Thanks to various programs, particularly the Fresh Start Initiative, there are numerous types of IRS Debt Forgiveness.
Currently Not Collectible Status
It’s very rare, but the IRS may deem your tax debt to be Currently not Collectible. This means they’ll put your tax debt on pause thanks to extenuating life circumstances that make it impossible for you to pay your tax liability. When your account is declared currently not collectible, all IRS collection enforcement must stop. While this means your personal assets cannot be levied, it also pauses the CSED. This refers to the amount of time the IRS has to collect from you, capped at 10 years under the Statute of Limitations. During this time, your debt can still accrue interest and failure-to-pay penalties.
If you can’t pay your tax debt in full currently, the IRS will allow you to pay in installments through what is known as an installment agreement. These agreements allow for monthly payments that last until your debt is completely paid off, usually set for a period of 72 months. So long as a taxpayer pays off their tax debt fully, they can use installment agreements to reduce and in some cases completely eliminate penalties and interest. To be eligible for an IRS online payment agreement, you must owe less than $50,00 in combined income tax, penalties, and interest, and have filed all required tax returns, both past and current. If you don’t qualify for an online payment agreement, you may still be able to pay through installments using either a Form 9465 or Form 433-F.
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Installment Agreement Startup Fees
The IRS charges nominal fees to taxpayers that enter installment agreements. Currently, the fee is at $120, but there have been revisions proposed that would increase this cost by more than $100. There are ways to cut down on these fees: using a direct debt payment agreement is much cheaper, and its ease of use is a true draw for many taxpayers, especially those who are worried about missing a payment and defaulting on their installment agreement.
Small Business Installment Agreements
Payment plans for small businesses are called In-Business Trust Fund Express installment agreements. To qualify, your business must owe less than $25,000 in payroll taxes and have filed all required tax returns. These generally don’t require any form of financial verification or statement, making it easy to apply. However, you must have employees currently on your roster. If you owe more than $10,000 but still come in under that $25,000 threshold, you’re required to use a Direct Debit installment agreement.
Do I Still Get a Tax Refund?
Any tax refund you receive while taking part in an installment agreement is automatically put towards your tax debt, meaning you won’t receive refund until your tax liability is completely paid off. You must file all required tax returns on time and pay all future tax liabilities in full; if you don’t, the agreement will be considered null and void.
In order to be accepted, your installment agreement must take into account your total income, minus your necessary living expenditures. Many taxpayers find that the installment agreement terms are often very steep. Advance Tax Relief can help you determine an appropriate amount for a payment plan that you can realistically handle that is more likely to get approved to the IRS. Always make sure you propose a realistic monthly payment amount; once the agreement is accepted, it’s almost impossible to renegotiate.
Does the IRS Ever Refuse Installment Agreement Requests?
It’s common for the IRS to deny a payment plan request. There are three main reasons the IRS would refuse an installment agreement request:
Collection Information Statement is False: When you file your Collection Information Statement (Form 433-A), ensure all of the information is complete and correct. If the IRS finds inconsistencies, it may lead the government to assume you’re hiding property or income to evade paying your total tax liability.
Unnecessary Living Expenses: If the government deems your living expenses to be extravagant, they won’t accept your payment plan request. If you have extremely large credit card payments, donate a large amount of money to charity, or purchase large-ticket items, the IRS will assume you are able to pay more than you’re offering.
Previous Installment Agreement Default: If you’ve ever requested a payment plan through the IRS, and defaulted on your payments, it’s likely the IRS will refuse to accept any kind of new proposal.
Advance Tax Relief will work to ensure your installment agreement request has the best chance of approval by assessing these factors and helping you come up with a realistic amount that the government is more likely to accept.
Have Installment Agreements Ever Been Revoked?
After your payment plan request is approved, it’s important to remain diligent with your payments. IRS Debt Forgiveness programs are not unbreakable; the IRS has no problem with revoking installment agreements. There are terms that both parties (taxpayer and IRS) are bound to follow, but should you break these terms, the government can revoke the payment plan.
Default on Payments: If you miss any of your payments, the IRS could choose to revoke your agreement immediately. In most cases, they’ll send you a notice or warning letter that provides you with 30 to 60 days to get up to date on your payments. After being revoked due to missed payments, you may have the opportunity to reinstate your plan by paying the outstanding balance.
Failing to File or Pay Future Tax Returns: The installment agreement is conditional based on your current and future returns and income taxes. Should you fail to file or fail to pay an upcoming return, the Internal Revenue Service will automatically revoke your installment agreement.
False Information: If you’ve knowingly given the government inaccurate or incomplete information during the negotiation process, and they discover your deception, your agreement will be revoked and you could face harsh consequences.
If you cannot realistically pay off your tax debt, the IRS may consider accepting an offer in compromise (OIC). An offer in compromise allows a taxpayer to settle their debt for less than what they owe, with the settlement amount determined on the basis of what they can actually afford to pay. There are three reasons the government will generally accept an OIC request:
Doubt as to Collectibility
If the IRS doubts a taxpayer will ever have the ability to pay off their outstanding balance in full, they may consider declaring Doubt as to Collectability on the account. This involves an examination of your assets and income, which helps the IRS determine whether they’ll be able to collect more by enforcing traditional collection methods or by settling for an offer in compromise.
Doubt as to Liability
Are you convinced your tax debt as presented by the Internal Revenue Service is incorrect? If you can prove that your assessed tax liability is wrong, thanks to examiner mistake, missing information, or new information, the IRS will change the total tax owed to the appropriate amount. Advance Tax Relief professionals can help you determine if there’s any government fault in assessing your outstanding balance.
Effective Tax Administration
If a taxpayer isn’t contesting their collectability or liability, but can prove that their current circumstances prevent them from paying their debt, or that doing so would cause undue hardship, the IRS may be more willing to accept an OIC request.
Do I Have to Pay Off My Offer in Compromise Balance Immediately?
Like installment agreement payment plans, offer in compromise payments can take a variety of forms; your balance may be paid off in full immediately, or you can apply for periodic payments that give you more time to make smaller payments. There are three ways to pay off an offer in compromise:
Lump Sum Payments: If you elect to pay off your tax bill in lump sum payments, you’ll be required to pay off your total renegotiated tax bill within 5 payments. When filing Form 656, you must pay 20 percent of the total amount of the offer.
Short-Term Periodic Payments: If you pay off your offer in compromise using short-term periodic payments, you must pay the entire amount off within a period of 24 months. The first payment must be submitted with the offer, and payments must be regularly during the offer investigation.
Deferred Periodic Payments: If you utilize a deferred periodic payment plan, then you’ll need to pay the total amount of the remaining statutory period for that tax assessment. Like short-term periodic payments, you must submit the first payment alongside your offer and make payments regularly while the Internal Revenue Service assesses your OIC.
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Advance Tax Relief is headquartered in Houston, TX with a branch office in Los Angeles, CA. We help many individuals just like you solve a wide variety of IRS and State tax issues, including penalty waivers, wage garnishments, bank levy, tax audit representation, back tax return preparation, small business form 941 tax issues, the IRS Fresh Start Initiative, Offer In Compromise and much more. Our Top Tax Attorneys, Accountants and Tax Experts are standing by ready to help you resolve or settle your IRS back tax problems.
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