West Virginia taxpayers who have outstanding IRS tax debt and who are facing aggressive IRS collection actions may be able to settle their tax debt with an IRS tax settlement option. West Virginia taxpayers who choose certain IRS tax settlement options may be able to repay their tax debt at a fraction of the full amount of tax debt owed.
The federal government has given the Internal Revenue Service (IRS) the ability to collect federal taxes which are then used to fund the activities of the federal government. With this authority, the IRS can decide how much money they are willing to accept to repay outstanding tax debt and can use wage garnishments, property repossession and bank account levies to compel taxpayers to pay tax debt. All West Virginia taxpayers who need more information about IRS tax settlement options can contact a tax professional for help.
Offer in Compromise
Offer in Compromise (OIC) is a popular method used by West Virginia taxpayers to settle IRS tax debt. With an OIC, a West Virginia taxpayer can make an offer to the IRS, and if the IRS accepts the offer the debt outlined in the OIC agreement will be considered settled. An OIC may allow a taxpayer to pay less than the full amount of tax debt owed.
The IRS denies most OIC offers and if denied, the taxpayer may be able to negotiate or appeal the decision. The IRS will have sole authority to deny or accept all OIC offers. West Virginia taxpayers do not have the ability to sue the IRS or take them to court to compel them to accept OIC offers.
Offer in Compromise stops penalties and interest from accruing and stops all IRS collection efforts, but OIC can be difficult to implement and time consuming. In the OIC application process the IRS will request detailed financial information, and if the OIC is denied the IRS may use this information to continue their collection efforts. Offer in Compromise can be an effective IRS tax settlement option, but it may not be the best one for all West Virginia taxpayers.
Qualifying for Offer in Compromise
Everyone who requests an Offer in Compromise will not qualify for one. West Virginia taxpayers must meet one of the following conditions:
- Doubt as to Liability- Errors do not frequently occur, but could if the IRS made a miscalculation or misapplied tax laws. If the IRS decides the amount of tax debt assessed against the West Virginia taxpayer may be incorrect, they may be willing to accept an Offer in Compromise.
- Doubt as to Collectibility- This condition differs from the first. The amount of tax liability is not in question, only the ability of the IRS to collect the tax debt. Under this condition the IRS also may be willing to accept an OIC if they believe the cost to collect the tax debt is too high.
- Effective Tax Administration- West Virginia taxpayers who may suffer a hardship which could be inequitable or unfair if they pay their federal tax debt may qualify for an Offer in Compromise. The elderly and the handicapped are most likely to qualify under this condition.
West Virginia taxpayers also must complete the following tasks:
- Complete federal tax returns and make their federal tax payments before the tax deadline for the next five years.
- Complete the Offer in Compromise requirements.
Another common IRS tax settlement option for West Virginia taxpayers to repay tax debt is called an installment agreement. Installment agreements require all federal tax debt to be repaid, but they allow West Virginia taxpayers to spread out tax payments over a specified time period and pay the tax in monthly installments. The time allowed for repayment varies based on the amount of tax owed.
Taxpayers who owe $25,000 or less can usually qualify for an installment agreement. West Virginia taxpayers who more than $25,000 should contact a tax professional (certified public accountant, enrolled agent or tax attorney) to negotiate a repayment plan.
Penalties and interest will continue to accrue throughout the repayment period, but the IRS will stop their collection actions. It will always be more expensive to use an installment agreement than to pay all IRS tax debt in a one time lump sum payment.
The Internal Revenue Service can cancel an installment agreement for a variety of reasons including:
- If the West Virginia taxpayer fails to pay the full monthly installment payment each month. First time violators may be granted a 30-60 day grace period.
- If the West Virginia taxpayer does not submit their federal tax return every year.
- If the West Virginia taxpayer’s financial situation improves significantly.
- If the West Virginia taxpayer provides incorrect financial information to the IRS for the installment agreement.
- If the West Virginia taxpayer is self-employed and does not file their federal tax returns each quarter or make estimated quarterly tax payments.
- If the West Virginia taxpayer does not pay their tax payments for the five years before the IRS tax debt which can not be paid.
- If the West Virginia taxpayer has had another installment agreement within the last 5 years.
Partial Payment Installment Agreement
West Virginia taxpayers who do not qualify or want to use an Offer in Compromise or who can not repay their federal tax debt with an installment agreement may be able to use a partial payment installment agreement (PPIA). The PPIA allows the taxpayer to pay only part of their tax debt in monthly installment payments. The IRS will determine what amount of debt will not be part of the PPIA and this debt will be forgiven.
Penalties and interest will continue to accrue during the installment period, but the IRS will stop all attempts to collect outstanding IRS tax debt. The IRS will review the PPIA every two years to determine if the West Virginia taxpayer’s financial condition has substantially improved. If it has, the IRS has the authority to cancel the PPIA or to increase the PPIA payments.
Currently Not Collectible
West Virginia taxpayers who can not pay their federal tax debt with an IRS tax settlement option may have their tax status changed to “currently not collectible”. Under this tax status, the IRS will cease all collection actions, but penalties and interest will continue to accrue.
The IRS will send a notice to the West Virginia taxpayer every year detailing the amount of tax debt owed. This notice is not considered a tax bill. If the IRS has not attempted or succeeded in collecting the tax debt within 10 years (the statutory time limit) the tax debt will be forgiven.
West Virginia taxpayers who make tax errors such as failing to pay federal taxes, failing to file a tax return, requesting a false refund or misrepresenting their tax information may have penalties assessed against them. If the West Virginia taxpayer has a valid reason for the tax infraction the IRS may be willing to lower or abate the penalty. Valid reasons could include: personal duress, poor mental or physical health or bad professional advice. West Virginia taxpayers who have had penalties assessed against them can contact a tax professional for help. The IRS may not be willing to lower or abate all penalties.