If a payment plan, as discussed in last week’s post is not a desirable option, Minnesotans may want to explore an IRS tax settlement, often called an “Offer in Compromise,” which is similar to any other debt settlement agreement. The process requires the individual or business to submit one of two different completed forms and pay an application fee of $150. The taxpayer must also submit a cashier’s check or money order of at least 20 percent of the offer amount along with the application fee.
If the IRS approves the application the remaining amount of the offer must be paid in a maximum of five separate payments to the IRS. For this reason the offer amount must be feasible for the taxpayer to meet the payment requirements of the offer.
If you are an individual who qualifies as low income you are not required to submit any money with your application of an offer in compromise. Depending on the amount you owe the IRS you may want to consider hiring a tax professional to help you determine the settlement calculations as you may need to include all bank statements, assets and investment accounts along with liabilities and business expenses. A tax professional can review all your paperwork to determine if you qualify as low income.
A tax professional can also help you determine a settlement offer amount that has a greater chance of being accepted by the IRS.
If a person chooses to not file taxes or fails to communicate with the IRS regarding his or her tax debt, the IRS can levy taxes against the person’s home. They can also choose to freeze bank accounts, garnish wages and file a tax lien against your personal property if they feel it can be sold to pay off your tax debt. Your best bet is to deal with the issue up front and if your case involves thousands of dollars, a tax professional may be able to lower your tax debt significantly depending on the circumstances involved.
Source: Yahoo Finance, “First Person: IRS Payment Plan vs. IRS Tax Settlement,” S.L. Carroll, Feb. 7, 2013
Our Edina, Minnesota, tax law firm helps individuals address tax issues, including offers in compromise and establishing payment plans or installment agreements with the IRS.