Settlement Procedures for Tax Debt Help

If you have an outstanding tax liability with the Internal Revenue Service, there are two approaches you can take to resolve the issue. The first is to file an installment agreement wherein you agree to pay off the debt by making monthly payments. The second is to try to settle the bill with a one time payment, which is often relatively low given your position you will not reasonably have the money to pay back the total bill. This rules and procedures related to this second approach have changed dramatically.

The settlement process, often called an offer in compromise, underwent a massive change with the passage of the Tax Increase Prevention and Reconciliation Act of 2005. Starting July 16, 2006, the new rules go into affect and they are a bear. The biggest issue is you now must pay 20 percent of your offer amount to even have the settlement offer considered!

This tax debt relief relief procedure now works as follows. To file an offer in compromise, you must prepare and file Form 656. This form essentially lays out your assets, income, debt amount and the offer you are making given these figures. You must pay $150 when submitting the bill. You must also now pay 20 percent of your offer amount. Neither of these amounts is refundable.

The process of the IRS to decide on your Offer in Compromise is roughly two years. If the agency accepts your offer, it will send you acknowledgement and the terms thereof. I f the agency does not accept the offer, it keeps your deposit and comes after you. You do have the option to appeal this decision if you feel that the decision was made in error.

There are two exceptions to the 20 percent deposit rule. If you are a low income taxpayer under IRS rules, you need not make the deposit. Further, if you are contesting the taxes due because you believe there has been an error and you are not reasonably responsible for them, you need not file the deposit. Keep in mind the reason must be reasonable, not one of the arguments that nobody has to ever pay taxes.

The new procedures for filing for tax debt relief settlement are odd given the new 20 percent deposit amount. However, this still represents the best way for dealing with tax debt relief

Over Twenty Million Americans Owe Back Taxes

Did you know that over twenty million Americans haven’t satisfied their income tax liability?

Yes, a sobering statistic indeed, Twenty million is the result for sure, but realize that there are a plethora reasons why over twenty million Americans are unable to pay back their taxes.

In a ever uncertain economy, with the mounting job losses, downsizing and companies shutting down and running out of money left and right. Not only do people suffer without having a steady flow of income, the cash flow that is needed for basic expenses, but they do not have an ability to pay any owed back taxes to the Internal Revenue Service.

What many Americans do not realize, with the IRS, is that they do not recognize a a bad economy as they have to make sure that all debts are collected in one way or another. Unfortunately, in some cases this means that the Internal Revenue Service will make harsh attempts through levies, seizures and wage garnishments. Did you ever watch the movie The Pursuit of Happyness and notice how Chris Gardner, Will Smith’s character had his bank assets frozen and then seized by the IRS? The Internal Revenue Service has one task and one task only. Collect taxes in ANY way possible, even if it means levying hard earned assets and income.

Although their harsh collection taxes paints a connotation that the IRS is all evil, there is a light in the darkness. As you should know, the IRS needs their tax money, but willing to work arrangements with you on how they receive their money. There are several different programs that the Internal Revenue Service has created for those who just cannot flat out pay all of their taxes in a lump sum. You can pay in payments through the Installment Agreement Program. If you cannot afford an outrageous tax bill, Look into an Offer In Compromise letter, which if approved can let you pay a small chunk and be relieved of the rest of the tax liability. You can also look into a deferment, which would delay any IRS proceedings on any owed liabilities.

Can you appeal an Offer in Compromise rejection?

Believe it or not, the Internal Revenue Service does not have to accept your Offer In Compromise (OIC). In fact, it is common for OICs to be rejected. The Internal Revenue Service only accepts roughly 10-15% of OICs that are submitted. This doesn’t mean that you should not consider this tax settlement method but just understand that the odds are are not in your favor.

If your Offer In Compromise is not approved, you should consider appealing it. This is something that many people don’t realize is possible, but it can help you get what you want – with just a little more work. Understand that you typically have 30 days from the date on the reject letter to appeal it.

To start, you would need to fill out IRS Form 13711 – Request for an Appeal of Offer in Compromise. This will get the ball rolling by showing the Internal Revenue Service that you believe your offer was unfairly rejected. Even though you have to put a lot of work into the appeals process, it can really payoff in the end if the Internal Revenue Service decides to side with you and eventually accept your offer. You can also send a letter requesting an appeal. This is a great idea if you have a good reason for your appeal and want to show it to the Internal Revenue Service in your own words. Remember you r appeals letter does not have to be perfect; you just need to clearly get your point across.

The most common reasons for the rejection of an OIC is that it does not meet the criteria set forth by the Internal Revenue Service , or offer amount that you have submitted is too low or unreasonable when compared to the Reasonable Collection Potential set forth by the Internal Revenue Service for you.

If you meet the qualifications set form by the Internal Revenue Service (Doubt as to Collectibility, Doubt As to Liability, or Effective Tax Administration ( severe hardship or financial crisis you are in ) you will have a good chance of getting your offer accepted. If you have proof, and your offer is not approved, you will then want to continue forth with the appeals process detailing to the Internal Revenue Service what you disagree with. For anything you disagree with, make sure you have supporting documentation and facts to back up your claims.

Was your Offer In Compromise rejected by the Internal Revenue Service? If so you should feel comfortable appealing the decision. Every taxpayer has the right to appeal decisions by the Internal Revenue Service that you might consider unfair.

Do not forget, an Offer in Compromise is not the only way to square away back tax debt. You can arrange payment installment plans, deferments, claim hardship or even if you can, pay all of your back taxes in full! The Internal Revenue Service needs their money, but they are willing to work with those who are having problems.

What is an Offer in Compromise? How can it help my tax debt situation?

An offer in Compromise or known by the IRS as OIC, is a relatively recent addition to the tax code that was made in the late 90’s.

What an offer in compromise does for the taxpayer, is a statement that the taxpayer is in an financial crisis and that the taxpayer is unable to pay the back taxes that are owed. Of course, in just about all situations, the Offer in Compromise only works for those who are really in dire straits with their finances and just need their current tax liability to be declared “unpayable.”

Of course writing and submitting the forms and red tape for an OIC is a process and a half and sometimes, the IRS will reject your Offer in Compromise pleadings. Using a tax settlement service might just net you the best possible result. Tax settlement services are usually staffed with Tax attorneys, Accountants and even former Internal Revenue Service agents which would give you a potential advantage in the process and a better success rate in filing your OIC. This service is fee based, a nominal fee that you would pay for a higher success rate. Also remember that companies such as these will have power of attorney, which means they can argue to the IRS on your behalf, which instead of you debating with the IRS with no experience, tax settlement firms can argue with their wit and experience and come out the winner!