Idaho taxpayers who have been unable to pay their federal taxes can now find relief with a series of IRS tax settlement options which have been created by the Internal Revenue Service. The goal of the IRS tax settlement options is to help taxpayers settle their back taxes in hopes that they will be able to meet all of their future tax obligations.
The federal government has given the IRS the authority not only to collect taxes but also, in many cases, accept far less than the taxpayer owes to settle tax debt. Idaho taxpayers who fail to pay their IRS tax debt may become the target of aggressive collection actions by the IRS including: wage garnishment, repossession or bank levies. There are a variety of IRS tax settlement options and Idaho residents should contact a tax professional for more information.
Offer in Compromise
One of the most common IRS tax settlement options is Offer in Compromise (OIC). Idaho taxpayers that owe the IRS back taxes can make an offer to the IRS to settle their debt. The IRS has sole authority to accept or deny the offer. If the IRS accepts the offer, it is considered a “compromise” and all taxes outlined in the OIC are considered settled.
Most OIC offers will be denied but additional negotiations or appeals are allowed. The IRS will stop all collection efforts if the OIC is accepted, but penalties and interest will continue to accrue. Offer in Compromise can be a difficult and time consuming process. The IRS will ask for a large amount of taxpayer records and these records can be used to continue collections if the OIC is denied. Offer in Compromise is not the only IRS tax settlement option and it may not be the best one for all Idaho taxpayers who have outstanding tax debt.
Qualifying for Offer in Compromise
Not all Idaho taxpayers who request an Offer in Compromise will qualify for one. The IRS will only accept an OIC offer if the Idaho taxpayer meets the following conditions:
- Doubt as to Liability- There has been a potential error in calculation of the Idaho taxpayer’s taxes. The error could have been made by the IRS or the taxpayer may be able to provide additional information to prove their taxes are incorrect. This does not frequently occur.
- Doubt as to Collectibility- The IRS does not believe the Idaho taxpayer’s tax debt will be collectible either now of in the future or the IRS has assessed the cost of collecting the tax debt and has determined it is too high. The amount of tax debt is not in question, only the ability of the IRS to collect the debt.
- Effective Tax Administration- If an Idaho taxpayer is unable to pay their tax debt because it could cause a “hardship which is inequitable or unfair”, the IRS may accept an OIC offer. The handicapped and elderly most frequently qualify under this condition.
Idaho taxpayers must also complete the following tasks for Offer in Compromise:
- Tax debt must be paid before the federal deadline for the next five years.
- Idaho taxpayers must comply with all outlined requirements of the Offer in Compromise.
- All federal tax returns must be completed and submitted to the IRS by the deadline.
If an Idaho taxpayer does not qualify for an Offer in Compromise or if they want to use an IRS tax settlement option which may be simpler to implement, they can use an installment agreement. Installment agreements allow taxpayers to pay their federal back taxes over a specified time period.
The IRS generally accepts an installment agreement for Idaho taxpayers who owe $25,000 or less in federal back taxes as long as the amount is paid within 60 months. If an Idaho taxpayer owes more than $25,000 it is recommended that they contact a tax professional.
Penalties and interest will not stop during the installment period. The IRS will however, stop their collections against the taxpayer. It is always less expensive to pay all IRS tax debt in one lump sum. The installment agreement can be cancelled for a variety of reasons including:
- Idaho taxpayers do not pay the agreed upon monthly installment payments.
- Idaho taxpayers do not file their federal tax returns.
- If a taxpayer pays less than the amount due for the installment agreement. In some cases the IRS may give first time violators 30-60 days to pay.
- If the Idaho taxpayers financial situation improves substantially.
- If the Idaho taxpayer provides false information to the IRS in the installment application process.
Idaho taxpayers must also complete the following:
- All self-employed workers must file quarterly federal tax returns and make quarterly federal tax payments.
- Idaho taxpayers must file all of their tax returns each year.
- Idaho taxpayers must pay their taxes for the five years before the IRS debt which can not be paid.
- Idaho taxpayers can not have had another installment agreement with in the last five years with the Internal Revenue Service.
- The IRS will review the Idaho taxpayer’s finances every two years.
Partial Payment Installment Agreement
Idaho taxpayers who can not qualify for OIC or who can not make full installment payments may be able to repay tax debt with a partial payment installment agreement or PPIA. The partial payment installment agreement does not require the full payment for IRS debt but will instead allow the taxpayer to make partial monthly payments. The tax debt which is not part of the PPIA will be considered forgiven. The PPIA may be easier, less costly and less complicated to use than an OIC.
Penalties and interest will continue to accrue during the PPIA period, but the IRS will cease collection efforts against the taxpayer. The PPIA will be reviewed every 2 years by the Internal Revenue Service. If the Idaho taxpayer’s finances substantially improve the PPIA may be terminated or modified.
Currently Not Collectible
Under certain conditions, the IRS may believe they will not be able to collect an Idaho taxpayer’s tax debt. If the IRS makes this determination, they will change the tax status to currently not collectible. Penalties and interest will continue to accrue, but the Internal Revenue Service will not try to collect the debt.
The IRS will send the Idaho taxpayer written notice each year documenting the debt. This notice is not considered a bill. The IRS has ten years to collect the debt or the statute of limitations will expire.
Idaho taxpayers who do not pay their taxes, request a false refund or who report incorrect financial information on their tax return may be assessed penalties. The IRS may be willing, under certain conditions, to abate or lower the penalties. Taxpayers must have a valid reason to request penalty abatement. Valid reasons may include: personal duress, natural disaster, mental or physical health issues or incorrect advice from a tax profession. The IRS may not be willing to abate all penalties.