The IRS offers a variety of IRS tax settlement options which may allow Wyoming taxpayers to repay their tax debt for a fraction of the full amount owed. The federal government has given the Internal Revenue Service (IRS) sole authority to determine how much money they are willing to accept to settle IRS tax debt. The IRS will only accept less than the full amount of tax owed if they do not believe the taxpayer can pay the IRS tax debt with a lump sum payment or an installment agreement.
Wyoming taxpayers who do not pay their federal tax debt can become the target of aggressive IRS collection actions and may face bank account levies, property repossession or wage garnishments. It is not a good idea to ignore the IRS. Wyoming taxpayers who want more information about how they can settle their IRS tax debt can contact a tax professional for help.
Offer in Compromise
Offer in Compromise is one of the most popular IRS tax settlement options available. Offer in Compromise may allow a taxpayer to make a settlement offer to the IRS to settle their IRS tax debt for a fraction of the full amount owed. The IRS can deny, accept or negotiate the Offer in Compromise offer. If the Offer in Compromise is accepted, the amount outlined in the OIC agreement will be considered settled. The IRS currently accepts approximate 20% of the OIC offers it receives (more may be accepted after negotiations or on appeal). Wyoming taxpayers will not have any legal recourse to compel the IRS to accept an OIC offer if all OIC appeals have been exhausted.
After the OIC is accepted penalties and interest will stop accruing and the IRS will stop their collection actions. An Offer in Compromise can be expensive, time consuming and difficult to implement. The IRS will also need large amounts of detailed information to process the OIC and if it is denied, they can use this information to continue to collect the tax debt. Offer in Compromise may allow the Wyoming taxpayer to settle their IRS tax debt for a fraction of the amount owed, but it may not be the best IRS tax settlement option for all Wyoming taxpayers.
Qualifying for Offer in Compromise
Not all Wyoming taxpayers who request an Offer in Compromise will be eligible for one. Taxpayers must meet one of the following:
- Doubt as to Liability- An Offer in Compromise will be accepted if there is some doubt as to the amount of tax debt assessed against the taxpayer. Errors can result from a miscalculation, misapplication of federal tax law or if the taxpayer provides additional tax information which has not previously been considered.
- Doubt as to Collectibility- Under this condition the amount of IRS tax debt is not in question, only the ability of the IRS to collect the debt. An OIC also may be granted under this condition if the IRS has determined it is too expensive to collect the tax debt.
- Effective Tax Administration- Wyoming taxpayers who may suffer a hardship which is inequitable or unfair may receive an Offer in Compromise. This condition is most frequently used for the handicapped and the elderly.
The Wyoming taxpayer must also meet the following requirements:
- Taxpayers must pay all IRS tax debt before the federal deadline for the next five years.
- Taxpayers must make their Offer in Compromise payments.
- Taxpayers must submit their federal tax forms and additional documentation to the IRS by the federal tax deadline.
Most taxpayers use installment agreements to repay their IRS tax debt. Installment agreements allow the Wyoming taxpayer to pay all of their IRS tax debt in monthly installment payments. Installment agreements will be for a specified time period which will vary based on the amount of tax which is owed.
Wyoming taxpayers who owe $25,000 or less can generally qualify for an installment agreement. Wyoming taxpayers who owe $25,000 or more should contact a tax professional (certified public accountant, tax attorney or enrolled agent) for help negotiating with the IRS.
Installment agreements will not stop penalties and interest from accruing on the outstanding tax debt, but will stop the IRS from continuing their collection actions. It is always less expensive to pay tax debt with a one time lump sum payment if possible. The IRS has the authority to cancel an installment agreement for many reasons including any of the following:
- Wyoming taxpayers do not make their full installment payments or they pay less than the agreed upon amount. First time violators may be granted a 30-60 day grace period.
- Wyoming taxpayers fail to file a federal tax return each year.
- Wyoming taxpayer’s financial situation dramatically improves.
- Wyoming taxpayers provide inaccurate financial information to the Internal Revenue Service on the installment agreement application.
- Self-employed Wyoming taxpayers fail submit tax returns each quarter or pay quarterly tax payments.
- Wyoming taxpayers did not make their federal tax payments for the five years before the tax debt which can not be paid.
- Wyoming taxpayers have had another installment agreement within the last five years.
Partial Payment Installment Agreement
If a Wyoming taxpayer does not qualify for an Offer in Compromise or can not make the full installment payments with an installment agreement, they may be able to repay IRS tax debt with a partial payment installment agreement or PPIA. The PPIA is simple, less expensive and easier to use than an Offer in Compromise. The PPIA will stop all collection actions, but it will not stop penalties and interest from accruing on outstanding tax debt.
The PPIA, like the installment agreement, will allow the taxpayer to repay tax debt with monthly installment agreements, but unlike the installment agreement, the PPIA will allow the Wyoming taxpayer to make partial payments each month. The IRS must agree to the plan, and if they do, all the debt not included in the PPIA will be considered settled.
The PPIA will be reviewed by the IRS every 2 years and if the Wyoming taxpayer’s financial situation has substantially improved, the IRS may require the taxpayer to pay more each month or completely cancel the PPIA.
Currently Not Collectible
Certain Wyoming taxpayers may have outstanding IRS tax debt which they are not able to repay. If the IRS agrees, they may change the tax status to “currently not collectible”. This tax status will stop all collection actions against the taxpayer but will not stop penalties and interest from continuing to accrue.
The IRS will send written notification each year to the Wyoming taxpayer updating them on their tax status, but this notice is not considered a tax bill. The IRS has 10 years to collect all tax debt before the statute of limitations expires and the debt is forgiven.
Wyoming taxpayers may be assessed tax penalties if they fail to file a tax return, do not pay their taxes, misrepresent their tax information or request a false refund. The IRS may, with a valid reason, be willing to abate or lower a Wyoming taxpayer’s penalties. Valid reasons might include: personal duress, poor physical or mental health or bad professional tax advice.
The IRS may not be willing to lower all penalties. Wyoming taxpayers who need more information about penalty abatement should contact a tax professional for help.