Installment Agreement in Default
Many taxpayers who are on an installment
agreement with IRS default their agreement and don't know why. Before you sign an
installment agreement, make sure to read all the fine print. Most installment agreements
are violated when taxpayers place their return on extension, or owe additional taxes.
In order to be in compliance you must file
your return by April 15. (You cannot be on extension while making installment payments.)
You must be in compliance, which means no unpaid taxes after filing your return.
Offer-in-Compromise
If you have a severe financial problem and
cannot pay back taxes, IRS will consider accepting an offer. The smaller amount of tax
owed, the harder it is to get IRS to settle. However, there are set formats that IRS uses
to calculate the amount which IRS will settle for.
In what is perhaps the most significant
change to date in the ongoing revamping of the Offer in Compromise program, the IRS has
released temporary and proposed regulations which for the first time allow the IRS to
provide relief to taxpayers for whom collection of their entire tax liability would create
economic hardship.
Recent law changes have mandated greater
flexibility in the Offer in Compromise program. Congress has directed the IRS to
consider factors other than doubt as to collectibility in determining whether to accept an
offer to compromise.
Factors such as equity, hardship and public
policy must be considered in certain circumstances where that consideration will promote
effective tax administration.
While the new temp regs continue the
traditional grounds for compromise based on doubt as to liability or doubt as to
collectibility, they also allow a compromise where either (1) collection of the liability
would create economic hardship, or (2) exceptional circumstances exist such that
collection of the liability would be detrimental to voluntary compliance.
The regs outline several possible examples
where a taxpayer might qualify for economic hardship:
-
Taxpayer is incapable of
earning a living due to long-term illness, medical condition, or disability and taxpayer's
resources are reasonably foreseen to be depleted.
Taxpayer's dependent has a
long-term illness, which will require the taxpayer to use assets to provide basic living
expenses and medical care.
Liquidation of taxpayer's
assets to pay outstanding tax liabilities would render taxpayer unable to meet basic
living expenses.
Other provisions should be reviewed as
well. Offers in Compromise must be submitted on Form 656. Form 656 is used in
all cases, whether the amount of the offer is tendered in full at the time of filing or
whether it is to be paid by deferred payment or payments. The IRS will require
taxpayers who are seeking compromise offers based on the new guidelines for economic
hardship/equity factors to submit released Form 656-A in addition to Form 656. When
a taxpayer submits Form 656-A, the IRS must first determine whether a taxpayer is eligible
for one of the traditional Offer in Compromise options. If the taxpayer is not, the
IRS will consider the application under the economic hardship provisions.
Contact one of our tax professionals and let
them assist you with the offer. Never try this on your own.
