IRS Offer in Compromise
Taxpayers who have significant debt for a tax single year, or tax debt spread over multiple years, will often enter into an installment agreement. But there’s another option if you have the funds to make an adequate lump-sum payment, even if it’s just a portion of what you owe.
An offer-in-compromise is essentially an agreement negotiated between you and the IRS. It allows you to resolve existing tax debt by making a significant one-time payment. Many taxpayers are able to settle their IRS tax debt for less than half of what they actually owe, and this process also saves the IRS time and money spent trying to collect the whole sum over a longer period of time.
If you wish to make an offer-in-compromise, there are a few restrictions. First, the level of tax debt you have must well exceed your financial resources and your ability to pay. In other words, if it’s unlikely the IRS will ever collect the full amount owed based on your income level and the value of your assets, the offer is more likely to be accepted. Second, you must pay the maximum amount the IRS determines that you can afford, once your resources and situation have been reviewed.
While the basic premise of the offer-in-compromise is simple enough and it seems like a great option for taxpayers, there are some obstacles that prevent people from taking advantage of this form of tax resolution.
Proving the tax debt imposes an unfair economic hardship, which will also affect the taxpayer’s ability to pay down the debt over time, can be challenging. Disputing the amount owed may be time-consuming and frustrating too, and of course pulling together the minimum dollar amount required to make an offer the IRS will accept is difficult for some taxpayers. Having a tax expert in your corner and guiding you through the negotiation process is one way to help ensure your offer will be successful.
Once you and the IRS do come to an agreement on a lump-sum amount, after you submit that payment your debt is satisfied and the IRS will take no further action to collect.
Frequently Asked Tax Resolution Questions (FAQ’s)
When the IRS issues a tax lien, it makes a formal claim to your property but allows you to keep it while the matter is under consideration and you make payment arrangements.
A tax levy is more serious, and yes – the government can and will seize your assets to satisfy tax debt if you are not actively working with them to resolve the issue. Finding a payment agreement you can afford is much better than letting the situation go until a prized asset is seized. Once the IRS issues a tax levy against your home, business, or other assets, finding a means for settling the tax bill is essentially the only way to get your money and property released.
Depending on the size of your tax debt, the IRS can claim both current assets and those you will earn or acquire in the future.
If the IRS has already taken action against one or more of your accounts, it’s important to understand that the levies will not be removed until you begin working with the IRS to resolve your tax debt. Enrolling in an installment plan agreement or simply paying the taxes owed is the quickest way to get the levy on your account released. You may also provide proof of financial hardship if you cannot currently pay anything towards your tax debt.
Because banks are required to hold levied funds for 21 days before turning them over to the IRS, acting quickly to get some form of tax resolution plan in place will help your bank speed the process of getting your funds returned to you. Our tax experts are skilled in negotiating the kind of tax resolution plan designed to satisfy IRS requirements and put your money back where it belongs – under your control.
Setting up an installment agreement is probably the simplest way to manage your tax debt and get it paid off. The IRS offers several different types of agreements to fit taxpayer needs, and payments can run up to 10 years. Taxpayers who owe less than $25,000 may qualify for a streamlined installment agreement, in which you pay down the debt over a five-year period. If you owe less than $50,000, the Fresh Start Initiative allows you to extend payments to six years. Partial and full-payment plans are also available to taxpayers who do not qualify for other programs and are based on a financial statement and information submitted by the taxpayer.
If you cannot fully pay off your tax debt due to financial hardship, and you will not be able to pay it off over the number of years the IRS has to collect, you may be able to make an offer-in-compromise instead. This is essentially a lump-sum amount negotiated between you and the IRS, which will satisfy the tax debt for a payment lower than the actual total owed. You must demonstrate financial hardship and be prepared to make the payment soon after the negotiations are complete, but it’s a very good option for taxpayers who have large or multi-tax-year debt and are motivated to resolve it quickly.
Once your offer-in-compromise has been accepted and you make your one-time payment, your tax debt is considered paid-in-full and no further IRS collection activity will occur.
The IRS can legally collect any back taxes you owe from your bank accounts, assets and other parts of your estate if you die. They will generally do so before the proceeds of an estate are distributed among surviving children, but the debt cannot be passed on to your children otherwise.
For every tax debt, there is a Collection Statute Expiration Date. The CDED determines the amount of time the IRS can continue to pursue payment for taxes owed in previous years. The statute states that the IRS cannot pursue collection on a tax debt for longer than 10 years from the original tax assessment date, which corresponds with the month, year, and date the return was filed.
The IRS can change this date, but only under certain conditions. If you file an appeal or make an offer-in-compromise, the deadline may be extended.
We have been very successful in getting IRS tax penalties waived or reduced for our clients, including penalties for failure to file, late filing, and underpayment of taxes due. If this is the first time you’re filing a late return, or if you were previously in good standing and have been on time with your returns for the last three years, the IRS may offer you a penalty abatement.
You may also appeal your penalties by petitioning for abatement due to reasonable cause, meaning unforeseen circumstances significant enough they prevented you from filing or paying your taxes on time. Some examples include a medical emergency, temporary disability, extreme financial hardship, or natural disaster. Tax fraud carried out in your name by a CPA or tax preparation service may also be eligible grounds for an appeal.
Even if you don’t qualify for these specific types of waivers, our tax abatement experts will work with you to get your penalties reduced or eliminated. We want to ensure that you do not see your tax debt rise each month due to compounding interest and penalties on overdue tax payments.
If your financial situation has changed since your last tax return, or you can’t get on an installment plan because the amount the IRS requests is too high, there are a few other options. You can submit an up-to-date financial statement demonstrating any current hardship and detailing wages earned and expected from work or other income for the year ahead. If you can demonstrate that your income is insufficient for the IRS to collect all of what you owe within the time period they have to collect, you may be able to get penalties and interest reduced, or part of your tax debt canceled.
There is no set number of notices that applies to every taxpayer’s situation, but it’s never a good idea to ignore correspondence from the IRS. If you’ve received two or more notices about delinquent tax returns or seeking payment of taxes owed – or have gotten even one certified letter from the IRS about your situation – you may be closer to a tax lien, tax levy, or wage garnishment situation than you realize. Immediate action may be required to prevent bank account or asset seizure.
Absolutely. Your Social Security payments can be garnished just like your wages can. It’s even easier actually, because there’s no middleman — the government will just takes their portion right off the top before sending you what’s left in your social security check.
If you owe back taxes and do not cooperate with IRS attempts to collect, wage garnishment is an effective tool that forces you to pay up. Each time you fail to respond to a letter requesting payment, you’re taking another step towards wage garnishment. And once the IRS issues a wage garnishment order to your employer, he or she will have no choice but to comply.
Self-employed taxpayers are not immune to wage garnishment either. The IRS will simply issue the order to the businesses that pay you contract or freelance wages.
Yes, we offer a free consultation. Keep in mind a consultation is the assess your current situation and agree upon a fee arrangement. We may not be able to give you a legal opinion until more research is done given your situation. Sometimes it may be necessary to charge a research fee or analysis fee to give you a complete plan of action and legal opinion. We strive to keep this fee as reasonable as possible.
We provide the initial consultation free of charge, so we can learn about any tax issues you may have and design a tax resolution plan to meet your needs. We offer many services for a flat fee, and also give you the option of paying over time. We’ll do our best to work with you regardless of your financial situation.