Tax Debt Help & Offer In Compromise
I have $18,000 I owe in federal and state taxes. Help!
I have about $18K that I owe in federal and state taxes. I have a payment arrangement but it's difficult to keep up. I wanted to know if there is a way to consolidate these taxes and pay a lower monthly payment? My total monthly payment is now almost $700/ month.
You are not alone. Many Americans cannot afford to pay their IRS debts. If you want to get IRS debt help, it is important to understand the different strategies that are available to resolve IRS tax debt problems.
Quick tip
If you are struggling with IRS tax debt, get a no-cost, no obligation analysis of your tax resolution options from one of Bills.com’s pre-screened tax specialists.
There are five strategies for getting out of IRS tax debt:
- Offer in Compromise: A program where you can settle your tax debts for less than what you owe. Requires making a lump sum or short term payment plan to pay off the IRS at a reduced dollar amount.
- Installment agreement: A monthly payment plan for paying off the IRS.
- Partial payment installment agreement: A somewhat new debt management program where you have a long-term payment plan to pay off the IRS at a reduced dollar amount.
- Currently not Collectible: A program where the IRS voluntarily agrees not to collect on the tax debt for a year or so.
- Filing bankruptcy: Discharge your tax debts under the strict rules of a Chapter 7 or 13 bankruptcy petition.
Offer in Compromise
Many people who find themselves in debt to the IRS might focus on the an Offer in Compromise (OIC). For those who qualify it can be the optimal solution, however, it is important to note that not everyone qualifies for the OIC solution. Only about 15% of applicants succeed in reducing their debts through the OIC program.
For this reason and because of the complexity of filing an offer in compromise many people enlist the services of a tax professional who has a track record of success negotiating with the IRS. This tax professional will not only be able to determine if you are eligible to reduce your IRS debts via an OIC but they will also assist you in navigating the complicated IRS bureaucracy to achieve the desired outcome.
An offer in compromise is a lengthy and time-consuming process. It takes most individuals anywhere from 12 months to 24 months to achieve a successful resolution on your offer application. Through an offer in compromise, taxpayers agree to pay the IRS only the reasonable collection potential instead of the full amount of taxes owed. For some people the "reasonable collection potential" will be less than the full amount of taxes owed — sometimes as little as 10%.
Installment Agreement
Taxpayers with tax debts under $10,000 usually can manage the payment on their own or via an Installment Agreement or Partial Payment Installment Agreement arranged with the IRS. An installment agreement is a temporary delay in which the IRS waits to collect taxes due, but but still charges penalties and interest, and may put a lien on assets.
A partial payment installment agreement is a monthly payment plan for a portion of the tax debt.
Taxpayers can apply for an IRS installment agreement online.
Currently Not Collectible
As you know, if a taxpayer does not qualify for an offer in compromise and cannot afford to pay an installment agreement, Currently not Collectible (CNC) status may be an option. If a client is placed in CNC status, the statute of limitations continues to run and the IRS will not pursue collection actions. However, if a taxpayer’s financial status improves, the IRS can remove the file from CNC status and return to active collection status. Reasons for attempting CNC status include:
- Taxpayer has income below allowable expenses and there is no indication that the financial situation will improve in the future;
- Due to high equity in a home, other real estate, or a retirement account, the taxpayer does not qualify for an OIC, but has more allowable expenses than income, so an Installment Agreement is not an option; and,
- Taxpayer has more allowable expenses than income and the statute of limitations is getting close to expiring.
IRS & Collections
The IRS has 10 years to collect outstanding tax liabilities. This is measured from the day a tax liability has been finalized. A tax liability can be finalized in a number of ways. It could be a balance due on a tax return, an assessment from an audit, or a proposed assessment that has become final.
From that day, the IRS has 10 years to collect the full amount, plus any penalties and interest. If the IRS does not collect the full amount in the 10-year period, then the remaining balance on the account disappears forever.
If You Disagree With the Amount of Tax Owed
The IRS offers several means for taxpayers to dispute the amount of tax owed. See Publications and Forms About Your Appeal Rights to get started. The IRS also offers regional Taxpayer Assistance Centers for local, in-person assistance.
Summary
If this seems overwhelming -- and I admit I provided a lot of information -- it cannot hurt to get no-cost, on-line quotes from pre-screened service providers who offer IRS debt resolution and will explain your options in detail, handle the negotiations, and complete the IRS documentation for you.
I hope the information I provided helps you Find. Learn. Save.
Best,
Bill
If the IRS determines that the household income compared against basic expenses leaves enough to pay the debt off over the number of years the IRS has left to collect, then the OIC will not succeed. How many years the IRS has left to collect depends on what year the tax assessments were made. You mention that the tax debt is from 2002 and 2003, but it is not clear when they were assessed. Did your boyfriend file the '02 and '03 returns in a timely manner, back in '03 and '04? If so, then it is likely that the tax debts will reach their statute of limitations in 2013 and 2014. Once the SOL is reached the debt expires and is no longer his responsibility.
I see a few possible options: 1. Pursue an OIC, if he qualifies based on the combined income and expenses. Your assets have no bearing on the matter. 2. Currently not Collectible (CNC) status. He does not submit an OIC, but calls the IRS and explains that he is unemployed and can't make payment. The SOL continues to run during CNC. If the SOL is going to expire soon, he can just bide his time in CNC until it does. He can determine when the SOL will be reached, by speaking to the IRS and asking about the CSED (Collection Statutory Expiration Date). CNC usually lasts for two years, before the IRS comes back to check again whether the taxpayer has the ability to pay. While the clock on the SOL continues running during CNC, it stops as soon as an OIC is officially submitted. 3. Do nothing. If his only income is unemployment, which the IRS cannot garnish, and he has no bank account that could be levied, then the IRS cannot do much aside from take any tax refund he would be due. If he were to start working, his income would be at jeopardy, but if he were to be unemployed until the SOL expired, the debt would die on its own.
I admire your wanting to fill out IRS paperwork accurately and honestly. It is never a good idea to lie to the taxman, as it can turn a financial issue into a criminal one. There may be a way to honestly qualify for the OIC, if he does not qualify while living with you. He could rent a room from a friend, not a family member of his, for a nominal amount. If he were legally living somewhere other than with you, your income would not come into play. His allowances for food, transportation, and medical expenses would eat up all the $8k per year and his OIC would be approved.
Lastly, if an OIC is submitted, don't offer a dollar more than required. If he is in the negative each month and has no assets to which the IRS assigns a value (such as a car with equity, retirement accounts, property, savings), then he can offer $20 and it will be accepted. Given all of this, I recommend speaking with a reputable tax professional, to hear a professional recommendation.