Do you feel that dealing with the IRS is hectic, time-consuming, and difficult? You are certainly not alone. The letters IRS strikes fear in the hearts of many Americans, including small businesses. The Internal Revenue Service is notorious for garnishing wages, seizing assets, and placing liens on private property in order to obtain the money that is owed to them.
“Settle for Pennies”
People may have told you that you can settle your taxes for “just pennies on the dollar”. In reality, however, it is extremely difficult to get the IRS to settle your taxes at that low of a rate.
This does happen from time to time, but only when that person has extremely limited assets and cannot produce the funds needed to pay the full amount in reasonable time, whether through payments or a lump sum.
Offer in Compromise
Most of these commercials are offering to help you with a “OIC”, short for an Offer in Compromise. Again, the IRS will only accept an OIC as a compromise if you are able to convince them that you have limited assets and low income. It is your responsibility to come up with a “Minimum Offer” as part of an OIC.
This is the minimum amount that may be acceptable to the IRS. The lowest amount that the IRS will accept will be calculated from your IRS Form 433-A (for individual taxpayers) and also Form 433-B (for businesses). This form will have fields to input cash, investments, credit available, income, and total debts.
To make qualifying for an OIC even easier, the IRS has recently expanded their “Fresh Start Initiative”. With these new rules, a taxpayer is not required to show the IRS “extensive” financial details to judge their ability to pay off their tax bill.
Not Currently Collectible
You can also inquire about placing your tax status as “Not Currently Collectible”, where the IRS agrees not to collect on any previous taxes for roughly 1 calendar year.
If you have no ability to pay off your debt, you will most likely be given the status of “Not Currently Collectible”.
This is an extremely useful tool since this will buy you valuable time to file a collection appeal and to also stop the IRS and any levies, liens, or asset seizures.
If you are unable to come to a compromise with the IRS, another option may be to file for Chapter 7 bankruptcy. A bankruptcy CAN discharge older income tax debt that qualifies. Taxes must meet the following guidelines before they may be forgiven
- The taxes are on wage-based income or gross receipts (business)
- The taxes were due at least 3 years before bankruptcy
- You did not commit fraud to evade tax payments in the year questioned
If the IRS has gone ahead and filed a “tax lien”, your case will become much more complicated. A tax lien turns the tax amount into an “obligation” that will not be removed, regardless of bankruptcy.
Even if this debt was once dis-chargeable, the IRS now has the authority to collect that amount post-bankruptcy.