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10 Tips Regarding IRS Tax Settlements

It is often said that the Internal Revenue Service is the toughest debt collector in the United States. Indeed, the IRS does have strong tools with which to extract money owed the U.S. Treasury for federal taxes. There are some situations, however, when taxpayers can enter into IRS tax settlements for less than the total amount of tax owed, provided the taxpayers meet specified guidelines. One of the IRS tax settlements available to taxpayers is the “Offer in Compromise” or OIC program.

Confusion and Misinformation Abound Regarding IRS Tax Settlements

Unfortunately, a significant level of misinformation currently circulates regarding IRS tax settlement policies, particularly those associated with the OIC program. Here are 10 useful tips regarding IRS tax settlements.

1. The OIC is an important tool to help people in limited circumstances; taxpayers are eligible only after other payment options have been exhausted. Only the IRS can determine if a taxpayer fully qualifies and what percentage of the tax owed will be forgiven. You can read the IRS Offer in Compromise (Form 656) Booklet for more guidance.
2. Under the IRS Fresh Start Initiative, the OIC program has been expanded to cover a larger group of struggling taxpayers. Generally speaking, the IRS will not accept an OIC if it believes the taxpayer’s liability can be paid in full, either as a lump sum or through an installment agreement. Getting approval for an OIC can take time; typically, getting a settlement approved takes nine to 12 months.
3. An important prerequisite to OIC approval is that the taxpayer has filed all tax returns that are currently due. The IRS strongly takes the position that it must have a complete picture as to the taxpayer’s liability and ability to pay. That can’t be determined if one or more returns remain unfiled.
4. Before approving the OIC, the IRS evaluates your finances. Your compromise offer must reflect the reality of your financial situation. If you have substantial equity in a residence and only offer pennies on the dollar, the IRS will not approve the OIC.
5. Your sense of financial stress may not agree with the assessment of the situation by the IRS. From the perspective of the IRS, living paycheck to paycheck or being saddled with credit card debt does not mean that it will agree to repayment of only a small percentage of the tax due.
6. Taxpayers must pay taxes as they come due while the OIC is under review by the IRS. Any notion that the submission of an OIC postpones liability for current taxes is erroneous.
7. If the IRS rejects your OIC application, you can appeal the decision. In most cases, having your offer examined by a qualified attorney or tax professional is essential if you want the decision overturned. The appeal must be filed within 30 days of the denial of the OIC by the IRS.
8. On average, one third of OIC offers are accepted by the IRS. Rejections are often due to the taxpayer’s submission of inadequate information. OIC offers that have been prepared with the assistance of a tax attorney stand a much better chance of approval.
9. If the IRS rejects your OIC application, you can re-apply.
10. While you may be handy with car repairs or with do-it-yourself projects around your home, making your own way through the OIC minefield is difficult and fraught with problems. In most instances, retaining an experienced tax attorney is the key to success.

Mackay, Caswell & Callahan P.C. – Experienced New York Tax Attorneys Ready to Help

Do you owe back taxes and are unable to pay them? Have you considered an Offer in Compromise? Have you completed preliminary research to determine if you think you qualify under the IRS Fresh Start Initiative? If so, contact one of the Upstate New York tax attorneys or New York City tax attorneys at Mackay, Caswell & Callahan P.C. today.

We have offices in Albany, New York City, Rochester, Syracuse, Utica, and Watertown. We also have more than 30 years of experience handling all types of tax controversies, including offers in compromise. We’ve helped numerous taxpayers with their back taxes and tax deficiencies. We also have extensive experience in audit representation, collection defense, civil tax litigation, and criminal tax defense. We are committed to achieving the best results for our clients as efficiently as possible, with straight talk and effective solutions. Call us or contact us using our online form today!