Reduce Back Taxes Thru Installment Agreements with Offer in Compromise
There are different Installment Agreements you can qualify for:
Guaranteed Installment Agreement: This is the easiest agreement to obtain. This installment agreement is guaranteed until you meet the criteria set forth by the IRS. The requirements are as follows:
- Taxpayer owes less than $10,000
- Taxpayer is not able to pay the debt in due time
- Tax liability must be paid within 3 years
- Taxpayer must pay a minimum amount
Under the Agreement a federal tax lien is not filed by the IRS against the taxpayer.
Partial Payment Installment Agreement: This form of installment agreement allows the taxpayer to pay less than the total amount due over an agreed period of time. For making payment under this type of installment agreement, the taxpayer will have to complete a financial statement (Form 433-F), which reflects your income and expenses. Thereafter, the IRS will review your financial picture and if it appears to the IRS that the taxpayer has other property which can be sold to satisfy the tax debt, the Service may require you to sell the property. If a partial payment installment agreement has been approved, the taxpayer will have to renew their financial information every two years. If your financial status improves the Service can either terminate the agreement or increase your tax obligations.
Non- Streamlined Installment Agreement: The following requirements must be met:
- If your tax liability is greater than $25,000 or more and you can pay the amount due within 72 months.
- Form 433-F, Collection Information Statement is required to be filled by the taxpayer. The Collection Information Statement (Form 433-F) collects information about debts, living expenses, income and allows the taxpayer the ability to propose an amount for the payment plan.
Direct Debit Installment Agreement: Under this installment agreement the payment is directly withdrawn from your bank account. This type of installment agreement available to the taxpayer whose tax liability is $25,000 or less.
Verified Financial Installment Agreement: The taxpayer who owes more than $25,000 in tax and is not willing to pay by direct debit. This installment agreement is also available for taxpayers who owe more than $50,000 which is required to be paid by direct debit.
Will the IRS file A TAX LIEN ON PROPERTY under my INSTALLMENT AGREEMENT?
The IRS can place a tax lien on your property during the installment agreement period in order to secure their position.
Do I have APPEAL rights if the IRS REJECTS my INSTALLMENT AGREEMENT?
You may appeal the IRS’s decision within 30 days if your installment agreement is not accepted by IRS.
THE OFFER IN COMPROMISE PROGRAM
An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability, or doing so creates a financial hardship. The Service considers your unique set of facts and circumstances:
- Ability to pay;
- Expenses; and
- Asset equity
The Service generally approves an offer in compromise when the amount offered represents the most the Service can expect to collect within a reasonable period of time.
Make sure you are eligible
Before the Service can consider your offer, you must be current with all filing and payment requirements. You are not eligible if you are in an open bankruptcy proceeding.
Submit your offer
You’ll find step-by-step instructions and all the forms for submitting an offer in the Offer in Compromise Booklet, Form 656-B (PDF). Your completed offer package will include:
- Form 433-A (OIC) (individuals) or 433-B (OIC) (businesses) and all required documentation as specified on the forms;
- Form 656(s) – individual and business tax debt (Corporation/ LLC/ Partnership) must be submitted on separate Form 656;
- $186 application fee (non-refundable); and
- Initial payment (non-refundable) for each Form 656.
Select a payment option
Your initial payment will vary based on your offer and the payment option you choose:
- Lump Sum Cash: Submit an initial payment of 20 percent of the total offer amount with your application. Wait for written acceptance, then pay the remaining balance of the offer in five or fewer payments.
- Periodic Payment: Submit your initial payment with your application. Continue to pay the remaining balance in monthly installments while the IRS considers your offer. If accepted, continue to pay monthly until it is paid in full.
If you meet the Low Income Certification guidelines, you do not have to send the application fee or the initial payment and you will not need to make monthly installments during the evaluation of your offer. See your application package for details.
Understand the process
While your offer is being evaluated:
Your non-refundable payments and fees will be applied to the tax liability (you may designate payments to a specific tax year and tax debt);
- A Notice of Federal Tax Lien may be filed;
- Other collection activities are suspended;
- The legal assessment and collection period is extended;
- Make all required payments associated with your offer;
- You are not required to make payments on an existing installment agreement; and
- Your offer is automatically accepted if the IRS does not make a determination within two years of the IRS receipt date
- You must meet all the Offer Terms listed in Section 8 of Form 656, including filing all required tax returns and making all payments;
- Any refunds due within the calendar year in which your offer is accepted will be applied to your tax debt;
- Federal tax liens are not released until your offer terms are satisfied;
- Certain offer information is available for public review at designated IRS offices
- You may appeal a rejection within 30 days using Request for Appeal of Offer in Compromise, Form 13711 (PDF).
- The online self-help tool may provide additional assistance on appealing your rejected offer.