With a mountain of tax forms, rules, and new tax regulations it's tricky to decipher the US tax code to find the best way to solve your tax debt issue. If you want to solve your tax debt problem, you'll need to find the right Tax Forms to apply to one of the many IRS debt programs. It is best to consider working with a tax professional so you do not run the risk of making your situation worse by submitting the wrong tax forms or giving too much information. Two of the most common IRS debt relief programs are:
- Offer in Compromise
- Currently Not Collectible
By understanding the requirements for each of these IRS tax debt programs, you will be able to locate the correct tax forms quickly in order to pay your back taxes.
Offer in Compromise: Tax Forms 656-BAn Offer in Compromise (OIC) is a settlement agreement between the IRS and the taxpayer for an amount less than the original tax debt owed. This is one of the most difficult settlements to be approved for. If the IRS believes you have the ability to pay your tax debt in a lump sum or in installments then it will reject your Tax Forms 656-B Offer in Compromise application.
The IRS measures what you are able to pay through its Reasonable Collection Potential (RCP) calculation. This calculation includes the value of your assets (both liquid and non) and your anticipated future income. As a rule, you should not submit an offer that is less than your RCP average.
Acceptable CasesThere are three grounds under which the IRS may accept your OIC application:
- Doubt as to Collectability: The IRS has doubts you will ever be able to pay the full tax debt within the statute of limitations.
- Doubt as to Liability: There is a legitimate claim the tax debt amount isn't correct because:
Exceptional Circumstances: The first two reasons do not apply to the taxpayer, but there are extenuating circumstances, like Hardship, that would make the IRS accept an OIC.
- The examiner made a mistake when interpreting the tax law.
- The examiner did not properly consider the evidence presented by the taxpayer.
- The taxpayer has new evidence to support this claim.
Payment OptionsWhen submitting your OIC, you will have to pay a $150 application fee along with the initial payment. You will also have to choose the way you want to pay your tax debt within the OIC settlement.
There are two choices:
- Payment Option 1: The IRS settlement offer has to be paid within five or fewer installments. Also, a non-refundable payment of 20 percent of the offer must be paid upon submission of Tax Forms 656.
- Payment Option 2: The IRS settlement offer must be paid within 5 months of acceptance. The first payment and the application fee are due upon filing Tax Forms 656.
Applying for an Offer in Compromise is a very complicated program to apply for. If this is the route you think is best for you, visit a tax professional to help with the paperwork, and make sure your finances match the criteria the IRS bases its judgment on.
Currently Not Collectible: Tax Forms 433-A & 433-FCurrently Not Collectible (CNC), or "Hardship Status", is a program for taxpayers with no ability to pay their back tax debt. The IRS will use the information gathered in "Collection Information Statement for Wage Earners and Self-Employed Individuals" Tax Forms 433-A to determine what you are able to pay on your tax debt monthly. The IRS uses strict guidelines as a basis of their determination. Essentially, you are only able to pay for basic living necessities and nothing else in order to qualify for CNC.
Using Tax Forms 433-F you are able to show the IRS a detailed account of your finances as proof you are not able to pay your tax debt. Once the IRS puts you in CNC status, all collection actions against you will stop. This status does not eliminate what you owe in back tax. In fact, you will receive annual debt statements from the IRS, as well as have a review every two years to determine if your financial situation has changed. Also, while in this status you will need to stay fully compliant by filing your tax returns on time every year. You will not receive any income tax refunds, as those will go directly to paying your tax debt.
If you have tax debt and are having difficulty completing the tax forms for the appropriate IRS program, you may want to choose a tax professional to help file the tax forms for you. You cannot risk making a mistake when you're not in compliance. Also, visit our IRS Forms page for even more information on IRS debt relief programs.
Remove your IRS Tax Debt by giving us a call today! Our tax debt professionals include enrolled agents and tax attorneys, proficient in tax law and completing IRS tax forms.