File Tax Help

Settling Your Tax Debt – Offer in Compromise

As a former IRS Agent and Instructor, I am asked all the time how and where does the IRS get their tax levy information? The answer is very simple and may surprise you. It comes from you. Yes, you usually give them your own tax levy information. The IRS does little to have to find it.

There is a one-time fee of $105 when a taxpayer enters into an agreement unless they choose to pay through a direct debit, in which case the fee is reduced to $52. Also if a taxpayer qualifies with income at or below 250% of the Department of Health and Human Services poverty guidelines they may apply for a reduced fee of $43. Taxpayers may apply for this reduced fee using form 13844 Application for Reduced User Fee for Installment Agreements. Taxpayers must remember that even if this is granted interest and penalties will still accrue until the tax owed is paid in full.

There is also a payment option available that gives the taxpayer a short amount of additional time, up to one hundred and twenty days, to pay their obligation in full. This option does not have any associated fees with it but interest will continue to accrue until the tax owed is paid in full. 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.

A taxpayer's net assets are equal to what they can earn from the sale of any items that they own such as equity in real estate, automobiles or investments. A taxpayer's future disposable income consists of their current income less expense amounts allowed to support the health and welfare of the taxpayer and their dependents. While this may sound simple it is actually very complex because there are many details to consider. Only professionals who deal with these matters on a regular basis are equipped to understand the total picture and communicate effectively with the IRS. It cannot be emphasized enough to seek professional representation when considering an offer in compromise since the average taxpayer has never prepared anything similar to it or has never faced any process similar to the one that is followed once an offer is submitted.

If you are divorced or separated, many times that information will come from your spouse who cannot wait to give IRS the information.

Remember an agent's goal is to substantiate the numbers. They are accountable to superiors for the work that they do so they go beyond simply asking a few questions...they conduct an all out financial investigation to ensure that the taxpayer cannot hide any assets or income in order to avoid paying the tax that they owe.

When submitting an offer in compromise the taxpayer is required to submit a $150 application fee plus a 20% down payment if choosing the lump sum cash offer or the first installment if choosing a periodic payment plan offer. A taxpayer can request an exception to these requirements because of their income level but must submit the proper form along with the offer. The amount of time the taxpayer has to pay off the debt depends on the offer plan that is chosen. If the taxpayer is already on an installment agreement they may stop making payments on that if they choose the periodic payment plan offer so they can make payments on that.

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.

Harris Smith is a writer on personal finance education. Her article tackles the pros and cons of home equity line of credit . A Debt Consolidation loan will change your life.

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