16 Mar Do You Qualify for Tax Resolution? The Answer May Surprise You!
Not being able to pay your tax debt can be scary, especially since you’ve probably heard about the heavy-handed tactics the Internal Revenue Service (IRS) can use to collect back taxes. The best thing you can do if you’ve fallen behind in paying your taxes is to determine whether you qualify for tax resolution. You may be surprised to find that you are eligible for at least one tax relief program from the IRS.
Do You Qualify for Tax Resolution? The Answer May Surprise You
Voluntarily Seek a Resolution
The first thing that you should know when facing back tax debt is that you need to voluntarily seek a resolution with the IRS. Don’t wait for the IRS to come after you for delinquent taxes because it shows an unwillingness to pay your obligations, even if that’s not what you intended. There are three main tax relief programs offered by the IRS, and most people will qualify for at least one. Each program achieves a different tax relief goal.
Types of Programs
The three main types of tax relief programs through the IRS are the installment agreement, the offer in compromise (OIC), and currently-not-collectible status. Finding the program that meets your needs the best is important for understanding how your tax debt will be resolved because in almost no case will all your tax debt go away permanently. The IRS is very adamant that you pay as much as they believe they can collect from you.
Installment agreements are the easiest program the IRS offers for tax relief because when you have an installment agreement, you’re still obligated to pay the full amount of taxes you owe, but you’re doing it over time instead of all at once. You can apply for a short-term installment agreement if you are able to pay the full outstanding balance in six months or less and owe no more than $100,000. Short-term agreements are free to apply for.
There is also a long-term installment agreement, which is for people who need to take longer than four months to pay and owe less than $50,000 including interest and penalties. You will have a $31 application fee if you make your payments through automatic withdrawal, and a $107 application fee if you apply by phone, in person, or by mail. If you pay any other way than by automatic withdrawal, your application fees increase to $149 and $225 respectively.
Offer In Compromise
An OIC is essentially a tax settlement, which means you may be able to pay the IRS less than you owe in back taxes. This type of tax relief is typically much harder to qualify for than the others, mostly because the IRS wants you to pay your obligations. You must be current on all your tax returns, not have an open bankruptcy, and paying your full obligation would be impossible or present a financial hardship.
You will have to pay a nonrefundable $205 fee to apply for an OIC. Additionally, you’ll have to make an initial payment, which will be applied to yƒa our outstanding tax balance. You will not get this payment back if your OIC is denied. The IRS will suspend its collections activity once the agency receives your application, but will start again if your OIC is denied. Additionally, some personal information may be made public if the IRS accepts an OIC.
This tax relief option is basically a deferral of what you owe. It’s designed for people who currently cannot pay their full tax obligation, but will likely be able to at some point in the future. This is a good choice if you’ve suffered a significant drop in income and aren’t able to pay for much more than the essentials you need to live. Your tax debt doesn’t go away, and the IRS can still file a lien against you.
While this option provides a temporary delay in collections activity, it gives you a good opportunity to get back on your feet financially before resuming your tax payments. The IRS will review your income every year to determine if you’re still eligible to be in currently not collectible status. If your financial situation has improved, and you still can’t pay the full amount, you may need to consider applying for an installment agreement or an OIC for your remaining debt.
Other Eligibility Requirements
Complete Filing Compliance
Before you’ll be eligible for any IRS debt relief program, you’ll need to file most back tax returns. This doesn’t include personal 1040 tax returns that are over six years old or any returns for which the IRS has estimated the tax you owe with a substitute for return. The reason for this requirement is that any tax program must include all outstanding tax balances, and the only way to know this is to have filed all your tax returns.
It’s the burden of the taxpayer to prove that a return has been filed, so if you’re saying you’ve filed a tax return and the IRS says it hasn’t been received, you’ll have to refile it or otherwise prove you already did. For this reason, it’s recommended that you file your tax returns electronically or by certified mail so you have a receipt if the IRS can’t find them. Additionally, having a tax professional help you can support your claims.
If you are required to make tax deposits every month or quarter, you must be current with those deposits to qualify for tax relief. This is because these IRS programs are only intended for unpaid back taxes. Once you receive an installment agreement, OIC, or currently not collectible status, you must remain current on your deposits or you’ll be found in default of your agreement. Moreover, you’ll be considered a repeat offender and have fewer resolution options available.
This is also why you need to enter into an agreement that you’ll be able to afford because if you’re too ambitious in what you believe you’ll be able to pay, and you have to default on your agreement, you’re going to be worse off than you started. A tax professional can help you determine a reasonable payment for installment agreements that you can afford, or an appropriate settlement offer if you decide to apply for an OIC.
Other Important Information
There are some other important points to understand about these tax relief programs. If you enter into an installment agreement, you will still owe interest and penalties until the balance has been paid off. As such, the sooner you can pay it off, the better. You don’t want to pay more in penalties and fees than you initially owed, which can happen if you drag your payments out for too long.
When you submit an application for an OIC, you must submit an initial payment of at least 20% of the amount you’re proposing you pay (the settlement amount) if you’re proposing five or fewer payments. If you’re proposing six or more payments, you’ll need to make an initial payment that is equal to the payment amount you’re proposing. Moreover, any liens filed against you won’t go away until you’ve paid your settlement.
It can be extremely harrowing to deal with the IRS when you owe back taxes. Contact Tax Alliance today to see how we can help you resolve your tax debt and give you some peace of mind.