This is the last part of a three part series of blogs on IRS payment arrangements. While most taxpayers utilize an installment agreement to pay their tax debt, other payment arrangements exist for taxpayers to utilize in the settlement of their outstanding tax debt. Here are some other types of arrangements that are useful in paying delinquent taxes:
Currently not collectible (CNC) status
The IRS may place a taxpayer’s account in currently not collectible status. If a taxpayer owes more than $10,000, the IRS will file a tax lien, but it will cease collection activity. CNC is a temporary status which the IRS regularly reevaluates, usually on an annual basis.
This is the first part of a multiple part series on IRS payment arrangements. This blog will discuss some general points of IRS payment arrangements while future blogs will deal with their individual details.
Individuals whot cannot pay their tax debt within a reasonable time frame may request to make monthly payment arrangement with the IRS to satisfy their tax bill. There are several options, including an IRS installment agreement. As long as the tax debt is paid in full, taxpayers can avoid the penalties and interests associated with their tax debt. It is essential to know that before applying for any payment agreement, a taxpayer must file all required tax returns.
Taxpayers that have tax liabilities they are currently unable to pay, have options. A knowledgeable and experienced tax attorney can assist and inform taxpayers of all of the options available to settle tax debt. First and foremost, taxpayers should take action as soon as possible, and still file their tax return even if they cannot pay their tax bill in full. The IRS charges penalties and daily interest on unpaid tax bills, thus waiting only increases overall tax liability. After determining and estimating what, if anything, they can pay to settle their tax liability, taxpayers have the following options:
A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. The lien protects the government’s interest in all your property, including real estate, personal property and financial assets. A federal tax lien exists after the IRS:
• Puts your balance due on the books (assesses your liability);
• Sends you a bill that explains how much you owe (Notice and Demand for Payment); and
• Neglect or refuse to fully pay the debt on time.
The IRS files a public document, the Notice of Federal Tax Lien, to alert potential creditors and the public that the government has a legal and enforceable interest in your property.
An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles the taxpayer’s tax liabilities for less than the full amount owed. If the tax liabilities can be fully paid through an installment agreement or other means, the taxpayer, in most cases, will not be eligible for an OIC.
In order to be eligible for an OIC the taxpayer must have:
- filed all tax returns;
- made all required estimated tax payments for the current year; and
- made all required federal tax deposits for the current quarter if the taxpayer is a business owner with employees.
Taxpayers that are unable to pay their tax bill have several options. All is not lost. Taxpayers who can’t pay their tax liability or who create a financial hardship by paying this liability may take advantage of a federal tax program in which they utilize a mechanism known as an “Offer In Compromise” to resolve and settle these tax problems with finality. The Offer in Compromise (or “OIC” in IRS and legal jargon) program is not for everyone and the IRS advises that taxpayers explore all other payment options before submitting an OIC. An experienced tax professional is absolutely essential in all steps of the process of formulating, making, and awaiting the IRS to accept, an OIC.