The Internal Revenue Service or IRS has the authority not only to collect federal taxes to fund the federal government but to determine if they are willing to accept less than the full amount of taxes owed with an IRS tax settlement option. The IRS may be willing to accept much less than the full amount of tax debt if they do not believe a District of Columbia taxpayer will be able to repay their tax debt in one lump sum or with an installment agreement.
All District of Columbia taxpayers who have become the target of aggressive IRS debt collection actions such as wage garnishments, property repossession or bank account levies can contact a tax professional who can answer questions about IRS tax settlement options.
Offer in Compromise
Offer in Compromise or OIC is one of the most popular IRS tax settlement options available to District of Columbia taxpayers. Taxpayers can make an offer to the IRS which if accepted, will settle all of the tax debt outlined in the Offer in Compromise agreement. The OIC once accepted will stop penalties and interest from accruing and stop all collection actions.
Most Offer in Compromise offers will not be accepted, but the IRS may be willing to negotiate with District of Columbia taxpayers to find an offer which is acceptable to both parties. Offer in Compromise can be expensive and difficult to implement. An OIC will require detailed information to be sent to the IRS and if the OIC is not accepted, the IRS may use this information to continue their collection efforts. There are several IRS tax settlement options available and Offer in Compromise may not be the best option.
Qualifying for Offer in Compromise
Not all District of Columbia taxpayers will be eligible for Offer in Compromise. The Internal Revenue Service will only accept an OIC if the taxpayer meets one of the following conditions:
- Doubt as to Liability- If the accuracy of the tax debt is in question, the IRS may be willing to accept an Offer in Compromise. This condition does not frequently occur, but it is possible if there was a miscalculation or a misapplication of tax law.
- Doubt as to Collectibility- This condition differs from the first; the amount of debt owed is not in doubt, only the ability of the IRS to collect the tax debt.
- Effective Tax Administration- If the Internal Revenue Service determines a District of Columbia taxpayer may suffer an economic hardship which is inequitable or unfair by paying their IRS tax debt, the IRS may be willing to accept an Offer in Compromise. The elderly and the handicapped most frequently qualify for an OIC under this condition.
The following tasks must also be completed the taxpayer:
- All IRS tax debt must be paid by the federal tax deadline for the next five years.
- The District of Columbia taxpayer must meet their Offer in Compromise requirements.
- All IRS tax forms and tax returns must be completed and sent to the IRS by the federal tax deadline.
Installment agreements are another popular IRS tax settlement option for District of Columbia taxpayers to use to repay their IRS tax debt. An installment plan can be less expensive and time consuming than an Offer in Compromise. Installment agreements will require the taxpayer to pay all of their tax debt, but taxpayers will be able to repay the debt in monthly installment payments instead making a one time lump sum payment.
For District of Columbia taxpayers with IRS tax debt of $25,000 or less, the IRS will generally accept an installment agreement. The repayment period will vary depending on the amount of debt which must be repaid. District of Columbia taxpayers who owe more than $25,000 should contact a tax professional such as an enrolled agent, tax attorney or certified public accountant to discuss the best repayment options.
Installment agreements will stop IRS collectors from harassing taxpayers, but penalties and interest will continue to accumulate. District of Columbia taxpayers who want to save money should always pay their tax payments in one lump sum payment and avoid an installment agreement.
The IRS can revoke an installment agreement (IA) for any of the following reasons:
- If the District of Columbia taxpayer fails to make their monthly tax payments or if they pay less than the amount outlined in the installment agreement. The IRS may give first time violators 30-60 days to make payments.
- If the District of Columbia taxpayer does not file their federal tax returns.
- If the District of Columbia taxpayer provides false or inaccurate financial information to the Internal Revenue Service on the installment agreement application.
District of Columbia taxpayers also must complete the following:
- All self-employed District of Columbia taxpayers must file quarterly federal tax returns and make quarterly federal tax payments.
- All federal tax returns must be filed each year.
- District of Columbia taxpayers must pay their IRS tax debt for the five years before the tax liability which can not be paid.
- District of Columbia taxpayers can not have had another installment agreement with the IRS within the last 5 years.
- The IRS will review the District of Columbia taxpayer’s financial situation every two years.
Partial Payment Installment Agreement
There will be some District of Columbia taxpayers who do not qualify for an Offer in Compromise and can not pay the full amount of their tax debt with an installment agreement; these taxpayers may qualify for a partial payment installment agreement (PPIA).
The PPIA will allow the taxpayer to make partial installment payments. All IRS tax debt not included in the PPIA will be forgiven by the IRS. The PPIA will not stop penalties and interest from accruing, but the IRS will stop their collection actions (wage garnishments, repossession, bank account levies). Another benefit of the PPIA is that it can be less expensive, less time consuming and less complicated to implement.
The Internal Revenue Service will review the partial payment installment agreement every two years to determine if the taxpayer’s financial situation has improved. If it has, the IRS has the legal right to increase the PPIA payments or cancel the partial payment installment agreement.
Currently Not Collectible
There will be certain District of Columbia taxpayers who are not able to pay their federal tax debt. The IRS has the authority to declare their tax debt as currently not collectible. This debt status change will stop all collection actions against the District of Columbia taxpayer. Penalties and interest will continue to accumulate on all of the outstanding tax debt.
The IRS will send the taxpayer notice each year outlining their outstanding IRS tax debt. This notice is not considered a tax bill. The Internal Revenue Service has ten years to collect tax debt. If the IRS does not collect the tax debt before the statute of limitations expires, the IRS tax debt will be forgiven.
District of Columbia taxpayers can be assessed penalties for failing to file a federal tax return, reporting incorrect financial information or requesting a false refund. If the District of Columbia taxpayer has a valid reason for the tax infraction, the IRS may reduce or cancel the penalty. Deteriorating mental or physical capacity, incorrect tax advice, natural disasters or personal duress could all be valid reasons. The IRS may refuse to dismiss all penalties and interest. District of Columbia taxpayers who have outstanding tax penalties may want to contact a tax professional to discuss penalty abatement.