Tax Controversy & Resolution: Negotiation, Settlement
Federal Income Tax Debt - Options when Unable to Pay
AndreTaxCo licensed professional consulting specializes in helping you resolve your tax issues. Depending on your financial circumstances and the amount owed to the IRS, you may be eligible to make incremental payments over time, or pay a reduced amount, either in a lump sum or through installments. In some cases you may have the tax obligation permanently forgiven or delayed during your insolvency.
A. Installment Payment Agreement
If you are able to make monthly payments to settle your tax obligations, an installment agreement may be your best strategy . However, the IRS may require for you to complete Form 9465: Installment Agreement Request and Form 433-F: Collection Information Statement by mail.
However, careful consideration is required during your disclosure to the IRS as its primary objective is to collect tax revenue for the Department of Treasury. If you have assets or income, you may want to consider contacting a professional before you submit your financial statements to ensure eligibility. In addition, if you are making installment payments through an IRS agreement, any tax refunds are generally appropriated to offset your past due tax liability.
B. Partial Payment Settlement Agreement
As an alternative, you may be able to negotiate a partial payment settlement agreement. However you will still need to submit Form 9465 along with form 433-F and a letter arguing why a reduction in your total tax obligation is merited based on your facts and circumstances. Additionally, you will have to submit financial substantiation supporting your position, which professional consultation and review prior to submission may prove useful. If your request is granted, you will likely be required to make installment payments, similar to regular installment payment arrangements with the IRS.
If your financial situation is desperate with very limited resources, another option available includes an Offer in Compromise. Essentially, this is an attempt by the IRS to receive whatever income and/or assets available from the taxpayer to offset the outstanding tax liability, and to close out the investigation to avoid further IRS operational costs when attempting to collect by a highly insolvent taxpayer.
There are three categories under which the IRS accepts Offer-in-Compromise requests:
(1) Doubt as to Liability:
The amount of tax assessed is incorrect.
(2) Doubt as to Collection:
As most often utilized, the taxpayer filing under this category must demonstrate they will likely never be able to pay the full tax obligation due to financial hardship or some other persuasive argument.
(3) Effective Tax Administration:
Requests for relief under this category does not dispute the amount of the tax. Instead, the claim communicates to the IRS that collecting the tax would create an injustice to the taxpayer. For example, elderly or disabled taxpayers often use this category based on their specific situation.
Historically, an Offer-in-Compromise required cumbersome paperwork and extensive delays while the IRS processed such requests. However, in 2011, the "Fresh Start" program was implemented by the IRS which provides additional relief and a more streamlined process under certain conditions. To request an Offer-in-Compromise, file Form 656: Offer-in-Compromise and Form 656-A: Income Certification for Offer-in-Compromise Application Fee and Payment.
Offer-in-Compromises generally have a very selective acceptance rate, and you may want to consider hiring a professional to help your chances of success if you feel that you may qualify.
D. Tax Penalty Abatement
If you are able to pay your full tax obligation, however are requesting leniency on the penalties that have been tacked on, the Tax Penalty Abatement program may provide relief.
You must submit a compelling justification for requesting a tax penalty abatement (e.g., death in your immediate family, long term unemployment, significant property damage, or loss due to a natural disaster). You may request a tax penalty abatement by writing a letter to the IRS explaining your circumstances, by requesting an in-person interview with a tax professional, or by filing IRS Form 843 Claim for Refund and Request for Abatement.
E. Currently Not-Collectible-Status or Financial Hardship
If you cannot pay the amount owe to the IRS, as an alternative you may request your account be placed in Currently-Not-Collectible or Financial Hardship status. However, you will need to provide detailed financial information through Form 433A Collection Information Statement for Wage Earners and Self-Employed Individuals.
If your request is granted you still owe taxes to the IRS. However, collection efforts will be temporarily stopped. But your circumstances will then be re-evaluated, under certain conditions, and your stay of collection could be lifted.
F. Waiting Out the Statute of Limitations
Depending on your circumstances, you may be able to wait until your tax obligations are no longer collectible under applicable tax law, and have them wiped from your record.
The statute of limitations for federal income taxes is generally ten years, unless fraud is involved. However calculating the statute of limitations can be complex. For example, the statue of limitation clock does not begin to run until taxes are assessed by the IRS, and the clock stops temporarily if you file bankruptcy or if you file a dispute or a lawsuit against the IRS.
If you intend to take this strategy, consulting with AndreTaxCo will likely prove valuable, to ensure you obtain accurate dates and other essential information.
A tax settlement is an arrangement from the IRS or state taxing authorities that enables taxpayers to extinguish an outstanding tax debt for less than the original amount owed. Taxation authorities occasionally permit this type of tax settlement when extenuating circumstances exist that would prevent the taxpayer from satisfying the full tax debt outstanding. This is generally based on current tax regulations and the circumstances of the taxpayer.
Benefits of an IRS Settlement
There are several benefits associated with attempting to negotiate a tax settlement.
Pay Less Now / Remove Outstanding Tax Debt
This approach ultimately allows a taxpayer to pay considerably less of the amount owed to the tax authority. Upon meeting certain qualifications, a tax settlement amount may also be determined and presented within a relatively very short period of time.
Once the balance is satisfied based on a mutual agreement, the account is considered settled-in-full, thus the taxpayer is no longer subject to late fees and other types of penalties that would be incurred otherwise.
Prevent Property Liens & Wage Garnishments
Another benefit is it enables the taxpayer to avoid the placement of tax liens on their home or business, a bank levy on one or more available accounts, or the implementation of a wage garnishment on his or her paycheck.
How Does Tax Settlement Work?
The IRS will allow a taxpayer to either negotiate a tax settlement for less than the original amount owed or reach an alternative agreement for the IRS to collect taxes owed over time.
However, the taxpayer must still meet the qualifications of one of the applicable tax settlement programs set forth by the IRS. The taxpayer will first have to determine which type of tax settlement to apply for and then submit the appropriate forms to the IRS for review. To ensure the required information sheet fulfills the IRS requirements for eligibility, AndreTaxCo is available to assist to make the filing on your behalf.
Generally, the negotiation of tax settlements with the IRS and/or tax authority involve complex issues and circumstances, and using a tax professional to ensure you receive the most beneficial agreement entitled will be to your advantage. AndreTaxCo specialization in tax resolution can help streamline this process and advocate the most favorable terms during negotiation and create a highly positive outcome. In general, tax settlement agreement terms require the taxpayer to pay off the negotiated tax settlement amount within a specified time frame. During this time period, no late taxes or tax interest is assessed on the balance of the tax settlement.
Taxpayers may choose to pay off the tax settlement amount in one lump sum. If not feasible, the IRS or tax authorities will instead organize payment schedule to accommodate the taxpayer, with the last payment coinciding with the final date attached to the tax settlement offer. Once a settlement has been executed, the taxpayer will be considered good standing with the IRS for the tax year(s) that the settlement covered (unless the taxpayer defaults or does not follow the terms of the agreement).
Who Is Eligible for Tax Settlement?
The IRS offers tax settlements to taxpayers that are struggling with their tax debts or have valid reasons to abate their penalties. Note, many taxpayers are not eligible, and few applicants generally qualify. Thus utilizing professional consultation from AndreTaxCo to ensure your eligibility is properly communicated and approved by the IRS may be critical to your situation.
A primary factor the IRS considers when evaluating whether the taxpayer will qualify for a tax settlement is their financial situation. Undergoing financial hardship is usually a good indicator to the IRS that a settlement might be a good option for both parties.
If the IRS or tax authority involved determine that the taxpayer does have sufficient income to pay off the entire balance due over time, the tax settlement request may be rejected. Instead, the IRS or tax authority will offer to accept monthly payments of a certain amount until the tax debt is paid off.