The Internal Revenue Service (IRS) has created a variety of IRS tax settlement options to help Louisiana taxpayers who are unable to pay their IRS tax debt. In many cases the IRS may be willing to settle back tax debt for much less than the full amount owed if the IRS believes this may help Louisiana taxpayers meet all of their future tax obligations.
The IRS has been give authority by the federal government to collect taxes. Louisiana taxpayers who do not pay their IRS tax debt may become the target of aggressive collection actions by the IRS. These actions can include: repossession of business or personal property, garnishment of wages or levying a bank account. Louisiana taxpayers who are considering an IRS tax settlement should contact a tax professional for help.
Offer in Compromise
Offer in Compromise or OIC is one of the most common types of IRS tax settlement options available for Louisiana taxpayers. Offer in Compromise allows a Louisiana taxpayer to offer a certain amount of money to the IRS to settle back taxes. The IRS has the sole authority to deny or accept the OIC offer. If the IRS chooses to accept the offer than the money paid (as outlined in the OIC agreement) will settle all of their outstanding tax debt.
The IRS will deny up to 80% of first time OIC offers but may be willing to accept more after negotiations or on appeal. Collection efforts will cease if the OIC is accepted, but penalties and interest will continue to accrue. The IRS has an incentive to accept the OIC offer if it can help them avoid a protracted installment agreement or avoid declaring the debt as currently not collectible.
Offer in Compromise can be difficult, expensive and time consuming. The IRS will request large amounts of detailed financial information which they can use to continue aggressive collections actions against the taxpayer if the OIC is denied. There are several IRS tax settlement options available for Louisiana taxpayers and OIC is not always the best one.
Qualifying for Offer in Compromise
Louisiana taxpayers will have to meet one of the following requirements to qualify for an Offer in Compromise:
- Doubt as to Liability- If the IRS believes the IRS tax debt may be incorrect they may accept an Offer in Compromise. Errors can occur through miscalculation or if the taxpayer has additional tax information. This condition is not frequently met.
- Doubt as to Collectibility- The amount of Louisiana taxpayer debt is not in question only the ability of the IRS to collect this debt. The IRS also may accept an OIC under this condition if they have determined collection of the debt is too expensive.
- Effective Tax Administration- Louisiana taxpayers who can not pay their debt because doing so would cause a “hardship which is inequitable or unfair” may receive an OIC. The handicapped and elderly most frequently qualify under this condition.
Louisiana taxpayers will also need to complete the following tasks for Offer in Compromise:
- Louisiana taxpayers must pay their tax debt before the federal deadline for the next 5 years.
- Louisiana taxpayers must comply with all outlined requirements of the OIC.
- Louisiana taxpayers must complete and submit all tax returns to the IRS by the federal tax deadline.
Some Louisiana taxpayers may prefer to settle their tax debt through an installment agreement. The installment agreement is another IRS tax settlement option which lets the taxpayer spread their full tax payments over a specified time period. The IRS will generally accept an installment agreement if the Louisiana taxpayer owes $25,000 or less and the taxes are paid with in 60 months.
All Louisiana taxpayers who owe more than $25,000 should contact a tax professional for help in negotiating the installment agreement. Penalties and interest will continue to accumulate until the full amount of tax debt is paid, but the IRS will stop their aggressive debt collection actions. Paying all tax debt in one lump sum payment will always be less expensive than an installment agreement. The installment agreement can be cancelled for a variety of reasons including:
- Louisiana taxpayers fail to pay their monthly installment payment.
- Louisiana taxpayers do not submit their federal tax returns each year.
- The taxpayer does not pay the full amount due each month. First time violators may be granted a 30-60 day grace period.
- The financial status of the Louisiana taxpayer improves substantially.
- The Louisiana taxpayer provides incorrect financial information to the Internal Revenue Service when applying for the installment agreement.
The following tasks must also be completed:
- Federal tax returns must be filed and payments made quarterly for all self-employed workers.
- Tax returns must be filed each year.
- All taxes must be paid for the five years before the IRS debt which can not be paid.
- The taxpayer can not have had another installment agreement with in the last 5 years.
- The Louisiana taxpayer’s finances will be reviewed every two years.
Partial Payment Installment Agreement
Louisiana taxpayers who can not qualify for an Offer in Compromise or who are unable to make full installment payments through the installment agreement may be able to qualify for the partial payment installment agreement or PPIA. The PPIA does not require the full tax obligation paid, instead, the taxpayer will be required to make partial monthly installment payments. The amount which is not paid is considered forgiven. PPIA can be less expensive, less complicated and less time consuming than Offer in Compromise.
Penalties and interest continue to be applied to the outstanding IRS tax debt for the duration of the PPIA, but the IRS will stop their debt collection actions. The IRS will review the terms of the PPIA every two years to determine if the terms of the PPIA need to be modified or if the plan can be terminated.
Currently Not Collectible
If the IRS determines they are unable to collect a Louisiana taxpayer’s outstanding tax debt they will change the debt status to “currently not collectible”. The IRS will stop all collection actions against the Louisiana taxpayer, but penalties and interest will continue to accrue.
Written documentation will be sent each year to the Louisiana taxpayer outlining the amount of outstanding tax debt, but this notice is not considered a tax bill. If the IRS fails to collect the debt within 10 years, the tax debt is considered forgiven.
The IRS will assess penalties for a variety of tax infractions including: failure to pay tax debt by the federal tax deadline, reporting inaccurate financial data and requesting a false refund. The IRS may be willing to reduce or abate these penalties if the taxpayer has a valid reason for the tax infraction. Valid reasons may include: mental or physical health conditions, personal duress, poor professional tax advice, or a natural disaster. Not all penalties will be dismissed.