Bankruptcy is an amazingly effective tool for eliminating debt and providing our clients with a fresh start. Unfortunately, certain categories of debt are deemed non-dischargeable, meaning that the debt cannot be eliminated through the bankruptcy proceedings. Debtors with tax debts that are less than three years old and individuals who have fallen behind on their income tax filings typically have tax debts that fall into this non-dischargeable category.
For those consumers who owe substantial debts to the IRS, which they are simply unable to pay, the attorneys at the McMillan Law Group can provide professional assistance by negotiating the amount of the debt owed down to a manageable level. Our attorneys have expertise handling the two primary methods for negotiating with the IRS: “Offers in Compromise” and “Installment Agreements.” We can advise you as to which of these options best suits your individualized situation and effectively level the playing field between you and the IRS.
OFFERS IN COMPROMISE
Filing an Offer in Compromise (OIC) with the IRS can be a very effective solution for clients that have more than $25,000 in outstanding tax debt. An Offer in Compromise is the IRS term for an agreement between the taxpayer and the IRS for less than the full amount owed, in certain cases resulting in a dramatic reduction in taxpayer liability.
In order to be eligible to present an OIC, a taxpayer must be current on past years’ tax filings. An OIC may be accepted by the IRS when the evidence submitted to the government indicates that (1) the IRS will be unable to collect the amount owed in total, and (2) the amount offered by the taxpayer meets or exceeds the amount that the IRS determines it can collect on the basis of the taxpayer’s assets and income over the applicable payment period.
The determination of what constitutes a reasonable amount for an OIC must account for each individual’s unique financial situation and consider the taxpayer’s ability to pay, income and assets, compared with the taxpayer’s monthly expenditures. The amount by which the available assets exceed expenses will form the basis of the amount that the IRS believes is reasonable for payment on a monthly basis. The IRS requires extensive financial documentation to be provided with each case and further mandates compliance with a vast array of tax regulations, rules and specific deadlines. Hiring our knowledgeable and experienced attorneys to assist you with the OIC filing can often mean the difference between the acceptance and rejection of your offer. Upon the submission of a valid OIC, the IRS is prohibited from taking collections actions against the taxpayer until the OIC determination is made and after the expiration of the applicable appeals period.
Taxpayers have three options by which to pay the OIC and may tender payment through (1) a lump sum cash offer that must be paid within 5 or fewer installments upon written notice of acceptance, in no case to exceed five months following notice of acceptance; (2) a short term periodic payment offer payable within 24 months of the OIC offer date; or (3) a deferred periodic payment offer, which is paid over a statutory period that remains during which the IRS can collect the tax. Initial payments must also be made to the IRS with the submission of the offer.
If you do not qualify to submit an OIC, an Installment Agreement may provide the best solution for settling your tax debts. An Installment Agreement allows taxpayers to make monthly payments towards their back taxes over a period of time that will facilitate collection of the overall tax.
The IRS offers three main categories of Installment Agreements depending on the amount of tax liability and other circumstances of the individual taxpayer.
• (1) Guaranteed Installment Agreements
When a taxpayer owes a balance of $10,000 or less to the IRS, is current on all tax filings and payments in the preceding five years, can afford to make payments over a period of 36 months or less, and that taxpayer agrees to file and pay on time for future tax years, the IRS is required to agree to an installment plan. Unsurprisingly few taxpayers owing substantial tax debts fulfill these exacting criteria.
• (2) Streamlined Installment Agreements
In 2012 the IRS passed the Fresh Start initiative, which relaxed the requirements for taxpayers to qualify for a Streamlined Installment Agreement. Individuals owing a balance $50,000 or less who can agree to pay off that balance over a period of 72 months qualify for this type of Installment Agreement. As with the Guaranteed Installment Agreement, in order to qualify for this arrangement, a taxpayer must have filed all past tax returns.
• (3) Negotiated Installment Agreements
For taxpayers who owe more than $50,000 and/or cannot pay down their tax liability in less than six years, McMillan Law Group can assist with negotiating directly with the IRS to obtain a Negotiated Installment Agreement. The process for obtaining a Negotiated Installment Agreement in many ways parallels the OIC process. The IRS analyzes a vast amount of the consumer’s financial data to determine the amount that the taxpayer can afford to pay over a reasonable period of time. Payment amounts in Negotiated Installment Agreements are ultimately at the discretion of the IRS.
There are disadvantages to filing any installment agreement. Most notably, during the life of the Installment Agreement interest continues to accrue on tax debts. Thus, it is critical to ensure that the amount that you are offering the IRS is sufficient to pay down the primary balance of the debt as well as cover the interest charges that continue to accrue. Despite this issue, tax debts do not disappear. Entering into an Installment Agreement typically ensures that the IRS will not initiate liens or enforcement mechanisms against your assets. Accordingly, Installment Agreements can provide an effective mechanism by which to negotiate outstanding tax liabilities.
McMillan Law Group attorneys offer free initial client consultations for clients that are considering tax debt negotiation as a method by which to reduce and manage their tax debt liability. Give us a call today.