Ways To Resolve Your Tax Debt
If you owe money to the IRS, it is very important that you resolve your tax liability as quickly as possible. Failure to do that might result in bank levies, wage garnishment and seizure of your assets by the IRS. You need to be proactive in order to prevent enforced collection activity and have your tax debt settled.
The best place to start is from filing your missing tax returns. The IRS will not discuss your possible payment options (unless you can full pay your balance), if any of your returns are not filed or processed. In some cases, however, the IRS might file these returns for you. This does not benefit you, because Substitute for the Return prepared by the IRS does not include your exemptions and/or deductions, which means you end up with a higher liability. It is always a good idea to file your own return.
After all returns are filed, you are in a position to negotiate your payment options with the IRS. It is important to understand these options to be able to choose the one that benefits you. The IRS is not likely to provide you with any advice on how to save money in this situation. If your total tax liability, including penalties and interest, is less than ten thousand dollars, you can probably set up a Streamline Installment Agreement with the IRS, assuming that you can pay off the balance within 60 months. If you cannot afford it, or if your liability is higher, you might need a tax resolution expert to discuss the best option with you and to guide you through this process.
There are some ways to resolve your tax debt. You can set up a Payment Plan, Partial Payment Plan, submit an Offer in Compromise, or request to place your case on Status 53, Currently Non Collectible. Which way you take depends on your financial situation. In order to determine whether you are eligible for any of these payment options, you should complete the IRS financial statement, form 433A (for individuals) or form 433B (for businesses). These forms, along with all required supporting documents, reflect your ability to pay your tax debt. Therefore, it is essential that these forms are carefully reviewed by you and your tax representative before they are sent to the IRS. It is important that you compare your expenses with the IRS National Allowable Standards for your County of Residence, which can be found at www.irs.gov
While reviewing your financial statements, the IRS will look into equity in your business and personal assets, your monthly disposable income, and the money owed to you, such as your business Accounts Receivable. If you have equity in your house or any investments, you might be asked to use it to make a down payment towards your tax debt. After that the IRS will calculate your payment plan amount based on your disposable monthly income.
In some cases you might be eligible for an Offer in Compromise. An Offer in Compromise is a payment agreement between a taxpayer and the IRS, where the IRS accepts a certain amount from a taxpayer and waives the rest of the balance due. This amount is calculated based on equity in assets and disposable monthly income multiplied by a certain number of months. This is probably the most desirable option, but it is also the most difficult agreement to get accepted.
Another way to prevent enforced collections is to place your case on Currently Non Collectible Status (CNC). In order to do that, you need to prove that paying your back taxes to the IRS would create economic hardship to you and/or your business. If CNC Status is accepted, the IRS stops all collection efforts for a period of 12-24 months, or until your income increases.
It is very important to stay current and compliant after your Payment Plan proposal, CNC Status or an Offer in Compromise is accepted. This means all returns have to be filed and full paid in a timely manner. It is also important to make all agreed payments in full and on time. Otherwise your agreement with the IRS will default and enforced collection activity will follow.
This article was written by Ian Jackson for 20/20 Tax Debt Help. You can visit this page to learn more information about individual tax problems.