Can you negotiate or lower the amount you owe the IRS?
Can you negotiate or lower the amount of taxes that you owe the IRS, or are the companies that claim they can do this not legit?
Consumer Ed says:
Yes, in certain, limited cases you can arrange to pay tax debts through a payment plan (called an installment agreement) or settle outstanding tax debts for less than what you actually owe (called an offer in compromise or OIC). However, in order to apply for these programs with the Internal Revenue Service (IRS) or the Georgia Department of Revenue (GDOR) you must first explore all other payment options. Even if you qualify, strict requirements and restrictions apply. This week’s column will delve into this subject as to the IRS and federal taxes; next week, we’ll take up the Georgia aspects.
First, please remember that firms that claim they can negotiate to lower your tax debt may or may not actually be able to do so, because depending on your particular circumstances, you may or may not qualify for the federal or state OIC program. In fact, most taxpayers do not qualify. 2I WD[SD\HUV ZKR applied for a federal OIC in 2011, only 20,000 were approved by the IRS-that’s OHVV WKDQ 6R \RX VKRXOG investigate tax service companies and the services they claim to provide carefully before signing up. Taxpayers looking for a tax service to resolve their tax debt can easily be taken advantage of by fraudulent companies.
If you owe taxes, the worst thing you can do is nothing. The problem will not go DZD\ ,QWHUHVW DQG SHQDOWLHV on back taxes will continue to accrue and the IRS may begin its collection process. Instead, carefully consider your payment options and WDNH DFWLRQ
THE INTERNAL REVENUE SERVICE AND FEDERAL TAX DEBTS
Your federal tax liability typically depends on how much income you earn as well as applicable adjustments, deductions, exemptions, and credits for which you may qualify. Taxes are assessed on taxable income based on a progressive tax rate, under which generally the more you earn, the higher your tax rate. If you don’t pay your tax debt on time, the IRS begins collection action. IRS Publication
3XE RXWOLQHV WKH IRS collection process and options if you can’t pay your tax debt in full, including applying for an installment agreement or an offer in compromise.
FEDERAL INSTALLMENT AGREEMENTS
If you can’t pay your debt LQ IXOO DW RQH WLPH 3XE indicates applying for an Installment Agreement may be an option. It’s a payment plan that allows you to make smaller, periodic payments to pay off your tax debt over a period of time. According to the IRS Installment Agreements webpage, before you apply you must: (1) file all required tax returns; (2) consider other financial sources to pay your tax debt in full to save money (even under an installment agreement the IRS will continue to charge applicable interest and penalties until you pay WKH DPRXQW GXH LQ IXOO determine the largest monthly payment you can make; and (4) know that your future refunds will be applied to your tax debt until it is paid in full. For more information and to learn how to apply, visit the IRS Installment Agreements webpage.
FEDERAL OFFERS IN COMPROMISE
An Offer in Compromise is a request to settle your unpaid tax debt for less than the full amount owed. Pub.
VD\V DQ 2,& PD\ EH D legitimate option if the IRS agrees your assessed tax debt may not be accurate, if you have insufficient assets and income to pay your tax debt in full, or if paying the full tax debt would cause extreme financial hardship. The IRS will consider your ability to pay, income, expenses and assets to decide if you qualify. However, there are important restrictions and requirements. You aren’t eligible if you can pay your tax debt in a lump sum or in installment payments or if you are in an open bankruptcy proceeding. Also, to be eligible you must (1) file all tax returns you are legally required to file, (2) make all required estimated tax payments for the current year,
DQG PDNH DOO UHTXLUHG federal tax deposits for the current quarter if you are a business owner with employees.
You can apply for an OIC directly with the IRS. The IRS provides an Offer in Compromise Pre-Qualification its website to help you determine your eligibility and to assist you in preparing a preliminary OIC proposal. For more information and for step by step instructions on how to apply, visit the IRS OIC webpage and refer to IRS Form 656B (Offer in Compromise Booklet).
GEORGIA DEPARTMENT OF REVENUE AND STATE TAX DEBTS
Georgians are taxed according to a graduated tax rate. You will be charged a set amount (based on your taxable income and filing status) plus a percentage of your taxable income above a given number. The percentage varies depending on your taxable income but the maximum tax rate is set at
,I \RX GR QRW SD\ \RXU state taxes, the State will begin its collection procedures. However, the GDOR also has installment agreement and offer-in-compromise programs if you owe back state taxes and can’t pay in full. Although similar to the IRS programs, Georgia’s requirements and application processes are separate, so you must apply for them separately.
GEORGIA INSTALLMENT AGREEMENTS
According to the GDOR website, if you are legitimately unable to pay your taxes in full by the time they are due, you may request a payment agreement within guidelines set by the GDOR. You would do this by filing Form GA
WR UHTXHVW D PRQWKO\ installment plan. However, according to the form’s instructions, you don’t qualify if you: (1) are currently in bankruptcy; (2) have unfiled state tax returns that are past GXH KDYH D SHQGLQJ RIfer in compromise with the GDOR; or (4) your state tax liability has been assigned to a private collection agency. For more information, visit the GDOR Installment Payment Agreements webpage.
GEORGIA OFFERS IN COMPROMISE
Some Georgia taxpayers may qualify for a Georgia OIC, which lets you settle an outstanding state tax debt for less than the full amount that you owe. According to the GDOR Offer in Compromise Booklet, you can apply if: you are not able to pay the taxes you owe in full even by selling assets or through an installment agreement; a legitimate doubt exists that you owe part or all of your assessed tax debt; or special circumstances exist that would make full payment of the taxes owed an economic hardship. However, you can only apply if you have filed all required tax returns and reports; you have received a final notice of assessment for all Georgia state taxes that you owe; and you are not the subject of an open or active bankruptcy case. For more information, visit the GDOR Offer in Compromise webpage. If you need assistance in completing the application, you can contact the *'25 DW
Submit your own question to Consumer Ed at consumered.georgia.gov and remember… this is not legal advice. Always consult a lawyer about legal issues.