New Jersey taxpayers may be able settle their federal tax debt with one of several tax settlement options offered by the Internal Revenue Service (IRS). The federal government has given the IRS the authority to collect federal tax debt and in some circumstances, settle back taxes by accepting a fraction of the total tax liability in hopes that taxpayers will be able to pay their future tax bills.
New Jersey taxpayers who need information about tax settlement plans offered by the Internal Revenue Service may want to consider contacting a tax professional such as enrolled tax agents, tax attorneys and tax accountants for help. Tax professionals also can help file back taxes, help taxpayers avoid bankruptcy, review a taxpayer’s financial information and help them eliminate tax liability.
Offer in Compromise in New Jersey
Offer in Compromise is one tax settlement option for New Jersey taxpayers to settle their IRS tax debt. Offer in Compromise allows the New Jersey taxpayer to make an “offer” to the Internal Revenue service for back tax settlement. The Internal Revenue Service has the authority to accept or deny the offer. Up to 80% of offers are declined at the initial stage of the OIC offer process. More may be accepted on appeal. Unfortunately, if the taxpayers offer is declined, the Internal Revenue Service will have detailed financial information about the taxpayer and can use this information to continue their collection efforts against the taxpayer for IRS tax debt.
New Jersey taxpayer’s Offer in Compromise offers will only be accepted if the OIC meets one of the following criteria:
- Doubt as to Liability- A New Jersey taxpayer may believe the amount of tax debt they have been billed is incorrect. If the IRS believes this is possible, they may accept the Offer in Compromise.
- Doubt as to Collectibility- New Jersey taxpayers may unexpectedly have a financial crisis and not be able to pay federal tax debt. If the Internal Revenue Service determines collection of the debt is impossible or if the cost to collect is excessive, the IRS may accept the OIC offer. Under this condition, the amount of tax debt is not in question.
- Effective Tax Administration- For some New Jersey taxpayers, collection of federal tax debt may cause “economic hardship which is unfair and inequitable”. An Offer in Compromise may be accepted in these cases. The handicapped and elderly most frequently use this OIC qualification.
New Jersey taxpayers will also have to meet the additional requirements listed below:
- All responsibilities and considerations outlined in the Offer in Compromise must be completed.
- For the next five years New Jersey taxpayers must pay their IRS tax debt on or before the IRS tax deadline
- All tax returns must be filed on or before the tax deadline.
- Internal Revenue Service will apply all federal tax refunds toward the outstanding tax debt.
Offer in Compromise may not be the best method for all New Jersey taxpayers to settle their IRS debt. Installment agreements are another tax settlement option which allows New Jersey taxpayers to pay their federal tax liability in monthly payments. There are several types of installment agreements available and the type used will vary based on the amount of debt owed.
New Jersey taxpayers who owe $10,000 or less (not including interest and penalties) may be able to use the guaranteed installment plan which must be paid in three years. If the debt is less than $25,000, New Jersey taxpayers can use a streamlined installment agreement. Payments for this plan are made with in five years. For debt greater than $25,000, New Jersey taxpayers should contact a tax professional prior to contacting the Internal Revenue Service.
To qualify for an installment agreement, New Jersey residents will have to complete the following:
- File and pay quarterly tax estimates for all self-employed New Jersey workers
- File all federal tax forms
- Pay all IRS tax debt for the five years before the amount outlined in the installment agreement
- Not have an installment agreement with in the last five years
Partial Payment Installment Agreement
New Jersey taxpayers who can not make payments under the installment plan may qualify for another IRS tax settlement option called Partial Payment Installment Agreement (PPIA). The PPIA plan will allow New Jersey taxpayers to settle back taxes paying partial payments. One benefit of the PPIA is the IRS will stop their collection actions if the taxpayer agrees to a PPIA. Interest and penalties will continue to accrue.
The Internal Revenue Service will review the Partial Payment Installment Agreement every two years and may decide to increase the PPIA payments or terminate the plan. It is always less expensive for New Jersey taxpayers to pay their tax liability in total instead of using a payment plan.
Currently Not Collectible
Under certain circumstances the Internal Revenue Service may conclude a New Jersey’s taxpayer’s federal tax debt is not collectible. If a debt is currently not collectible the IRS will cease all collection actions against the taxpayer which will release levies and stop wage garnishments, but the IRS tax debt will not go away and interest and penalties will continue to accrue.
New Jersey taxpayers who have failed to pay their taxes, failed to file a federal tax return, falsified tax information, or requested a false refund may be assessed penalties. The Internal Revenue Service may be willing, under certain conditions, to allow a penalty abatement. Not all penalties are dismissed and there has to be a valid reason to request the penalty abatement.
Do I Need Tax Professional?
Tax professionals can offer a wide variety of tax help including:
- Filing past tax returns
- Provide help avoiding bankruptcy
- Reviewing tax settlement options
- Lowering personal or business tax liability
New Jersey taxpayers who have had their wages garnished, bank accounts levied, possessions taken or harassing phone calls should contact a tax professional for help.