Three Tax Assistance Strategies

Posted by Jeffrey Siegel on March 8, 2017

Offer in Compromise

Many people have heard or seen advertisements from tax help firms tax speak of settling back tax debt for “Pennies on the dollar”. The program these advertisements are referring to is called the offer in compromise.

While in some cases is really is possible to have this successful outcome, a debt stricken taxpayer should know they will have to qualify for the OIC first. The next question asked of course will be “How do I qualify for the offer in compromise program?”

The IRS has very strict standards for who will qualify for an OIC.  The IRS is not allowing individuals to pay less than the amount owed because they are being nice, they are settling for less only because they would rather get paid sooner or they will not get any money at all.

As your experienced Kansas City Tax Attorney, we know the best way to solve the problem. To qualify for an OIC, the taxpayer must prove:

1 – Doubt as to liability – The taxpayer and attorney must show genuine doubt that the taxpayer actually owes the IRS;

2 – Undue Hardship – This one is more complicated, and depends on the circumstances.  I have seen the IRS grant a compromise even when enough money to pay was sitting in the bank; or

3 – Doubt as to collectibility – The most common avenue for many taxpayers to take. If there is doubt that the taxpayer could ever pay the full debt off before the allowable time for collection expires.

How much do you have to offer?  That depends on the taxpayers current financial condition, and your “reasonable collection potential” or RCP. This number will include the value of some of the taxpayer’s assets at a quick sale auction, available income after allowances the IRS makes for cost of living.

Once an OIC agreement has been successfully completed, it is crucial the taxpayer maintains the payment options in the agreement and remains fully compliant with all tax requirements for a period of 5 years.  If the taxpayer fails to do so, the IRS will nullify the agreement and the taxpayer will owe the original amount, with interest and penalties!

Penalty Abatement – Reduce The Amount Owed In Penalties and Interest

If unpaid taxes linger year over year, the resulting penalties and interest can really add up. The longer the interest is accumulation the greater the total tax debt will be. A taxpayer may be able to pay the original amount but cannot afford to pay the total with penalties and interest. It is for this reason taxpayers are sometimes granted penalty abatement. However just as in the offer in compromise program, the IRS has guidelines for who qualifies.

For Penalty Abatement, the taxpayer must show any of the following:

– They cannot pay off the full tax debt;
– This is an isolated incident and the taxpayer otherwise has acted in good faith;
– There is a reasonable cause or hardship.

The IRS will also look also consider the taxpayers history:  Did the taxpayer voluntarily comply or did the IRS have to force them?  The IRS will be less likely to “Play Ball” with a taxpayer if they have a history of being difficult and not paying the IRS.

In most cases the IRS will reject the first submission for Penalty abatement so it is important to have an attorney who will continue on with the appeal process.

IRS Installment Agreements – Pay Back Tax Debt In Smaller Installment Payments

For taxpayers who cannot pay off the total amount owed in one payment, but do not qualify for other tax liability reduction programs, an installment agreement may be the best way to go. An installment agreement works a bit like a credit card, pay off your balance a little at a time plus interest.

Call Jeffrey R. Siegel, your Kansas City Tax Attorney, at (913) 735-4829 for help with taxes you cannot pay.