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Issues with tax debt? Check out the new Offer in Compromise guidelines.

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The break you’re in need of may be on its way if you’re struggling with back taxes. The Internal Revenue Service Commissioner announced an initiative to help taxpayers get a fresh start with their tax liabilities on February 24, 2011. One possible way of reducing your past tax liabilities and avoiding IRS tax liens is by applying for an Offer in Compromise (OIC).

An Offer in Compromise is an agreement made between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. Perhaps you were considering an Offer in Compromise but were unsure if you’d qualify. Maybe an offer you submitted was previously rejected. Under the new initiative, the IRS is now offering an expanded Streamlined Offer in Compromise Program.

The newly expanded OIC program will now allow taxpayers with annual income of up to $100K.The new program also doubles the allowable tax liability from $25K to $50K. Offers in Compromise are subject to IRS approval and they will analyze your income and assets.  Another perk of the expanded Streamlined OIC Program is the IRS will be making fewer requests for additional financial information. They will also offer the option to provide information by phone rather than by mail. Lastly, they will give more flexibility when considering a taxpayer’s ability to pay.  With the flexibility of the new program, more taxpayers will be able to get a “fresh start” in regards to their tax debts. However, the IRS still urges individuals to be aware of promoters who advertise that IRS debts can be settled for “Pennies on the dollar.” These promoters often charge high fees with little to no results.

Even if you feel you may not qualify for this tax settlement option, talk to one of our licensed tax experts at Professional Tax Resolution today. There are other tax settlement options, and we are glad to discuss them with you.

FAQ about An Offer In Compromise

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What is an Offer in Compromise?
An Offer in Compromise is an agreement between a taxpayer and the Internal Revenue Service that settles a tax debt for less than the amount owed.

What do you do first?
A taxpayer submits an Offer in Compromise by completing two standardized forms and collecting all of the required supporting documentation. A check list identifying the necessary documentation is provided with the application.

Why should you take care to fill everything out correctly?
If an Offer in Compromise is not submitted according to the published IRS requirements and procedures, it can result in the delay or denial of the offer even if the taxpayer might otherwise qualify. The Offer in Compromise application must be submitted in writing, signed by the taxpayer (under penalty of perjury), and must contain all of the information required by the IRS. When the offer is submitted solely on the basis of doubt as to the taxpayer’s liability, there is no requirement to provide financial statements.

What happens after the offer has been submitted?
An Offer in Compromise attains a status of pending when it is accepted for processing by the IRS. As might be expected, the IRS generally will not accept an offer for processing if there is a related criminal case with the Department of Justice. Once submitted, if an offer does not contain all of the required information and documentation, the IRS will request that the taxpayer provide whatever is missing. If the requested information is not provided in a timely manner, the application may be returned. The IRS will deny an Offer in Compromise if it determines that the offer was submitted solely for the purpose of delaying collection of the tax debt.

What if you decide to withdraw your offer?
An Offer in Compromise may be withdrawn by the taxpayer at any time prior to acceptance of the offer by the IRS. It will be considered withdrawn upon the receipt by the IRS of written notification of the withdrawal. An official withdrawal of an Offer in Compromise may be made by personal delivery, certified mail, or upon issuance of a letter from the IRS confirming the taxpayer’s intent to withdraw the offer.

How will you know that your offer for tax settlement has been accepted?
An Offer in Compromise is considered accepted when the taxpayer or the taxpayer’s representative receives a written Notice of Acceptance from the IRS. As a condition of acceptance, the IRS may request that the taxpayer enter into a collateral agreement if it is deemed necessary for the protection of the interests of the United States. For instance, if the final payment on an accepted Offer in Compromise is contingent upon the simultaneous release of a tax lien, that payment must be made in accordance with the forms, instructions and procedures prescribed by the Secretary of the Treasury.

What is the end result?
Acceptance of an Offer in Compromise will settle the tax debt of the taxpayer (or taxpayers) designated on the application for the dollar amount specified in the offer. The acceptance of an Offer in Compromise for one taxpayer does settle the tax liability of any person not named in the offer.

Why should you consider hiring a tax professional?

The process of obtaining an Offer in Compromise can be difficult and time consuming. When it involves tax debts related to multiple years and/or multiple taxpayers and tax liens or tax levies, the process can be increasingly difficult. A qualified tax resolution specialist can be helpful, first, in determining if a taxpayer meets the acceptance criteria for an Offer in Compromise and, following that, in completing the application according to IRS specifications. A tax specialist will also have the knowledge to accurately calculate and document a taxpayer’s inability to pay the full amount of the tax debt so that the offer will have a reasonable chance of being accepted by the IRS.

Understanding The Three Settlement Types for an Offer in Compromise

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The Offer in Compromise is a specific tax relief option made available by the IRS through which a taxpayer offers the IRS a certain amount of money in exchange for which the IRS agrees to cancel the taxpayer’s outstanding tax debt. While it is an effective tax settlement option for a very specific group of taxpayers, the Offer in Compromise definitely does not represent a blanket solution for anyone with an outstanding tax liability. The acceptance criteria are very explicit and, since many applications are submitted that do not meet the published IRS guidelines, the rejection rate is high. When considering filing an application for an IRS Offer in Compromise it is important, not only to understand the specific qualifying criteria, but also to be familiar with the available settlement alternatives.

There are three payment options available for an IRS Offer in Compromise. An application requesting any one of the three payment plans requires a $150 application fee (unless the taxpayer submitting the application qualifies for a low income waiver or is submitting the application for the reason that he or she doubts they actually owe the outstanding tax debt). All three tax settlement options require an initial payment (unless the taxpayer qualifies for a low income waiver) followed by a lump sum or a specific set of scheduled installments. The plans vary as to the calculation of the settlement amount, the amount of the initial payment, the number of periodic payments and the time period over which those payments will be made.

The three settlement alternatives for an Offer in Compromise are summarized below:

1) Lump Sum Cash Payment
• Generally requires a 20% payment upon the filing of the application with the balance paid within five months of acceptance. Low income taxpayers may be exempt from the initial payment requirement.

2) Short Term Periodic Payment
• Payments are made in monthly installments with the balance being paid in full within 24 months of the IRS receiving the Offer in Compromise. Taxpayers must generally make the proposed monthly payments while the IRS considers the offer unless they qualify for the low income waiver.

3) Deferred Periodic Payment
• Payments are made in monthly installments with the balance being paid in full in 25 months or more but within the statutory collection period. Taxpayers must generally make the proposed monthly payments while the IRS considers the offer unless they qualify for the low income waiver.

The flexibility of the settlement alternatives available for an Offer in Compromise makes it a viable and effective tax relief alternative for taxpayers with varying financial situations. However, since the Offer in Compromise involves a settlement for an amount less than what the taxpayer actually owes, it can be difficult to obtain. The IRS will carefully review the available assets and income of the taxpayer and the taxpayer’s ability to pay the original tax debt. During the review of a submitted Offer in Compromise by the IRS, all other collection activity will stop. The job of a qualified tax resolution firm is to assist in demonstrating a taxpayer’s inability to pay the full amount of his or her tax debt and to prove that it is in the best interest of the IRS to accept an offer for less than the full amount.

When selecting this tax relief option and the accompanying payment plan, the taxpayer should be well aware that it is an official contract with the IRS and comes with a specific set of financial responsibilities. If an individual entering into an Offer in Compromise fails to comply with any of the contractual provisions set forth in the agreement, the IRS will probably revoke the contract and reinstate the full amount of the original tax debt.

The Offer in Compromise is one of numerous tax relief options open to a taxpayer who may be facing an impending tax lien, tax levy or wage garnishment due to a large outstanding tax debt. For help in determining whether your tax debt situation meets the acceptance criteria for an Offer in Compromise and whether it is the best tax settlement option for your specific needs, contact an experienced tax professional at www.professionaltaxresolution.com.

Another Tax Settlement Option – A Partial Payment Installment Agreement

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Due to the current economic climate, more taxpayers are finding themselves with significant outstanding tax debt. Many taxpayers owe both the Internal Revenue Service and their state (or states) for multiple years. Some taxpayers are simply overwhelmed by the numerous IRS Notices and Letters from the IRS that they receive. In actuality, there are numerous ways to resolve outstanding tax liabilities. However many taxpayers chose the worst choice of action; which is to do nothing. Taxpayers that simply do not respond to attempts to collect outstanding debts debt find themselves the subject of increasingly more aggressive collection efforts by the IRS and State tax agencies. Eventually the IRS and State tax agencies will resort to filing tax levies and tax liens on bank accounts and properties or start a wage garnishment in attempt to collect the outstanding tax debt. Unfortunately due to the amount of time that has passed since the initial notice, many taxpayers are shocked to find that the balances owed may have increased by 50% or more due to the various penalties and interest assessed.

A fairly new and less used IRS tax settlement option is the Partial Payment Installment Agreement. The IRS implemented this additional payment option, on January 17, 2005, specifically for taxpayers who have outstanding federal tax debt. The legislation includes language amending Internal Revenue Code and allows the IRS to enter into installment agreements that result in full or partial payment of the tax debt. What is so different is that prior to enactment of this 2004/2005 legislation, taxpayers who could not fully pay their outstanding tax liabilities could only enter into an installment agreement with the IRS for full payment of the liability. For those with limited monthly cash flow, this left some unable to meet the repayment plan criterion and put them at risk for default.

For those with an inability to pay the full balance of a tax debt, prior to the partial payment installment agreement, the only option to settle a tax debt was the Offer in Compromise. The process of submitting an offer in compromise is generally more involved than the partial payment installment agreement. Of course both tax settlement options are carefully reviewed by the IRS and acceptance is limited to taxpayers that can clearly demonstrate the inability to settle tax liabilities in full.

Taxpayers who are being considered for a partial payment installment agreement to settle an outstanding tax debt must be able to provide complete and accurate financial information that will be carefully reviewed and verified. Taxpayers will also be expected to use equity in assets to reduce or fully pay the amount of the outstanding tax debt liability.

In addition, taxpayers granted partial payment installment agreements will be subject to a complete financial review every two years. As a result of this review, the amount of the installment payments could increase or the agreement could be terminated, if the taxpayer’s financial condition improves.

While the partial payment installment agreement has drawbacks, it does provide taxpayers with another tax settlement option. A qualified tax settlement firm can help you evaluate your specific situation and present you with your options to revolve your outstanding tax debt.

Visit www.professionaltaxresolution.com for more information about the qualifications for tax debt relief through a partial payment installment agreement or other tax settlement options.