The Internal Revenue Service (IRS) has created a variety of tax settlement options for taxpayers who need to settle their IRS tax debt. The IRS not only has the authority to collect taxes but they also can use several aggressive methods to collect federal tax debt. Utah taxpayers who owe federal tax debt should not wait until the IRS contacts them, but should contact a tax professional such as an enrolled tax agent, tax attorney or certified tax attorney who can provide information about their IRS tax settlement options.
Offer in Compromise
Offer in Compromise or OIC is one of the most popular IRS tax settlement options available for Utah taxpayers and may be used to settle tax debt for a fraction of the full amount of federal taxes owed. Utah taxpayers can use OIC to make an offer to the IRS. If the IRS decides to accept the OIC offer and the taxpayer fulfills the OIC requirements, the tax debt which is part of the Offer in Compromise agreement will be settled.
The IRS will deny approximately 80% of first time Offer in Compromise offers but more may be accepted after a series of negotiations or following a formal OIC appeal. If the IRS refuses to negotiate or accept an OIC appeal, the taxpayer will not have the legal authority to sue the IRS or take them to court.
If the Offer in Compromise is accepted all penalties and interest will stop accumulating on the outstanding tax debt and the IRS will cease all collection actions. The IRS will need detailed financial information from the Utah taxpayer to implement the OIC and if the OIC is denied, the IRS may use the information they have collected to continue their aggressive collection actions.
OIC is only one of several IRS tax settlement options. It can be expensive, time consuming and difficult to implement. It may be a good option to settle IRS tax debt for a fraction of the amount owed, but it is not the only option. Utah taxpayers who need more information about Offer in Compromise should contact a tax professional for help.
Qualifying for Offer in Compromise
All Utah taxpayers who want an Offer in Compromise may not qualify for one. The IRS will only accept an Offer in Compromise if one of the following conditions is met:
- Doubt as to Liability- The IRS may accept an Offer in Compromise if there is doubt as to the accuracy of tax debt which has been assessed against the Utah taxpayer. This condition is seldom met. If there is an error in calculation it can occur if the IRS miscalculates the debt, misinterprets the tax code or the taxpayer provides additional financial information which was not considered in the initial debt calculation.
- Doubt as to Collectibility- Under this condition the IRS may have doubts about their ability to collect the taxpayer’s debt. The amount of IRS tax debt is not in question, only the ability of the IRS to collect the debt. The IRS also may accept an OIC if they consider debt collection costs to be too high.
- Effective Tax Administration- Under this condition paying federal tax debt may cause some Utah taxpayers to suffer a hardship which the government considers “inequitable or unfair”. This condition is most frequently used for the elderly or the handicapped.
All of the following tasks must also be completed:
- The taxpayer’s federal taxes must be paid before the tax deadline for the next 5 years.
- All of the Offer in Compromise requirements must be met.
- The taxpayer must submit their IRS tax returns on or before the federal tax deadline.
The most common method used to repay IRS tax debt is an installment agreement. The installment agreement will allow Utah taxpayers to pay all of their federal tax debt in monthly installment payments. The amount of time allowed to repay the federal debt can vary depending on the amount of taxes owed.
Installment agreements to repay tax debt of $25,000 or less are generally easy to qualify for. Installment agreements for more than $25,000 should be discussed with a tax professional to determine the best options for payment. The installment agreement will not stop interest or penalties from accumulating on the outstanding tax debt, but the Internal Revenue Service will cease all of their collection efforts.
Utah taxpayers who are trying to save money will always pay less taxes, interest, and penalties if they make their tax payment in one lump sum payment. Utah taxpayers who do not meet all of the requirements may have their installment agreements terminated. Below is a variety of reasons an installment agreement can be cancelled:
- The full installment agreement payment is not made each month. First time violators may be granted a 30-60 day grace period.
- Utah taxpayers fail to file their federal tax returns each year by the federal tax deadline.
- The taxpayer’s financial condition substantially improves.
- Financial information is falsified on the installment agreement application.
- Self-employed Utah taxpayers fail to send tax returns and estimated tax payments to the IRS each quarter.
- Utah taxpayers do not pay all of their IRS tax payments for the five years before the IRS tax debt which can not be paid.
- Utah taxpayers can not have had another installment agreement within the last five years.
Partial Payment Installment Agreement
If the Utah taxpayer does not qualify for an Offer in Compromise or if they can not afford to make installment agreement payments for the full amount of tax debt each month, they may qualify for a partial payment installment agreement or PPIA. The PPIA is similar to the installment agreement, but instead of paying the full amount of tax debt, the taxpayer can make partial monthly installment payments. The tax debt not included in the PPIA will be forgiven.
Unfortunately, like the installment agreement, under the PPIA the taxes and interest will continue to accumulate on all outstanding tax debt. The IRS will stop collection actions, but they will review the PPIA every 2 years to decide if the Utah taxpayer’s financial status has improved. If it has, the PPIA can be modified to require the taxpayer to pay more money each month or the PPIA can be terminated.
Currently Not Collectible
Utah residents who are unable to make their tax payments or use any other IRS tax settlement option may have their IRS tax debt status changed to currently not collectible. Under this tax status the IRS will cease all collection actions against the tax payer, but penalties and interest will continue to accrue.
The Internal Revenue Service sends written notification each year to the Utah taxpayer detailing the amount of federal tax debt which is owed. This notification is not a tax bill. The IRS will have ten years to collect the tax debt or the statute of limitations will expire and the IRS debt will be forgiven.
Penalties can be assessed against the Utah taxpayer for a variety of tax infractions including: failing to file a tax return, failing to pay federal taxes, claiming a false refund or intentionally or unintentionally falsifying financial information on a federal tax return. Errors can occur for many reasons and if the taxpayer can provide a valid reason for the error, the IRS may be willing to lower or abate the IRS penalties. Utah taxpayers who have had penalties assessed against them can contact a tax professional for help.