Tennessee taxpayers who have unpaid federal tax debt may have several options to pay their back taxes and settle their debt for a fraction of the total amount. The United States government has given the Internal Revenue Service the responsibility to collect federal taxes which are used to fund the government. The Internal Revenue Service (IRS) in an attempt to help taxpayers pay IRS tax debt and meet all future tax obligations has developed several type of IRS tax settlement options.
Tennessee taxpayers who are interested in finding information about these tax settlement options should contact a tax professional who can help answer questions. Tax professionals can also help file tax forms, analyze ways to reduce a taxpayer’s liability and help Tennessee taxpayers avoid bankruptcy. Internal Revenue Service tax settlement options vary and a tax professional such as an enrolled agent, certified public accountant or tax attorney can help Tennessee taxpayers determine which one is right for them.
Offer in Compromise in Tennessee
Offer in Compromise (OIC) is one of the popular types of tax settlement options offered by the Internal Revenue Service. Tennessee taxpayers can make an “offer” to the IRS and if the Internal Revenue Service accepts the offer it is considered a compromise and the back tax debt will be settled. The IRS has the authority to accept or deny all OIC offers. Currently the rate of acceptance is approximate 25% at the initial level, but more may be accepted after the OIC appeals process.
Tennessee taxpayers will not have the authority to take legal action against the Internal Revenue Service for refusing to consider an OIC offer and if the Internal Revenue Service denies the Offer in Compromise offer they will have detailed financial information to continue continuing all IRS back tax debt.
Tennessee taxpayers who are considering an Offer in Compromise must meet one of the following criteria:
- Doubt as to Liability- Tennessee taxpayers who doubt the amount of IRS tax debt they have been assessed may be offered an Offer in Compromise. The IRS will only grant the OIC request if there is validity to the claim. This condition is not often met.
- Doubt as to Collectibility- Under certain conditions the Internal Revenue Service will consider certain IRS tax debt as not collectable or determine the cost to collect the IRS debt is excessive. This differs from the first condition because the amount of IRS tax debt is not in question, only the ability of the Internal Revenue Service to collect the federal tax debt.
- Effective Tax Administration- Tennessee taxpayers who can prove that payment of federal tax debt may cause “an economic hardship which is unfair and inequitable” may be eligible for an Offer in Compromise. This condition is most frequently used for the elderly and handicapped.
In addition to meeting one of the criteria listed above, Tennessee taxpayers will also need to complete the following tasks:
- Complete all the requirements and payments outlined in the Offer in Compromise
- Pay all IRS tax debt for the next five years before or on the federal tax deadline
- File all federal tax returns before or on the federal tax deadline
- The IRS will use all federal tax refunds to pay the taxpayer’s outstanding tax debt.
Tennessee taxpayers who do not want to use an Offer in Compromise to settle IRS tax debt may be able to use an installment agreement. Installment agreements will allow a Tennessee taxpayer to pay their debt in monthly installments. The type of installment plan may vary based on the amount of tax debt owed. For Tennessee taxpayers who owe $10,000 in back taxes (excluding penalties and interest) may be able to use a guaranteed installment plan. Under this plan, the outstanding debt must be paid in 3 years. Taxpayers who owe less than $25,000 in tax debt may be able to use a streamlined installment agreement and repay their tax debt in five years. For all Tennessee taxpayers with debt exceeding $25,000 or more, it is a good idea to contact a tax professional who can help negotiate the terms of an installment agreement.
Tennessee residents will also have to complete the following tasks to qualify for an installment agreement:
- All self-employed individuals must file estimated tax statements and make quarterly tax payments
- Tennessee taxpayers must complete all federal tax forms
- All tax debt must be paid for the five years prior to the amount defined in the installment agreement
- Tennessee taxpayers can not have had another installment agreement in the previous five years
Partial Payment Installment Agreement
Tennessee taxpayers who are unable to use an Offer in Compromise or an installment agreement may be able to qualify for a partial payment installment agreement (PPIA). The PPIA was created by the Internal Revenue Service to allow taxpayers to pay their IRS tax debt in partial monthly payments. The partial payment installment agreement will stop all IRS collection actions, but will not stop penalties and interest from accruing.
Tennessee taxpayers who are using a PPIA to repay IRS tax debt will be monitored and reviewed every two years. After the review the Internal Revenue Service may conclude the terms of the PPIA need to be modified and the taxpayer can pay more money or the PPIA can be terminated. It is always less expensive to pay all tax debt as soon as possible in one lump sum payment.
Currently Not Collectible
Given the current economic climate, many Tennessee taxpayers may be unable to pay IRS tax debt with any of the available tax settlement options. If the IRS determines a taxpayer can not pay their tax obligations, they will consider the debt “currently not collectible”. Under this condition, all tax collection efforts by the IRS will cease and the IRS will release levies and stop wage garnishments. Tax debt will not disappear and penalties and interest will continue to accrue.
Tennessee taxpayers may be assessed penalties for a variety of tax infractions including: not paying federal taxes by the tax deadline, not filing a tax return, falsifying tax documents or claiming a false refund. The IRS may be willing however, under certain conditions, to waive or abate these penalties. There will be certain penalties which will not be dismissed.