Maryland taxpayers who owe federal tax debt may have the ability to settle their debt with an IRS tax settlement option. The IRS may be willing to accept less than the full amount of tax debt owed if they believe accepting a settlement offer will increase the chance that taxpayers will pay all their future tax liability and the IRS can avoid accepting a protracted installment agreement or declaring tax debt as currently not collectible.
The IRS has sole authority to collect federal taxes. If Maryland taxpayers do not pay their taxes they can become the target of aggressive collection actions by the IRS. Maryland taxpayers who need more information about IRS tax settlement options can contact a tax professional.
Offer in Compromise
Offer in Compromise is one of the most popular IRS tax settlement options. Offer in Compromise or OIC allows Maryland taxpayers to offer the IRS a settlement amount and if the IRS accepts the offer it will be considered a compromise tax payment and all other tax debt will be settled. The IRS will not accept all OIC offers and Maryland taxpayers will not have legal recourse against the IRS for OIC denials.
The IRS currently denies approximately 80% of first time OIC offers. More OIC offers are accepted after negotiations and appeals. After the Offer in Compromise is accepted, all IRS collection efforts and accumulation of penalties and interest will cease.
Offer in Compromise can be time consuming, expensive, and difficult to implement. The IRS will request detailed financial information from Maryland taxpayers and the requested information can be used to continue collection efforts if the Offer in Compromise is denied. Offer in Compromise is one of several IRS tax settlement options available to Maryland taxpayers to pay tax debt and it may not be the best one.
Qualifying for Offer in Compromise
Maryland taxpayers will have to meet one of the following criteria to qualify for an Offer in Compromise:
- Doubt as to Liability- Maryland taxpayers who can prove the amount of IRS tax debt assessed against them may be incorrect may qualify for an Offer in Compromise. This condition does not frequently occur.
- Doubt as to Collectibility- Under this condition the amount of tax debt is not in question only the ability of the Internal Revenue Service to collect the debt. An OIC also may be accepted if the IRS has concluded that it is too expensive to collect tax debt.
- Effective Tax Administration- Maryland taxpayers who are unable to pay IRS tax debt because paying the debt would cause a “hardship which is inequitable or unfair” may receive an Offer in Compromise. The handicapped and elderly most frequently qualify under this condition.
Maryland taxpayers must also complete the following tasks for an Offer in Compromise:
- Maryland taxpayers must pay all federal tax debt before the federal deadline for the next five years.
- Maryland taxpayers must complete the Offer in Compromise requirements.
- Maryland taxpayers must be complete and submit their tax returns to the IRS by the federal tax deadline.
Another IRS tax settlement option available for Maryland taxpayers is an installment agreement. The installment agreement allows Maryland taxpayers to pay all of their federal tax debt in monthly installment payments over a specified period of time. Maryland taxpayers who owe $25,000 or less can usually qualify for an installment agreement if they can repay their debt within 60 months.
Maryland taxpayers who owe more than $25,000 may want to contact a tax professional to help them develop an installment agreement. Penalties and interest will continue to accumulate during the installment period, but the IRS will stop their collection efforts. It will always be less expensive to pay all tax debt with one lump sum payment. The Internal Revenue Service can terminate an installment agreement if the Maryland taxpayer does any of the following:
- Fails to pay their monthly installment agreement payments. First time violators may be granted a 30-60 day grace period.
- Fails to submit their tax returns each year.
- If the Maryland taxpayer’s financial situation improves drastically
- Provides incorrect financial information to the IRS for the installment agreement.
- If self-employed taxpayers fail to submit tax returns each quarter or make their quarterly tax payments.
- Fails to make all of their tax payments for the 5 years before the IRS tax debt which can not be paid.
- If the taxpayer has had another installment agreement within the last 5 years.
Partial Payment Installment Agreement
A partial payment installment agreement (PPIA) may be another option for Maryland taxpayers who owe IRS tax debt. The PPIA can be simpler and less expensive than an Offer in Compromise. The PPIA differs from an installment agreement because the Maryland taxpayer will only have to make partial monthly installment payments. All tax debt which is not paid will be considered forgiven by the IRS.
The PPIA will not stop penalties and interest from accruing, but it will stop the IRS from continuing debt collection actions against the Maryland taxpayer. The IRS will review the financial status of the Maryland taxpayer every 2 years. If the taxpayer’s financial condition dramatically improves, the IRS can either modify or terminate the PPIA plan.
Currently Not Collectible
If Maryland taxpayers are unable to pay their tax debt the IRS can declare tax debt as currently not collectible. The IRS will stop all collection efforts, but penalties and interest will continue to accumulate.
Each year the Internal Revenue Service will send written notification to the Maryland taxpayer outlining the amount of tax debt under the currently not collectible tax status. The IRS has ten years to collect the tax debt. After ten years if the taxes have not been collected, the statute of limitations will expire and the debt will be forgiven.
The IRS will assess penalties against Maryland taxpayers for a variety of tax reporting infractions. Penalties may be assessed if the taxpayer fails to submit a tax return, reports incorrect financial information or requests a false refund. In certain cases, if the taxpayer has a valid reason the IRS may be willing to lower or abate the taxpayer’s penalties. Valid reasons for abatement may include: personal duress, natural disasters, poor health or inaccurate professional advice.