Hawaiian taxpayers can use a variety of Internal Revenue Service tax settlement options to repay their outstanding tax debt. Some tax settlement options will allow the taxpayer to pay much less than the full amount of money owed. The IRS wants to help taxpayers meet their tax obligations and will often accept an IRS tax settlement offer if it will help taxpayers pay all of their future tax obligations.
The IRS has been given the authority from the federal government to collect outstanding IRS tax debt. The IRS also has the ability to use very aggressive collection tactics such as wage garnishment, bank account levies and property repossession if Hawaiian taxpayers fail to pay their tax debt. All Hawaiian taxpayers who have outstanding tax debt will want to discuss the IRS tax settlement options with a tax professional.
Offer in Compromise
Although Offer in Compromise (OIC) is one of the most common settlement options it also can be one of the most difficult to qualify for. An OIC allows the Hawaiian taxpayer to make an offer to the IRS and if the IRS accepts the offer, the taxpayer may be able to settle IRS tax debt for a fraction of the total amount of tax debt owed. To qualify for an OIC, the Hawaiian taxpayer must meet stringent OIC requirements and convince the IRS that the amount of their offer is greater than or equal to the total amount tax the IRS could collect through aggressive collection actions.
The IRS will not accept all OIC offers and if they deny an offer, the IRS can use the detailed information they have gathered to continue collections. Penalties and interest will continue to collect on all outstanding IRS tax debt until the OIC is accepted. All Hawaiian taxpayers who are considering Offer in Compromise should contact a tax professional for more information.
Qualifying for Offer in Compromise
Hawaiian taxpayers must meet one of the following requirements to qualify for Offer in Compromise:
- Doubt as to Liability- There must be a legitimate question about the amount of tax debt owed by Hawaiian taxpayers for the IRS to grant an OIC under this condition. This condition is not frequently met.
- Doubt as to Collectibility- The amount of tax debt is not in question only the ability of the IRS to collect the federal taxes before the statutory period of time expires.
- Effective Tax Administration- Hawaiian taxpayers who can not pay their federal tax debt with out suffering a hardship which would be inequitable or unreasonable may qualify for an Offer in Compromise. This condition is most frequently used for handicapped or elderly individuals.
The following tasks must also be completed by Hawaiian taxpayers:
- Hawaiian taxpayers must pay all federal tax debt on or before the federal deadline for the next five years.
- Hawaiian taxpayers must meet all of the requirements outlined in the Offer in Compromise.
- Hawaiian taxpayers must complete and submit all federal tax returns to the IRS by the federal tax deadline.
Installment agreements are the most common type of IRS tax settlement option. An installment agreement allows the Hawaiian taxpayer to pay their back taxes in monthly installment payments. The taxpayer will be required to pay all their tax debt in a specific time period which can vary based on the total amount of outstanding tax debt owed.
The IRS will generally accept an installment agreement if the taxpayers owes $25,000 or less. If the Hawaiian taxpayer owes more than $25,000 they will want to consult with a tax professional who can help negotiate an installment agreement. Penalties and interest will continue to accrue until the full amount of tax debt is paid. It is always less costly to make a lump sum payment for the full amount of IRS tax debt.
The IRS has the authority to deny or cancel an installment agreement if any of the following occurs:
- If the Hawaiian taxpayer does not pay their monthly installment payments or pays less than the full amount due. First time violators may be given a thirty to sixty day grace period.
- If the Hawaiian taxpayer fails to submit their federal tax returns each year.
- The financial status of the Hawaiian taxpayer substantially improves.
- The Hawaiian taxpayer provides incorrect financial data to the IRS when applying for the installment agreement.
- Hawaiian taxpayers who are self-employed must file federal tax returns each quarter and make their quarterly tax payments.
- If the Hawaiian taxpayer does not pay all of their tax debt for the five years before the IRS debt which can not be paid.
- If the Hawaiian taxpayers has had another installment agreement within the last 5 years.
Partial Payment Installment Agreement
Hawaiian taxpayers who are unable to make the minimum payment with an installment agreement may qualify for a partial payment installment agreement or PPIA. The PPIA will allow the Hawaiian taxpayer to pay less than the full amount owed to the IRS for a specific time period. The PPIA can be less expensive, time consuming and less complicated than an Offer in Compromise.
Unfortunately, interest and penalties will continue to collect on the outstanding tax debt until the debt is completely paid. The IRS will cease collection actions under a PPIA but will review the financial status of the taxpayer every 2 years to determine if the PPIA can be modified for cancelled.
Currently Not Collectible
The IRS may decide that some debt can not be collected. If the IRS makes this determination about a Hawaiian taxpayer’s IRS tax debt the status will be changed to currently not collectible. If a taxpayer’s debt is determined currently not collectible, the Internal Revenue Service will stop all collections against the taxpayer. If the IRS can not collect the debt within ten years the debt will be forgiven.
Interest and penalties will continue to accumulate on the outstanding tax debt even under the currently not collectible status. The Internal Revenue Service will send written notification each year to the Hawaiian taxpayer outlining the amount of taxes owed. This notice is not considered a tax bill.
Penalty abatement allows the IRS to eliminate part or all of the penalties assessed against taxpayers. The IRS assesses penalties for a variety of reasons including: failing to file a federal tax return, providing inaccurate tax information or requesting a false refund.
The IRS will, under certain conditions, abate or lower penalties against Hawaiian taxpayers. Valid reasons might include: receiving incorrect advice from a tax professional, or failing mental or physical health. The may be certain penalties which the IRS will not lower or abate.