Reach an Agreement With the Government
Do you owe money to the Internal Revenue Service? There are ways to negotiate an agreement on how much you’ll have to pay. The tax attorneys at Tadross Law will assist you with an IRS settlement. We’ll help you determine the best possible payment plan. The minimum payment amount is typically equal to the taxpayer’s reasonable collection potential, or RCP. The RCP includes your real and personal assets plus future income. The RCP looks at your asset’s quick sale value minus what you owe to a secured creditor.
Whether the IRS is requesting full payment of back taxes up-front or offering a payment plan that is substantially higher than what you can afford to pay, the lawyers at our law firm in Philadelphia and Lansdale, PA, will negotiate a reasonable offer to reach a settlement on your behalf. Most of the time for qualifying clients, our lawyers can work out a deal for a fraction of what is owed or set up an arrangement for the lowest possible monthly payment with various options for making those payments.
WHAT IS AN OFFER IN COMPROMISE?
An offer in compromise is an agreement between a taxpayer and the Internal Revenue Service that resolves the taxpayer’s back tax liability. The IRS can settle or compromise on federal tax liabilities by accepting less than full payment under particular circumstances.
The IRS may legally compromise on liabilities for one of the following reasons:
- Doubt as to liability
- Doubt exists that the tax reported is correct
- Doubt as to Collectibility
- Doubt that the taxpayer could pay the full amount owed
The minimum offer amount generally will be equal to (or greater than) the taxpayer’s reasonable collection potential (RCP). An RCP is defined as the total of a taxpayer’s realizable value in personal and real assets, plus their future income. Unless a taxpayer files an Offer In Compromise claiming special circumstances, the offered amount must exceed or be equal to the reasonable collection potential. Realizable value is the asset’s quick sale value (an amount which could be reasonably expected through the sale of the asset) minus what a taxpayer owes to a creditor.
WHAT IS AN IRS INSTALLMENT AGREEMENT FOR PAYMENT OF BACK TAXES?
If you are unable to pay off back taxes in full, you may qualify for tax relief by negotiating an IRS Payment Plan, more commonly known as an Installment Agreement (IA). This form of IRS settlement will allow a taxpayer to pay off tax debt with a series of regular monthly payments, usually within a statutory timeframe. Once an Installment Agreement is established, the IRS will cease all collection actions, including garnishment of wages. The IRS files what is known as a Notice of Federal Tax Lien until the final payment is made. If the amount the taxpayer can afford to pay monthly does not satisfy the debt owed (including interest and penalties), another option, such as a Partial Pay Installment Agreement or an Offer in Compromise, may be a better choice. While an Installment Agreement is a flexible tax relief option, be aware that all payments must be timely. Late payments can terminate the agreement, in which case the IRS may file a Notice of Federal Tax Lien and/or Levy, which will adversely affect a taxpayer’s credit rating.
WHAT IS INNOCENT SPOUSE RELIEF:
It is likely and common that people file joint tax returns to minimize their tax liability. However, married taxpayers filing a joint return are agreeing to be held jointly and equally liable for any taxes, penalties, and interest due on the joint tax return. Even if a divorce agreement states a spouse or former spouse will be responsible for the tax liabilities, both filers are responsible. However, some provisions may protect a spouse from the mistakes of the other. If you’re in a position where the IRS is attempting to collect on taxes that incurred jointly with a former or current spouse, you may qualify for one of the following types of relief:
Innocent Spouse Relief: Taxpayers with an understatement of tax or deficiency on tax returns due to incorrect information of the current or former spouse of the requesting taxpayer qualify for this type of relief. A deficiency can occur if the IRS assesses additional liabilities on disallowed deductions or unreported income. The taxpayer seeking relief must prove that when the tax return was signed, they did not understand and the requester had no reason to suspect that there was an understatement of taxes existed. The IRS will consider all the information and facts provided to conclude whether it would be unfair to hold the requesting taxpayer liable for the understatement of taxes and consider an IRS settlement.
Separation of Liability: This type of relief is available if there are understatements of tax or deficiencies on prior tax returns. The liability for any understated taxes may be separated such that the requesting taxpayer is granted relief from the liability. To qualify for separation of liability relief, a taxpayer seeking relief must be divorced, legally separated, or living apart from their spouse or former spouse 12 months before filing the request for relief. Separation of liability only applies to amounts owed that are unpaid, and the IRS will not refund amounts that have already been paid.
Equitable Relief: If a taxpayer seeking relief does not qualify for separation of liability or innocent spouse relief, they may qualify for equitable relief. The IRS may conclude that the taxpayer should not be held accountable for any underpayment or understatement of tax after taking into account all of the facts and circumstances. Equitable relief is primarily requested when the requested taxpayer believes that their spouse or former spouse would pay the tax due on a joint tax return but did not.
As part of the process of an IRS settlement investigation, they are required to contact the current spouse or a former spouse of the taxpayer that is requesting relief. The purpose of contacting a spouse or former spouse is to gain more information to assist them in determining the extent of relief. During this process, the IRS will not reveal any information that could infringe on the privacy of the requesting taxpayer. The IRS can be informed of the sensitivity of the requesting such information, for example, if the taxpayer is a victim of domestic abuse and fears that filing a request for relief will result in retaliation. While this does not result in special treatment, the evidence of abuse is one factor that the IRS will consider for certain types of relief.
To qualify for any of the above methods to resolve your back taxes, you will need to submit all of your delinquent tax returns to the IRS. Contrary to what you have heard from other sources, you can file your original tax return no matter how late it’s submitted. Unless you have filed all of the legally required tax returns, the IRS will not entertain any tax settlement or payment plan to settle your back taxes.