The IRS has provisions for individuals and businesses that need more time to settle their tax liability. However, it is important to note that affecting any payment plan doesn’t exempt you from any interest or penalties; they will accumulate for the outstanding amount as it’s within their legal right. Tax liability advisors can assist you to create a regular repayment schedule while minimizing the impact of interests and penalties. With this option, note that any tax debt above $25,000 must be paid through automated withdrawals from a checking account. There are additional fees should you choose to pay using credit or debit cards, usually 2 percent of the installment amount or $2-$4.
When you cannot pay your outstanding tax debts and essential living expenses, you can request the IRS to place your account under “Currently Not Collectible” standing. When you apply for a delay in collection, you will be required to submit a Collection Information Statement form to verify that you have inadequate funds to settle your tax liability. You must give accurate information on your income and expenses in this form. Even if you succeed, your “Currently Not Collectible” standing is temporary and does not wipe off your outstanding debt, and the IRS may enter a tax lien against you even with this status. They will also review your account annually to check whether your financial status has changed. However, acquiring the “Currently Not Collectible” status can delegate you ample time to sort out your financial health.
An Offer in Compromise (OIC) is the most heard but the least understood option. Those that cannot settle their tax liability without triggering severe financial distress for themselves or their business. This is an agreement between you and the IRS to pay your taxes for less than what you owe. They are available to help those who meet very in-depth eligibility of requirements. One minor mistake in answering just one question in the application can be grounds for denial. It is not a quick process as it can take 3 – 6 weeks for the IRS to decide if the offer is even worth processing. If the decision is made to move forward, it could take 6 – 8 months and up to 2 years to complete the process, which was pre-COVID.
Should the IRS accept the offer, be prepared for a non-refundable initial payment of 20 percent of the amount you have offered to become due. As a caution, note that your personal data can enter the public domain, e.g., name, city and state, outstanding amount, and terms of your offer, and these may be entered into the IRS public inspection files.
Only 2 percent of applications of Offers in Compromise are accepted, even when they show that they have lower income or higher expenses. It is recommended that you exhaust other available options before applying for the IRS Offer in Compromise.
Regardless of the method you choose to settle your outstanding tax liability, you must be sure that you qualify for it first. If attempted or submitted frivolously, this can essentially worsen your situation. Obtaining the help of an actual tax professional or a tax relief company will drastically increase your likelihood of getting tax relief successfully. These certified professional advisors will examine all the expenses, whether business, personal, or both, and advise the best legal avenue law permits before pursuing the above options. Moreover, they will also be able to fill out the correct legal forms avoiding any errors that would jeopardize your chance of winning the most favorable outcome that is allowable by law. They do this by design, turning the case in your favor, not the IRS. Before working with any tax professional, ensure you fully understand how they will help and what they will charge for representation. Many taxpayers may not often qualify for the tax relief programs advertised by these large companies, but they find this out too late – after paying their hard-earned money.Should the IRS accept the offer, be prepared for a non-refundable initial payment of 20 percent of the amount you have offered to become due. As a caution, note that your personal data can enter the public domain, e.g., name, city and state, outstanding amount, and terms of your offer, and these may be entered into the IRS public inspection files.
Only 2 percent of applications of Offers in Compromise are accepted, even when they show that they have lower income or higher expenses. It is recommended that you exhaust other available options before applying for the IRS Offer in Compromise.
The IRS is the world’s most powerful collection company; they are there to collect as much of the money owed as possible. As you know, having the heat of the IRS on your back is never a great experience. The unrelenting pressure of the federal government can be incredibly stressful and often intimidating, making back tax relief seem nearly impossible to achieve. Taxes are complicated. There is no “one size fits all” solution for everyone. Eventually, you will need to deal with the problem. Make the time today to speak with an experienced tax professional before accepting the IRS’s initial decision.