File Tax Help

Settling Your Tax Debt – Offer in Compromise

If a taxpayer is unable to pay the tax due in full when they file a return they may be eligible to pay out their tax due over time? This is called an installment agreement and can help the taxpayer meet their federal tax obligation even if they cannot pay all at once. There are fees associated with this type of arrangement but they can be minimized depending on how the taxpayer chooses to pay and also if their income is below a certain level.

The IRS will consider an OIC on 3 different bases: 1. Doubt as to Liability - This means that there is legitimate doubt as to whether the taxpayer owes all or part of the assessed tax liability. 2. Doubt as to Collectability - This means that it is doubtful that the taxpayer could pay the liability in full within the remaining statutory period for collection by liquidating assets or through current installment agreement guidelines. 3. Effective Tax Administration - This means that there is no doubt as to the liability or collectability but that exceptional circumstances exist that will allow the IRS to consider an offer. In this instance the taxpayer must demonstrate that collection of the tax would create an economic hardship or would be unfair and inequitable.

An offer must meet certain financial criteria in order to be approved. Simply stated the offer must show that the taxpayer's net assets and future disposable income are not enough to pay the full debt. If that is the case and there are no conditions that will lead the IRS to believe that the situation will change, then the likelihood of an approved offer is greater.

The taxpayer may request an installment agreement when filing their return. They may do so by requesting a pre-assessment installment agreement on current tax liabilities using the Online Payment Agreement (OPA) application at the IRS website. They may also request an agreement when filing their return by attaching either form 9465 Installment Agreement Request or by simply attaching a written request for a payment plan to the front of the return.

If the taxpayer did not request an installment agreement when they filed their return and they receive a bill from the IRS, they may still request one using the Online Payment Agreement (OPA) application at the IRS website. They also may request one by submitting either form 9465 Installment Agreement Request or by attaching a written request for a payment plan to the front of the bill and returning to the IRS.

There is still yet another option to request a payment plan and that is to call the toll-free number on the bill. The IRS will respond to a request usually within 30 days as to whether it has been approved or denied. The taxpayer must specify how much they can pay each month and on which day they wish to make that payment. The IRS will expect to receive the payment on the day specified so the taxpayer must make sure they account for mailing time. It is also advisable that the taxpayer choose an amount that is realistic and will not cause them to miss or make late payments. There are a number of options available for payment and they include: * Direct debit from a bank account * Payment via check or money order * Payment by credit card via phone or internet * Payment by Electronic Federal Tax Payment System (EFTPS) * Payment by Online Payment Agreement (OPA) * Payroll deduction from your employer

Numbers are what they are...you add, you subtract and everything is nice and clean. However it doesn't stop there. What types of things do you include in figuring what your tax debt should be and what you propose to offer in order to settle it? Good question, so there seems to be more to the numbers part of it than just adding and subtracting. As far as the reasons go the IRS doesn't grant you tax relief just because you ask. That should be very evident in the numbers above. Furthermore if you have stuff (house, car, big screen television) and you can't pay your tax bill the IRS assumes you used their money to buy those things and fully expects you to sell them in order to pay your debt, even if this creates an inconvenience for the taxpayer. Just a side note, the IRS views an inconvenience and an actual hardship as two very different things.

Once an offer has been accepted the taxpayer is required to honor the terms of the agreement until the amount is paid in full and is also required to remain in compliance in the filing and payment of all required taxes for a period of five years or until the amount is paid in full, whichever is longer.

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