The IRS has several tax settlement options that Washington taxpayers may be able to use to repay their IRS tax debt. The IRS has the authority to collect tax debt and under certain conditions may be willing to accept less than the full amount of tax owed.
Washington taxpayers who fail to pay their federal taxes may face very aggressive IRS collection actions such as wage garnishment, repossession and bank account levies. To avoid these actions the Washington taxpayer can contact a tax professional (tax accountant, tax attorney or enrolled agent) for information about IRS tax settlement options and which one may be best for Washington taxpayers.
Offer in Compromise in Washington
Offer in Compromise is one of the most popular tax settlement options. Offer in Compromise or OIC allows the Washington taxpayer to make a settlement offer to the IRS, and if the IRS accepts the offer it is considered a compromise payment. Penalties and interest will stop accumulating and the IRS will stop all collection actions after the Offer in Compromise is accepted.
The IRS denies up to 80% of initial OIC offers and the taxpayer does not have the legal ability to compel the IRS to accept the offer. Offer in Compromise can be very time consuming, expensive and difficult to implement, but it can be an effective method to settle IRS tax debt for less than the full amount owed. Unfortunately, the IRS will need detailed financial information to process the OIC agreement, and if the OIC is denied they can use the information they have collected to continue tax collection.
Not all Washington taxpayers who want an Offer in Compromise will qualify for one. Washington taxpayers must meet one of the following conditions:
- Doubt as to Liability- If there is doubt as to the amount of tax debt owed, an OIC may be accepted. Liability may be questioned if there was an error in the tax calculation or if the tax law was misinterpreted. This condition is uncommon.
- Doubt as to Collectibility- Under this condition the amount of tax debt is not in question, only the ability of the IRS to collect the IRS tax debt. The IRS also may accept an OIC under this condition if they doubt their ability to collect the tax debt within the statutory period for collection.
- Effective Tax Administration- If a Washington taxpayer may suffer an “economic hardship which is unfair or inequitable” the IRS may accept an Offer in Compromise. The handicapped and elderly most frequently meet this OIC option.
Washington taxpayers are required to complete the following requirements:
- All Offer in Compromise requirements must be completed.
- Washington taxpayers must pay all of their federal tax debt for the next five years before the IRS tax deadline.
- All tax returns must be filed by the Washington taxpayer on or before the federal tax deadline.
- The IRS will apply all federal tax refunds (for the Washington taxpayer) toward the outstanding tax debt.
Washington taxpayers can also use an installment agreement to repay their IRS tax debt. Installment agreements allow taxpayers to repay all of their IRS tax debt in monthly installment payments. Washington taxpayers who owe $25,000 or less can generally qualify for an installment agreement. Washington taxpayers who owe more than $25,000 should contact a tax professional to help negotiate an installment agreement with the IRS.
The installment agreement can be simpler and less expensive than Offer in Compromise. Penalties and interest will continue to accumulate for the full duration of the installment period, but the IRS will stop all collection actions. Washington taxpayers must complete the following requirements to qualify for an installment agreement:
- Washington taxpayers who are self-employed must file federal tax returns and pay quarterly tax estimates.
- Washington taxpayers must file all federal tax forms.
- Washington taxpayers must pay all IRS tax debt for the 5 years before the amount outlined in the installment agreement.
- Washington taxpayers can not have had another installment agreement within the last 5 five years.
Partial Payment Installment Agreement
Washington taxpayers who can not pay all of their tax payments with an installment agreement or who do not qualify for an Offer in Compromise may be able to use a partial payment installment agreement (PPIA) to pay their IRS tax debt. The PPIA differs from the installment agreement because the taxpayer will only have to make partial payments. Whatever debt is not part of the PPIA will be considered forgiven by the IRS.
The IRS will stop all collection actions if the taxpayer qualifies for a PPIA, but penalties and interest will continue to accrue. The IRS will review the partial payment installment agreement every two years to determine if the Washington taxpayer’s financial status has improved. If it has, the IRS has the authority to increase the PPIA payments or cancel the PPIA entirely. A partial payment installment agreement will always cost more than paying IRS tax payments with a one time lump sum payment.
Currently Not Collectible
Not all Washington taxpayers can pay all of their IRS tax debt. If the IRS determines this is the case, they will change the taxpayer’s tax status to “currently not collectible”. Under this tax status, penalties and interest will continue to accrue, but the IRS will stop all collection actions against the Washington taxpayer. The Internal Revenue Service will send notice to the Washington taxpayer every year outlining the amount of tax debt the taxpayer owes. This notice is not a tax bill. If the IRS fails to collect the IRS tax debt within the statutory period (10 years) the tax debt will be forgiven.
Washington taxpayers that fail to pay their federal taxes, submit incorrect financial information on a tax return, fail to submit tax forms or request a false refund may face tax penalties. The IRS may be willing to abate or lower certain tax penalties if the Washington taxpayer has a valid reason for the tax infraction. Valid reasons could include: personal duress, false professional advice, poor mental or physical health or if they are a victim of a natural disaster. The IRS may not be willing to lower or abate all tax penalties.