IRS Compromise Help

Can You Add More Years to an Installment Agreement?

Tripp — Tue, 06 Apr 2010 04:34:25 +0000

One of the ways you can resolve your IRS tax liability is through an installment agreement (monthly payment plan). When you set up your installment agreement, the IRS requires that you include all of the tax years that you owe for in the installment agreement. So, for example, if you owe taxes, penalties and interest for 2005, 2006 and 2007, you must include all three years in the installment agreement. You could not set up an agreement for just 2006.

So, what happens if you have set up an installment agreement and you find yourself owing more tax this year than you can afford to pay back. Well, the simple answer is that you will be re-negotiating your installment agreement. If you file your taxes with a balance due and you are unable to pay that in full, you have defaulted on your installment agreement and if you take no action, the IRS could begin active collection activity against you. “Active collection” is best known as wage or bank levies/garnishments or seizure of assets.

When you’re in this situation, you should immediately call the IRS and let them know you owe for the current year and you need to include that on your tax return. You should have a copy of the tax return you filed handy so you can fax it to the IRS if necessary. Depending on the total amount you owe and how long ago you negotiated your payment plan, you may have to go through the whole process of sending in a financial statement and negotiating with the IRS for your payment plan, or, they may simply add that additional tax to your plan and let things carry on as usual. In my experience, however; the IRS always makes you present new financial information in the hopes that things have changed and they will be able to require a higher monthly payment in your installment agreement.

To File or Not to File…On Time

Tripp — Thu, 01 Apr 2010 20:46:09 +0000

Question:Should I go ahead and file my tax return even though I am unable to pay or should I wait until I can pay for my tax in full to pay for it? I guess I could file for an extension now and pay in October, right?

Answer: You should file your 2009 income tax return no later than April 15, 2010 unless you intend to file an extension. However, if you are going to owe the IRS you should pay the tax due by April 15, 2010 even if you plan on filing an extension. The extension simply grants you more time to prepare the return, but not more time to pay the tax due. If you wait to pay the taxes until you file your return, you will have to pay penalties and interest. If you are in the situation where no matter when you file your tax return you will not be able to afford to pay the tax, you should go ahead and file the return. This will at least save you the failure to file or late filing penalties that the IRS assesses for non-filed and late-filed tax returns. From this point you can begin to negotiate with the IRS about your tax liability and how you are going to pay that.

Submitting an Offer in Compromise

Tripp — Wed, 20 Jan 2010 03:39:38 +0000

What is involved in submitting an offer in compromise? Is it just a short application? Unfortunately, no. The process of submitting an offer in compromise is fairly tedious. It requires you to complete several in-depth IRS forms about your financial situation to help you (and the IRS) determine if you will qualify for an offer in compromise. You must also fill out the offer in compromise application (form 656). Along with you financial information you will be required to gather a minimum of three months bank statements, mortgage statements, and other bills and receipts to prove your monthly living expenses.

Once you have completed your paperwork, you must submit an application fee of $150.00 and a down payment of an amount determined by the type and amount you are offering to the IRS. Common down payment values are 20% of the offer in compromise amount if you are doing a lump-sum payment or the first month’s payment if you are making monthly installments on your offer in compromise.

When you submit your offer in compromise, I suggest that you mail it to the IRS via US Certified Mail, Return Receipt Requested so that you can prove the date the IRS received your offer in compromise. This rule applies to everything that you send to the IRS. I can’t tell you the amount of times that I have had to call the IRS on the carpet for dismissing/denying an offer in compromise because they claimed they did not receive a requested document and I was able to prove that they, in fact, did receive the documents on time.

Hope that helps with your offer in compromise submissions.

Question from a Reader: Will the IRS Usually Accept an Offer in Compromise?

Tripp — Thu, 12 Nov 2009 14:30:42 +0000

Recently, I was asked by a reader: “Will the IRS usually accept an offer in compromise when you owe taxes?”

“Usually” is probably not the right word. But, in the right circumstance, the IRS will accept an offer in compromise every time. You must show the IRS that you do not have the future income or the assets to pay for your tax liability in full before the IRS will accept your offer in compromise. This is done by providing the Form 433-A with the filing of your offer in compromise to show the IRS a total financial picture for your life. The only changes the IRS will make to this form is to ensure accuracy of the value of your assets, but more likely is that they will adjust your monthly living expenses – and by adjust I mean reduce – to be in line with the IRS national standard expenses. If you can show the IRS through the Form 433-A along with the other documents and substantiation that they require you to provide that you do not have enough future income or equity in assets to full pay your IRS tax debt then the IRS will accept your offer in compromise.

Offer in Compromise for Effective Tax Administration

Tripp — Wed, 11 Nov 2009 13:15:59 +0000

There are several different types of offers in compromise: doubt as to collectability (what we usually talk about and the most common type of offer in compromise which states that you simply do not have the money to be able to full pay your tax debt), doubt as to liability (where you believe you are not liable for the tax the IRS is trying to assess against you) and for effective tax administration. This offer in compromise based on effective tax administration comes into play when you know you owe the tax liability and you go through the financial information like in the offer based on doubt as to collectability and it appears you can full pay your tax liability. But, even though your financial declaration shows that you have assets and/or sufficient income to full pay your tax liability it would cause you an economic hardship.

So what does this mean exactly? Well, a common example would be a person who is advanced in age and has some severe medical problems that prevent him from working and earning an income beyond Social Security. While his home is paid for and he has a retirement account that if sold and cashed in, respectively, could pay for the tax liability he owes. However, if he cashes in his retirement account and sells his home he will be 100% relying on the federal and state governments to provide for ALL of his needs including shelter, healthcare, food, medication, medical care, and on and on. When you boil it down, this type of offer in compromise requires you to show the IRS why requiring you to full pay your tax liability would have such a negative impact on you.

Can I File an Offer in Compromise after Setting up an Installment Agreement?

Tripp — Tue, 10 Nov 2009 11:34:03 +0000

Setting up an Installment agreement can be a challenge, but it is also a great way to resolve some IRS cases. Very simply put, an installment agreement is a way to pay off your tax debt with a monthly payment plan. You may full pay your tax debt or you may not, depending on the amount you are paying each month and the time remaining for the IRS to collect against you. However, the very best way is when you can successfully negotiate an offer in compromise to settle your case for much less than you owe. People that I have worked with in the past have been wary of setting up an installment agreement (even when it was absolutely necessary to prevent or stop a levy from happening) because they did not want to foreclose the option of being able to file an offer in compromise to settle their IRS debt.

What I told them, and what I am sharing with you is that setting up an installment agreement does not prevent you from being able to submit an offer in compromise and resolve your case that way with the IRS. In some circumstances, this may just help you because it will already let you konw what type of financial information the IRS requires when submitting an offer in compromise and you may even have some of the forms required for an offer in compromise completed with only a little updating required before you can submit your offer in compromise.

Bottom line: the installment agreement will not prevent you from filing an offer in compromise.

Decision Timeline: How long until the IRS makes a Decision on my Offer in Compromise

Tripp — Mon, 09 Nov 2009 18:33:48 +0000

Question: I have filed an offer in compromise and want to know what the average time is for the IRS to approve my offer in compromise and finalize the process.

Answer: I’m glad that you have filed your offer in compromise and taken the first step towards resolving your tax problems with the IRS. The time for an offer in compromise to be resolved varies from case to case, but is generally a pretty long process. The typical offer in compromise takes about 9 months to complete. This includes the time it is being examined and potentially an appeal should your offer in compromise not be accepted the first go around.

Usually, after you file your offer in compromise it will take about a month for the IRS to send you a letter that states the IRS has received your offer in compromise and is going to be assigned to an offer examiner for review. About 30 days after that you will receive a letter from the offer examiner requesting more information or clarification on the information that you sent the first time. After that, the time will depend on the complexity of the issues in your case and whether you are asking the IRS to depart from any standard expenses or to overlook any assets to grant your offer in compromise.

Sometimes having the extra time comes in handy when you are having to wait on documents from a bank or mortgage company to send to the IRS, but on the other hand it can be kind of frustrating when you are just really ready to get the case over.

While there is no real time table in place for the review of your offer in compromise a law that went into effect in 2006 requires the IRS to finalize the review of your offer in compromise within two years of your filing the offer in compromise or the offer is automatically accepted. While many cases take a long time (well over a year) to complete, I have never had get accepted because the two years passed.

Levied without Notice – Say What?!?

Tripp — Thu, 05 Nov 2009 21:01:10 +0000

I met with a prospective client recently who was having their paycheck garnished by the IRS and didn’t know that it was coming. He was mad to say the least. Upon questioning him a little more, I found out that he had several years of unfiled income tax returns and had moved several times in the past three years.

The IRS is not required to track you down – though they probably could. The law just requires them to give you notice at your last known address and since he had moved several times since he filed his last tax return, the IRS obviously did not have his current address. If you have moved and haven’t updated your address recently you can send in the IRS Change of Address Form to make sure you receive notices from the IRS in the future.

Now, just because the IRS has started with a wage levy doesn’t mean that we have reached the end of the road. There are ways to get the wage levy reduced or stopped all-together. That’s for another post.

Worried About IRS Wage Levy after Setting up an Installment Agreement

Do I Have to Pay Money when I Submit my Offer in Compromise to the IRS

Tripp — Sun, 25 Oct 2009 03:17:52 +0000

In the good ole days you could submit your offer in compromise to the IRS and it wouldn’t cost you anything except a filing fee. So, it didn’t matter how much you were offering to settle your tax debt with the IRS you knew that you were going to have several months before the IRS accepted your offer in compromise and then you would have several months after your offer in compromise was accepted to pay it in full. Things changed in 2006.

In 2006, the code was changed and a prepayment requirement was added. Now, when you submit your offer in compromise to the IRS you must pay a $150.00 application fee along with some payment towards your offer in compromise. The payment you have to make depends on the amount and type of offer in compromise you are making.

If you are making a lump sum offer in compromise payable within five months from acceptance of your offer, you must submit a 20% down payment with your offer in compromise.

If you are offering to make installment payments for 24 months, you must make the first month’s payment with your offer in compromise and continue making those payments throughout the entire time your offer in compromise is being considered.

These payments are non-refundable, so if your offer in compromise is rejected by the IRS then they will keep this money and apply it to your income tax debt. You can request what years you want your payments to be applied to when you submit them. If you do not request the payment to be applied in a specific way, the IRS will apply it in the way most beneficial to the IRS.

While 20% or the monthly payments may not sound like much, in my time representing clients with tax problems before the IRS I have noticed that many times the 20% requirement is the difference in whether the taxpayer will be able to afford to submit their offer in compromise or not – even if the overall offer in compromise would save them thousands and thousands of dollars.

The only exception to this is if your income meets the poverty guidelines as set out by the IRS in the Form 656 – Offer in Compromise publication. If you satisfy these requirements, you will be required to submit an affidavit stating your income and how it qualifies for not having to pay an application fee or down payment and then the IRS will consider your offer in compromise without the money.

If you do not qualify for that exception and you do not send the correct amount of money with your offer in compromise, you can rest assured that your offer in compromise will be returned to you without any consideration by the IRS.

Length of Time IRS Debt can be Collected

Tripp — Thu, 22 Oct 2009 02:16:03 +0000

There are several statues of limitations when it comes to how long the IRS has to collect tax debt from you. The first statute of limitations you have to worry about is the time the IRS has to go back and examine (or audit) your income tax return. The IRS has three years from when your tax is assessed to audit your return. That means, if you filed your 2008 tax returns on time, before April 15, 2009, the IRS will assess your taxes on April 15, 2009 and they have until April 15, 2012 to audit that return. If they do not audit your 2008 return by that time then you don’t have to worry about them coming after you for that period.

The second, and probably the most important statute of limitations to you, is how long the IRS has to collect the tax from you. The IRS has 10 years to collect your income taxes. If they do not collect the income taxes from you within ten years from the date your taxes are assessed, then your tax debt – no matter how much – will be forgiven. The key to this statute of limitations, however, is when your taxes are assessed. Your taxes are assessed shortly after your tax return is filed. If you file before April 15 each year, your taxes will be assessed on April 15 since that is the due date. If you file your income tax returns late, however, your date of assessment will be after you file the return.

The clock will start to run on how long the IRS has to collect that tax as soon as the tax is assessed. So approximately 10 years after you file your income tax return your IRS tax debt will be discharged.

While this sounds great, especially if it has been 9.5 years since you filed your income tax returns that you owe for, there are some things that can lengthen your statute of limitations to give the IRS more time to collect from you:

If you filed a fraudulent return. The IRS can come after you from now until eternity if you have filed a fraudulent return. Not only do you have to worry about owing the IRS money for your tax debt in this situation, but you may have to worry about some jail time as well. Do not do this!
Filing an Offer in Compromise, Bankruptcy, or Collection Due Process Hearing Request: Any time collections are stopped for one of these reasons the statute of limitations for collection of your income tax debt is also paused. So if it takes 9 months for your offer in compromise to be considered and denied, then your ten years will have another 9 months added on to the end. This is also true when you have filed for bankruptcy or for a collection due process request with the IRS.

So, to wrap up this post, I want to give you a quick tip for success with your tax problems. Always file your income tax returns on time. Not only will you reduce the penalties that you might rack up if you owe the IRS more than you can afford to pay, but you can also get the clock started on your collection statute of limitations.

I also want to point out that there is separate statute of limitations for collection for each tax year that you file. That means that your statute of limitations for your 2007 return will be separate for the statute of limitations for your 2008 return. Also, if you owe for your return and you are audited and the IRS assesses additional tax against you, that additional assessment for the same period will have a different statute expiration date – which as you know from the opening paragraph to this blog post could be up to three years later.