Delaware taxpayers who have outstanding federal tax debt have several IRS tax settlement options to settle their debt. The Internal Revenue Service (IRS) may be willing to negotiate a tax settlement for less than the total tax liability owed if the IRS believes the negotiation will allow Delaware taxpayers to fulfill their future tax obligations.
Delaware residents who are considering an IRS tax settlement option should contact a tax professional such as an enrolled agent, tax attorney or certified tax account to discuss their options. Tax professionals can also perform a variety of other tax services for Delaware taxpayers who are considering a IRS tax settlement option.
Offer in Compromise in Delaware
Offer in Compromise is one of the most popular IRS tax settlements offered by the Internal Revenue Service to collect federal tax debt. Offer in Compromise may allow Delaware taxpayers to make an offer which the Internal Revenue Service will accept or deny. If the offer is accepted, the amount paid will be considered a “compromise” amount to settle IRS tax debt. In many cases Offer in Compromise may allow the Delaware taxpayer to resolve their outstanding tax debt for a fraction of the full amount owed.
The IRS will not accept all Offer in Compromise offers, in fact, currently the acceptance rate is approximately 25%. More OIC offers will be accepted after all negotiations are complete. Offer in Compromise can be expensive and time consuming. The Internal Revenue Service may also use the information they gather for the Offer in Compromise to continue tax collection actions against the taxpayer if the OIC is denied.
Delaware taxpayers will have to meet one of the following conditions to qualify for an Offer in Compromise:
- Effective Tax Administration- Certain Delaware taxpayers may not be able to pay their tax debt because of a personal crisis, job loss or other financial hardship. If the Internal Revenue Service determines that a taxpayer can not pay their tax debt with out facing an economic hardship which is “unfair and inequitable”, the IRS may be willing to accept an Offer in Compromise.
- Doubt as to Collectibility- In certain cases, the Internal Revenue Service may determine that tax debt will be impossible to collect. The IRS is not questioning the amount of the tax debt owed, only the ability for them to collect the debt.
- Doubt as to Liability- Certain Delaware taxpayers who doubt the amount of tax liability they owe may be able to make a case for Offer in Compromise. This condition is seldom used.
Delaware taxpayers will also have to complete the following tasks to qualify for an OIC or have their debt settled:
- All requirements for the Offer in Compromise must be completed
- Delaware taxpayers must pay all of their IRS tax debt on or before the federal tax deadline for the next 5 years
- Delaware taxpayers must file and submit all IRS tax returns before the federal tax deadline
- Delaware taxpayers must agree that all tax refunds will be applied to their outstanding tax debt
Not all Delaware taxpayers will want to settle their tax debt with an Offer in Compromise. Another IRS tax settlement option is the installment agreement. The installment agreement allows a Delaware taxpayer to pay their IRS tax debt in monthly installments. Installment plans will vary depending on the amount of tax debt owed.
Delaware taxpayers who owe $10,000 or less (excluding penalties and interest) may be able to use a guaranteed installment plan which requires the IRS debt be paid with in 3 years. Delaware taxpayers owing less than $25,000 may be able to use a streamlined plan and repay tax debt with in 5 years. Delaware taxpayers with more than $25,000 in IRS tax debt should call a tax professional for help negotiating an installment plan with the Internal Revenue Service.
To qualify for an installment agreement, a Delaware taxpayer must complete the following tasks:
- Delaware residents who are self-employed must submit quarterly IRS tax returns and estimated tax payments
- Complete all federal tax returns by the federal tax deadline
- Pay all federal tax debt for the 5 years before the current IRS tax debt which can not be paid
- Delaware taxpayers can not have another installment agreement with the Internal Revenue Service for the last five years before the proposed installment agreement
Partial Payment Installment Agreement
Certain Delaware residents will not be able to use an installment agreement or an Offer in Compromise to settle their IRS tax debt. The Internal Revenue Service may allow these taxpayers to use a partial payment installment agreement or PPIA which will allow taxpayers to repay tax debt in partial payments. Unfortunately, under the PPIA plan, interest and penalties will continue to accrue. Partial payment installment agreements are reviewed every two years and the payment amount may be increased or the plan dissolved if the taxpayer’s financial situation has improved.
Currently Not Collectible
The Internal Revenue Service may determine certain taxpayer’s debt is currently not collectible. Taxpayers who meet this condition will still have the debt and penalties and interest will continue to accrue, but the IRS will stop their collection efforts and release levies against the taxpayer. Currently not collectible may give the taxpayer enough of a break to regain their financial footing.
Delaware taxpayers who fail to pay their taxes, falsify their tax returns or claim a false refund, may be assessed penalties by the Internal Revenue Service. Certain penalties may be dismissed for valid reasons by the Internal Revenue Service through the penalty abatement program. Not all penalties can be dismissed. It is important to contact a tax professional for help to negotiate penalty abatement with the Internal Revenue Service.
Do I Need Tax Professional?
Delaware taxpayers who owe federal taxes may be facing aggressive collection tactics by the IRS. The Internal Revenue Service should not be ignored. Tax professionals have the experience necessary to work with the IRS to negotiate the best possible settlement option available. Tax professionals can provide a wide variety of services including filing past tax returns, minimizing tax liability and avoiding bankruptcy.