- How to Determine Whether you Qualify for an Offer in Compromise?
Offer
in Compromise – How to Determine Whether you Qualify for an Offer in
Compromise
You
do not qualify for an Offer in Compromise if you can full-pay your tax
liability.
Whether
paying with a timely filed tax return, or filing late and paying late
after receiving a bill from the
IRS
(and the bill is correct), taxpayers are encouraged to pay the taxes
they owe in full. If taxes are not paid, and no effort is made to pay
them, the
IRS
can ask a taxpayer to take action to pay the taxes, such as selling or
mortgaging any assets owned or getting a loan. If effort is still not
made to pay the bill, or make other payment arrangements, the
IRS
could also take more serious enforced collection action, such as levying
bank accounts, wages, or other income, or taking other assets. A Notice
of Federal Tax Lien could be filed that may have a detrimental effect on
a taxpayer’s credit standing. S
Ways
to Pay Taxes
Payments
can be made by credit card, electronic funds transfer, check, money
order, cashier’s check, or cash.
Payments
by credit card can be made through one of two official vendors:
Electronic
funds transfers directly from a bank account can be made by enrolling in
the Electronic Federal Tax Payment System (EFTPS).
- www.eftps.gov
or
- call
1-800-555-4477
or
1-800-945-8400
or
- Publication 966, Electronic Federal Tax Payment
System
Payments
by check, money order, or cashier’s check, should:
- Be made payable to United States Treasury (or
U.S. Treasury)
- Include the social security number or employer
identification number, tax period, and related tax form number
- Be mailed to the address listed on the notice or
instructions
Cash
payments can only be made in person at a local
IRS
Office. Do not send cash through the mail.
Other
Ways to Resolve Tax Debts
Taxpayers
with a balance due on their return should consider:
Cash
advances on credit cards the unpaid amount due.
The
IRS
recognizes many people drop out of the system because of personal
problems, including serious illness, a death in the family, or loss of
financial records in a natural disaster. Depending on the situation,
informing the
IRS
why returns have not been filed could result in a waiver of penalties.
Other
Considerations:
- Taxes paid in a timely manner reduces the amount
of penalties and interest a taxpayer may owe
- Interest is calculated on the unpaid balance,
penalties, and interest that has been charged to the tax account
- While making payments on a tax debt through an
installment agreement, penalties and interest continue on the unpaid
portion of that debt
- The interest rate on a bank loan or cash advances
on a credit card may be lower than the combination of penalties and
interest imposed by the Internal Revenue Code
- Bank loans\
- Liquidating savings accounts, savings bonds,
stocks, etc.
- Borrowing against 401(k), Life Insurance, etc.
- Using equity in real estate or other assets
Taxpayers
unable to pay all taxes due on the bill are encouraged to pay as much as
possible. By paying as much as possible now, the amount of penalties
interest and penalties owed will be lessened. They should then
immediately call the number or write to the address on the bill they
receive, or visit the nearest
IRS
office to explain their situation.
Based on
the circumstances, a taxpayer could qualify for an extension of time to
pay. The
IRS
is willing to offer extensions of time to pay in order to assist in tax
debt repayment. A taxpayer can request an extension from 30 - 120 days
depending on the specific situation. Penalties and interest incurred
will be less through an extension of time to pay rather than seeking to
enter into an installment agreement.
If a
taxpayer cannot made payment in full upon receipt of the bill, the
IRS
may request a Collection Information Statement (CIS) to compare
individual or business monthly income with expenses and to assist in
determining a payment plan.
More
ways taxpayers can use to resolve their debt include:
When
do Penalties and Interest Apply?
Penalties
and interest do not apply in years in which a taxpayer is entitled to a
refund. About a third of those who file returns for past years discover
they have a refund coming.
Penalties
and interest apply to years in which money is owed. The interest charged
on late payments changes quarterly. During the last several years the
interest rate has ranged from a high of 9 percent to a low of 4 percent
Installment
Agreements are a means to full-pay your tax liability
IRS
encourages taxpayers to pay what they owe as
quickly as possible. For those individuals or businesses not able to
resolve a tax debt immediately, an installment agreement can be a
reasonable payment option. Installment agreements allow for the full
payment of the tax debt in smaller, more manageable amounts.
To be
eligible for an installment agreement, all returns that are due must
first be filed.
Installment
agreements generally require equal monthly payments. The amount of an
installment payment will be based on the amount owed and on the
taxpayer’s ability to pay that amount within the time legally
available for the
IRS
to collect. By law, the
IRS
has the authority to collect outstanding federal taxes for ten years
from the date of assessment. For taxpayers that enter into an
installment agreement, the
IRS
may require a signed waiver to extend the time
IRS
can collect.
Taxpayers
who already have an installment agreement from a previous amount owed
may still find help. All of the amounts owed could be included in one
installment agreement. Additionally, a Collection Information Statement
may have to be completed to further illustrate their financial
situation.
As a
condition of an installment agreement, any refund due in a future year
will be applied against the amount owed. Therefore, taxpayers may not
get all of their refund if they owe certain past-due amounts, such as
federal tax, state tax, a student loan, or child support. The
IRS
will automatically apply the refund to the taxes owed. If the
refund does not take care of the tax debt; then the installment
agreement continues until all of the terms are met.
Interest
does not Stop with an Installment Agreement
An
installment agreement is more
costly than paying all the taxes owed now. Penalties and
interest continue to be charged on the unpaid portion of the debt
throughout the duration of an installment agreement.
NOTE:
The interest rate on a loan or on a credit card may be lower than the
combination of penalties and interest imposed by the Internal Revenue
Code. It is best to pay as much as possible before entering into an
agreement.
How
Best to Make Timely Installment Payments
The
IRS
strongly recommends one of the following options for payment under an
installment agreement:
- Direct Debit - electronic transfers from a
checking account, or
- Payroll Deduction - deductions that an employer
takes from wages or salary. Call toll free
1-800-829-1040
to set this option up.
These
forms of payment help to reduce the burden of mailing the payments, save
postage, help ensure timely payments, and decrease the likelihood that
the agreement will default. If the agreement defaults, enforced
collection action could be taken.
Installment
agreement payments can also be made by electronic funds transfer (www.eftps.gov),
credit card (www.officialpayments.com
or www.pay1040.com),
personal or business check, money order, cashier’s check, certified
funds or cash (cash payments can only be made in person at a local
IRS
Office-do not send cash through the mail).
Fees
to Set-up an Installment Agreement
The
IRS
charges a user fee of $43 to set up the installment agreement. It is
possible for an installment agreement to be reinstated if the agreement
defaults. Also, installment agreements may be restructured to include
additional amounts owed in one agreement. Reinstating or restructuring
an existing installment agreement will cost an additional $24 user fee.
How
to Set-up an Installment Agreement
Taxpayers
wishing to pay off a tax debt through an installment agreement, and owe:
- $25,000 or less in tax, can call the number on
the bill or notice (have the bill or notice available, along with
the social security number). A fill-in Request for Installment
Agreement, Form 9465, is available online that can be mailed to the
address on the bill.
- More than $25,000 in tax, may still qualify for
an installment agreement, but a Collection
Information Statement, Form 433F may need to be
completed. Call the number on the bill or mail the Request for
Installment Agreement, Form
9465 and Form
433F to the address on the bill.
A
notification is sent to the taxpayer advising whether the terms of the
installment agreement have been accepted or if they need to be modified.
The
IRS
generally may still file a Notice of Federal Tax Lien to secure the
government’s interest in the taxpayer's personal or real property
until final payment is made. The notice filing could have a negative
impact on the taxpayer’s credit rating.
Enforced
Collection Actions
Generally,
IRS
enforced collection actions (i.e., levy against personal or real
property) are not made while an installment agreement request is being
considered, or:
- While an agreement is in effect,
- For 30 days after a request for an agreement has
been rejected, and
- For any period while a timely appeal of the
rejection or termination is being evaluated by the
IRS
.
Payments
Should be Made Timely
- Throughout the term of an installment agreement,
payments must be made on time. If payments cannot be made due to a
change in financial condition, taxpayers should contact the
IRS
immediately. Failure to make timely payments could default the
agreement. A defaulted installment agreement could subject a
taxpayer’s account to enforced collection action and potentially
have a negative effect on a taxpayer’s credit standing.
Annual
Statements of Balance Due
In
accordance with the law, installment agreement taxpayers receive an
annual statement from the
IRS
. The statement provides the amount owed at the beginning of the
statement period, the payments (credits) posted to account(s), any fees
or assessments, and the ending balance. Currently, the annual statement
is sent each year in July.
BEWARE!
IRS
Consumer Alert – Warning about TV Advertisers Who Tell Everybody They
Qualify for an Offer in Compromise.
You only qualify for an Offer in Compromise under limited
cercumstances.
What
is an Offer in Compromise?
An offer in compromise is an agreement between a taxpayer and the
IRS
that resolves the taxpayer's tax debt. The
IRS
has the authority to settle, or "compromise," federal tax
liabilities by accepting less than full payment under certain
circumstances. A tax debt can be legally compromised for one of the
following reasons:
- Doubt as to Liability - Doubt exists that the
assessed tax is correct.
- Doubt as to Collectibility - Doubt exists that
you could ever pay the full amount of tax owed.
- Effective Tax Administration - There is no doubt
the tax is correct, and no doubt that the amount owed could be
collected, but an exceptional
circumstance exists that allows the
IRS
to consider a taxpayer's OIC. To be eligible for a compromise on
this basis, the taxpayer must demonstrate that collection of the tax
would create an economic hardship or would be unfair and
inequitable.
Circumstances
in which collection from you will create an economic hardship
Read the following
IRS
Consumer Alert News Release: IR-2004-17,
Feb. 3, 2004
WASHINGTON
— The
Internal Revenue Service today issued a consumer alert advising
taxpayers to beware of promoters’ claims that tax debts can be settled
for “pennies on the dollar” through the Offer in Compromise Program.
Some
television promoters are inappropriately advising indebted taxpayers to
file an Offer in Compromise (OIC) application with the
IRS
. This bad advice costs taxpayers
money and time. An Offer In Compromise is an agreement between a
taxpayer and the
IRS
that resolves the taxpayer's tax debt. The
IRS
has the authority to settle, or "compromise," federal tax
liabilities by accepting less than full payment under certain
circumstances. “This program serves an important purpose for a select
group of taxpayers. But we are increasingly concerned about unscrupulous
promoters charging excessive fees to taxpayers who have no chance of
meeting the program’s requirements,” said
IRS
Commissioner Mark W. Everson. “We urge taxpayers not to be duped by
high-priced promises.”
The OIC
may be considered only after other payment options have been
exhausted. If taxpayers are unable to pay their taxes in full, there
are other payment options, such as monthly installment agreements, that
must be explored before an OIC can be submitted.
Alvin
Brown & Associates, LLC, will give you a free consultation
on whether you qualify for an Offer in Compromise, whether the
IRS
will find that you can full-pay your tax liability, and in the even you
can full-pay, whether you meet the guidelines for an Installment
Agreement. Call
703 425-1400
ex 109, 101, or 102 or contact us by e-mail:
ab@irstaxattorney.com
.
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