Internal Revenue Service Tax Settlement Options
Nebraska taxpayers who have federal tax debt that they are unable to repay, may be able to work with the Internal Revenue Service (IRS) to settle their tax liability through a IRS tax settlement option. It is in the best interest of the Internal Revenue Service to settle back IRS tax debt as soon as possible and in the process, hopefully put the taxpayer in a position to pay all future tax obligations.
Nebraska taxpayers who have outstanding IRS tax debt should not wait until the Internal Revenue Service contacts them or begins their threatening debt collection tactics. Tax professionals such as tax attorneys, enrolled tax agents or Certified tax accountants all have experience negotiating with the Internal Revenue Service and can help outline the best option for Nebraska taxpayers.
Offer in Compromise
Offer in Compromise is one of the most popular types of Internal Revenue Service tax settlement options used to settle or compromise tax debt. The Internal Revenue Service may be willing to accept an offer which is substantially less than the full amount of back tax debt owed. Many Offer in Compromise offers will not be accepted at the initial application level, but may be accepted on appeal.
The Internal Revenue Service has sole discretion to accept or deny all Offer in Compromise offers and Nebraska taxpayers will not have the legal authority to sue the IRS. Most Offer in Compromise offers are denied because the Internal Revenue Service believes the offer is too low.
Not all OIC offers will be accepted. Nebraska taxpayers who are considering an Offer in Compromise must meet one of the following conditions:
- Effective Tax Administration- Certain Nebraska residents may be able to prove that paying their federal tax liability will cause “an economic hardship which is unfair and inequitable”. If the IRS agrees they may accept an Offer in Compromise offer. This condition is used frequently for the handicapped and the disabled.
- Doubt as to Collectibility- Under certain conditions the Internal Revenue Service may determine that collection of a tax debt will be too costly or it is unlikely that the tax debt will ever be collected. Under this condition, the Internal Revenue Service may be willing to accept an Offer in Compromise.
- Doubt as to Liability- Under this condition the ability to collect the IRS tax debt is not in question, but the Internal Revenue Service may accept the contention of the taxpayer that the amount they have been assessed may be incorrect. This condition is seldom met.
Nebraska residents who meet one of the above conditions must also complete the following tasks to qualify for an Offer in Compromise:
- Nebraska taxpayers must pay all of their federal taxes on time for the next five years.
- If the Offer in Compromise is accepted, the OIC plan must be completed as outlined.
- Nebraska taxpayers must complete their tax returns and pay the federal taxes due on or before the tax extension deadline.
- The Internal Revenue Service will use all federal tax refunds to pay the taxpayer’s outstanding tax debt.
An installment agreement is another tax settlement option a taxpayer may use to repay their tax liability in monthly payments or installments. The type of installment plan allowed will vary depending on the amount of tax debt owed. Nebraska taxpayers who owe $10,000 or less, not including taxes and penalties, can use the guaranteed installment agreement. This plan will require the entire amount to be repaid with in three years.
Nebraska taxpayers who owe less than $25,000 or less can use a streamlined installment agreement which requires the amount to be paid with in five years. Nebraska residents who owe more than $25,000 should contact a tax professional who has the necessary experience to negotiate an installment agreement with the Internal Revenue Service. Penalties and Interest will continue to accrue under the installment agreement. It is always less expensive to pay Internal Revenue Service tax debt in one lump sum as soon as possible.
Nebraska residents must complete the following tasks to qualify for an installment agreement:
- All Nebraska taxpayers who are self-employed must file and pay quarterly tax estimates.
- Nebraska taxpayers must pay all tax liability for the five years prior to the tax liability which can not be paid.
- Nebraska taxpayers must file all federal tax returns for previous years.
- Nebraska taxpayers can not have an installment plan agreement with in the past five years.
Partial Payment Installment Agreement
Nebraska residents who owe tax liability and can not pay it with an installment agreement, may be able to make partial payments with a partial payment installment agreement (PPIA). One benefit of this plan is it will stop IRS debt collection efforts against the taxpayer. The Internal Revenue Service will review the taxpayer’s financial information every two years to determine if the terms of the plan should be modified or if the partial payment installment agreement should be terminated.
Currently Not Collectible
Given the current economic climate, there may be certain Nebraska residents who are unable to pay their past federal tax debt. In certain extreme financial conditions, the Internal Revenue Service may declare the taxpayer’s tax debt as currently not collectible. If the IRS makes this determination, tax collection efforts will cease against the taxpayer and the Internal Revenue Service will release the levies which have been imposed. Unfortunately, the penalties and interest will continue to accrue and the tax debt will not disappear.
Nebraska taxpayers may be assessed penalties on outstanding IRS tax debt for a variety of reasons including: failure to file a tax return, failure to pay tax debt, falsifying financial information, or claiming a false refund.
Under certain conditions the Internal Revenue Service may be willing, with good reason, to eliminate or reduce penalties through penalty abatement. The Internal Revenue Service may not allow all penalties to be eliminated. Contact a tax professional for specific legal advice concerning penalty abatement.