IRS Debt Settlement Program – Paying Taxes – Former IRS Agents – Fresh Start Tax LLC
Michael D. Sullivan, former IRS agent and teaching instructor.
There are many different options a taxpayer has in dealing with the IRS.
The IRS accepts 27% of all offers in compromise filed from taxpayers.
Being a Former IRS agent I would not recommend taxpayers file these on there own. The likelihood of acceptance is far and few between.
The reason you need a tax professional is simply because the IRS requires exacting information and most persons have no idea the amount of time and work put into each review made by the IRS. The average time spent on an acceptance is 25 hours. It is well worth the money to have a tax professional complete this lengthy process.
IRS Programs
The IRS has different programs available to taxpayers to deal with their personal or business IRS debt and depending on your individual situation there are different options available and some can completely relieve the debt.
The IRS have just released there Fresh Start Program that deals with the Debt Settlement program. The filing of offers in compromise is the official name of the debt settlement program.
An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you cannot pay your full tax liability, or doing so creates a financial hardship.
IRS will require a 433OIC form to be completed with complete documentation.
IRS considers different factors.The base factors are as follows:
a. Ability to pay;
b.Income;
c.Expenses; and
d. Asset equity.
IRS can generally approve an offer in compromise when the amount offered represents the most we can expect to collect within a reasonable period of time.( RCP)
IRS will explore all other payment options before submitting an offer in compromise. The Offer in Compromise program is not for everyone.It is recommended you have a tax professional pre-screen your offer before filing and wasting your time and money.
Make sure you are eligible
Before IRS can consider your offer in compromise, you must be current with all filing and payment requirements.
You will not eligible if you are in an open bankruptcy proceeding.
For those who wish to do it yourself.
You will find step-by-step instructions and all the forms for submitting an offer in the Offer in Compromise Booklet, Form 656-B (PDF)
Your completed offer package should include:
a. Form 433-A (OIC) (individuals) or 433-B (OIC) (businesses) and all required documentation as specified on the forms,
b. Form 656(s) – individual and business tax debt (Corporation/ LLC/ Partnership) must be submitted on separate Form 656,
c. $150 application fee (non-refundable); and
Initial payment (non-refundable) for each Form 656.
Select a payment option
Your initial payment will vary based on your offer and the payment option you choose. you will want to discuss with your tax advisor with option is best your you. the options are as follows:
1. Lump Sum Cash: Submit an initial payment of 20 percent of the total offer amount with your application. Wait for written acceptance, then pay the remaining balance of the offer in five or fewer payments.
2.Periodic Payment: Submit your initial payment with your application. Continue to pay the remaining balance in monthly installments while the IRS considers your offer. If accepted, continue to pay monthly until it is paid in full.
Low Income Certification may apply
If you meet the Low Income Certification guidelines, you do not have to send the application fee or the initial payment and you will not need to make monthly installments during the evaluation of your offer. See your application package for details.
Things to know about the process.
While your offer is being evaluated you must be advised:
a. Your non-refundable payments and fees will be applied to the tax liability (you may designate payments to a specific tax year and tax debt);
b. A Notice of Federal Tax Lien may be filed;
c. Other IRS collection activities are suspended;
d. The legal tax assessment and collection period is extended while the case is in offer status;
e. You must make all required payments associated with your offer;
f. You are not required to make payments on an existing installment agreement and
g. Your offer is automatically accepted if the IRS does not make a determination within two years of the IRS receipt date. Very few times this will happen.
Paying Taxes – Monthly payments through an installment agreement
You can make monthly payments through an installment agreement if you’re not financially able to pay your tax debt immediately.
However, you will reduce or eliminate the amount of penalties and interest you pay and avoid the fee associated with setting up an installment agreement if you pay your tax bill in full.
In-Business Trust Fund Express Installment Agreements
Small businesses who currently have employees can qualify for an In-Business Trust Fund Express Installment Agreement (IBTF-Express IA). These installment agreements generally do not require a financial statement or financial verification as part of the application process.
The criteria to qualify for an IBTF-Express IA are:
1. You owe $25,000 or less at the time the agreement is established. If you owe more than $25,000, you may pay down the liability before entering into the agreement in order to qualify.
2. The debt must be full paid within 24-months or prior to the Collection Statute Expiration Date (CSED), whichever is earlier.
3. You must enroll in a Direct Debit installment agreement (DDIA) if the amount you owe is between $10,000 and $25,000.
4. You must be compliant with all filing and payment requirements.
Streamlined Installment Agreements
The Fresh Start provisions also mean that more taxpayers will have the ability to use streamlined installment agreements to catch up on back taxes. Under the Fresh Start initiative, the maximum dollar criteria for streamlined installment agreements has been raised from $25,000 to $50,000 and the maximum term has been raised from 60 months to 72 months.
These installment agreements generally do not require a financial statement, but a limited amount of financial information may be required in the application process.
The Streamlined Installment Agreement criteria is divided into two categories, balance due of $25,000 or less, and balance due $25,001 to $50,000.
The criteria to qualify for streamlined installment agreements with a balance due of $25,00 or less are:
a. You owe $25,000 or less, at the time the agreement is established. If you owe more than $25,000, you may pay down the liability before entering into the agreement in order to qualify.
b. The debt must be full paid within 72-months or prior to the Collection Statute Expiration Date, whichever is earlier.
c. You must be compliant with all filing and payment requirements.
d. Individuals who owe any type of tax (Form 1040, Trust Fund Recovery Penalty, etc.).
e. Defunct businesses, including any type of entity and any type tax (Form 940, 941, 943, etc.).
f. Operating businesses are limited to income tax liabilities only (Form 1120).
The criteria to qualify for streamlined installment agreements to IRS with a balance due of $25,001 to $50,000 are:
a.You owe $25,001 to $50,000, at the time the agreement is established. If you owe more than $50,000, you may pay down the liability before entering into the agreement in order to qualify.
b. The tax debt must be full paid within 72-months or prior to the Collection Statute Expiration Date, whichever is earlier.
c. You must be fully compliant with all filing and payment requirements.
d. Individuals who owe any type of tax (Form 1040, Trust Fund Recovery Penalty, etc.).
e. Businesses are limited to defunct sole proprietors who owe any type of tax, Form 940, 941, 943.
Side note- You must enroll in a Direct Debit Installment Agreement.
A limited amount of financial information may be required during the application process.
Taxpayers seeking installment agreements exceeding $50,000 will still need to supply the IRS with a Collection Information Statement (Form 433-A (PDF) or Form 433-F (PDF)).
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