When You Owe the IRS Money
By Houston TX CPA Jim Trippon, on the web at www.CPAHoustonTX.com
It never pays to ignore the IRS if you owe them money. We get new clients in our Houston TX CPA firm all the time, who come to us after learning the hard way about how dangerous ignoring the IRS can be.
In the event that a tax payer does not proactively seek to settle their IRS debts, several bad outcomes could result including wage garnishment, liens on real estate and/or real property, seizure of financial assets and personal property and business seizure, each designed to settle outstanding liabilities.
If you currently owe back taxes to the IRS, you may have settlement options available to you. In most instances, the IRS is willing to work with taxpayers to prepare a fair and equitable settlement for back taxes owed. In order to benefit from the IRS settlement or negotiation options available, you must effectively communicate your financial situation to the organization.
Some available IRS settlement options include:
- A short term extension
- Negotiating new or existing payment instalment agreements
- Negotiating an Offer to Compromise agreement
- A waiver for interest charged or accrued on unpaid tax liabilities
Financial standards are utilized by the IRS to determine an individual tax payer’s ability to repay outstanding liabilities. The IRS relies upon information provided on behalf of the individual taxpayer to determine not only their current financial situation, but a reasonable repayment or settlement plan for the outstanding liabilities owed.
The Houston CPA firm of Trippon & Company can work with you in a proactive manner to not only collect necessary financial information and to complete all required IRS forms, but to negotiate the best settlement option available for your given financial situation.
About the Author: Jim Trippon CPA is the founder of J.M. Trippon & Company, PC a CPA firm in Houston, Texas that works as a CPA for Houston Texas taxpayers and their families. For more information, or for help with IRS negotiations or a CPA initiated tax settlement in Houston, please contact Houston TX CPA Jim Trippon at 713-661-1040 or visit our website at www.CPAHoustonTX.com.
IRS Payment Plans
If you currently have outstanding debts to the IRS, you are likely seeking available repayment options. Two primary forms of IRS debt settlement available to individuals and businesses include a partial payment instalment plan and an Offer to Compromise.
While both payment options offer advantages and disadvantages which should be carefully considered, requesting a partial payment option for your back taxes is often an easier and less time consuming option than requesting an Offer to Compromise.
Here are several common IRS payment plan options available to individual taxpayers:
Partial Payment Instalment Plan- A partial payment instalment plan allows the debtor to make ongoing monthly payments toward their prior debt. These payments do not pay the entire amount owed in full. Instead, when the instalment payment plan has successfully been completed, the remainder of the debt is forgiven by the IRS. A partial repayment plan is one option available to individuals and businesses with outstanding IRS debts.
Small Dollar Repayment Plans- In the event that the individual taxpayer’s tax liability of less than $25,000, a 60 month repayment plan option may be available.
Offer to Compromise- An offer to compromise allows the individual taxpayer to repay a lesser amount to the IRS than is currently owed.
Choosing which payment plan to attempt to settle with the IRS and working through the process can be a daunting task for individual taxpayers. In order to effectively negotiate an IRS repayment plan, it is essential that the individual tax payer partner with a tax professional.
IRS Collection Abatement
Abatement refers to a reprieve from paying outstanding liabilities, or a reduction in the total outstanding debts owed faced by an individual or business. When managing outstanding tax liabilities, there are several issues which an individual taxpayer must address, including the total collection amount, settlement options and any penalties or interest being charged on the outstanding balance.
Interest and Penalties
Two of the most common problems individual taxpayers experience when it comes to outstanding tax liabilities are interest and penalties. Penalties accrue when a tax liability is either paid late or a return was filed late. Interest accrues on both the tax liabilities and penalties owed from the day that they become considered late. Penalties and interest are two distinct IRS issues.
Interest and Penalty Abatements
In order to achieve penalty abatement, the individual taxpayer must show that they meet a reasonable cause standard. Interest abatement is typically more challenging to achieve than penalty abatement. But, the IRS can abate, or refund, interest charged to a taxpayer caused by IRS errors or delays.
Due to a variety of circumstances, individual taxpayers may be unable to pay their outstanding liabilities for a temporary period of time. An IRS collection abatement can successfully provide the taxpayer relief from their payment obligations until such time that they regain the financial wherewithal to resume their instalment payments.
Successfully achieving an abatement with the IRS for outstanding tax liabilities can effectively work to reduce the total amount owed by the taxpayer and to provide relief during times where the taxpayer is unable to continue their instalment plan.
One of our qualified tax professionals can work with you initially to achieve a collection abatement, and then can determine whether or not penalty or interest abatements are warranted.
IRS Collection Abatement
In some instances, individual taxpayers are unable to repay their instalment payments to the IRS. Abatement may be available to the taxpayer if they can provide proof demonstrating that they have displayed reasonable efforts to repay their financial obligations. While this form of abatement is difficult to receive, it is an option worth consideration during times of financial hardship.
The first step in this process is a petition filed by the individual taxpayer requesting an abatement. A written petition is recommended. An IRS appeals officer will review this initial information.
Next, the taxpayer will be requested to repay the tax liability in full, including any and all applicable interest and penalties as a formality. In the event that the taxpayer is unable to make such a payment, their situation will be reviewed for possible abatement.
There is currently a short list of possibly causes for an abatement to be awarded, including:
- Acts of God
- Ignorance of the Law
- Errors or Mistakes Made
- Serious Illness or Death
- Inability to Obtain Records
- Fire, Natural Disaster or Casualty
Finally, the individual taxpayer must bear the burden of proof. They must provide sufficient evidence supporting all facts and circumstances surrounding their current financial situation in support of their request for abatement.
This process can be challenging for individual taxpayers to navigate through. And, if the IRS does not find that the individual taxpayer has reasonable cause for not being able to meet their financial obligations, they will deny the request for abatement.
To understand more about abatement and whether it is a viable option for your given financial situation, contact one of our tax professionals.
Challenging an IRS Collection Notice
If you have received a notice of deficiency, the IRS is suggesting that you owe additional taxes. You have the option to challenge this notice. It is important to note that if you do not challenge this notice in the time frame allotted, the decision will become final and you will be required to pay the amount in full, even if you do not owe the amount due.
The Internal Revenue Service Restructuring and Reform Act of 1998 provides collection due process rights for individual taxpayers. While a taxpayer is appealing their collections, the IRS is unable to enforce liens and levies under this Act. The collection appeals program (CAP) was created to provide an avenue for individual taxpayers to appeal problems with the procedural process. The collection due process is not designed to address issues surrounding an individual taxpayer’s financial hardship, but rather issues with the collection process.
One option available to challenge the IRS collection notice it to file a petition for redetermination of the tax deficiency. The processes and procedures for filing IRS collection notices must be strictly adhered to.
If you have questions regarding how to challenge an IRS collection notice that you feel is incorrect, contact one of our tax professionals today to discuss the matter.
IRS Collection Requests
When preparing an Offer to Compromise for the IRS, two forms are essential- 433a and/or 433b. Individuals are required to file form 433a, businesses to file 433b and self-employed individuals to file both.
Form 433a is a information collection statement for wage earners and self-employed individuals. Form 433a is critical for documenting an individual’s unique financial situation. The information offered to the IRS on this form will be utilized to determine reasonable collection potential on an individual’s current tax liabilities.
The information reported on form 433a will include the following:
- Personal Information
- Business Information
- Employment Information
- Other Income
- Bank, Investment, Credit and Insurance assets
- Other Legal Information
- Vehicles, Real Estate, Personal and Business Assets
- Accounts Receivable and Notes Receivable
- Monthly Income and Expenses
In addition to the information reported on either form 433a or 433b, supporting documentation will be requested. No one is automatically granted an Offer to Compromise. The final version of forms 433a and/or 433b need to be complete, accurate and thorough in order to give the IRS the information required to determine an individual’s eligibility for an Offer to Compromise.