Tax Debt Relief Programs
Although not openly promoted, the IRS does offer incentives and has designed programs to bring relief to both individual taxpayers and business owners. There is not a set program or a formula the IRS can apply to all situations. The IRS investigates and examines each case and the merits of it. Good faith is key, and the effort to proactively “make things right” on one’s initiative will go a long way toward seeking tax debt relief.
The tax professionals at Anderson Bradshaw Tax want to educate the taxpayers who find themselves needing tax relief. The time and effort expended early in the collection process will make for easier negotiations with the IRS in determining a reasonable settlement offer on a workable payment plan.
The Payment Plans
The IRS offers both short- and long-term payment plans to aid a taxpayer in paying a tax bill in installments over time. The interest and fees will continue to accrue under any installment plan.
The short-term plan is for taxpayers owing less than $100,000. This amount includes the delinquent tax and the accrued penalties and interest. There are typically no set-up fees, and payments can be made through Direct Pay, e-pay through the IRS’s electronic payment system or by check or money order. However, “short term” is defined as 120 days, and this is the time within which the delinquent taxes, with penalties and interest, are brought current. There may be an opportunity to extend the 120-day period to 180 days.
The long-term payment plan is for taxpayers owing $50,000 or more (penalties and interest included), and the payment period is more than 120 days. This plan will have set-up and application fees that can exceed $300.
There are considerations to weigh before selecting and committing to a payment plan. Any plan will not negate the accrual of interest and penalties; these continue to accrue until the balance is $0. If the delinquent taxes exceed $25,000, then typically payments must be made via automatic withdrawal from a bank account. There will be a per-payment processing fee that can range between $2 to 2% of the payment amount.
The history of the taxpayer account, and the taxpayer’s behaviors toward it, will play an important role in the IRS’s consideration of approving an installment plan. The IRS will investigate if the tax debt was created through an honest mistake or a misunderstanding of the tax code, or if the tax debt follows a particular pattern of non-compliance and intentional disregard.
There are price points and fee caps for low-income taxpayers. As of this writing, a low-income taxpayer would have adjusted gross income at or below 250% of the federal poverty level.
Offers in Compromise
This relief avenue allows a taxpayer to negotiate a lower amount as the full settlement of the tax debt. This is the option for taxpayers who cannot pay the full amount or, by doing so, creates a financial hardship.
The financial hardship needs to be proven by the ability to pay against income, expenses, and assets. This relief program is the last resort after other payment options have been exhausted.
Offers in compromise are cumbersome to prove, and often the IRS rejects first offers and regularly accepts less than one-half of the submitted applications.
Applying for an Offer in Compromise
For a taxpayer to initially qualify to submit an offer, the taxpayer must be current with the filing of all prior tax returns. There is a non-refundable application fee, and the initial payment is also non-refundable. The IRS retains its right to file tax liens, or to keep liens in place, during the application process and until the taxpayer fully meets the conditions of the offer. The IRS will, however, suspend all collection activity during the application process.
If an offer is accepted, the initial, non-refundable payment can be either 20% of the offered amount or the first installment if the installment period comprises more than six payments. It is possible that some of the information contained in an offer could come within the public domain.
There is a 30-day period to file an appeal should the IRS reject an offer.
“Currently-not-Collectible” status needs to be specifically requested by the taxpayer and, again, the situation must be proven. The status is a temporary relief until the IRS determines the financial position of the taxpayer has improved. The tax debt is not forgiven, and a tax lien can still be filed under this status.
Regardless of the tax debt relief program that melds to a taxpayer’s financial situation, it is imperative to remain current, or work to become current, with the filing of all tax returns. A tax debt is the amount owed on a filed return.
The penalties for not filing a tax return on time is 4.5%-5% per month of the amount owed versus the 0.5% per month for the late payment penalty. The fees and interest under either penalty will accrue and compound monthly.
The purpose of this blog is to educate those owing back taxes and/or have fallen behind in filing tax returns for prior years. The IRS is willing to work with any taxpayer who shows good faith, makes a proactive effort and who retains a tax professional to guide them through the process.
If you are Looking for Professional Advice and Guidance on Tax Debt Relief, then Contact the Highly Reputable Tax Consultants at Anderson Bradshaw Tax today
The tax relief consultants at Anderson Bradshaw Tax Consulting can help with any tax situation. With over 30 years of experience in the industry, we have seen almost every tax issue and have learned the best ways to handle each situation. You can feel confident knowing your struggles and difficulties with the IRS can be resolved and corrected quickly and efficiently at Anderson Bradshaw Tax. For further information or to schedule a consultation, please contact Anderson Bradshaw Tax Professionals at 877.550.3911 or visit www.AndersonBradshawTax.com to learn more.