If you're a business owner and have recently found yourself falling behind on tax payments, you're not alone. Tax problem resolution professionals find that most clients are good people.
There are many solutions, and a qualified professional can determine your best way to get back in the good graces of the IRS.
Offer In Compromise (OIC)
OIC is an IRS program that permits an eligible taxpayer to settle all outstanding tax liabilities for an amount the taxpayer can currently afford. An acceptable offer must be determined by the IRS to be the best they can do without a protracted installment agreement. The IRS defines "protracted" as an agreement that would extend beyond the collection statute. It may require a taxpayer to liquidate assets and investments or call for the taxpayer to make payments out of their income after considering allowable living expenses. These living expenses are determined by the IRS OIC unit.
Installment Agreement (IA)
With an IA, a taxpayer pays the amount they owe to the IRS in monthly payments. The agreement may extend over a period of years, and an IA generally requires the taxpayer to pay the full amount they owe, including penalties and interest. The period over which a taxpayer is permitted to make payments is determined by their ability to pay and the statute of limitations on collection. Typical agreements may run for seven years. There are several considerations that govern the exact length and amount of an agreement, including the taxpayer's history, the amount owed, the remaining statute of limitations, the taxpayer's ability to pay and the taxpayer's equity in assets. While it may appear to be an easy process to secure an IA, tax problem resolution professionals can often reach a more favorable agreement than a taxpayer can on their own.
Partial Pay Installment Agreement (PPIA)
A PPIA permits taxpayers to pay an amount they can afford after considering living expenses, but the payment will not fully pay the taxpayer's tax debt. The IRS requires the taxpayer to submit proof of their income and living expenses to be analyzed before granting a PPIA. Unlike an OIC, which is final once agreed to, the PPIA may be adjusted if the taxpayer's ability to pay changes.
Penalty Abatement (PA)
The PA program allows the waiver of penalties typically added to unpaid taxes, nonfiled returns or late-filed returns. If the taxpayer has routinely filed and paid their taxes but has a problem in a particular period, the IRS can grant a first-time abatement of penalties. Additionally, a taxpayer may be granted penalty relief if they demonstrate that they acted prudently and can provide reasonable cause for late filing or payment of tax.
Innocent Spouse Relief (ISR)
ISR is an IRS program that may relieve a taxpayer of liability for unpaid taxes on a jointly filed return. While filing jointly makes both taxpayers liable to pay the tax on the return, in instances where this is unfair, the IRS has the discretion to grant relief to the joint filer who is being harmed unjustly. For example, say a wife runs her own business and fails to properly report her income. Upon audit of their joint return, if the IRS discovers the discrepancy and assesses a large additional liability, it would be unfair to hold her husband liable for the added tax.
Find other articles on this topic on Larry Lawler's contributor page.