Payment Plan / Installment Agreement:
The IRS will almost always accept some type of payment arrangement for past due taxes. In order to qualify for a payment plan with the IRS you must meet the following rules and provide the IRS with this information:
- You must have filed all tax returns. (It's OK to owe money but you must file)
- You will need to disclose all assets owned including all cash and bank accounts.
- You must not have adequate cash available in a checking, savings, money market, or brokerage account to pay the IRS.
- You must not have the capacity to borrow the amount owed to the IRS from other sources (i.e., a second mortgage on your home).
- You must not have adequate equity in a retirement account from which you can borrow or liquidate; for example, IRA's or 401K's.
Assuming that you comply with the above list, then you can proceed to arrange a repayment of taxes with the IRS. The negotiation with the IRS will either take place over the phone with ACS (Automated Collection System), or in person with an IRS Revenue Officer.
The total dollar amount you owe usually dictates with whom the negotiations will be handled. Typically, IRS Revenue Officers are not involved in cases where the amounts owed are less than $25,000. The IRS will ask you to complete a personal financial statement and if a business is involved, then you will need a business financial statement. The IRS has determined allowable monthly expenses for individuals, which will be matched against your actual monthly expenses. The difference between your monthly income and your allowable monthly expenses will be the amount that the IRS will require you to pay on a monthly basis.
These monthly payments will continue until your outstanding tax liabilities are paid in full. WARNING! The IRS continues to add penalties and interest while you are making monthly payments.
This may cause you to be paying what you consider a large monthly payment to the IRS and your outstanding balance may in fact be increasing due to additional penalties and interest.
The IRS will not explain this to you! Be careful!
The IRS assessed taxpayers $26,515,093 (that's almost 27 Billion Dollars) in penalties during 2017. This is a huge figure.
If you're one of these taxpayers, there is hope. Taxpayers that are hit with IRS penalties can request the penalties to be abated. Abated means to completely or partially be removed. In many cases where a taxpayer requests abatement, the IRS removes 100% of the penalty.
The IRS requires that you have a good reason to request penalty abatement. What qualifies as a good reason? It depends on the circumstances involved with your particular situation.
The IRS procedures for deciding who qualifies for penalty abatement and for what reason seem to differ in each case. The best thing you can do is to request that the IRS abate your penalties by providing the circumstances surrounding your situation.
This little known IRS program can be used to reopen a closed audit. The IRS rules on audits are very clear and when an audit is over it's usually over.
However the IRS has this program to handle situations where the taxpayer didn't get a fair deal in the original audit. For example the taxpayer may have never attended the original audit because they never received the audit letter or the taxpayer didn't understand what was going on and failed to provide the IRS information they requested.
There are many situations in which a taxpayer may qualify for Audit Reconsideration. The point is that any taxpayer that feels they didn't get a fair deal in their original audit can make a request for audit reconsideration.
Sometimes many years have gone by before taxpayers realize how much they owe the IRS for an old audit. Even in these cases where the time limits to appeal or file a tax court petition have long since expired, the taxpayer can still request audit reconsideration.
When the IRS agrees to audit reconsideration the taxpayer's case is assigned to an auditor to reopen the taxpayers audit. The taxpayer is then given the opportunity to have the original audit changed.
IRS Tax Appeals:
What is an Appeal? An Appeal is a request by a taxpayer that does not agree with an IRS decision. The action of filing an appeal puts the IRS on notice that the taxpayer doesn't agree with the IRS and is seeking a meeting to change the IRS decision.
The goal of the IRS Appeal Division is to "settle" disputes between the IRS and taxpayers.
The most common IRS decision which is appealed is that of an IRS Audit where the IRS has increased the taxpayer's tax liability. Often this increase includes additional penalties and interest.
The taxpayer must file an Appeals request within a certain time frame and follow the IRS guidelines for a valid Appeal's request. If a taxpayer doesn't file their Appeal request correctly and on time, they may lose their opportunity to have an Appeals officer listen to their side of the story.
Offer In Compromise - OIC:
The IRS Offer in Compromise program provides taxpayers that owe the IRS more than they could ever afford, a chance to pay a small amount as a full and final settlement. This program also offers taxpayers that don't agree that they actually owe the taxes in the first place, a chance to file an Offer in Compromise and have those tax liabilities reconsidered.
The Offer in Compromise program allows taxpayers to get a fresh start. All back tax liabilities are settled with the amount of the offer. All federal tax liens are released upon IRS acceptance of an Offer in Compromise and payment of the amount offered. An offer filed based on the taxpayers inability to pay the IRS looks at the taxpayer's current financial position and considers their ability to pay as well as their equity in assets. Based on these factors, an Offer amount is determined.
Taxpayers can compromise all types of IRS taxes, penalties and interest. Even payroll taxes can be compromised. The IRS accepts approximately 50% of all Offers filed with the average amount accepted is 14 cents on every dollar owed. If you qualify for this program you can save thousands of dollars in taxes, penalties and interest.
IRS Collection Appeal:
The Collection Appeal is an Appeal by a taxpayer that has been threatened with an IRS Levy or Seizure. This threat could have been received either verbally or in writing. The IRS allows you to file a Collection Appeal in these situations before they follow through on their levy or seizure. The Collection Appeal is filed on a one page form where the taxpayer is given the opportunity to explain how they think the situation could be solved without the IRS levy or seizure.
Your Appeal is assigned to an Appeals Officer who is required to make a decision on your Appeal within five days.
Expiration Of Statute:
The IRS has 10 years from the date of assessment (usually close to the filing date) to collect all taxes, penalties and interest from the taxpayer. The taxpayer does not owe the IRS anything after the 10-year date has passed.
As with all IRS rules, there are exceptions to this rule. Some examples are, if the taxpayer agrees in writing to allow the IRS more time to collect from them or if the taxpayer files bankruptcy during the 10 year period. In both of these situations the period for the IRS to collect is extended for a specific time.
Taxpayers that are approaching this 10-year date should request copies of their IRS transcripts to verify the assessment date, so they can accurately compute when the 10-year statue to collect will expire.
If the IRS is attempting to collect a tax liability which has expired under the 10 year statue, then the tax payer must inform the IRS in writing that they no longer have the right to collect this tax liability. If the taxpayer is correct, the IRS will write off the tax liabilities which have expired.
Innocent / Injured Spouse:
Taxpayers often find themselves in trouble with the IRS because of their spouses or Ex-spouse's actions. The IRS realizes that these situations do in fact occur.
In order to help taxpayers that are being subjected to IRS problems because of their spouse's actions, the IRS has come up with guidelines where a person may qualify as an innocent spouse. This means that if a taxpayer can prove they fit in those guidelines, then they may not be subject to the taxes caused by their spouses or ex-spouses. The IRS is currently considering new regulations, which would make it even easier to qualify as an innocent spouse.
The IRS doesn't like to talk about the use of Bankruptcy to reduce tax liabilities, but the reality is that many IRS taxes, penalties and interest do qualify for complete discharge in Bankruptcy.
In order for a taxpayer to use the Bankruptcy laws to avoid paying income taxes, the taxpayer's income tax liabilities MUST QUALIFY. Many taxpayers file bankruptcy without first understanding the rules to qualify their own income tax liabilities. This often results in not discharging income taxes that could have been discharged if the taxpayer had understood the Bankruptcy laws.
The most common types of taxes eligible for discharge in bankruptcy are old individual income taxes. Taxes, which are not eligible for discharge in bankruptcy are Civil Penalties for payroll taxes.
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