The Internal Revenue Service has developed a series of programs which may help California taxpayers negotiate a reduced payment to settle outstanding IRS tax debt. The goal of the Internal Revenue Service and tax settlement plans is to help California taxpayers meet their tax obligations so they can pay all future tax liability.
Before applying for a tax settlement plan, it is important to contact a tax professional. Tax professionals can help file all past tax returns and outline which tax settlement plan may be best for you. Do not let the IRS harass you with threats of wage garnishments, tax levies or repossession of your personal property.
Offer in Compromise in California
Offer in Compromise is tax settlement option allowed by the IRS to settle tax debt by drastically lowering the taxpayer’s tax bill. The Internal Revenue Service will not accept all OIC offers the first time the offer is made, but the Offer in Compromise offer may be accepted on appeal.
Offer in Compromise is time consuming and the IRS will request detailed financial information about the taxpayer which the IRS can then use to their advantage if the OIC is denied.
To qualify for an Offer in Compromise you must meet one of the following conditions:
- Effective Tax Administration- Some California residents will have extenuating circumstances which will make it impossible to pay their federal tax obligations with out causing “economic hardship which is unfair and inequitable”. This option is used most frequently for the elderly and the handicapped.
- Doubt as to Collectibility – California taxpayers may be eligible for OIC if they convince the IRS that the tax debt is not collectible or if continuing the collection for the full amount of tax liability will end cost the federal government more than accepting the Offer in Compromise. Under this condition the amount of tax owed is not in question.
- Doubt as to Liability- The IRS may grant an Offer in Compromise if the amount of tax debt owed is in question. This condition is not frequently met.
If the taxpayer meets one of the conditions listed above they will also need to complete the following tasks to qualify for Offer in Compromise:
- The OIC offer must be fulfilled as outlined in the accepted offer.
- All federal taxes must be paid by the deadline for the next 5 years.
- Tax returns must be completed on or by the tax extension deadline.
- Refunds will be applied toward the taxpayer’s outstanding IRS tax debt.
California taxpayers frequently use installment plans to repay their federal tax debt. Installment plans allow the taxpayer to pay their federal tax debt with a monthly payment plan. The type of plan and the method of repayment will vary based on the amount of money owed. If the taxpayer owes $10,000 or less, not including penalties and taxes, they may be able to qualify for a guaranteed installment plan. The guaranteed installment plan will require that the entire sum be repaid in three years.
For tax debt of less than $25,000 a streamlined installment agreement can be used and payment will have to be made with in five years. A tax professional should be consulted for all tax debt greater than $25,000.
If you are considering an installment agreement you must:
- Complete quarterly tax estimates if you are self-employed
- File all past federal tax returns
- Pay all prior tax debt for the five years before the current federal tax liability which can not be paid
- Have no other installment plan agreements with in the last five years
Partial Payment Installment Agreement
The Internal Revenue Service has developed the Partial Payment Installment Agreement for individuals who can only pay partial payments for tax liability. The Partial Payment Installment Agreement or PPIA may be one way to stop the Internal Revenue Service collection actions. Under the PPIA, the Internal Revenue Service will perform a review every two years to determine if the taxpayer can pay higher payments or if the PPIA can be terminated.
Currently Not Collectible
Currently not collectible is a tax settlement option for California taxpayers who can not afford a Partial Payment Installment Agreement or an Installment Agreement. The IRS will only declare a taxpayer’s debt currently not collectible if certain criteria are met. The Internal Revenue Service will stop all collection efforts and release levies but the tax debt will not be dissolved and the penalties and interest will continue to accrue.
Penalties will be assessed for a variety of reasons including failing to pay the tax liability by the due date, not reporting tax debt accurately, not filing a tax return or falsely requesting a refund. Penalties can also be charged to taxpayers who either knowingly or accidently falsify financial information on their federal tax returns.
California taxpayers may request their penalties be lowered or eliminated through penalty abatement. The IRS will require a valid reason to dismiss penalties. Certain penalties may not be dismissed.
Do I Need Tax Professional?
Tax professionals can offer advice for a wide array of tax settlement options. Tax professionals can also help with filing tax forms, minimizing tax liability, and evaluating options for avoiding personal bankruptcy. Do not let the Internal Revenue Service harass you through their aggressive collection tactics. A tax professional can help taxpayers avoid wage garnishment, tax levies and repossessions by evaluating which tax settlement option should be used to settle tax debt.