Currently Not Collectible
If there is absolutely no way for you to pay your tax debt, and no way for the IRS to collect the money owed via the more traditional forms of tax resolution, you can file for “currently not collectible” status.
“Currently not collectible” means exactly what it sounds like. The IRS will not be able to collect any owed taxes or penalty charges if:
· Your wages cover no more than your necessary living expenses so that there is no amount the IRS can garnish
· You have no assets worth levying. Remember that the IRS cannot seize an asset if you have less than 20 percent equity in the item or if the expenses involved in seizing and selling it are more than the equity is worth. This makes the IRS seeking another form of tax resolution unlikely.
The fact that you have nothing worth the IRS taking is not exactly an enviable position to be in, but it can help in dealing with them. If your account is deemed to be uncollectible, the IRS will stop the collection process until your financial situation improves and another form of tax resolution becomes more realistic. Interest and penalties will continue to build up against you, and you will have to provide financial statements each year to show whether you are still “currently” unable to pay.
If the financial statements show that your situation has improved enough, the IRS collection process will resume. But if the 10-year statute of limitations for back taxes expires while you have “currently not collectible” status, the tax debt itself will become permanently not collectible and no other form of tax resolution will be needed.
IRS Installment Plans
If you cannot pay your tax debt in full, the IRS may agree to let you pay it off gradually in monthly installments.
The IRS may be a difficult and impersonal entity to work with, but it is also highly logical and practical. The agency understands that it simply cannot take money that doesn’t exist. By allowing taxpayers to pay down a debt over time as a form of tax resolution, this can often be the easiest and best way for the agency to collect all the money it is owed. And, since the IRS collects interest on past due amounts, it does not actually burden the agency financially to allow someone to pay gradually.
Installment plans are often very viable options that work well for both the IRS and the taxpayer. Though you will usually have to pay penalties and interest, setting up a payment plan through successful tax resolution can get you back on a track, eventually becoming free of your tax debt.
An installment agreement can be either formal or informal. In an informal installment agreement, the taxpayer promises to make monthly payments in an agreed amount which will pay off his balance within two years. A formal installment agreement is a written agreement in which the taxpayer promises to make, and IRS agrees to accept, monthly payments in a specified amount. A taxpayer can allocate payments, such as against the trust fund portion of employment taxes, under an informal installment agreement but not under a formal installment agreement.
IRS collection personnel are generally reasonable people. If an IRS collection employee sets a taxpayer’s installment payment at an amount which the taxpayer’s representative believes is too high, the representative can speak with the collection employee’s manager. If the representative is unable to resolve the amount of the employee’s installment payment by talking with the collection employee’s manager, he can appeal the matter to the IRS appeals office.
The IRS allows numerous ways for arranging to pay a delinquent tax liability.
What is IRS Offer In Compromise?
The Offer-in-Compromise can be a life-saving form of tax resolution for those who truly need it. On average people who settle their debt using an Offer-in-Compromise end up paying less than 20% of the actual amount they owed to the IRS.
Approved by Congress to aid taxpayers, an Offer in Compromise (OIC) can be the ideal solution for resolving your tax problem as it can result in significant savings
In some cases, your financial situation may make it nearly impossible for you to pay off all your tax debt, even when utilizing tax resolution over the long term via an installment plan. In such situations the IRS may be willing to accept an “Offer-in-Compromise” and significantly lower your tax bill.
· Both you and the IRS acknowledge that there is no feasible way to pay off all your tax debt. This means that you do not have enough income to pay off your debt and do not have enough valuable assets that the IRS could seize
· You offer to pay the IRS the maximum amount that you can afford even though that amount may fall far short of the actual tax debt
· If the IRS accepts that the amount you offer to pay is the most that it could reasonably expect to collect from you, it will agree to compromise and essentially lower your tax debt to match the amount you can pay
· Once you have finished paying the agreed upon amount, the tax debt is considered “paid in full.” This is true even if the agreed-upon Offer-in-Compromise is only a small percentage of what you originally owed.
The acceptance rate on OIC’s is low due to errors or omissions on submissions. In order to have a better chance of approval, one should utilize professional assistance for this complex process. Our highly qualified, trained and experienced staff will work very hard to see if this is the best solution for your IRS tax debt. A tax debt can be legally compromised for one of the following reasons:
· Doubt as to Liability – Doubt exists that the assessed tax is correct.
· Doubt as to Collectability – Doubt exists that the taxpayer could ever pay the full amount of tax owed.
· Effective Tax Administration – There is no doubt the tax is correct and could be collected but an exceptional circumstance exists that allows the IRS to consider a taxpayer’s OIC.
Regardless of the reason, to be eligible for an Offer in Compromise the taxpayer must demonstrate that collection of the tax would create an economic hardship or would be unfair and inequitable.
For the best chances in successfully negotiating an offer in compromise, you’ll want a professional on your side.
In many tax debts cases the Penalty and Interest portion of the tax debt is quite significant. If you are facing penalties for not filing or paying your taxes on time, you may be able to get those penalties removed (or even get past penalties and interest refunded) through penalty abatement or penalty adjustment. Abatement refers to eliminating an assessed tax liability and an adjustment references reducing or altering an assessed tax liability.
If there is a ‘reasonable cause’ for abatement or adjustment, the IRS may be willing to review the penalties which created a tax liability. Reasonable cause can include:
· Mailing the tax return or payment on time but writing the wrong address on the envelope; using the wrong amount of postage
· A death or illness in the family
· An error caused by an IRS employee
· The destruction of records by a fire, flood or other catastrophe
About one-third of tax penalties are eventually removed by the IRS through successful tax resolution. To request that a tax penalty be removed or refunded you need to fill out IRS Form 843. This form of tax resolution is called a “Claim for Refund and Request for Abatement.”
We can work with you to make payment arrangements that the IRS will allow. If there were circumstances beyond your control that prevented you from paying your tax debt and led to delinquency, we can challenge the penalties and interest that have built up. Relief from penalties falls into four separate categories: Reasonable Cause, Statutory Exceptions, Administrative Waivers, and Correction in Service Error.
Penalty Abatement can be the best solution in resolving IRS Tax Debt, and we can help you determine if this may an option for you.