What is Your Best Option for IRS Tax Debt – Uncollectible Status, Installment Agreement, or an Offer In Compromise.
When I meet with clients in my Richardson, TX office, after meeting with them to hear their story, pulling their tax transcripts to get a full and accurate view of their tax issues and history, and getting them in compliance if needed, we begin to work on a strategy to resolve their tax issue with the IRS. This generally involves three alternatives –
There are others including bankruptcy and Innocent Spouse Relief but we will focus on the three most common options.
An Offer In Compromise is what you often hear about on TV and in with other advertising, where you pay pennies on the dollar. While it is possible in certain situations, it depends on the individual facts for each taxpayer. There are three types of Offers In Compromise –
- Doubt As To Liability – In this case, there is evidence that the client does not owe the full amount of the tax. The Taxpayer will make their offer on a Form 656-L and submit proof that they don’t owe the tax or less than the full amount.
- Effective Tax Administration – The Taxpayer could pay the full amount of the liability but for public policy reasons, the IRS should agree to less than the full amount. These are very rare.
- Doubt as to Collectibility – This is what you most commonly think of with an OIC and is the most common offer. In this case, based on a financial formula, the Taxpayer would make an offer of less than the full amount of the debt. The Taxpayer will complete a Form 433-A and/or Form 433-B along with a Form 656.
There are two different payment structures in an offer -
- Lump Sum – 20% Down and paid off in 5 or fewer payments.
- Deferred Offer – Paid in more than 5 and fewer than 24 Months
There are three different types of Installment Agreements -
- Streamlined - To qualify, must have Individual Tax Debt under $50,000 and the offer must pay off the debt within 72 months or the CSED expires (governments ability to collect the tax). No Form 433 required and easy to set-up online at irs.gov or by calling the IRS.
- Regular Agreement – For those that don’t qualify for the streamlined agreement due to either the dollar amount of debt or number of years to pay it off. Will require a Form 433 to quantify the payment amount the IRS will accept. As long as you remain compliant, the IRS will not contact you.
- Partial Pay Agreement – Difference from the regular agreement is that you will not full pay within the 10 year statute with the allowable payment amount. The IRS will revisit your financial status while under the agreement to determine if your payments can be increased.
Based on the Taxpayer’s assets and income, they have neither the equity in assets nor cash flow to be required to make payments under the IRS guidelines. The IRS will not pursue collection activities while the Taxpayer qualifies as Currently Uncollectible. However, they will place a Federal Tax Lien (FTL) on any current or future assets of the Taxpayer. The 10 Year clock that the IRS has to collect the Tax Debt will continue to run while in this status.
What is Best for Your Situation?
That will depend on your specific circumstances and financial situation, including your assets and cash flow, where you are in the 10 year clock on IRS collections, and how quickly you wish to resolve the tax issue. Each of the alternatives has different qualification requirements and pros and cons that should be evaluated.
In order to settle your debt, you’ll need to first get in tax compliance and then to find a resolution that you qualify for and is the best alternative for your situation. If you are in or near Richardson, TX and need help, feel free to contact me at Bob Jablonsky, EA at (972) 821-1991 or at email@example.com. To learn more about us, visit our website at https://jablonskyandassociates.com/.
Watch our Video to Learn More