North Carolina taxpayers who have excessive IRS back taxes which they are unable to pay may find relief with one of the IRS tax settlement options offered by the Internal Revenue Service. The IRS has been given the ability by the federal government to collect federal taxes. If North Carolina taxpayers fail to pay their tax debt they may become the target of aggressive tax collection efforts by the IRS. The IRS is authorized to use a variety of techniques to collect taxes including: wage garnishment, property repossession or bank account levies.
Any North Carolina taxpayer who is interested in avoiding the IRS tax collectors or settling their IRS tax debt can contact a tax professional to discuss their tax payment options. The IRS may be willing to settle back tax debt for a fraction of the full amount owed if it means the taxpayer may be able to pay their future federal taxes.
Offer in Compromise
Many North Carolina taxpayers have had success settling IRS tax debt with Offer in Compromise. Offer in Compromise allows the taxpayer to suggest a tax amount to settle their tax debt and if the IRS accepts the settlement offer the tax outlined in the OIC will be settled.
If the Offer in Compromise is accepted, penalties and interest will stop accruing and the IRS will cease all collection actions. Offer in Compromise can be difficult to implement and time consuming. North Carolina taxpayers also will have to provide detailed information to the IRS which the IRS can use against them to continue tax collection if the OIC is denied.
The Internal Revenue Service denies approximately 80% of first time Offer in Compromise offers but may be willing to negotiate with the taxpayer to find a settlement amount which is agreeable to the federal government and to the North Carolina taxpayer. All North Carolina taxpayers who are considering Offer in Compromise may want to contact a tax professional. OIC is one of several IRS tax settlement options available and it may not be the best option for all North Carolina taxpayers.
Qualifying for Offer in Compromise
Certain conditions must be met by the North Carolina taxpayer to qualify for Offer in Compromise. The IRS will only grant an OIC if taxpayers meet one of the following:
- Doubt as to Liability- The IRS will accept an Offer in Compromise if the amount of tax debt assessed against the taxpayer could be incorrect. Errors can occur if the IRS miscalculates the tax debt or if some of the taxpayer’s financial information was not considered. This condition is not frequently met.
- Doubt as to Collectibility- The IRS will accept an Offer in Compromise if they doubt they can collect the debt either now or in the future. An OIC may also be accepted if the cost to collect the debt is considered too high.
- Effective Tax Administration- Payment of IRS tax debt may cause some North Carolina taxpayers a hardship which is “inequitable or unfair”. The IRS may accept an OIC if this condition is met. This condition is most frequently used for the handicapped and elderly.
The following Offer in Compromise requirements must also be met:
- Taxpayers must pay all IRS tax debt before the federal deadline for the next five years.
- Taxpayers must meet all of the OIC requirements and pay the Offer in Compromise payments.
- All requested Offer in Compromise information and additional federal tax forms must be sent to the IRS.
Installment agreements (IA) are the most common method used by taxpayers to pay their outstanding IRS tax debt. The installment agreement can be less complicated and less difficult to implement than an OIC, but the taxpayer will have to pay all of the outstanding debt in monthly installment payments. The amount of money owed will determine how quickly the payments must be completed.
Most taxpayers can qualify for an installment agreement if they owe $25,000 or less in outstanding IRS tax debt. North Carolina taxpayers who owe more than $25,000 should contact a tax professional (enrolled agent, tax attorney or certified public accountant) for help negotiating the IA.
The installment agreement will not stop penalties and interest from accruing on the outstanding tax debt, but it will stop all IRS collections. The installment agreement will not be the cheapest method to pay tax debt. To avoid penalties and interest tax debt should be paid as soon as possible and in one lump sum payment.
If the North Carolina taxpayer does not follow all of the requirements of the installment agreement the IRS has the authority to terminate the IA. Violations of the installment agreement could include:
- Not paying or paying less than the agreed upon installment payment. The IRS may grant first time violators a 30-60 day grace period.
- Not filing a federal tax return every year.
- If the North Carolina taxpayer’s financial position dramatically improves.
- Falsifying information on the installment agreement application.
- If self-employed North Carolina taxpayers do not file federal tax returns each quarter or pay estimated tax payments each quarter.
- Failing to pay all tax payments for the five years before the federal tax debt which can not be paid.
- If the North Caroline taxpayer had another installment agreement within the last five years.
Partial Payment Installment Agreement
North Carolina taxpayers who can not pay the full amount of tax payments with an installment agreement and who do not qualify for an OIC may be able to use the partial payment installment agreement (PPIA) to settle their tax debt. Unlike the installment agreement, the PPIA will allow the taxpayer to make partial monthly installment payments over a specified period of time. The debt which is not included in the PPIA will be forgiven by the IRS.
Penalties and interest will continue to accrue during the PPIA, but the IRS will cease all collections. The Internal Revenue Service will review the PPIA every 2 years and if the North Carolina taxpayer’s financial situation has dramatically improved, the PPIA can be modified to require larger tax payments or completely cancelled.
Currently Not Collectible
North Carolina taxpayers who can not pay their IRS tax debt may have their tax status changed to currently not collectible. Penalties and interest will continue to collect on the outstanding tax debt, but the IRS will cease collections.
Every year the Internal Revenue Service will send a written notice to the taxpayer outlining the status of the tax debt. This notice is not a bill. The IRS will have ten years to collect the outstanding IRS tax debt before the statute of limitations expires.
The IRS can charge North Carolina taxpayers penalties for certain tax violations including: failure to file a federal tax return, misstating financial information (either accidently or on purpose) or requesting a false refund. If there is a valid reason, the IRS may be willing to lower or abate tax penalties. Valid reasons may include: incorrect tax professional advice, poor mental or physical health, personal duress, or if the taxpayer is a victim of a natural disaster.