Qualifying for a tax settlement, or an Offer In Compromise, is possible – however it is important to keep in mind that it is based on the numbers. First, you must be in filing compliance, and you must be current on all tax payments.
You must also meet the “Reasonable Collection Potential” (or RCP) guidelines set by the IRS. This is how the IRS measures the taxpayers’ ability to pay their tax debt, which includes calculating the net equity value of your assets (real estate, vehicles, retirement plans, and more) and your disposable income. Your disposable income is calculated with your anticipated future income less certain allowable expenses that are necessary for basic living standards.
If all these guidelines are met, then YES – you could potentially qualify for an Offer in Compromise.
If you don’t qualify for an Offer, there are other solutions that can help you resolve your tax problems, such as an installment agreement.
Does the IRS offer payment plans?
The simple answer is yes, the IRS offers various types of payment plans – depending on your financial situation, you may qualify for a traditional installment agreement, or you may be able to get an installment agreement that’s at a reduced monthly payment amount.
Typically, they will offer an installment agreement based on UP TO 72 months, or 6 years. If indeed you do need a reduced amount for an installment agreement, you will have to provide financial info such as bank statements and other statements that the IRS may request. BUT if you can and want to go the route of not providing financial info to the IRS, there is an option for that.
You just need to make sure that your balance is paid out within 72 months, or the CSED – whichever comes first.
Is it true that the IRS only has so long to collect on the taxes I owe?
YES – they only have ten years to collect on a tax debt, from the day that the tax was assessed. After the ten years has elapsed, they are legally required to write off the amounts uncollected. This is referred to as a CSED, which stands for Collection Statute Expiration Date. Each tax year has its own CSED – once that tax year reaches its CSED, the debt, penalties and interest are required to be written off.
Keep in mind that in some cases, this ten year period (we like to call it “The Clock”) will stop ticking – things like bankruptcy and Offers in Compromise.
Is there a way to stop levies?
Yes, there sure is – there are a couple of ways! One is to pay the balance off in full. If you are unable to pay it off, you do have other options – you can get into an installment agreement (a payment plan) with the IRS. Or you can see if you qualify for something called “Currently Not Collectible” – where you don’t make any monthly payments at all, but the debt is still out there.
Further, you can apply for an Offer in Compromise. There may be other options out there for you, but these are the basic ways to get it done.
Can I sell my house if it has a lien on it?
Yes, you can – once you get the liens removed temporarily. It involves getting in touch with the IRS and letting them know that you’re selling your house. They’re going to want proceeds from the sale of your home – it does not have to be the full amount of what you owe to the IRS, but it must be a significant amount.
You have the power to negotiate the amount you can pay out to the IRS, and when they accept that amount, they will temporarily lift the lien so that the house can sell with a clear title.
What do I do when my Installment Agreement defaults?
You need to IMMEDIATELY get back in touch with the IRS to find out what caused the default and talk to them about what you need to do to get it back in place, so that you can request a reinstatement. Make sure you do this as soon as possible!
I have a payment plan, but the monthly payment is for more than I can afford – can I get the payment reduced?
Yes, you can! In order to do so, you’ll be required to submit what the IRS calls a Collection Information Statement, also known as a Form 433A. It’s going to require you to divulge quite a bit of your financial info to determine how much you CAN afford to pay on a monthly basis.
The IRS will honor how much you can afford to pay, even if it’s for less than what you are currently paying.
I owe the IRS, but just got a notice that a private debt collector has taken over my account – should I be worried?
In some cases, a private debt collection agency can be your best friend! When you received a notice assigning your account to a private collection agency, it means that you are a very, VERY low priority to the IRS. In some instances, you are completely off their radar!
This could also mean that your wages cannot be garnished, your bank accounts cannot be levied, and other assets cannot be seized by the IRS. The IRS do still retain the authority to take these actions, but they probably won’t. You have no responsibility to disclose your financial information to the private debt collection agency – in fact, you don’t even need to answer their calls!
Keep in mind that the IRS only has ten years to collect back taxes, and while your account is with a private collection agency, that clock is still ticking.
How do I protect my spouse from the IRS when they aren’t responsible for the amount I owe?
If your spouse doesn’t owe the taxes, and if you filed Married Filing Separate, there’s nothing you need to do to protect your spouse – legally, the IRS cannot come after your spouse. They can only go after who the tax is assessed to. If you want to make sure that your spouse is not liable in the future, make sure you continue to file MFS (if appropriate).
But, if it’s a scenario where you filed Married Filing Joint, and there were some transactions or some activity that your spouse wasn’t aware of, your spouse MAY be eligible for Innocent Spouse Relief.
What is Innocent Spouse Relief?
Innocent Spouse Relief is an IRS program that allows for a spouse to be released from a joint tax liability in certain circumstances. If you have a spouse that has failed to include some income, or took deductions they were not entitled to take that caused a large tax liability, and you filed a joint return – you are on the hook for that balance!
However, if you are able to prove that you were an Innocent Spouse, that you did not know about the large deductions, or if there was income that was not reported and you were not aware, you COULD be a candidate for this program.
It is not an easy thing to prove, but there is a possibility that you could qualify.
I haven’t been able to make my estimated tax payments in some time, will it be okay if I just pay all at once when I file my return?
You really want to make sure that you’re trying your best to make estimated quarterly tax payments as they come due – even if it’s not the full amount that should be paid, some is better than none in the eyes of the IRS. If you don’t, you’ll be hit with underpayment penalties for not paying throughout the year.
My tax preparer fudged the numbers on my return, and now the IRS is coming after me for it! How do I get out of this situation?
You need to hire representation. If you can’t afford to hire representation, you can work directly with the IRS revenue agent, and it will be your responsibility to provide all the documentation required. If the fudged numbers allowed for you to have a higher refund than you were entitled to, then it is quite possible that you will have some back taxes to pay. It is very important that you provide all documents the IRS requests.
Unfortunately, at the end of the day you are responsible for the tax itself, whether the preparer was incorrect or not. If any penalties arise out of the new assessment, you may be able to request something that is caused Reasonable Cause Penalty Abatement – if you are able to prove that the preparer falsely stated (or misled you about) the numbers on the return.