Wisconsin taxpayers who have outstanding federal tax debt may be able to use an IRS tax settlement option to repay their tax debt. Under certain conditions, taxpayers may even be able to pay less than the full amount of IRS tax debt owed. The Internal Revenue Service (IRS) has the authority to collect federal tax debt and if necessary use wage garnishments, tax levies and property repossession to compel Wisconsin taxpayers to pay their tax debt.
Wisconsin taxpayers who are currently being harassed by the IRS may be able to get help. Taxpayers can contact a tax professional such as an enrolled agent, certified public accountant or tax attorney to review their tax repayment options. The IRS may be willing to allow the taxpayer to pay less than they owe if they are convinced the taxpayer can not make a lump sum payment or repay all of their tax debt with an installment agreement.
Offer in Compromise
Offer in Compromise allows the Wisconsin taxpayer to make an offer to the IRS, and if the IRS accepts the taxpayer’s offer the tax debt outlined in the OIC agreement will be settled. Offer in Compromise can stop all penalties and interest from accruing and stop the IRS tax collection efforts. Offer in Compromise frequently allows the Wisconsin taxpayer to pay less than the full amount of IRS tax debt owed.
Not all Offer in Compromise offers will be accepted. Currently the IRS accepts approximately 20-25% of first time OIC offers. Negotiations may be allowed to help the IRS and the Wisconsin taxpayer find an agreeable settlement amount. Offer in Compromise is not a simple process. It can be expensive, time consuming and difficult to implement. Large amounts of detailed financial data may be needed by the IRS to process the OIC application, and if the OIC is denied, the IRS may decide to use this information to restart their debt collection efforts. Offer in Compromise is one of several IRS tax settlement options available to Wisconsin taxpayers and it may not be the best option for all taxpayers.
Qualifying for Offer in Compromise
The IRS has criteria which must be met for them to accept an Offer in Compromise. Wisconsin taxpayers must meet one of the following:
- Doubt as to Liability- If the IRS determines the amount of tax liability they have charged the Wisconsin taxpayer may be incorrect they may accept an Offer in Compromise. Errors can occur if there is a misinterpretation of tax law, data which has not been considered is offered by the taxpayer or a miscalculation. This condition is seldom met.
- Doubt as to Collectibility- If the IRS determines they may be unable to collect IRS tax debt before the statute of limitations expires they may accept an OIC. The IRS may also accept an Offer in Compromise under this condition if they believe the cost to collect the tax debt is too high.
- Effective Tax Administration- If the IRS determines a Wisconsin taxpayer may suffer a hardship which is inequitable or unfair if they pay their IRS tax debt the IRS may accept an Offer in Compromise. The elderly and the handicapped most often qualify under this condition.
The following requirements must also be completed by the Wisconsin taxpayer:
- All future IRS debt must be paid on or before the federal tax deadline for the next five years.
- All Offer in Compromise requirements must be completed by the Wisconsin taxpayer.
- Wisconsin taxpayers must send their IRS tax returns to the IRS by the federal tax deadline.
Installment agreements are the most common type of IRS tax settlement option used by taxpayers to repay tax debt. The installment agreement requires all of the IRS tax debt to be repaid (no compromised payment options), but it allows repayment in manageable monthly installment payments. The amount of time allowed to repay tax debt varies based on the total amount of IRS tax owed.
Wisconsin taxpayers who owe $25,000 or less can more easily qualify for an installment agreement than those owing more than $25,000. Any taxpayer who owes more than $25,000 in IRS tax debt should contact a tax professional who can help negotiate an installment agreement with the IRS.
Penalties and interest will continue to accrue during the installment agreement, but the IRS will stop all collection actions. Taxpayers who are trying to save money will always pay less by making tax payments with a one time lump sum payment. The IRS can terminate an installment agreement (IA) for any of the following reasons:
- The Wisconsin taxpayer fails to make their monthly tax payments.
- The Wisconsin taxpayer does not file their federal tax returns.
- The Wisconsin taxpayer pays less than the required installment agreement monthly payment amount. The IRS may give first time violators a grace period of 30-60 days.
- The Wisconsin taxpayer’s financial condition substantially improves.
- The Wisconsin taxpayer provides false tax information to the IRS during the installment agreement application process.
All the following requirements must also be met for an installment agreement:
- All self-employed Wisconsin taxpayers must file quarterly tax returns and pay estimated quarterly tax payments.
- Wisconsin taxpayers must file all federal tax returns.
- Wisconsin taxpayers must pay their IRS tax debt for the 5 years before the tax liability which can not be paid.
- Wisconsin taxpayers can not have had another installment agreement with the Internal Revenue Service within the last 5 years.
- The IRS will review the Wisconsin taxpayer’s financial situation every 2 years.
Partial Payment Installment Agreement
Wisconsin taxpayers who do not qualify for an Offer in Compromise or can not make all of their tax payments with an installment agreement may be able to use a partial payment installment agreement or PPIA to settle their IRS tax debt. PPIA allows the Wisconsin taxpayer to repay their IRS tax debt with partial monthly installment payments. If the IRS agrees to the conditions of the PPIA, whatever debt is not considered part of the PPIA will be forgiven.
PPIA can be less time consuming, less complicated and less expensive to implement than an Offer in Compromise, but penalties and interest will continue to accumulate. Debt collection efforts will stop. The IRS will review the PPIA plan every two years and if the Wisconsin taxpayer’s financial condition has improved, the IRS has the authority to increase PPIA payments or terminate the PPIA. A partial payment installment agreement will always cost the taxpayer more money than repaying the tax debt with a lump sum payment.
Currently Not Collectible
Wisconsin taxpayers who have debt which can not be paid may have their IRS tax debt declared “currently not collectible”. Under this condition the IRS will stop all collection actions, but penalties and interest will continue to accrue on all outstanding tax debt.
The IRS will send the Wisconsin taxpayer a letter each year listing the tax balance, but this notice is not considered a tax bill. The IRS has ten years to collect the debt or the statute of limitations will expire and the debt will be forgiven.
Wisconsin taxpayers that fail to pay their federal taxes, do not file a tax return, request a false refund or falsify tax information on their tax return may face penalties. There may be a valid reason for some tax mistakes. If the taxpayer can provide a valid reason the penalty may be lowered or abated. Not all reasons will be considered valid. Valid reasons may include: personal duress, being the victim of a natural disaster, poor mental or physical health or poor tax professional advice. The IRS may not be willing to lower or abate all penalties. Wisconsin taxpayers with penalties should contact a tax professional for help.