What do you do when you owe taxes to the IRS? This is a common question among our clients. There are multiple solutions to tax debts. Working towards the settlement of tax debt is known as tax resolution. Without the knowledge of the IRS’s collection system, it is quite tricky to navigate this minefield alone. At True Resolve Tax Professionals, we offer tax resolution services at competitive rates. In this article, we shall discuss all the options available when you owe taxes to the Internal Revenue Service.
1. IRS Installment Agreements
The IRS installment agreements are a set of payment plans available to taxpayers who owe taxes. In cases where a taxpayer is unable to pay taxes owed in its entirety, the federal tax body, the IRS, lets you break down your tax liability to monthly payments. There are four IRS installment agreements. The following is a breakdown of each installment agreement including the challenges they present.
a. Streamline Agreement
This is an IRS installment plan with equal monthly installments payable over 72 months. The streamline agreement is open to taxpayers who owe less than $50,000 in tax liability. You can apply for the streamlined agreement online if you owe less than $25,000. For those who owe between $25,001-$50,000, you are required to answer a set of questions before you are cleared to apply for the streamlined agreement. When it comes to the streamlined agreement, your total tax debt is divided into 72 equal installments that you will pay over six years.
Challenges of the streamlined agreement
The streamline agreement involves paying the IRS in 72 months. Six years is a long time to have the Internal revenue service in your life. Sometimes we have clients commit to installment agreements that they cannot maintain. The law allows you to negotiate for your tax resolution, but this comes with a disadvantage. IRS agents may intimidate you to paying a large down payment that is not necessary. At True Resolve Tax Professionals, we understand that you value every cent you earn. We consider your monthly, annual and biannual expenditures when we calculate your maximum installment ability. We do not want to see our clients in financial ruin. We will advise you on whether to increase the term or dollar amount of your installment.
b. Partial Pay Agreement
As the name suggests, this payment plan only pays part of your total debt. To understand the partial pay agreement, you need to interpret the collection statute of limitation. The IRS has ten years to collect a tax debt from you. This is the collection time statute of limitations; the ten-year time limit to collect a specific tax debt. Eligibility to the partial pay agreement is limited to taxpayers who have massive debts that cannot be paid within the time left in the collection statute. At the expiry of the collection statute, you are cleared of your liability whether you completed paying your debt or not. If you have ten months left on a $70,000 tax debt and your monthly disposable income is $150, you will end up paying only $1,500 ($150 X 10 months). Sounds amazing? At True Resolve Tax, this is a common occurrence. We have guided hundreds of clients towards the partial payment agreement. The trick is knowing the expiration date of the collection time statute of limitations.
c. Tiered Agreement
Just like a tiered cake, the monthly installments are not equal. The tiered installment agreement is tailored to fit the needs of taxpayers with other financial obligations. For example, if you were repaying a bank loan, you will kick off your tiered agreement with small installments. Once you clear your bank loan, your monthly payments will increase.
d. Full Payment Agreement
In this payment plan, you are expected to pay the taxes you owe in entirety within ten years. If you owe taxes that you cannot pay within 72 months, the IRS will upgrade you to a payment plan that spans ten years, the full pay agreement. To qualify for the entire pay agreement, you need to prove that you are unable (without the liquidation of assets) to pay your tax debt in six years. The burden of proof remains with the taxpayer.
2. The Offer in Compromise
The offer in compromise is a settlement agreement that allows taxpayers to clear taxes owed with a mere portion of the total tax liability. If the IRS agrees that your proposed settlement is the highest and most realistic figure that they can collect from you, they will let you settle your debt with that amount. There are three types of offers in compromise.
a. Doubt as to collectability
When you owe taxes that you cannot pay, and you can prove it, the IRS will determine a figure that you can use to clear your tax debt. To determine your offer, they add your annual disposable income to the value of your assets.
b. Doubt as to liability offer
To qualify for this offer, you need to prove that you are not responsible for the tax debt. The burden of proof remains with the taxpayer.
c. Effective tax administration
This offer is reserved for those who can pay the tax liability in theory but forcing them to would be financially harmful. For example, senior citizens with equity in homes but do not have the financial capability to pay the tax debt. Health and medical bills consume money. Such a senior citizen can make an offer with the IRS hoping that the government will take pity and accept the offer.
Challenges associated with the offer in compromise
- Not everyone is qualified for the offer in compromise.
- Mathematical equations determine eligibility.
- It can take up to 24 months for the IRS to approve an application.
Owing taxes is not a crime. It happens to many Americans. Settling your tax debts is noble. That is why we are here. With decades of experience and qualified tax professionals, we wield the tools necessary for a swift tax resolution. If you owe taxes and can’t pay, call us for a tax consultation or visit our offices for face to face. Let us discuss your options. No taxpayer should pay what they do not have to pay. We can guide you to a tax resolution that will have you pay the least amount of money allowed by the law.
True Resolve Tax Professionals; your trusted tax resolution solution