Internal Revenue Service Tax Settlement Options
The Internal Revenue Service is part of the Department of Treasury and they are given authority by the federal government to collect taxes. The IRS has several ways to accomplish this task including:
- Freezing the money in a Florida taxpayer’s accounts
- Repossessing business and personal assets
- Garnishing wages
Florida taxpayer’s who owe IRS taxes and who are facing IRS debt collectors may be able to stop the IRS from their aggressive tactics by settling their tax debt with one of the IRS tax settlement options. The IRS may be willing to negotiate a tax settlement to help Florida taxpayers pay their IRS debt and help reposition them financially to meet their future tax obligations.
Florida taxpayers who need information about IRS tax settlement options can contact a tax professional such as an enrolled agent, certified tax accountant or tax attorney. Tax professionals can provide information about IRS tax settlement options which are available for Florida taxpayers.
Offer in Compromise
Offer in Compromise is one of the most popular methods used by taxpayers to settle IRS tax debt. Florida residents who apply for an Offer in Compromise (OIC) can make an “offer” which is accepted or denied by the IRS. If the IRS accepts the OIC offer, this offer is considered a compromise and will settle the Florida taxpayer’s debt. Many times the OIC will allow a taxpayer to pay less than the full amount owed.
Not all Offer in Compromise offers are accepted, in fact, the IRS currently rejects up to 80% of all first time offers. The IRS may be willing to work with the Florida taxpayer to continue OIC negotiations to come to an acceptable offer for the government and the taxpayer.
Offer in Compromise may no be the best option for all Florida taxpayers. OIC can be time consuming and expensive. Detailed financial data is also given to the IRS which may be used if the OIC is rejected to continue aggressive debt collection. All Florida taxpayers who are considering an OIC should consult a tax professional.
Qualifying for Offer in Compromise
Not all Florida Residents will qualify for an Offer in Compromise. To qualify for an OIC Florida residents will need to meet one of the following conditions:
- Doubt as to Liability- Florida taxpayers who have been assessed the incorrect amount of tax liability may be eligible for Offer in Compromise. This condition is not frequently met.
- Doubt as to Collectibility- Under certain circumstances the IRS may doubt their ability to collect a tax debt or the cost to collect may also be too high. If this condition is met, the IRS may be willing to accept an Offer in Compromise. The amount of tax debt is not in question, only the ability of the IRS to collect the tax debt.
- Effective Tax Administration- Florida residents who are unable to pay their tax debt because payment of the debt may cause “economic hardship which is unfair and inequitable,” may qualify for an Offer in Compromise. The IRS will use this condition mainly for the handicapped and the elderly.
The Offer in Compromise will not be granted unless the following conditions are also met:
- Florida taxpayers must pay all of their future tax obligations on time for the next 5 years
- The Offer in Compromise requirements must be met
- Florida taxpayers must submit their tax returns before the federal tax deadline
The most popular method used to pay IRS tax debt is the installment agreement or IA. Installment agreements allow a Florida taxpayer to pay the full amount of tax debt in small manageable monthly payments. For Florida taxpayers who owe $25,000 or less, the IRS generally will grant an installment agreement which allows repayment of tax debt over 60 months. Florida taxpayers who owe more than $25,000 should contact a tax professional who can help them negotiate an installment plan with the IRS. Taxpayers can save money by paying the full amount of IRS tax debt as soon as possible to minimize the amount of interest and penalties.
The IRS can revoke an installment agreement for:
- Failure to file federal tax returns or failure to pay tax obligations after the IA was accepted
- Failure to make tax payments- An installment agreement will be revoked if a Florida taxpayer does not make the full payment on time. The IRS may give the taxpayer 30-60 days before the IA is revoked for the first violation.
- A Florida taxpayer’s financial condition drastically changes. The IRS may review your financial situation every two years.
- A Florida taxpayer gave the IRS incorrect or false information in the course of the installment agreement negotiation process.
Florida taxpayers who are considering an installment plan must meet the following requirements:
- Florida workers who are self-employed must make quarterly IRS tax payments and estimates.
- Florida taxpayers must complete all past tax returns for all past tax liability. This tax liability (not covered under the installment agreement) must also be paid
- Tax debt must be paid for the 5 years before the tax liability which can not be paid
- Florida taxpayers can not have made another installment plan agreement with the IRS with in the last five years.
Partial Payment Installment Agreement
Florida taxpayers who do not want to file an Offer Compromise or who can not afford to make monthly payments for the full amount of tax debt may qualify for a partial payment installment agreement (PPIA). Under the PPIA the Florida taxpayer makes monthly tax payments but the payments do not pay off the full IRS tax debt. If the IRS accepts the partial payment installment agreement, the debt which is not paid is forgiven.
PPIA can be less time consuming and expensive than Offer in Compromise and it will stop all IRS debt collection against the taxpayer. Unfortunately, interest and penalties will continue to accrue. It is always less expensive to pay tax debt in one lump sum. Partial payment installment agreements are reviewed every 2 years and if the Florida taxpayer’s financial situation has improved, the IRS may terminate or modify the terms of the PPIA.
Currently Not Collectible
If the IRS determines a Florida taxpayer’s tax debt is not collectible it means they have decided the taxpayer does not have the ability to pay their taxes. If the IRS makes this determination they will stop all collection activities including wage garnishments and tax levies. The Internal Revenue Service will also send the Florida taxpayer written notification each year about the amount of tax owed. This statement is not considered a bill. If the tax debt is in the currently not collectible status for 10 years and the IRS can not collect the tax debt, the statute of limitations will expire and the tax debt will be forgiven.
Penalties may be assessed against a Florida taxpayer for failure to file their IRS tax return, falsifying tax information, or requesting an unsubstantiated tax refund. Penalty abatement is the forgiveness of IRS assessed penalties which have been added to a Florida taxpayer’s outstanding tax debt. Under certain circumstances, the IRS will agree to remove these penalties if the taxpayer can prove they have a willingness to pay their debt and they have a good reason for requesting penalty abatement. Good reasons could include a serious physical health condition, a hardship which did not allow the taxpayer to file their taxes, personal duress, disaster, or bad advice from a tax professional.