If you are unfortunate enough to have an unpaid tax liability and wish to put end the constant stream of correspondence from the IRS, there are several possible solutions to help you deal with the circumstances and take advantage of the IRS’s Fresh Start initiative.
Establish An Installment Agreement—If you are unable to pay your tax liability immediately, a payment plan can be arranged, allowing you to pay the liability over a number of years. Under the new “Fresh Start” program, the IRS recently expanded access to streamlined installment agreements. Now, individual taxpayers who owe up to $50,000 can pay via monthly direct debit payments for up to 72 months (six years). While the IRS generally will not need a financial statement, they may request certain financial information from the taxpayer. Conditions that must be met in order to qualify for an installment agreement include the following:
- Installment payments must be made in full and on time.
- All future tax returns must be filed on time.
- Enough withholding or estimated tax payments must be made so that no tax is due with timely filed future returns.
Owe more than $50,000—If the amount you owe is in excess of $50,000 or it is impossible for you to pay off the debt within six years, you can still apply for an installment agreement, but you will be required to supply the IRS with a financial statement.
User Fees—The IRS charges a user fee of $105 ($52 if the taxpayer makes the payment by electronic payment withdrawal) for setting up the installment agreement. A reduced fee of $43 applies to lower income taxpayers.
Interest & Penalties—Taxpayers will also be charged interest at the current rate (which recently has been 3% annually), compounded daily, and a late payment penalty, usually 0.5% of the balance due per month. However, the penalty is reduced to 0.25% when the IRS approves the agreement for an individual taxpayer who timely filed the return and did not receive a levy notice.
- Offers in Compromise—If it is reasonably clear that you are unable to pay the entire liability, you can apply for an Offer in Compromise. An Offer in Compromise is an agreement that allows taxpayers to settle their tax debt for less than the full amount. The IRS Fresh Start program expanded and streamlined the OIC program. The IRS now has greater flexibility when analyzing a taxpayer’s ability to pay, making the offer program available to a larger group of taxpayers.
Generally, the IRS will accept an offer if it represents the most that the agency can expect to collect within a reasonable period of time. The IRS will not accept an offer if it believes that the taxpayer can pay the amount owed in full as a lump sum or through a payment agreement. The IRS considers several factors, including the taxpayer’s income and assets, when making a decision regarding the taxpayer’s ability to pay.
Tax Liens—The IRS Fresh Start program increased the amount that taxpayers can owe before the IRS generally will file a Notice of Federal Tax Lien. That amount is now $10,000. However, in certain cases, the IRS may still file a lien notice on amounts less than $10,000.
When a taxpayer meets certain requirements and pays off his or her tax debt, the IRS may withdraw a filed Notice of Federal Tax Lien. Taxpayers must request that this withdrawal in writing using the appropriate IRS form.
Some taxpayers may qualify to have their lien notice withdrawn if they are paying their tax debt through a Direct Debit installment agreement. Taxpayers need to request the withdrawal in writing using the appropriate IRS form.
If a taxpayer defaults on the Direct Debit Installment Agreement, the IRS may file a new Notice of Federal Tax Lien and resume collection actions.
If you would like assistance with getting your IRS back tax liabilities in order, please call this office for an appointment so that we can explore options for which you may qualify based on your situation.