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Tax Relief Options: Offer in Compromise and Installment Agreements

June 21, 2011 By

An Offer in Compromise

An Offer in Compromise (OIC) is a negotiated deal that the IRS gives to a taxpayer who has an outstanding tax liability and is unable to pay it off for one reason or another. The Offer reduces the tax liability of the taxpayer depending on his or her ability to pay and reduces the tax debt to as little as 1% of the taxes owed. OIC is given at the discretion of the IRS and is not a right of any taxpayer. To qualify for an OIC, you need to have made full disclosure and correct submission of your tax returns. The chances of winning an OIC are low (below 50% of applications). According to the IRS, there are three reasons that can qualify a taxpayer for an Offer in Compromise.

  • Doubts on Tax Collectability – The first condition that can grant a taxpayer an OIC is if there are doubts as to whether the IRS can successfully collect the tax debt from the taxpayer within the time frame allowed by the law. To qualify, the taxpayer needs to have no assets that they can cash out and their monthly income too little to pay the tax debt while paying for their necessary minimum living expenses.
  • Doubt on Accuracy of Tax Liability – This is a rare qualification option for an OIC. To qualify, there must be significant doubts as to whether you really owe the tax liability that remains outstanding. This can happen if the taxpayer produces new evidence that casts doubt on the existence or legitimacy of the tax liability or if a tax law was misinterpreted when determining the tax liability.
  • Exceptional Circumstances – Even in situations where the tax liability in question is correct and the taxpayer can manage to make payments, the IRS can still consider an OIC if payment of the tax liability would have the taxpayer living in financial hardship or if paying the tax liability would be unfair in one way or another.

Installment Agreements

Installment Agreements are another product negotiated with the IRS. The IRS provides various installment payment plans for taxpayers who have a tax liability that they cannot pay off in a single lump-sum (without having the taxpayer suffering below the necessary living standards). People who owe the IRS below $25,000.00 can go for a Streamlined Installment Agreement that does not require forwarding financial documentation to the IRS. On the other hand, if a taxpayer owes over $25,000.00, they will need to call the IRS and negotiate for an Installment Agreement.

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Compromised Finances? Make an Offer in Compromise!

December 17, 2010 By

If a taxpayer cannot pay his or her taxes completely, the IRS allows for relief. Taxpayers can negotiate an agreement with an IRS which states that they do not have to pay their entire debt. This agreement, called an Offer in Compromise, is based on the taxpayer’s inability to pay their full debt.

There are three types of Offers in Compromise: Doubt as to Collectability, Doubt as to Liability, and Effective Tax Administration. Doubt as to Collectability means that the IRS has determined that the taxpayer may never be able to repay his or her debt. Doubt as to Liability means that the IRS has determined that the amount may not be correct. This could be based on the tax examiner’s misinterpretation of relevant tax law, the tax examiner’s failed consideration of the evidence, or new evidence from the taxpayer. Effective Tax Administration is a status of Offer in Compromise allowed when the taxpayer offers sufficient evidence that having to pay their debt would cause an economic hardship for the taxpayer which would be fair and inequitable.

There are three ways for taxpayers to pay their debt once they have reached an agreement of Offer in Compromise with the IRS. They may choose to make a lump sum cash offer, a short term periodic payment offer, or a deferred periodic payment offer. The lump sum cash offer consists of five or fewer installments upon written notice of acceptance. The short term periodic payment offer must be paid in regular installments within 24 months from the date the IRS received the offer. The deferred periodic payment offer must be paid over the remaining statutory period, and regular payments must be made during the investigation. For all payment options, the taxpayer must pay the $150 fee upon filing Form 656 – Offer in Compromise.

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Offer in Compromise: The Pros and Cons

July 19, 2010 By

Pros and Cons: Offer in Compromise

Pros:

  • If an OIC is granted, it saves money if your offer has interest continues to accrue and deferred payments according to the OIC and not the initial sum owed.
  • If your offer is turned down there is less stress during the procedure because usually property and salaries aren’t seized during that time.
  • Tax liens must be relinquished by the IRS within thirty days of receiving the agreed amount for an OIC from you. When a Certificate of Release of Federal Tax Lien becomes public your credit rating recovers.

Cons:

  • Once an OIC is agreed to you are obligated to file upcoming tax returns and make tax payments on time for five years. This applies to payroll tax and estimated business tax, if self-employed.
  • If accepted or rejected, the IRS has more time to collect tax owed when you file an offer. They add the time the offer is under deliberation and thirty days to the usual limitation of ten years to collect.
  • All tax refunds before your offer and during the year of acceptance by the IRS must be forfeited. You may have to forfeit refunds for three to five years.
  • Subsequent to submitting an offer you may not appeal to the IRS or court for years stated in the offer. This applies if offer is accepted or rejected.
  • The IRS will revoke an offer after acceptance if you were untruthful.
  • It’s not usual but the IRS can audit you during the OIC process depending on what you reveal or withhold.
  • The OIC can be revoked if you don’t make a payment. You will be liable for the initial amount, penalties and interest. The same pertains if you don’t file and pay all taxes for five years prior to an OIC acceptance.

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Tax Relief: Economy Softens Uncle Sam’s Heart of Stone

April 14, 2010 By

It was only a few weeks ago the IRS made it known an accelerated procedure was in motion to do away with tax liens to assist homeowners under financial pressure. Now, the IRS is also prepared to assist those experiencing financial difficulty so they can pay their federal taxes. It is important to note the IRS is doing what it can to help you pay taxes; it is not saying you don’t have to pay your taxes.

The IRS is softening their approach to taxpayers who always pay their taxes. Taxpayers who suddenly find it hard to pay due to the tough economic climate will receive a flexible attitude from the IRS. It has a five point plan to assist such taxpayers.

In circumstances of financial adversity the IRS has extra powers to postpone collection actions. This applies to high medical bills, a job loss or reliance on social security.

If loss of employment or other financial misfortune causes an installment agreement payment to be missed the IRS will be less rigid. Normally, the IRS demands full and immediate settlement after one missed payment. Now, the IRS will consider lowering a monthly payment amount without routine suspension but only for permissible situations.

There are taxpayers with a compromise agreement or OIC and still can’t pay their tax due to financial hardship. The OIC means the tax payment is already lowered. However, the IRS will provide such taxpayers with choices to prevent them from failing to pay according to the compromise agreement.

Enough equity on property founded on the value of a home may not be eligible for an IRS sign-off on an OIC. Real estate estimations to ascertain capability of payment may not be correct due to indecision in the housing market. An IRS panel is to review data to establish if an offer is correct.

Taxpayers experiencing financial adversity will have levy releases more speedily delivered by the IRS.

Taxpayers wanting to take advantage of the IRS’s softer approach must contact their local agency and request assistance.

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Tax Relief: Offer In Compromise, the Average Joe’s Solution

February 9, 2010 By

Many people today are facing their fears and taking the bull by the horns. The IRS can only be ignored for so long, and as the economy gets tougher, people are realizing that it’s to their benefit to act now. With so many Americans struggling to survive, people are now beginning to look for new solutions to help with income tax relief. An offer in compromise is one possibility that may provide hope for a select few. Keep in mind that certain criteria must be met and the IRS is and always will be appeased by the largest amount of money they can collect.

It may very well suit the average person to take this possible alternative to income tax relief by consulting with a financial professional. An offer in compromise may provide a chance to settle income tax debt, however, it requires various forms and the IRS has rigid requirements about an offer in compromise. If the IRS believes they can collect a large amount of money from you outside of the offer of compromise, it’s a very good chance they will not consider this option. The IRS also must be proven to that the person is financially not able to pay the full amount.

Many factors come to play in a person’s possibility to be granted an offer in compromise by the IRS. It certainly can be a way to ward off a chunk of unpaid debt, yet it is also best left to the hands of a trusted professional to help you sort your way through the red tape. A CPA or your local tax person can help walk you through the best possible terms for you to compromise. If the IRS believes they can retrieve more from you through other means of collection, then the offer will most likely not be one they entertain. For income tax relief, this compromise is a possibility that provides definitive relief for many. See your consultant to find out if this option is right for you.

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Tax Relief: Lost Everything? An Offer in Compromise May Help

February 8, 2010 By

This potential option may NOT have been used as much as it may in today’s economic collapse. People really ARE losing everything…houses, cars, jobs, families…EVERYTHING. So what happens if you owe a tax liability from ‘better days gone by and cannot even pay for a cup of coffee? The I.R.S. has your back! A little known I.R.S. Offer In Compromise may save the day and bunches of bucks for you!

How Does It Work?

Well as with many things, there ARE forms to file. But basically when you apply for this assistance to settle your tax debt the I.R.S. must formulate and calculate your ability to pay along with all your assets. If all your assets are truly GONE then there shouldn’t be much of a problem. But the feds will look at your income potential, as well as ANY income you have now…and look at what you have that COULD be sold to satisfy the debt. Its sort of like…if everything ISN’T already lost, it will be once they attach a monetary value to it! Evaluating your potential earning power, could be a problem. Just because you have the potential to do a certain professional job, doesn’t mean you can get one in this economy. So it is likely if this is your situation, you will have to be ready to haggle for your tax relief! The real bottom line is nothing will completely relieve you of the debt…all you can pray for is for an Offer in Compromise to lower your tax debt. And there is a $150 filing fee, which of course is like a million dollars if you have lost EVERYTHING. But if you qualify under the I.R.S. low income guidelines this fee could be waived.

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Tax Relief: Stop Wondering “What is Tax Relief?” and Get the Facts

January 8, 2010 By

Are you one of many Americans wondering, “What is tax relief?” When it comes to being in debt, back taxes are one debt issue that must be resolved. There are no “loop holes” or other tricks that will get you out of your obligations to Uncle Sam. Failing to comply with demands made by the IRS can result in serious consequences. Garnishment of wages, along with possible levying of personal property, is just a portion of what the IRS can do. Tax relief is the vehicle needed to pull you out of IRS tax debt. To loosen the grip of IRS liabilities, there are a few facts you should know about tax relief.

Tax relief is an instrument attainable by taxpayers in debt. The government offers several tax relief programs designed to help taxpayers out of IRS debt. There are a multitude of different programs available that will put an end to your “What is tax relief?” questions. Each tax relief program holds different requirements. Likely candidates for tax relief programs vary with personal circumstances.

One program that many taxpayers seem to qualify for is an OIC. The Offer in Compromise Program is a highly effective method of tax relief. This program allows you to settle your IRS debts for a small percentage of what is actually owed. In the event of qualifying for this program, you could even find yourself feeling like a kid at Christmas as you make your payment. With the Offer in Compromise Program, you must prove two things. You must prove that your yearly income barely meets your allowable lifestyle expenses. You must also prove that your assets are of little to no worth.

Now that you know a little more and realize that there are plenty of programs to choose from in regards to tax relief, rather than wondering “What is tax relief?”, you can begin focusing on which program is right for your particular situation.

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Tax Relief: Can Offer in Compromise Help me with my Tax Debt?

January 7, 2010 By

If you’re in serious tax debt for whatever reason, you may be considering how much an offer in compromise can help you out in relieving your tax debt. In some cases it can be effective, but in other cases, other options are often much more beneficial.

The first thing you should do is look at your options. Two of the last-resort options are to either make an offer in compromise claim or to set up an instalment agreement program.

To look at these options and make a decision, it is best that you visit a qualified tax professional, who will analyse your previous tax returns and decide upon the best plan of action and what is best for you based on the facts. They will also work out exactly how much you owe, which is always a good thing to know before you have to deal directly with the IRS.

An offer in compromise exists so that individuals with huge debts who are struggling to pay them (for whatever reason) have a way out. It can be a very useful tool in reducing your debt, but you have to meet specific requirements to qualify for the offer in compromise program, and it is possible that you just won’t qualify. In that case, your best option is what is known as an instalment agreement. This is a payment plan that allows you to pay your tax debt off over a set period of time. If you don’t manage to get an offer in compromise, this can be a very effective way of losing your tax debt.

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Tax Relief: Get a Wage Garnishment Release and Clear off Your Debts

January 7, 2010 By

If you have received a letter from the IRS informing you that your wages are going to be garnished because of taxes owing and unfiled taxes, or if a wage garnishment is already in place, there are still a few options available to you. In either case, the fastest way to secure a wage garnishment release is to pay your taxes owing and to file all your returns. If this is not possible for you, you can also negotiate a monthly payment or installment plan where you will commit to paying back your taxes in full over a period of time. For many people however, a monthly plan would cause undue hardship and is beyond their financial capabilities. If this applies to you, in addition to requesting a wage garnishment release, you may also want to apply for Currently Non Collectible status.

One of the advantages of Currently Non Collectible status is that your wage garnishment release will be secured and you will not have to make monthly payments. The amount you owe, however, will still be subject to penalties and interest and the IRS can still place a lien on your property. This special status is designed to enable you to save up the amount of money you owe, and ultimately, pay it off. You will have to prove that your monthly expenses and your liquid assets are greater than your monthly income. You will also have to fill out copious forms as well as negotiate all of this with the IRS.

While you can negotiate a wage garnishment release and apply for Currently Non Collectible Status on your own, it can also be a good idea to consult with a tax attorney. Tax attorneys are well versed in income tax law and will be able to help you fill out the forms and better yet, deal with the IRS on your behalf. They can also discuss another possibility with you, which is an Offer in Compromise Settlement where you can pay off a reduced amount of taxes and be cleared of your obligations once and for all.

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Tax Relief: Understanding Tax Relief through Tax Settlements

January 7, 2010 By

For those of you who have tax issues that are constantly haunting you, there is help available. Tax relief programs offer debt relief to taxpayers who are otherwise unable to fulfill their IRS obligations. Tax settlements are a form of tax relief that offers the benefit of paying a percentage of the IRS debt. Tax settlements are divided into different programs designed to overcome tax debt.

Offer in Compromise

An offer in compromise is a popular method of tax relief among taxpayers. With this particular variation of tax relief, your tax debt is paid off for a small percentage of what is owed. If you can prove to the IRS that your financial circumstances hinder you from complying with IRS demands to pay, you generally can qualify. This is the number one method of tax relief. Unfortunately, not enough people qualify for this program.

Installment payments

If you qualify for this method of payment, you are still expected to pay the full amount of debt. The advantage it gives you is the ability to pay over a prolonged amount of time. The IRS will set up a monthly payment plan that allows you to pay off debt. However, no portion of what is owed is lowered or decreased. You will eventually be able to pay off the IRS with this form of tax relief.

Applying for such tax relief programs can be a time-consuming and tedious task. There is a large amount of paperwork and negotiations involved when dealing with the IRS. The government is not going to simply slide you a deal across the table without a fight. There is a lot of information and a variety of facts you will need to consider and be aware of in order to help a process such as this run as smoothly as can be deemed possible. Do not waste any time concerning tax relief; get the ball rolling and begin your journey right away.

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