When it comes to resolving IRS debt television and radio have confused a stressed public with dubious advertising. This leads to some disappointing conversations when a client comes into my office and asks questions regarding their ability to offer the IRS less than their amount due. It is not their fault, they have been barraged with ads from resolution companies announcing their successes of $100,000 debts being settled for $5,000 and tax balances being reduced to fractions of the original. These ads may speak the truth of their action because yes it is possible. However, it is not as simple as offering a sum to the IRS for them to go away. I would like to take some time to explain what your possible options are in resolving your situation. Keep in mind that you must file all back tax returns prior to entering into any of these options.
The first option is to simply pay your debt. Obviously, this is the option most preferred by the IRS. And if you are able to pay the debt this would also eliminate additional interest and penalties. It’s the quickest way to resolve the issue.
With the initiation of the Fresh Start Initiative, a policy change with the IRS that lowered thresholds for ease of entering into collection options, Installment agreements can be a great option for many taxpayers. For taxpayers who owe less than $50,000, a streamlined installment agreement will be accepted to be paid in 72 months with no requirement of a financial statement. There may be a requirement for a direct debit payment. For amounts greater the $50,000, you will need to provide financial statements to enter into an agreement or extend the time frame. The IRS has a 10 year statute of limitations on collecting your balance. It is possible for the IRS to accept an installment agreement that extends past the collection statute. This is known as a Partial-Pay Installment Agreement.
Claims of pennies on the dollar refer to this deal known as the Offer-in-Compromise. This program is a formula driven calculation. Your offer is determined by taking the value of your assets and 12 or 24 months of disposable income. Once your offer has been calculated you submit it along with a non-refundable 20% deposit. Once submitted, the offer will undergo a review process which will take between 6 and 9 months. Acceptance into this program does not come without some heavy burdens. You must pay the remaining balance within 6 months, 12 if you elected to use the 24 months of disposable income. Most likely this will be all the money you have so be prepared to ask family and friends. Additionally, you must remain compliant with your filing for 5 years. One late return jeopardizes the offer to be rescinded. Consider this if you are perpetual non-filer.
Currently not Collectible
If you are able to show that you have no disposable income or assets to pay off your balance you may be placed on this status. Currently not Collectible status stops collection action from the IRS until either you are in a position to pay or the statute of limitations runs on your balance. This is equivalent to the IRS placing your account on the shelf.
Certain tax debt is dischargeable in bankruptcy. In order to be eligible for this your debt must meet all three of the following criteria:
- Must be 3 years from the due date of the return including extensions.
- Must be 2 years from date the return was filed.
- Must be 240 days from assessment from an audited or amended return.
I won’t get into greater specifics with this legal matter other than that, just know that it is a question that should be directed to your attorney if you fit into the criteria.
Having IRS debt is a manageable process. One simply needs to take action on their situation. If you need any assistance or have questions please contact me. David Hilliard – firstname.lastname@example.org or 714-921-2790.