by Mary Hodges
It’s tax season and while most taxpayers get a refund from the government, some will owe money. Given the climate of our economy the past several years, the IRS has expanded its “Fresh Start Initiative” for struggling taxpayers. If you are worried about being able to make your payment all at once, you may be eligible for relief programs.
The Fresh Start program expands taxpayers’ access to installment agreements. Now, individual taxpayers who owe up to $50,000 can pay through monthly direct debit payments for up to 72 months (six years). The taxpayer may be required to provide the IRS with financial information. Taxpayers can apply for the program online or by completing and filing Form 9465.
Taxpayers in need of installment agreements for tax debts more than $50,000 or longer than six years will need to provide the IRS with a financial statement. The IRS may ask for you to provide one of two forms: either Collection Information Statement, Form 433-A or Form 433-F.
Taxpayers who are permitted to utilize an Installment Agreement for repayment must keep their account in good standing during the full term of the agreement. To do this, the taxpayer must do the following: (1) Pay at least your minimum monthly payment when it’s due; (2) Include your name, address, SSN, daytime phone number, tax year and return type on all payments; (3) File all required tax returns on time; (4) Pay all taxes you owe in full and on time (If you cannot, you must contact the IRS or an attorney to amend your existing agreement); (5) Continue to make all scheduled payments even if the IRSs applies a refund to your account balance; and (6) Ensure the IRS is send your account statements to the correct address.
Offers in Compromise
An Offer in Compromise (“OIC”) is an agreement that allows taxpayers to settle their tax debt for less than the full amount. Fresh Start expansion gave the IRS more flexibility when analyzing a taxpayer’s ability to pay, thus, making the program available to a larger group of taxpayers.
Generally, the IRS will accept an offer if it represents the most 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 looks at several factors: (1) Ability to pay; (2) Income; (3) Expenses; and (4) Asset equity.
A taxpayer must be current with all filing and payment requirements and must not have an open bankruptcy proceeding to be eligible for the OIC program.
The Offer in Compromise Booklet, Form 656-B contains step-by-step instructions and all the forms the taxpayer will need to submit an offer.
The IRS allows for two payment options: (1) Submit an initial payment of 20 percent of the total offer amount with your application. Wait for written acceptance, then pay the remaining balance of the offer in five or fewer payments; or (2) Submit your initial payment with your application. Continue to pay the remaining balance in monthly installments while the IRS considers your offer. If accepted, continue to pay monthly until it is paid in full.
First Time Abate Policy
The IRS’s First Time Abate (“FTA”) Policy may offer relief for first time penalty charges. This is a one-time consideration and is also based on the taxpayer’s compliance history. Generally, FTA is available for failure to file, failure to pay, and failure to deposit penalties but only applies to a single tax year. Furthermore, if the taxpayer is requesting relief for two or more tax periods, the FTA would be applied to the earliest period if it meets all FTA criteria. The FTA does not apply if the taxpayer has not filed all returns and paid, or arranged to pay, all tax currently due.
Thus, there may be light at the end of the tunnel if you feel your tax debt is overwhelming. The most important thing to remember for any taxpayer is to be proactive in finding a solution to assist you in paying your tax debt. If you need assistance analyzing whether you qualify for any of these programs or if you would like representation in your dealings with the IRS, call the attorneys at Cosgrove Law Group, LLC.