Tax Debt Negotiation: All the Facts You Wanted to Know
Tax burdens aren’t new. However, the ongoing economic slump is plunging many Americans into tax debts. Fortunately, you can negotiate your way out of this burdening trap. Securing an Offer in Compromise (OIC) is one way of settling your tax debt below the owed amounts. However, you should demonstrate to the IRS that you can’t fully pay your debt without incurring crippling financial hardships. The IRS considers factors like your current income, expenses, and ability to pay.
This post comprehensively discusses tax debt negotiation to help you understand how it works and benefits you. You will also learn how professional tax relief services can assist you in the negotiation process. Keep reading to learn and benefit more.
Checking Your Eligibility
You must ensure you are eligible for an OIC because the IRS turns down all applications if an applicant hasn’t filed all the necessary tax returns. It returns all applications whose applicants made any required payment. The IRS also takes the application’s fees and uses them to pay an applicant’s outstanding balance. Additionally, you don’t qualify if you have an open bankruptcy proceeding.
Submitting Your Application
Here is how you need to apply for OIC. Start by finding and submitting the necessary forms. You must systematically fill the forms to include the following:
- Fill Form 433-A for OIC if you are an individual or Form 433-B for OIC if you are a business to include every required document the way each form stipulates;
- Individuals and small businesses must fill Form 656(s), while Corporations, LLCs, and Partnerships must fill and submit Form 656;
- Pay a non-refundable $205 application fee.
Understanding the Process
The negotiation process works simply. Here are the details of how it works.
- Every non-refundable payment and fee apply to the tax liability.
- Filing a Notice of Federal Tax Lien may be necessary.
- The process suspends every other collection activity on your account.
- The process extends the legal assessment and collection periods.
- Pay every necessary payment regarding your offer.
- Don’t pay anything on current installment agreements.
- The IRS automatically accepts your offer if it doesn’t determine it within twenty-four months after receiving your application.
Alternatives for Delayed Payment
It’s critical to know the available payment options following successful negotiations tax relief services helped you secure. These options determine the initial payment you make. The IRS offers different options for delayed payment. You can negotiate to pay your back taxes in any of the three ways listed below.
- An installment agreement that lets you pay the balance over an agreed period. Here, you pay our first installment and continue paying the balance monthly as the IRS reviews your offer.
- An OIC lets you pay a lump sum in cash less than the amount you owe. You have to submit the first 20% of the total offer amount with your application. After the IRS approves your application, you must pay the balance in five or fewer installments.
- You can request the IRS to delay collections temporarily until your financial fortunes improve.
However, this option isn’t the best because you will still pay the increasing penalties and interest till you clear the principal amount.
However, few exceptions to the above options exist. For instance, an applicant who meets the Low-Income Certification requirements won’t pay the application fee. Moreover, they don’t pay the first deposit or make any monthly installments during their offer’s evaluation.
Expect These Two Results
Your application is a two-edged sword that can go either way. You can receive a favorable or unfavorable response because the IRS can reject or accept your application. Below are the two outcomes you can get and how to respond to them.
You need to understand the following facts about this favorable outcome.
- All applicants should meet every offer term in Form 656’s Section 7, which includes filing every required tax return and paying all due amounts;
- Every refund due within the year the IRS accepted your offer shall apply to your tax debt;
- Every federal tax lien is withheld pending your offer terms’ satisfaction;
The IRS can reject your offer application. If it does, you can appeal the rejection within a month. The IRS also assists applicants in appealing their offer rejection.
Getting Professional Help
The good side of the whole story is that you don’t need to negotiate your way alone. A reputable professional tax agent can partner with you to negotiate the most favorable compromises or installment agreements. This option pays if you exercise due diligence to ensure you enlist a competent and credible firm.
(This article is contributed by Tax Group Center lnc., leading tax services company in USA)