Massachusetts taxpayers may be able to qualify for an IRS tax settlement offer and repay their IRS tax debt for a fraction of the full amount owed. The Internal Revenue Service (IRS) has the authority to collect federal taxes and may be willing to accept less than the total tax if doing so will allow taxpayers to meet all of their future tax obligations.
Failure to pay federal tax debt can result in wage garnishments, bank account levies or property repossessions. Any Massachusetts taxpayer who has become the target of aggressive IRS collection actions may want to contact a tax professional and discuss their IRS tax settlement options.
Offer in Compromise
Massachusetts taxpayers frequently use Offer in Compromise or OIC to settle IRS tax debt. OIC allows Massachusetts taxpayers to present an offer amount to the Internal Revenue Service. If the IRS decides to accept the Offer in Compromise, all the tax debt outlined in the offer will be settled (after all the OIC requirements have been met). Most of the OIC offers will not be accepted and taxpayers will not have legal recourse against the IRS.
Penalties and interest will continue to accrue while the Offer in Compromise is under consideration. If the OIC is accepted penalties and interest will stop accruing and all collection actions will cease. Offer in Compromise can be time consuming and difficult to implement. The IRS will request large amounts of detailed information which they can use against the Massachusetts taxpayer to continue their collection actions if the OIC is denied. Offer in Compromise is one of several IRS tax settlement options available and it is not always the best option.
Qualifying for Offer in Compromise
One of the following requirements must be met for a Massachusetts taxpayer to qualify for OIC:
- Doubt as to Liability- If there is some question about the validity or accuracy of the IRS tax which has been assessed against the Massachusetts taxpayer the IRS may be willing to accept an OIC. Errors may occur if the IRS administrator made a miscalculation or if the taxpayer has additional tax information which has not been considered. This condition does not frequently occur.
- Doubt as to Collectibility- The amount of IRS tax debt is not in question only the ability of the IRS to collect the IRS debt. An Offer in Compromise also may be accepted if the Internal Revenue Service has decided it is too expensive to collect the federal tax debt.
- Effective Tax Administration- Massachusetts taxpayers who can not pay IRS taxes because paying the debt would cause a “hardship which is inequitable or unfair” may receive an OIC. The handicapped and elderly most frequently qualify under this condition.
The following OIC requirements must also be met:
- All IRS tax debt must be paid before the federal deadline for the next five years.
- All of the OIC payments must be made.
- All federal tax forms and additional documentation must be submitted to the IRS by the federal tax deadline.
Installment agreements are the most popular method used to pay outstanding tax debt. The installment agreement will allow Massachusetts taxpayers to pay their tax debt in monthly installments. These installments will be for a specified period of time and the amount of time required to pay the debt can vary based on the amount of money owed. Taxpayers who owe $25,000 or less are generally able to qualify for an installment agreement. Taxpayers who owe more than $25,000 may want to talk to a tax professional. Tax professionals will be able to answer all of the taxpayer’s questions.
The IRS will cease all collection actions against the Massachusetts taxpayer during the installment agreement, but penalties and interest will continue to accrue. Massachusetts taxpayers who are able to make one lump sum payment should do so. It is always more expensive to use an installment agreement to pay IRS tax debt. Installment agreements can be terminated by the Internal Revenue Service if the Massachusetts taxpayer does any of the following:
- Does not make full installment payments or pays less than the agreed upon amount. The IRS may grant first time violators a 30-60 day grace period.
- Does not file a federal tax return each year.
- The Massachusetts taxpayer’s financial situation dramatically improves.
- Does not provide accurate financial information to the Internal Revenue Service for the installment agreement.
- If self-employed, does not submit tax returns each quarter or pay quarterly tax payments.
- Does not make all of their federal tax payments for the five years before the tax debt which can not be paid.
- The Massachusetts taxpayer can not have had another installment agreement within the last five years.
Partial Payment Installment Agreement
Massachusetts taxpayers who can not make full payments with an installment agreement or who do not qualify for an Offer in Compromise may qualify for a partial payment installment agreement or PPIA. The PPIA can be simple and cost less than an Offer in Compromise. The PPIA is similar to the installment agreement because the taxpayer will make monthly installment payments, but unlike the installment agreement, the PPIA will allow the taxpayer to make partial payments. Taxes not paid under the PPIA will be forgiven by the IRS.
Penalties and interest will continue to accumulate during the PPIA, but the IRS will cease all collection actions against the Massachusetts taxpayer. Every 2 years the IRS will review the financial status of the taxpayer and if it has improved, the PPIA can be modified or cancelled.
Currently Not Collectible
The IRS may determine certain debt is not currently collectible. If they make this determination the IRS will stop their collection efforts. Penalties and interest will continue to accrue. Every year the IRS will send a letter to the Massachusetts taxpayer identifying the total amount of debt assessed as currently not collectible. This written notice is not considered a bill. If the IRS fails to collect the tax debt within 10 years, the statute of limitations will expire and the tax will be forgiven.
Penalties may be assessed against Massachusetts taxpayers who do not file a federal tax return, fail to pay all of their federal taxes, provide incorrect financial information to the IRS or request a false refund. If the Massachusetts taxpayer has a valid reason for their mistake or failure to file a return, the IRS may be willing to lower or abate the penalties. Valid reasons to request abatement could include: personal duress, poor mental or physical health, or poor tax professional advice.