There are a variety of IRS tax settlement options available for Maine taxpayers who have outstanding federal tax debt and if the taxpayer uses one of these programs, the IRS may be willing to except far less than the total amount owed. The IRS believes that Maine taxpayers who can eliminate back tax debt are far more likely to be able to meet all future tax obligations.
The IRS has the authority to collect all outstanding tax debt. If Maine taxpayers fail to pay their debt they could become the target of aggressive IRS tax collection efforts. The IRS is authorized to use wage garnishments, property repossession, and bank levies to force Maine taxpayers to pay outstanding taxes. All Maine residents who are facing harassment by the IRS or who would like more information about available tax settlement options can contact a tax professional for help.
Offer in Compromise
Offer in Compromise or OIC is one of the most common IRS tax settlement options available for taxpayers. Maine taxpayers can use Offer in Compromise to make an offer to the Internal Revenue Service to settle IRS tax debt. The IRS can agree to the settlement amount or they can reject the offer. If the Internal Revenue Service accepts the OIC and the Maine taxpayer fulfills the requirements of the agreement, the tax debt will be considered settled.
The IRS will not accept all Offer in Compromise offers, in fact, they may deny up to 80% of all initial offers. Maine taxpayers may be able to negotiate with the IRS or make a formal appeal. The OIC will stop all collection actions by the IRS, but interest and penalties will continue to accumulate until the OIC is accepted.
Offer in Compromise may be time consuming, expensive and difficult to implement. Large amounts of detailed information may be requested by the IRS. If the IRS denies the OIC offer they can use the information they have collected to continue their collection efforts. Offer in Compromise is only one of several IRS tax settlement options available, and it may not be the best one for all Maine taxpayers.
Qualifying for Offer in Compromise
Maine taxpayers must meet one of the following requirements to qualify for an Offer in Compromise:
- Doubt as to Liability- The IRS may accept an OIC offer if they believe the debt assessed may be incorrect. This can occur through a miscalculation or if the taxpayer has additional tax information to offer the IRS. This condition is not frequently used.
- Doubt as to Collectibility- The IRS may accept an OIC offer if they believe they may not be able to collect the IRS tax debt either now or in the future. The IRS may also believe collecting the tax debt will be too expensive.
- Effective Tax Administration- Certain Maine taxpayers who are unable to pay their tax debt because it could cause a “hardship which is inequitable or unfair” may qualify for an Offer in Compromise. The handicapped and elderly most frequently qualify under this condition.
The following tasks will also need to be completed for an Offer in Compromise:
- All federal tax debt must be pay before the federal deadline for the next 5 years.
- All of the requirements outlined in the OIC must be completed.
- All tax returns must be completed and submitted to the IRS by the federal tax deadline.
An installment agreement is another tax settlement option available for Maine taxpayers to settle IRS tax debt. An installment agreement allows the taxpayer to pay the full amount of tax debt they owe monthly. For Maine taxpayers who owe $25,000 or less, it is generally not too difficult to qualify for an installment agreement but the tax debt must be paid within 60 months.
Maine taxpayers who have IRS tax debt exceeding $25,000 should contact a tax professional for help negotiating a favorable installment agreement. An installment agreement will not stop penalties and interest from accruing, but it will stop the IRS from trying to collect the tax debt. It is always less expensive to pay IRS tax debt as soon as possible without a protracted installment agreement. The IRS reviews installment agreements every two years and can cancel the installment agreement for any of the following reasons:
- Failing to pay the monthly installment payments.
- Failing to submit federal tax returns each year.
- Failing to pay the full amount of taxes due each month. First time violators may be granted a 30-60 day grace period.
- The financial situation of the Maine taxpayer substantially improves.
- Failing to provide correct financial information to the IRS when applying for the installment agreement.
The following tasks must also be completed:
- Self-employed Maine taxpayers must file and pay quarterly tax payments.
- Maine taxpayers must file federal tax returns each year.
- Maine taxpayers must pay all federal taxes for the 5 years before the IRS debt which can not be paid.
- Maine taxpayers can not have had another installment agreement with in the last five years.
Partial Payment Installment Agreement
Maine taxpayers who do not qualify for an OIC or who can not pay their full debt with an installment agreement may be able to settle their IRS tax debt with a partial payment installment agreement or PPIA. The PPIA allows Maine taxpayers to make partial monthly installment payments. The IRS will forgive the amount which is not paid under the PPIA. The PPIA can also be less difficult, less expensive and less time consuming to implement than an OIC.
Partial payment installment agreements will not stop interest and penalties from accruing on outstanding tax debt. The PPIA will be reviewed every 2 years by the IRS and can be modified or cancelled if the IRS believes the taxpayers finances have improved.
Currently Not Collectible
Certain Maine taxpayers will not be able to pay their tax debt for a variety of reasons. If the IRS agrees, they may change the status of their tax debt to “currently not collectible”. The currently not collectible status will not stop penalties and interest from accumulating, but it will stop the IRS from attempting to collect the tax debt.
The IRS will send written notification to Maine taxpayers each year outlining the amount of tax debt which is considered currently not collectible. This notice is not a tax bill. The Internal Revenue Service has ten years to collect all outstanding tax debt before the statute of limitations expires and the debt is forgiven.
Penalties may be charged against Maine taxpayer for failing to report their financial information accurately, failing to file a tax return or requesting a false refund. The IRS may be willing to abate or lower penalties they have assessed against Maine taxpayers for certain reasons. Personal duress, health conditions, natural disasters or poor tax advice may all qualify as valid reasons. The IRS may not be willing to abate all penalties.