping' is derived from the fact that the treatment of such taxation must occur between state tax laws and federal tax laws. In other words, when a tax liability is incurred in one state, the taxpayer is required to pay taxes in the same manner as he would have to pay them had he engaged in business in another state.
When such overlays occur, there is a very real possibility that the Internal Revenue Service will impose federal tax laws on the same basis as the state tax laws. Such actions, if not acted upon by state tax authorities, could result in the imposition of federal tax taxation on business assets and accounts receivable in the home state of the taxpayer in a form that is inconsistent with the treatment under the tax laws of that state. As a result, a substantial tax liability could be generated in a state other than the taxpayer's home state. A perfectly legitimate situation can result in the creation of a double taxation scheme, which is exactly what is known as a 'macroeconomic overlay.'
Tax debt is often considered to be a serious risk to a nation's economy. When tax debt is incurred by a person or business enterprise, the tax liability grows exponentially, and it only keeps growing until it eventually results in the establishment of a huge burden that is difficult if not impossible to repay. When a nation's tax system creates a massive debt and when that nation continually attempts to resolve that debt through aggressive means, the result is an enormous drain on the system's resources. In such a scenario, taxpayers who become trapped into a tax lien are subject to the threat of double taxation. However, because the tax debt is typically payable twice – once under the provisions of the present tax code and then again as a result of future legislation – taxpayers may be somewhat better off if they elect to implement some sort of tax relief program.
The first type of tax relief offered through IRS action is referred to as an over the limit tax debt reduction. Here, an individual or business entity has been granted permission to pay a portion of his or her tax debt over an extended period of time. This type of tax relief program may be used to address situations where an individual or business has incurred tax debt due to circumstances beyond his or her control, such as incurring expenses that were not itemized during the year the tax was paid. Over the limit tax debt reduction allows taxpayers to work around the complex calculation systems of the IRS by allowing them to lump all of their bills into one large sum for the tax year. However, taxpayers must realize that applying for an over the limit tax reduction does not eliminate their obligation to pay the taxes. The IRS will still assess the liabilities of the tax-deferred parties and impose the applicable tax liabilities on that person or company, and that person or company must still pay those tax liabilities in the future.
Another way that the IRS offers tax relief is through tax relief programs. Tax relief programs are designed to provide taxpayers with tax relief when certain circumstances occur. The most common instance of these circumstances occurs when a taxpayer is awarded a tax debt relief because he . . . . . . or she made use of a tax-deferred interest method. In the case of a tax-deferred interest method, interest is deferred until the taxpayer receives his or her refund and the interest is not taxed until the interest is received by the IRS. Tax relief in this instance is provided to a taxpayer in return for the surrender of any deferred interest. An important benefit of tax-deferred interest is the fact that it can potentially save the taxpayer thousands of dollars by reducing the amount of taxes owed.
A final way that the IRS provides tax relief is through tax settlements. When the Internal Revenue Service obtains a settlement against a taxpayer for an overdue tax bill, the taxpayer owes the amount of the tax debt to the IRS immediately. In exchange for the settlement, the IRS waives or eliminates the taxpayer's right to collect additional money from the client. Tax settlements are granted on a limited basis to ensure that the tax debt is repaid to the IRS.