Tax Debt Options – Currently Non-Collectible, Offer in Comprmise, or Installment Agreement.
When clients come to our office in Orange County, CA for with tax debt, we first make sure they are tax compliant, then discuss options to resolve their tax debt. We start this process by learning about the client’s current financial situation. This will tell us what the best route to take to resolve their tax debt. We can then teach our clients why a certain tax debt relief option would be more beneficial than another and everything involved in that relief option.
The 3 options the IRS has to resolve your tax debt are:
- Currently Non-Collectible Status
- Offer in Compromise
- Installment Agreement
In simple terms the Currently Non-Collectible Status or CNC, is telling the IRS that after your necessary living expenses (Housing, food, transportation, current taxes, etc.) you have no more money to pay your tax debt. As the name states, you are not collectible, and after receiving this status by the IRS, the IRS will not pursue collection actions (Levy, or garnishments). Now this option is great if the collection statute expiration date is coming soon. You could potentially run the collection statute by getting on the CNC status and holding that until the expiration date passes. If you can manage to do this your tax debt for that year will be fully wiped away.
Installment Agreement is a fancy term for a payment plan. If you do not qualify to settle your taxes with an Offer in Compromise or the Currently Non-Collectible status is not an option for you, then the installment agreement is our last option. The amount you can pay each month is either based on what is affordable to you (in the IRS’s view) or your total tax debt divided by 72 months. Based on your financial situation you could potentially obtain an installment agreement that is affordable to you, where you don’t have to pay the full amount owed.
Now the way you obtain an installment agreement will depend upon the amounts you owe, and what you can afford. Keep in mind that once you obtain an installment agreement, you will need to maintain compliance, i.e. file your tax returns on time and pay any balances owed by April 15th. If you don’t pay or file on time, the installment agreement will go into default.
The Offer in Compromise or OIC, is a tax settlement where you end up paying for less than you owe. You may have heard about this on the radio or tv, when they say they can settle your taxes for pennies on the dollar. This can be true; it really depends on an individual’s circumstance if they qualify.
The 2 main types of Offer in Compromises:
- Doubt as to Collectability: This is the most common type of OIC. Check out a video I made that details how exactly this option works.
- Doubt as to Liability: A lesser common type of OIC where we would dispute the fact you owe the tax. You would need to provide evidence for the reason you do not owe the taxes.
The offer in compromise can be a great option to settle your tax debt for less than you owe if you qualify. I highly recommend checking out my video which explain the whole offer in compromise process in details and everything involved.
Each taxpayer has their own unique situation, and based upon that, will help determine which tax debt relief option is best. If you are in Orange County, CA and looking for some tax help, feel free to contact our office to speak with a tax expert. To learn more about us you can visit us at https://eataxresolutions.com/about/.
Anthony Fontana EA
4630 Campus Dr #203
Newport Beach, CA 92660