Tax debt is a common problem in this day and age, and resolving it can be as complicated as it is stressful. You might be in a situation where you owe more than you can realistically pay, and the IRS is anything but merciful to people who don’t pay up within a specified amount of time. Their collection efforts can be harsh, and ignoring them can result in severe penalties.
Tax debt is not something you want to ignore, and it’s not a problem that you can afford to put off. After all, you want to put it behind you as soon as possible. But what you might not realize is that you can settle your debt for less than what you owe. This is called an “offer in compromise,” and it is an agreement between you and the IRS. However, not everyone will be able to qualify for it, and they don’t make it easy.
Eligibility for an Offer in Compromise
To qualify for an offer in compromise, you must have filed all of your tax returns for the years in question, and you must have made all your estimated payments. The amount you owe must also be equal or greater that what the IRS calls the “Reasonable Collection Potential” (RCP).
This is how they measure a person’s ability to pay what they owe, and it takes a couple of things into consideration. These are:
The taxpayer’s assets – This includes any property you own, as well as any vehicles and bank accounts that are registered in your name.
The taxpayer’s future expected income – This is what the IRS expects you to make in future years, minus any expenses.
To determine your eligibility for an offer in compromise, the IRS takes several things into consideration, and they may approve you if:
You have a genuine dispute about the amount you owe.
There is any doubt about whether or not you can pay.
The IRS made an administrative error in how they made their decision.
Still, these factors will not guarantee your eligibility, and there are many things that can make or break you in the process. So, it may be wise to hire a professional to help you, and Tax Law Tampa has the experience to resolve any tax-related issue.
Applying for an Offer in Compromise
To apply for an offer in compromise, you will have to make sure you have all the necessary information, as the IRS will use this to determine your eligibility. First, you must include the following forms:
Form 656 (Offer in Compromise)
Form 433-A (Collection Information Statement for Wage Earners and Self-Employed Individuals)
In some cases, you may have to include Form 433-B (Collection Information Statement for Businesses). And if there is what the IRS calls a “doubt as to liability,” you will have to include Form 656-L (Offer in Compromise – Doubt as to Liability) instead of the forms that have been listed above.
In addition to all the necessary forms, you will also have to include a $186 application fee, but it may be waived in the following cases:
If there is a “doubt as to liability.”
If the taxpayer is an individual instead of a corporation or any other business entity.
If your income is at or below 250% of the poverty line (what the IRS calls a “low-income exception”).
Following these steps will not guarantee your eligibility, and one error or omission can destroy your chances of getting approved. So, you should consider finding someone who can help you with the application process. Tax Law Tampa has a team of experts who are trained in dealing with any tax-related issues, and they can help you settle your debt with the IRS.
Payment Plans for an Offer in Compromise
Once you get approved, the IRS will give you the option of paying it all at once (what they call a “lump sum” payment); or you can make periodic installments. If you decide to make a single payment, you must make it within five months after you are approved; and you must include a copy of your Form 656. You must also make a non-refundable fee that is equal to 20% of the amount that you owe.
If you decide to make periodic payments, you will have to make at least six monthly installments within 24 months after your offer has been accepted. And your first proposed payment must be sent with your Form 656, as well as the $186 application fee. You will also have to continue to make your proposed monthly payment while your offer is being considered. Normally, a decision will be made within 30 days after they have received your application.
What to Do Once You’re Accepted
Once you have been accepted, then the ball is in your court. You cannot miss any more payments (that is, if you have chosen to make monthly installments), and you can go into default if you don’t fulfill your end of the deal. If you do, then you will be obligated to pay the full amount (minus any payments you have made in the past). This will include any interest and penalties that have been accrued during that time.
If you’ve been rejected, you will receive a letter in the mail explaining the reasons why. But you still have the option of appealing their decision within 30 days from the date on the letter.
Hiring a Tax Professional
Tax Law can be complicated, and the sea of regulations can he hard to navigate – even for the most experienced individual. So, why would you want to do it alone?
The truth is that it pays to have a tax professional by your side, and it can save you a great deal of headache in the long run. Tax Law Tampa has a team of expert tax attorneys that will make sure your rights are being protected throughout the entire process, and they will be able to deal with the IRS in ways that you may not be aware of. So, if you want to hire someone to help you apply for an offer in compromise, get in touch with them today!