As Benjamin Franklin famously quipped, “…nothing can be said to be certain, except death and taxes.” Although there are many ways to reduce your tax liability, there’s no such means of getting around them completely. And while the majority of taxpayers do their best to pay only their fair share, situations sometimes arise that hamper their ability to do so.
Fortunately, the IRS, FTB, BOE and EDD have programs in place to help those that need assistance with back taxes, interest, and penalties. While an outright abatement (reduction) is usually preferred by most taxpayers, not all taxpayers will qualify. When they do not qualify, the first options worthy of consideration include, settlement, an offer-in-compromise (OIC) or a payment plan (installment agreement).
While these kinds of offers do not completely absolve the individual or corporation of their tax liability, they can help to reduce total costs or extend deadlines for the final payment. And although anyone can request an OIC or installment plan or settlement on their own, working with a qualified tax consultant often makes the process less stressful and more productive.
If you or someone you know needs help filing an offer-in-compromise or installment agreement or settlement offer, contact Rex Halverson & Associates at (916) 444-0015. We provide in-depth tax consulting and advocacy services and have been helping California taxpayers for more than a decade.
Contact us today to learn more about the services we provide and experience first-hand the difference working with true tax professionals can make.
Settlement, OIC and Installment Agreement Qualifications
When it comes to qualifying for settlement, an offer-in-compromise or installment plan, the IRS and FTB normally follow a predetermined set of guidelines. Although the specifics of each case varies, most successful compromise agreements fall under three main categories:
Doubt as to Liability – if the taxpayer believes the taxing authority is wrong or in error regarding the law or the taxes due after an audit, the taxpayer may have grounds for requesting a settlement.
Doubt to Collectability – when a taxpayer does not have the resources to pay the full tax amount due, but can afford to submit a partial payment in good faith, the offer in compromise or installment agreement are good alternative options
Effective Tax Administration (ETA) – if either of the two previous rules don’t apply, but the taxing authority believes demanding or collecting payment would be unfair or unethical due to extenuating circumstances, ETA becomes an option. Special circumstances could include: medical illnesses, financial hardships, or natural disasters.
In order for an offer-in-compromise to be considered in federal income tax cases, the taxpayer must complete and submit IRS forms 656 and 433-A for individuals, or 656 and 433-B for businesses. You are also required to submit a $186 processing fee and your initial payment at the time of filing.
It’s important to note that form 433 is tantamount to a financial statement and takes into account all income, savings, equity, personal property and expenses. You will be required to submit monthly household bills, bank and brokerage statements and information regarding the vehicles and property you own, including, home equity, jewelry, etc. in order to have your request even considered.
This can be a time-consuming and is often an exhausting exercise for the average taxpayer. Worst of all, allowing such unprecedented access to your financial records may give taxing authorities even more ammunition in their case against you. Before filing, it’s best to speak with a qualified tax professional to understand your rights and weigh your options.
Installment Plan Requirements
The process of requesting an IRS installment plan is much simpler. Individuals owing less than $50K in back taxes or penalties – and businesses owing less than $25K – need only submit an online request to get started.
Those owing more money will need to complete IRS forms 9465 and 433F before initiating the process.
Also, it goes without saying that you need to be in otherwise good standing with the agency (no tax delinquencies, or missed returns or late estimated quarterly tax payments) in order to qualify for either the OIC or IA programs. Those with past due accounts are rarely, if ever, successful in qualifying.
Taxpayers also need to carefully consider the final offer they will be submitting. Many believe that by offering to pay a higher monthly rate the taxing authority will be more likely to accept their offer. However, trying to pay more than you can reasonably afford can spell trouble down the road.
Late or missed payments can nullify any agreements you’ve previously made and end up putting you right back where you started. Most people don’t accumulate a large tax liability overnight, and won’t be able to pay it off that way either.
While not every offer-in-compromise is accepted right away, that doesn’t mean you’re completely out of luck. If your offer is rejected, the IRS must provide a report stating why. Reviewing this information will identify where both sides failed to meet and can be used to submit another, more favorable offer in return.
You can submit informally by sending a letter to the case reviewing officer within 30 days of the rejection notice. If you wait longer than a month, or if your financial circumstances change dramatically, you will need to complete another new request form.
If you are denied afterwards – and still truly believe you have a valid case – then filing for an appeal is the last option. To do so, you must complete IRS form 13711 and include the full details of why you think the officer’s decision was wrong.
Again, Appeals is the last resort, and should only be considered once other less formal methods have been exhausted.
Choosing a Tax Consultant
Settlements, offers-in-compromise and installment plans are great options for those looking to reduce their immediate tax liability. However, knowing how to best complete the necessary forms and negotiate with the taxing authorities is critical in being able to resolve your case.
Working with an experienced tax consultant can greatly expedite the process and often lead to a better overall outcome at the same time. In Sacramento and throughout California, few are better prepared to offer tax advice than Rex Halverson & Associates. We’ve helped countless California taxpayers resolve their most pressing tax issues and we can do the same for you.
Our office provides both tax consulting and advocacy services for our clients and has a proven track record of getting results. If you or someone you know needs help with a tax liability issue, call us today at (916) 444-0015 to setup your free initial consultation.
We serve both businesses and individual taxpayers and can provide answers to your most complex tax questions. Stop guessing and worrying and take the first step towards resolving your tax issue once and for all.
Contact us today to get started.