The Internal Revenue Service has been given the authority by the federal government to collect federal taxes and if necessary to negotiate tax settlements with taxpayers. The IRS will use a variety of debt collection tactics to force taxpayers to pay their tax debt including: bank account levies, wage garnishments and repossession of personal property.
Tax settlement options are available for Colorado taxpayers to settle tax debt for a fraction of what is owed. The federal government may be willing to negotiate a tax settlement offer if it is in their best interest and cost less than trying to recover the full amount of the tax liability.
There are a variety of tax settlement options including: Offer In Compromise, Installment Plan, Penalty Abatement, Partial Payment Installment Agreement or Currently Not Collectible, which you may want to consider to settle IRS Tax debt. Tax professionals such as enrolled agents, tax accountants and tax attorneys all can answer questions regarding tax settlement options.
Offer in Compromise
Offer in Compromise is an Internal Revenue Service (IRS) tax settlement option available for Colorado taxpayers to settle federal tax liability for a fraction of the full amount. By accepting the Offer in Compromise, the IRS is putting the taxpayer in a more favorable position to meet all future tax obligations.
Not all OIC offers will be accepted, in fact, the Internal Revenue Service currently accepts approximately 20% of the offer and only if the taxpayer meets certain criteria. For your Offer in Compromise to be considered, it must meet one of the following conditions:
- Doubt as to Liability – The amount of the Colorado taxpayer’s debt must be in question. This condition is not often met.
- Doubt as to Collectibility- The amount of the Colorado’s debt is not in question, but the Internal Revenue Service must believe it is unlikely they will collect the full amount of the tax debt.
- Effective Tax Administration- Under certain conditions the Internal Revenue Service will agree that collection of the tax debt would cause “economic hardship which is unfair and inequitable” for the taxpayer. This condition exists most frequently for the elderly and disabled.
Colorado taxpayers considering Offer in Compromise must complete the following tasks:
- Pay all federal taxes on or by the deadline for the next five years.
- Meet the requirements of the Offer in Compromise as outlined in the offer
- File all tax returns on or before the deadline
- Agree all future refunds will be used to pay federal tax liability
Installment Agreements for Colorado Taxpayers
One of the most common tax settlement options is the installment agreement. The Internal Revenue Service has developed this tax settlement plan to allow Colorado taxpayers to pay back taxes in monthly installments. The details of the plan will vary depending on the amount of taxes owed. Colorado taxpayers who owe less than $10,000 (not including taxes and penalties) may be able to apply for the guaranteed installment plan which will require the sum be paid in 3 years. Colorado taxpayers who owe $25,000 or less may apply for a streamlined installment plan which requires all payments be made in five years. Most tax professional recommend taxpayers considering an installment agreement for tax debt of $25,000 or more should consultant a tax attorney or tax accountant
An installment plan will not stop penalties and interest from accruing during the installment period. It will always be less expensive to repay tax liability in total if possible.
Partial Payment Installment Agreement
Another type of tax settlement option available for Colorado taxpayers is the Partial Payment Installment Agreement (PPIA). The Partial Payment Installment Agreement is similar to the installment plan and will allow the Colorado taxpayer to pay tax liability in monthly installments but will allow partial instead of full payment.
The Internal Revenue Service will request detailed financial information and will conduct a review every two years to determine if the Partial Payment Installment Agreement can be cancelled or if increased payments can be made. Partial Payment Installment Agreement may be simpler for some Colorado taxpayers than Offer in Compromise.
Currently Not Collectible
Given the current economic hardships of many individuals and families, it may be impossible for certain Colorado taxpayers to pay their Internal Revenue Service debt. In certain cases, the Internal Revenue Service will decide federal tax debt is not collectible. If your tax liability is labeled currently not collectible, the Internal Revenue Service will cease their aggressive collection efforts. One benefit of the currently not collectible status is it may give you and your family some breathing room to regain your financial footing. Unfortunately, the tax debt will not disappear and all penalties and interest will continue to accrue.
The Internal Revenue Service can impose penalties on Colorado taxpayers for a variety of reasons including: refusing to pay federal tax liability, filing fraudulent federal tax returns, requesting a fraudulent tax refund, providing inaccurate data on the federal tax form.
The Internal Revenue Service may be willing under certain conditions, to dismiss certain penalties through penalty abatement. Certain penalties may not be eligible for abatement. Colorado taxpayers should consult with a professional taxpayer for information about penalty abatement.
Should I use a Tax Settlement Option?
Colorado taxpayers have a wide variety of tax settlement options available which can help eliminate the fear and uncertainty of owing the federal government federal taxes. Applying for a tax settlement may help taxpayers avoid wage garnishments, bank account levies or bankruptcy. Contact a tax professional today for more information.