Paying tax debts have no secret recipe. With the IRS's aggressive debt collection methods, no one can blame the typical tax payer for running the opposite direction. There are a lot of tax professionals promising that you can save pennies on the dollar if you avail of their services, be wary of these individuals.
If you are in deep tax debt, there are five known strategies to counter this. But first, you should become familiar with how the IRS does their business and in a way --- learn the ropes of efficient filing and payment of taxes.
Reasonable Collection Potential
The IRS measures the tax payer's ability to pay through the process of Reasonable Collection Potential (RCP). This comprises the values that can be collected such as: taxpayer's assets, property, automobiles, bank accounts, and others.
In most cases, the IRS will not accept an OIC unless the amount offered by the taxpayer is equal to or greater than the reasonable collection potential (RCP) which includes anticipated future income.
- Doubt as to Collectability - If you owe tax and there is not enough time left on the statute of limitations to pay it, you could qualify for this offer. Circumstances that could disqualify you - assets that can be liquidated. If you have a high enough monthly income, the IRS will do a full financial investigation then most likely approve of this compromise. This investigation includes you giving full documentation of your monthly income, assets, and liabilities.
- Doubt as to Liability - rests primarily on a reconsideration of whether or not the person assessed was responsible for and willfully failed to pay the tax in question. The taxpayer must offer a dollar amount greater than zero. The amount offered may be cash or deferred offer, but must be paid in full within 90 days if accepted by the IRS.
- Effective Tax Administration - In submitting an offer based on effective tax administration, the taxpayer needs to provide extensive narrative of the special and extraordinary circumstances along with the rest of the offer in compromise documentation. Right now, extraordinary circumstances would mean some sort of life and death situation, such as a serious medical condition.
- You can propose an installment agreement to the IRS by paying debts per month.
- Partial payment installment agreement: a fairly new debt management program where you have a long term payment plan to pay off the IRS at a reduced dollar amount.
- Offer in Compromise: a program where you can settle your tax debts for less than what you owe. Requires making a lump sum or short term payment plan to pay off the IRS at a reduced dollar amount.
- Not currently collectible: a program where the IRS voluntarily agrees not to collect on the tax debt for a year or so.
- Filing bankruptcy: discharge your tax debts under the strict rules of a Chapter 7 or 13 bankruptcy petition.
If you're looking for a tax professional to handle your debt concerns, make sure to ask the professional about his credentials. The Internal Revenue Service only allows the following individuals to practice: Certified Public Accountant (CPA), a Tax Attorney or an enrolled agent. For CPA's and attorneys, practice is limited only on the states where they were licensed whereas; enrolled agents are able to practice on any state.
However, some professionals charge on an hourly rate or they will give you a quote for their services. Since you would like to keep costs to a minimum, you can ask your accountant to focus more on negotiation strategies with the IRS rather on routine paperwork and data entry. You can do this by asking your accountant if you could fill out the paperwork and IRS forms yourself so that your overall fee is minimized.
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