Offer in Compromise
An offer in compromise is an agreement to settle debt between the IRS and a taxpayer who has no way of paying his / her prior taxes. If the IRS accepts the offer in compromise, the taxpayer will be relieved of any tax debt he / she may owe. The IRS will accept an offer in compromise if there is doubt he / she can pay what is owed. Occasionally, an offer in compromise will be accepted if a taxpayer proves the tax would create an economic hardship. The taxpayer must file and pay taxes for the five year period after his / her offer is accepted, or he / she will again be responsible for all the prior taxes and penalties.
The Internal Revenue Service has released a new edition of the Offer in Compromise, in May 2012, as well as an update to the Internal Revenue Manual in regards to Financial Analysis of Offer in Compromise cases. The Internal Revenue Service announcement is more flexible and is designed to help a greater number of struggling taxpayers make a fresh start.
TCF will meet with you and review your specific situation. We’ll take the time to carefully analyze your tax obligations vs. your true ability to pay those obligations. Don’t listen to vague promises of help in exchange for a significant payment. You’ve heard all that on TV commercials and you’ve seen it on the internet but you pay a high price before you even know your chances of success. At TCF Accounting, we do a no cost analysis of your situation and we’ll present you with a detailed plan of action before you commit to paying a large sum to a third party in anticipation of a hopeful but far from certain outcome. Following our detailed analysis we’ll work with you to bring about the best possible resolution for you and your family. You’ll be better educated as it relates to how the “system” actually works for you and against you.
The IRS requires that back taxes are paid ASAP. Individuals or businesses that are not able to resolve a tax debt immediately, should consider an installment agreement as a possible option. Installment agreements allow for full payment of your tax debt in smaller amounts over a period time. To be eligible for an IRS installment agreement, all returns that are due (or overdue) must first be filed. Installment agreements generally require equal monthly payments. The amount of each installment payment will be based on the amount of back taxes owed and consideration is given to the taxpayer’s ability to pay that amount within the time available for the IRS to collect. By law, the IRS has the authority to collect outstanding back taxes for ten years from the date of the tax assessment. The key objective is to demonstrate to the IRS that you can’t pay all your back taxes and therefore another solution may be necessary. The advantage of an Installment Agreement is that no enforced collection takes place while the taxpayer is on the plan (provided the client doesn’t default). Be aware that with an Installment Agreement interest and penalties continue to accrue over time
Tax Penalty Abatement
Snowballing tax penalties and interest loom large for some taxpayers. This problem can quickly escalate, as accumulation of penalties may double the amount of tax owed.
Current IRS rules allows for tax penalty abatement of tax penalties and of interest or of a refund when there were extenuating circumstances contributing to this problem, or if you had a good reason for falling behind in the first place. In order to accomplish this, we will need to show the IRS that you had “reasonable cause” for not paying your income taxes.
What qualifies as reasonable cause? It depends on the circumstances involved. The IRS procedures for deciding who qualifies for tax penalty abatement and for what reason seem to differ in each case. The following are just a few circumstances under which you can qualify for tax penalty abatement. Some of the most common reasons are:
- If you are involved in embezzlement or theft.
- Fire, flood, or other disaster beyond your own control.
- Bad accounting practice or bad tax advice.
- Serious personal health issues.
- Serious health issues of an immediate family member.
- Death of a family member
We must show the IRS that you showed “due diligence” and “no neglect” in attempts to repay the income tax debt that you owe.
Not all audits are done face-to-face with an IRS representative; in fact, the majority of IRS audits are correspondence audits, done through the mail. Even if you have not been selected for a face-to-face audit, we will help you fill out the necessary additional paperwork completely and correctly, in order to ensure that you are in compliance.
If you are selected to meet with the IRS then you will be notified of what documentation the IRS would like beforehand, so that you may be prepared for a face-to-face meeting, or fill out correspondence audit paperwork as previously mentioned. The IRS may be examining the entirety of your return, or they may only want clarification for a specific part of the return. For example, if you own a small business and have been continuously reporting a loss, and therefore no tax liability, for the business, the IRS may want further proof of your losses. This could include everything from rent receipts and utility statements, to a detailed record of customer billings.
Most audits end in a change to the filing. This could be in favor of the taxpayer, or the IRS; the IRS does not necessarily target taxpayers that may owe them more money. You could walk away from an IRS audit being owed additional tax refund money.
While only about one percent of taxpayers are audited per year, you may find yourself in that minority. Let TCF help with your audit.