Oregon taxpayers who owe IRS back taxes may be able to settle their tax debt using an IRS tax settlement option. The Internal Revenue Service (IRS) has created tax settlement options to help taxpayers pay their back taxes and meet all future tax liability. In certain cases, Oregon taxpayers may be able to pay only a fraction of their total tax bill.
Oregon taxpayers who need information about settling their tax liability should contact a tax professional such as an enrolled tax agent, certified public accountant or tax attorney who can outline which plan may be best. Repayment options can vary significantly and the recommended plan may not be the same for every Oregon taxpayer.
Offer in Compromise in Oregon
One of the most popular types of IRS tax settlement options is Offer in Compromise (OIC). Offer in Compromise allows the Oregon taxpayer to make an “offer” to the Internal Revenue Service to settle IRS tax debt. The IRS has the sole authority to accept or decline the offer. Oregon taxpayers do not have the legal authority to sue the IRS. The Internal Revenue Service will frequently negotiate or review their position through the Offer in Compromise appeals process. Most OIC offers are declined. The current acceptance rate is approximately 25% at the initial application level, but more are accepted on appeal.
Offer in Compromise can be costly and time consuming. If the Oregon taxpayer does not receive an OIC approval, the Internal Revenue Service will have detailed information to continue their collection efforts. It is important to contact a tax professional prior to making an Offer in Compromise.
Not all Offer in Compromise offers will be accepted. For an Oregon taxpayer to receive an Offer in Compromise the IRS must conclude one of the following:
- Doubt as to Liability- Oregon taxpayers who believe their tax debt is not correct may qualify for an Offer in Compromise. This qualification is seldom met.
- Doubt as to Collectibility – The Internal Revenue Service, in some circumstances, may conclude that they will not be able be able to collect tax debt or the collection of the debt will be too costly. Under this condition, the amount of tax debt assessed is not in question, only the ability of the IRS to collect the debt.
- Effective Tax Administration- Certain Oregon taxpayers who have experienced a devastating financial crisis may not be able to pay their federal tax debt. If the Internal Revenue Service agrees that collection of the debt will cause “an economic hardship which is unfair and inequitable” they may accept an Offer in Compromise. This condition is most frequently used for the handicapped and the elderly.
Oregon taxpayers who are considering Offer in Compromise must also meet the following conditions:
- Offer in Compromise obligations must be met and payments made
- Oregon taxpayers must pay all of their IRS tax debt for the next five years on or before the Federal tax deadline
- All federal tax returns must be submitted on or before the federal tax deadline
- All federal refunds will be applied to the Oregon taxpayers outstanding tax debt
Not all Oregon taxpayers will want to use an Offer in Compromise for settling back taxes. Installment agreements can also be used to settle tax debt by repaying federal tax liability in monthly installments. The type of installment agreement used will depend on the amount of debt the Oregon taxpayer owes.
For debt of $10,000 or less (not including interest and penalties), an Oregon taxpayer can use the guaranteed installment plan which must be paid with in three years. For debt under $25,000, Oregon taxpayers can use a streamlined installment agreement and repay their debt with in five years. If a taxpayer owes more than $25,000 it is important to call a tax professional to review the best options for settling the tax debt.
Not everyone will qualify for an installment agreement. To qualify, Oregon taxpayers must complete the following:
- All self-employed Oregon workers must file and pay quarterly tax estimates
- Oregon workers must file all of their federal tax forms
- All federal tax debt must be paid for the 5 years prior to the amount defined in the installment agreement (which can not be paid)
- Oregon taxpayers can not have had an installment agreement with in the last 5 years
Partial Payment Installment Agreement
Certain Oregon taxpayers will not be able to settle their tax debt with an installment agreement or Offer in Compromise. The IRS also allows the repayment of tax debt with a Partial Payment Installment Agreement (PPIA). The PPIA will allow the Oregon tax payer to make partial payments for tax debt. Penalties and interest will continue to accrue during the payment period. It is always less expensive to pay tax debt in one lump sum. One benefit of the PPIA is the IRS will cease collection efforts.
The Partial Payment Installment Agreement will be reviewed by the Internal Revenue Service every two years and if the taxpayer’s financial situation has improved the Internal Revenue Service may amend the plan to increase the payments or cancel the plan entirely.
Currently Not Collectible
If an Oregon taxpayer’s situation becomes so dire that they are unable to pay IRS tax debt and the IRS concludes collection of the debt is impossible, the IRS may declare the debt currently not collectible. Currently not collectible status will halt all collection actions against the tax payer including wage garnishments and bank account levies. Interest and penalties will continue to collect and the tax debt will not be eliminated.
The Internal Revenue Service will assess an Oregon taxpayer’s penalties for a variety of reasons including: failure to file a tax return, falsifying financial data on a tax return, or requesting a false refund. If you have been assessed penalties the Internal Revenue Service may be willing to reduce or eliminate those penalties. There must be a good reason to abate the penalties and Internal Revenue service may not eliminate all penalties.
Do I Need Tax Professional?
Oregon taxpayers who have back taxes or who need help filing past tax returns, avoiding bankruptcy, reviewing IRS tax settlement options or reducing tax liability might benefit from the experience and knowledge of a tax professional.