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Tax Debt Resolution Options

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Let’s briefly discuss resolution options when you find yourself with IRS tax debt. 

If you have IRS Tax Debt you have a number of resolution options including:

Tax Debt Resolution Options: 

  • Installment Agreements;
  • Penalty Abatement;
  • OIC: Offer in Compromise; and
  • CNC: Currently Not Collectible Status

Which tax debt resolution is the most appropriate for you depends upon your current status with the IRS. How long have you owed this tax debt? How much tax debt do you have? Have you been in a previous plan? Do you have any means to pay? Below are some of the most common IRS tax debt relief options. Review each to gain a better understanding of which option may work best for you.

If you have questions, please call us or click chat on this page. We provide free evaluations and will answer your questions. 866-780-3375

Tax Debt Resolution: Installment Agreements 

Streamlined Installment Agreement

An installment agreement is a very common resolution to lingering tax debts. An Installment Agreement is a monthly payment plan where the taxpayer pays back their debt over an extended period of time. Effectively, the IRS is letting the taxpayer borrow the money owed instead of forcing the taxpayer to pay it all back at once.  

If your tax liability is more than $25,000, but less than $50,000, then you are also eligible to negotiate a Streamlined Installment Agreement. However, in order to qualify you need to agree to have the monthly payment direct debited from your bank account or deducted from wages in order to not have a lien filed against your assets (often your home or business if you own one). 

If you owe more than $50,000 and less than $100,000, an installment agreement is still available. However, the process of obtaining one under at these tax debt amounts  is not as simple and a lien will be filed. 

Tax Debt Resolution: Partial Pay Installment Agreement

Alternatively, a Partial Pay Installment Agreement (“PPIA”) is available to you if you can prove that you can only afford to pay the IRS a certain amount each month even though by paying that amount each month, you will never pay off the total tax balance owed.  

A PPIA is desirable, but it’s not available for everyone and scrutiny from the IRS will be the most intense. Your financial information and substantiating documents will definitely be required to qualify as you’re signing a financial statement under oath.  

Although an Installment Agreement is a great option to keep you protected from IRS collections, you should keep in mind that interest and penalties will continue to accrue when you enter into an Installment Agreement, although the rate at which they accrue slow down. This is why borrowing money through another source may cost less in the long run. It may make sense dependent on your situation to exhaust all sources for obtaining a loan.   

Tax Debt Resolution: Penalty Abatement

One of the most painful parts of owing IRS tax debt is the outrageous penalties they add to your debt for filing returns late and failing to pay on time..    

Tax Penalties can add as much as 47.5% of the underlying tax bill to the total amount owed.  Unfortunately, most taxpayers don’t realize that under specific circumstances they may be able to reduce penalties and even convince the IRS to have them completely removed. Professional help from a tax attorney is most effective in these situations.

Tax Debt Resolution: Reasonable Cause

When you can prove circumstances or events that made it impossible for you to file and pay on time, you should always apply for a tax abatement based upon “reasonable cause” criteria.  The primary reasonable cause criteria center around natural disasters, loss or destruction of vital business records, bad advice an accounting professional, criminal activity, medical issues, substance abuse problems, and other exceptional circumstances.

Tax Debt Resolution: First Time Penalty Abatement

The IRS established the First Time Abatement Waiver to reward taxpayers who have been in compliance for an extended period of time and to promote compliance moving forward. 

In order to meet the compliance criteria, you must have filed all currently required returns and have no outstanding unfiled tax returns. You also must have paid or arranged to pay all taxes owed, which can include an Installment Agreement.   

To qualify, you must demonstrate current filing and payment compliance and a three-year clean penalty history prior to the year for which you are requesting the abatement.    

To meet the criteria for the 3 years prior clean penalty history requirement, you cannot have penalties in a “significant” amount that were assessed within the 3 years prior to the year for which you’re requesting the penalty removal.  

Many times these First Time Penalty Abatement requests are rejected. Not to worry however. Many rejections are reversed if you appeal the initial decision. Appeals representatives seem to have more flexibility in approving FTA requests so it is always in your best interest to appeal an unfavorable result. Again, having an experienced tax attorney on your side can help you navigate these solutions with confidence.

Tax Debt Resolution: Offer in Compromise

There’s also the Offer in Compromise program (“OIC”). Over the last 5 years or so the OIC program gained a lot of attention and it’s not hard to figure out why. The program allows tax debtors to settle their debt for only a fraction of the total tax debt owed. Who wouldn’t want to pay a small portion of their debt owed to the IRS? And guess what? The Offer in Compromise program is REAL.  

 

However, not everybody qualifies for the OIC, so instead of being utilized as a great way for certain people to reduce their tax debt, the Offer in Compromise program has become a false promise made by certain unethical tax firms to attract  new customers even if it doesn’t apply to them. They sell the sizzle to everyone that they can get their tax debts significantly reduced, JUST CALL NOW, but in reality many people do not qualify for this program 

That does not mean you do not qualify however, and if you do qualify, it’s a powerful solution – one in which you can save thousands of dollars on your back taxes. If you are interested in an offer in compromise, let us do an honest evaluation of your taxes and tell you the truth if you qualify or not. Toll Free:  866-780-3375

In order to come up with the Offer amount, you must determine your “Reasonable Collection Potential” to come up with an acceptable offer amount. Here are the basics: (1) add up all your assets; (2) subtract your allowable expenses from income and multiple the remainder by either 12 or 24 months (depending on the type of offer you apply for); and (3) add these two numbers together. This becomes your Offer amount. 

The formula may appear straight forward but in reality, an OIC is much more complicated. The process can be intense, difficult and extensive. The IRS requires each OIC application to be submitted in a particular way with specific forms to be filled out and proper evidence submitted. The process also includes an extensive investigation by the IRS which can take up to 8 months. And I have to reiterate once more…not everybody qualifies.

First, there’s the analysis of your income and expenses – but the IRS doesn’t allow all actual expenses. You have to calculate expenses in light of IRS National Standards, meaning your actual expenses may not be allowable. Your income minus these allowable expenses is then multiplied by either 12 or 24 months which is then added to the equity in your assets. If this number is more than what you owe the IRS, your OIC will be denied. Plus, if your income exceeds your expenses even by a small margin, the Offer amount can increase to an amount that’s out of many taxpayers’ reach. 

 

Tax Debt Resolution: Currently Not Collectible (“CNC”)

The IRS also offers CNC: Currently Not Collectable Status to taxpayers. Some taxpayers are eligible for both OIC: Offer in Compromise and CNC: Currently Not Collectable Status. Some taxpayers who are not eligible for an OIC may be eligible for CNC. These taxpayers could be ineligible for an OIC due to the amount of equity in their primary residence, current value of investment accounts, current value of retirement accounts, current value of whole life insurance policies, the amount of funds in bank account, etc. However, they could qualify for CNC due to their monthly disposable income being below the appropriate threshold. 

In order to apply for federal CNC status, a taxpayer must submit a financial form with supporting documents which substantiates economic hardship to the IRS Collections Department. If approved, the taxpayer may be able to remain in CNC status until the statute of limitations expire {the length of time the IRS has to collect on the tax balance{s}. 

In summary, the IRS does offer a number of tax debt resolution options. However, utilizing the option best suited for your needs and then negotiating that resolution can be complicated. There is no doubt that you can take this on yourself. However, if you want a team of experienced tax attorneys to help you take it on, we are here to do just that. The time, money and stress we will help you save easily outweighs the cost of hiring a professional. We offer free consultations and evaluations and will answer all your questions. Just call 866-780-3375