Internal Revenue Service Tax Settlement Options
New York taxpayers who owe the Internal Revenue Service back taxes may be able to settle the tax liability for a fraction of the total amount. The Internal Revenue Service may be willing to negotiate a reduced payment for back taxes to ensure New York taxpayers will meet all of their future tax obligations.
New York taxpayers who are considering using a tax settlement option to settle IRS tax debt may want to contact a tax professional such as an enrolled tax agent, tax accountant, or tax attorney who can provide a wide variety of tax services for New York taxpayers.
Offer in Compromise
Offer in Compromise (OIC) is one type of tax settlement option offered by the Internal Revenue Service to settle or “compromise” past tax debt for less than the total amount of tax debt owed. The Internal Revenue Service does not legally have to accept any OIC offers, in fact, the IRS currently accepts 20-25% of the Offer in Compromise applications at the initial level. Offer in Compromise offers can be renegotiated and are frequently approved on appeal.
Offer in Compromise can be expensive and time consuming. New York taxpayers who make an Offer in Compromise will be required to provide detailed information to the Internal Revenue Service which can be used to continue aggressive collection efforts if the Offer in Compromise is denied. Tax professionals can help New York taxpayers who are considering Offer in Compromise at the application and appeal levels.
Qualifying for Offer in Compromise
New York taxpayers who are considering Offer in Compromise must meet one of the following requirements:
- Doubt as to Liability- New York taxpayers may qualify for an Offer in Compromise if there is doubt as to the amount of tax liability owed. This option is not common.
- Doubt as to Collectibility- The Internal Revenue Service may be willing to accept the Offer in Compromise if there is doubt as to the taxpayer’s ability to pay the IRS tax debt. This condition differs to the first condition because the amount of tax liability is not in question, only the ability to collect.
- Effective Tax Administration- New York taxpayers may qualify for an Offer in Compromise if the Internal Revenue Service has determined collection of the IRS tax debt would cause “economic hardship which is unfair and inequitable.” The Internal Revenue Service uses this condition most frequently for the elderly and the handicapped.
The Offer in Compromise will not be granted unless the following conditions are also met:
- New York taxpayers must pay all of their future taxes on time for five years
- All the requirements outlined in the Offer in Compromise must be met
- Tax returns must be completed before the tax extension deadline
- The Internal Revenue Service will use all future refunds to pay down outstanding tax debt
New York taxpayers also may have the option to repay IRS tax debt using an installment agreement. Installment agreements allow the taxpayer to pay federal tax debt in monthly installments instead of in a lump sum payment. The Internal Revenue Service offers a variety of installment plans and the methods and types will vary depending on the amount of the debt.
For New York taxpayers who owe $10,000 or less, excluding interest and penalties, they may be able to use the guaranteed installment plan and pay the debt with in three years. Taxpayers who owe $25,000 or less may use the streamlined installment plan and pay the tax debt with in five years.
New York taxpayers who owe more than $25,000 should consult with a tax professional to for help to negotiate with the Internal Revenue Service. Interest and penalties will continue to accrue under the installment agreement. It is always less expensive to pay federal tax debt in one lump sum if possible.
New York taxpayers who are considering an installment plan must meet the following requirements:
- Self-employed workers must make quarterly tax payments and estimates.
- Tax returns for all past tax liability must be paid
- Tax returns for past tax debt must be filed and paid for the five years prior to the liability which can not be paid
- Taxpayers can not have made another installment plan agreement with the Internal Revenue Service with in the last 5 years.
Partial Payment Installment Agreement
New York taxpayers who do not want to use an Offer in Compromise or an installment agreement, may be able to settle IRS tax debt through a partial payment installment agreement or PPIA. If the Internal Revenue Service accepts your PPIA, they will stop all collection efforts against you, but interest and penalties will continue to accrue. The Internal Revenue Service will review the PPIA every two years and to determine if more money can be paid or the PPIA plan should be terminated.
Currently Not Collectible
New York taxpayers who have suffered a devastating financial crisis or who do not have the ability to pay their tax liability may ask the Internal Revenue Service to determine their IRS tax debt as currently not collectible. The Internal Revenue Service will stop all enforcement actions against the taxpayer and release bank levies if they make this determination, but the tax debt will not go away and the interest and penalties will continue to accrue on the outstanding tax debt.
New York taxpayers who have failed to report their tax debt, falsified tax refund information, or filed incorrect tax debt may be assessed penalties by the Internal Revenue Service. Not all penalties will be dismissed and the Internal Revenue Service will require a valid reason to dismiss penalties, but under certain conditions, the IRS may agree to penalty abatement. New York taxpayers who are considering penalty abatement may want to contact a tax professional for help.
Do I Need New York Tax Professional?
Federal Tax debt does not go away and the Internal Revenue Service can be aggressive. New York taxpayers who need help resolving federal debt or who need help completing tax forms, avoiding bankruptcy, reducing business or personal tax liability or who are trying to stop wage garnishments may want to consult a tax professional for help.