The Internal Revenue Service (IRS) has created a variety of programs Kansas residents can use to settle federal tax debt. The United States federal government has given the IRS the authority to collect taxes and if necessary, to settle tax debt with taxpayers at a fraction of the total amount of debt owed. The Internal Revenue Service may be willing to settle debt to avoid declaring the debt currently not collectible or delaying payment of the IRS debt with a protracted installment agreement.
Kansas taxpayers who are considering a tax settlement option may want to contact a tax professional such as a tax attorney, enrolled agent or certified public accountant who understands the pros and cons of each plan and can help the Kansas taxpayer determine the best option.
Offer in Compromise
Kansas taxpayers may be able to use Offer in Compromise to settle their tax debt for a fraction of the total amount. Offer in Compromise allows Kansas taxpayers to make an “offer” to the IRS. The offer may be accepted or rejected. If the IRS considers the offer reasonable, it will accept the “compromise” and all taxes outlined in the Offer in Compromise agreement will be considered settled after the taxpayer meets the OIC requirements.
The IRS has sole discretion to refuse an OIC offer and they do so approximately 80% of the time. Continued negotiations frequently will yield an acceptable offer for both the government and Kansas taxpayers. Offer in Compromise can be expensive, time consuming and expensive. Unfortunately, if the OIC offer is refused and negotiations fail, the IRS can use all of the taxpayer’s financial data they have gathered to continue their aggressive collection efforts.
Qualifying for Offer in Compromise
Not all Kansas taxpayers will have a valid reason for an Offer in Compromise. To qualify for an OIC, Kansas taxpayers must meet one of the following criteria:
- Doubt as to Liability- Kansas taxpayers who doubt the amount of tax liability they have been assessed may be able to qualify under this condition. This condition is not frequently used.
- Doubt as to Collectibility- Under certain conditions the IRS may determine it is unlikely or too expensive to collect a Kansas taxpayer’s federal tax debt. If they believe this is the case, the IRS may accept an Offer in Compromise. This condition differs from the first in that the amount of IRS tax debt is not in doubt, only the ability of the Internal Revenue Service to collect the debt.
- Effective Tax Administration- Kansas residents who may suffer “an economic hardship which is unfair and inequitable” if they pay their federal tax debt may qualify for an Offer in Compromise. This condition is most frequently used for the elderly and the handicapped.
Kansas taxpayers must also complete the following tasks:
- All future IRS tax debt must be paid on or before the federal tax deadline for the next five years.
- Offer in Compromise requirements must be completed.
- Kansas taxpayers must complete and submit all of their IRS tax returns by the federal tax deadline.
The most popular IRS tax settlement option available to settle outstanding tax debt is the installment agreement. Kansas taxpayers can use an installment agreement or IA to repay all of their IRS tax debt in monthly installments. Kansa taxpayers who owe $25,000 or less can usually qualify for an IA to pay all of their IRS tax debt within 60 months.
Kansas taxpayers who owe more than $25,000 may want to discuss their installment options with a tax professional that has the expertise needed to negotiate an installment agreement with the IRS. It is always less expensive to pay all taxes, penalties and interest in one lump sum payment. Penalties and interest will continue to accrue throughout the installment agreement.
An installment agreement can be terminated by the IRS for any of the following reasons:
- Failing to make all the required IA payments (either partial or full). First time offenders may have a grace period of 30-60 days before the installment agreement is terminated.
- Failing to file federal tax returns
- A taxpayer’s financial situation greatly improves. (The IRS can review the IA every two years.)
- A Kansas taxpayer provides inaccurate information on the installment agreement application.
Kansas taxpayers who are applying for an installment agreement must meet the following conditions:
- All self-employed Kansas taxpayers must file quarterly tax returns and pay quarterly tax payments.
- Kansas taxpayers must file federal tax returns.
- Kansas taxpayers must pay federal tax debt for the 5 years before the tax liability which can not be paid.
- Kansas taxpayers can not have had another installment agreement with the Internal Revenue Service with in the last 5 years.
Partial Payment Installment Agreement
Due to financial conditions, certain Kansas residents will not be able to settle their IRS tax debt with an installment agreement and may not qualify for an Offer in Compromise. A partial payment installment agreement (PPIA) is another option available to taxpayers to make partial monthly payments for tax debt. The PPIA will not pay the full amount of the tax debt and the taxes not paid will be considered forgiven by the Internal Revenue Service.
Partial payment installment agreements are popular because they are less complicated, less time consuming and less expensive than an OIC. Kansas taxpayers who use the PPIA will avoid IRS collections, but penalties and interest on the IRS tax debt will continue to accrue. The IRS will review the PPIA every 2 years and if the Kansas taxpayer’s financial situation has improved, the PPIA may be cancelled or revised. Paying a lump sum payment for all tax debt is always less expensive than any type of installment agreement.
Currently Not Collectible
The Internal Revenue Service may decide some debt can not be collected. Kansas residents who can not pay their tax debt may have their debt categorized as currently not collectible. Currently not collectible will stop all IRS tax collection actions including tax levies and wage garnishments. The Internal Revenue Service will send a written notification each year listing the amount of outstanding tax debt. This is not a tax bill. If after ten years the IRS has failed to collect the tax debt, the time limit for collections will expire and the debt will be forgiven.
The Internal Revenue Service may assess penalties for a variety of taxpayer infractions including but not limited to: failing to file a tax return, claiming a false refund, or inaccurately reporting tax information. Penalties are abated or reduced for valid reasons only such personal duress, disasters, inaccurate tax advice from a tax professional or failing health. The IRS may not be willing to abate all penalties.