You’ve heard the radio advertising from companies promising to get you out of debt with the IRS. Just send them $10,000 and they will get you pennies on the dollar in debt settlement. Although there is a legitimate program that does allow the IRS to settle, it is narrow in its availability. Most advertised IRS help really isn’t, so here are your true options when you owe the feds:
When You Owe
Short Term Deferment This is basically a short-term (90 days) deferral to allow you to sell a kidney (joke, sort of) or borrow from your aunt. No enforcement is to take place until after the collection hold is released.
Payment Plan Generally if the debt can be repaid within six years and is less than $50,000 ($25,000 for a business) the IRS will set up an installment agreement. You must be current on all filings and you must stay current. Default ends the agreement and all taxes become due. All refunds will be applied to the balance.
Offer In Compromise (Part One) This is the one you keep hearing about. The IRS must accept a settlement equal to the lesser of your net assets or your ability to pay in five years. The squirrely thing about, though, is the IRS only calculates this as of when you formally enter into the agreement. Your subsequent financial situation doesn’t factor into it. Your net assets allow you to exclude some equity in your house, personal items (clothes), tools of the trade, etc. from the calculation. So if you are underwater on your home and have a bunch of credit card debt, you might qualify. Note that they base it on your net assets, not the liquidity of those assets, so if you’ve got some equity in your home, forget it, you’re not going to qualify.
Offer In Compromise (Part Two) The second option is to calculate what you can pay monthly. This is a fairly straightforward calculation, except that many of the expenses are limited by national standards. In other words, just because you have a large mortgage payment doesn’t mean you get to include all of it. Also, you don’t get to include anything except essentials, so sorry, no piano lessons. If your income drops in the future, you will have to submit another Offer in Compromise.
The Offer process doesn’t require a professional, but it does make it easier. The IRS is a stickler for the rules on these things and will often seek out any excuse to throw it out. Although it’s a good program in certain situations, most people have the assets to pay their taxes and will not qualify under this option.
Uncollectible Status If the IRS determines your tax is uncollectible they will place it in this category. They will send you an occasional letter reminding you that you owe the tax and they may come back and assess your situation again. They will probably file a lien on your assets, but other than that, they typically don’t actively collect it. The statute of limitations is 10 years from assessment of the tax. So, if you can wait them out, you’re home free! That doesn’t remove any liens on the property, however.
We Are Here To Help
Questions on your situation? Email me today at email@example.com. What to do When You Receive an IRS Payroll Letter? Let our experts help you with any of you bookkeeping, payroll or tax needs. Contact our offices in Oklahoma City: 405-720-1244 or Tulsa: 918-477-7650 to get the help you need.