North Dakota residents may have several IRS tax settlement options available to settle their federal tax debt. Some of these options may allow taxpayer to pay significantly less than the full amount owed. The IRS has a strong incentive to accept an IRS tax settlement if doing so will allow the North Dakota taxpayer to meet all of their future tax obligations.
The United States government has given the IRS the ability to collect federal taxes and if necessary, to use very aggressive tax collection actions such as wage garnishments, property repossession or bank account levies. All North Dakota residents who owe IRS taxes or who have become the target of the IRS tax collectors may want to contact a tax professional for help.
Offer in Compromise
Offer in Compromise or OIC is an IRS tax settlement option available to North Dakota taxpayers. North Dakota taxpayers can use Offer in Compromise to make a settlement offer to the IRS. If the IRS accepts the OIC offer it will be considered a compromise tax payment and will settle the tax debt outlined in the OIC agreement. Most OIC offers will not be accepted by the IRS. Currently the IRS accepts approximately 20% of the initial OIC offers it receives, and taxpayers will not be able to pursue legal action against the IRS for OIC denials.
If the Offer in Compromise is accepted, all collection actions will cease against the North Dakota taxpayer and penalties and interest will stop accumulating on the outstanding tax debt (penalties and interest will continue to collect until the OIC is accepted).
Offer in Compromise can be time consuming, difficult to implement and expensive. Detailed information will have to be sent to the IRS for the OIC application and if the OIC offer is not accepted, this information could be used to continue debt collection. OIC is a popular IRS tax settlement option, but it may not be the best option for all North Dakota taxpayers.
Qualifying for Offer in Compromise
The Internal Revenue Service will only accept an Offer in Compromise from a North Dakota taxpayer if one of the following conditions is met:
- Doubt as to Liability- An OIC may be granted if the IRS believes there may be an error in the amount of tax debt assessed against the North Dakota taxpayer. Errors can occur if an IRS tax administrator misinterpreted the tax laws, made an error in calculation or if the North Dakota taxpayer offers new financial information to the IRS.
- Doubt as to Collectibility- Under this condition the IRS does not question the amount of tax assessed against the taxpayer only their ability to collect this debt either now or before the statutory period for debt collection ends.
- Effective Tax Administration- North Dakota taxpayers who can not pay their federal tax liability because it 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.
North Dakota taxpayers must also complete the following:
- All federal tax debt must be paid before the federal tax deadline for the next five years.
- All Offer in Compromise requirements must be met by the North Dakota taxpayer.
- All federal tax returns must be completed and submitted to the Internal Revenue Service by the federal tax deadline.
The most popular IRS tax settlement option is the installment agreement. Installment agreements or IA allow a North Dakota taxpayer to repay all of their IRS tax debt in monthly installment payments. The amount of time allowed to pay off the debt will vary depending on the total amount of debt owed.
Taxpayers who owe $25,000 or less can generally qualify for an installment agreement by contacting the IRS. Taxpayers who owe more than $25,000 should consult a tax professional who has experience negotiating installment agreements. Penalties and interest will continue to accumulate on the outstanding IRS tax debt until the full amount is paid, but the Internal Revenue Service will stop all collection actions against the taxpayer. It will always cost less to make a one time lump sum payment to repay debt.
Installment agreements can be terminated for a variety of reasons including:
- A taxpayer does not pay their monthly installment payment in full. First time violators may be granted a 30-60 day grace period.
- North Dakota taxpayers do not submit their federal tax return each year.
- The North Dakota taxpayer’s financial situation improves drastically
- Incorrect financial information is provided by the taxpayer to the IRS for the installment agreement application.
- Self-employed taxpayers do not submit their federal tax returns each quarter or make their estimated quarterly tax payments.
- North Dakota taxpayers do not make all of their federal tax payments for the five years before the IRS tax debt which can not be paid.
- A North Dakota taxpayer has had another installment agreement within the last 5 years.
Partial Payment Installment Agreement
Some North Dakota taxpayers will not qualify for an Offer in Compromise and will not be able to make the full installment payments with an installment agreement. The partial payment installment agreement (PPIA) may be another option for these taxpayers. PPIA will allow the North Dakota taxpayer to make partial monthly installment payments. The tax debt which is not included in the PPIA will be forgiven by the Internal Revenue Service.
Penalties and interest will continue to collect through the PPIA payment period, but the IRS will cease collection actions against the North Dakota taxpayer. The IRS will analyze the financial status of the North Dakota taxpayer every two years to determine if their financial condition has improved. If the taxpayer’s status has dramatically improved, the PPIA can be cancelled or modified.
Currently Not Collectible
North Dakota taxpayers who can not pay any of their federal tax debt may have their tax declared currently not collective by the IRS. This tax status will stop all collection actions against the taxpayer, but interest and penalties will continue to collect.
If the taxpayer’s tax status is currently not collectible the IRS will send them a written letter each year detailing the amount of tax owed. This letter is not a bill. If the IRS does not collect the federal debt within ten years the statute of limitations will expire and the tax debt will be forgiven.
Penalties can be assessed against North Dakota taxpayers for failing to file a tax return, providing incorrect financial information to the IRS or requesting a false refund. Penalties may be lowered or abated for valid reasons which could include: poor physical or mental health, personal duress, natural disasters or financial advice from a tax professional which was incorrect. The IRS may not be willing to lower and abate all tax penalties.