When taxpayers struggle with large amounts of tax debt, an Offer in Compromise (OIC) can offer a much-needed lifeline. This program, administered by the IRS, allows taxpayers to settle their tax debt for less than the full amount they owe. But a common question arises: Is canceled debt through an OIC taxable income? The simple answer is no—debt canceled through an Offer in Compromise is generally not taxable.
Understanding the Offer in Compromise
An Offer in Compromise allows taxpayers to negotiate with the IRS to reduce the amount of their tax debt. The IRS will accept an offer if it believes the taxpayer cannot pay the full amount. They may also accept it if collecting the full debt would create an economic hardship. Once the IRS accepts the offer, the taxpayer must fulfill the agreed-upon terms. This is usually by making a lump sum or installment payments. Once this is done, the remaining debt is forgiven.
Why Canceled Debt Is Usually Taxable
In many other financial situations, canceled or forgiven debt is considered taxable income by the IRS. For example, if a credit card company cancels a portion of your outstanding balance, the canceled debt is usually reported on a Form 1099-C. You must include it as income on your tax return. This principle applies to most types of canceled debt because the taxpayer is considered to have “received” the amount of the canceled debt, which is typically subject to income tax.
The Exception for Tax Debt Forgiveness
The key difference with an OIC is that the canceled debt stems from taxes owed to the federal government. The IRS does not consider forgiven tax debt as taxable income. Because of this, taxpayers do not need to report it on their tax returns. This makes OIC a unique form of debt forgiveness that is generally not subject to taxation.
Why Canceled Debt Through an OIC is Not Taxable
Canceled tax debt through an OIC is not considered taxable income because of the nature of the debt and how the IRS treats it. If a credit card company forgives debt, the IRS usually taxes that forgiven amount because it’s considered a financial benefit. You don’t have to pay back money you once borrowed. On the other hand, when you owe the IRS, you essentially have an unpaid bill to the government that you are settling for less rather than you financially gaining something. The Offer in Compromise program exists to help taxpayers who can’t afford to pay all their taxes. If the IRS forgave part of your debt and then taxed you on it, that would defeat the purpose of the program. The IRS doesn’t want to make things more difficult for you financially after settling your tax debt.
Conclusion
For taxpayers who secure an Offer in Compromise to reduce their tax debt, the good news is that the IRS does not consider the forgiven amount taxable income. This distinction sets an OIC apart from other types of debt forgiveness, making it a tax-advantaged way to manage overwhelming tax liabilities. As always, taxpayers should consult a tax professional. Ensure you fully understand the consequences of settling your debts and how it affects your overall tax situation. Optima Tax Relief is the nation’s leading tax resolution firm with over $3 billion in resolved tax liabilities.
Tax amnesty programs are special, time-limited initiatives offered by governments—both federal and state—that give taxpayers the opportunity to settle their outstanding tax liabilities with significant benefits. These programs are designed to encourage voluntary tax compliance. They do this by offering incentives like reduced penalties, interest waivers, or sometimes even immunity from prosecution. Here’s a closer look at what tax amnesty programs are, how they work, and who can benefit from them.
What Is a Tax Amnesty Program?
A tax amnesty program provides individuals and businesses with an opportunity to disclose unreported or underreported income, correct past filing errors, or settle unpaid taxes without facing the full penalties and interest typically associated with these actions. These programs are designed to boost tax revenues.
The key benefit of these programs is that they offer a “clean slate” approach. They basically allow taxpayers to fix their tax situation without the threat of harsh consequences. Depending on the specific program, participants might have penalties reduced or eliminated. They may also avoid criminal prosecution for tax evasion or other offenses.
How Tax Amnesty Programs Work
Each tax amnesty program is different, but they typically follow a similar structure. Taxpayers are usually given a specific window of time to come forward, file the necessary returns, and pay any taxes owed. In exchange, they receive benefits such as:
Reduction or elimination of penalties.Many tax amnesty programs offer forgiveness for late payment penalties, failure-to-file penalties, or other penalty-related charges.
Waiver of interest. Some programs also provide partial or full interest waivers, reducing the overall tax bill.
Protection from prosecution. A key feature of many amnesty programs is the protection from criminal prosecution for past tax violations, which can be a major incentive for taxpayers to come forward.
The program may apply to a wide range of taxes, such as income taxes, property taxes, or sales taxes, depending on the jurisdiction offering the amnesty.
Types of Federal Tax Amnesty Programs
There are several tax amnesty programs offered at the federal level.
IRS Streamlined Procedures
The Streamlined Filing Compliance Procedures are an IRS program designed to help U.S. taxpayers who failed to report foreign income or assets but did so unintentionally. It allows eligible individuals to come into compliance with reduced penalties or no penalties, depending on their residency status. There are two versions:
Streamlined Foreign Offshore Procedures (SFOP): For U.S. taxpayers living abroad, with no penalties for eligible participants.
Streamlined Domestic Offshore Procedures (SDOP): For U.S. taxpayers residing in the U.S., with a 5% penalty on the highest balance of unreported foreign assets.
Eligibility requires certifying that the noncompliance was non-willful, meaning the failure was due to negligence or misunderstanding, not intentional evasion. Participants must file amended returns for the past three years and FBARs for the last six years.
Voluntary Disclosure Practice
The IRS Voluntary Disclosure Practice is a program that allows taxpayers to come forward and disclose previously unreported income, underreported assets, or other tax-related violations. By voluntarily disclosing these tax issues before the IRS detects them, taxpayers can often mitigate severe consequences. These can include criminal charges and excessive penalties. The program is open to both individuals and businesses. However, the IRS sets specific criteria for eligibility. For example, you must come forward voluntarily before any investigation, audit, or inquiry is initiated by the IRS. You must also fully disclose all instances of noncompliance, meaning all previously unreported income, assets, and transactions must be revealed. Partial or selective disclosures do not qualify.
Delinquent FBAR Submission Procedures
The Delinquent FBAR Submission Procedures is a program offered by the IRS that allows taxpayers to submit late FBARs (Foreign Bank Account Reports) without facing penalties, provided they meet certain conditions. It is designed for U.S. taxpayers who failed to report foreign bank accounts but have no unreported income from those accounts and have not been contacted by the IRS regarding a missing FBAR. If certain conditions are met, taxpayers can file the missing FBARs, and the IRS typically will not impose penalties. These conditions include:
The taxpayer must not have previously filed an FBAR for the applicable years.
They must not owe additional tax on unreported income related to foreign accounts.
They must not be under civil or criminal investigation by the IRS.
Relief for Certain Former Citizens
The IRS provides Relief for Certain Former Citizens, a program aimed at helping eligible former U.S. citizens to come into compliance without facing steep penalties or being classified as “covered expatriates,” which can result in significant exit taxes under the expatriation tax rules. To qualify, the individual must have had a net worth of less than $2 million at the time of expatriation. Their average annual net income tax liability for the five years prior to expatriation must be below a certain threshold. They must have renounced citizenship after March 18, 2010, and certify that their noncompliance was non-willful. Finally, they must have an aggregate tax liability of $25,000 or less for the taxable year of expatriation and the five prior years.
State Tax Amnesty
State governments frequently roll out amnesty programs to encourage the payment of overdue state taxes such as income taxes, sales taxes, and property taxes. These programs often target taxpayers who are delinquent or who have previously avoided state tax obligations.
Local Tax Amnesty
Some local governments may offer amnesty for unpaid property taxes or other local tax obligations.
Who Can Benefit from a Tax Amnesty Program?
A wide range of taxpayers can benefit from tax amnesty programs. Individuals or businesses that have fallen behind on their tax obligations due to financial difficulties, oversight, or other reasons may find relief. Those who have not filed tax returns for prior years but wish to come into compliance can do so without facing the full penalties. If you have unintentionally (or intentionally) underreported income, participating in an amnesty program can prevent the legal and financial consequences of being audited or prosecuted. For businesses that have failed to remit sales taxes or other types of taxes to the government, tax amnesty offers a way to settle these obligations.
The Drawbacks of Tax Amnesty Programs
While tax amnesty programs offer clear benefits, there are also some potential drawbacks to consider. One is their limited window. Taxpayers must act quickly to take advantage of the benefits. Also, some amnesty programs require public disclosure of participation, which may carry reputational risks for businesses. There is also no guarantee of future programs. If you don’t participate when an amnesty program is available, there’s no guarantee that the government will offer another in the future.
Tax Help for Those Who Owe
Tax amnesty programs provide a valuable opportunity for taxpayers to resolve their tax liabilities with reduced penalties and favorable terms. They encourage voluntary compliance, which benefits both the taxpayer and the government. However, the opportunity is often short-lived, so it’s important to act quickly if a tax amnesty program is available. If you’re considering participating in a tax amnesty program, consult with a tax professional to fully understand the terms and determine whether it’s the right decision for your financial situation. Optima Tax Relief is the nation’s leading tax resolution firm with over $3 billion in resolved tax liabilities.
We often hear that the tax professionals qualified to represent you before the IRS are CPAs, tax attorneys, and enrolled agents. While the first two roles are more well-known, many are still confused about what exactly an enrolled agent is. An Enrolled Agent (EA) is a federally authorized tax practitioner who has technical expertise in the field of taxation. Enrolled agents are empowered by the U.S. Department of the Treasury to represent taxpayers before the IRS for audits, collections, and appeals. They are the only taxpayer representatives who receive their right to practice from the federal government. Here is an overview of enrolled agents, including what it takes to become one, how they differ from CPAs and tax attorneys, and the advantages of hiring one for help with the IRS.
The Role and Responsibilities of an Enrolled Agent
Enrolled agents are equipped to handle a wide range of tax matters. Some of their key responsibilities include the following.
Tax Preparation
EAs are tax experts who assist individuals, businesses, and other entities with preparing and filing their tax returns. They can navigate complex tax situations and ensure compliance with tax laws.
Tax Planning
EAs help clients make strategic decisions to minimize their tax liability. This may involve advising on investment strategies, retirement planning, or business decisions that have tax implications.
Representation
One of the primary roles of an enrolled agent is to represent taxpayers before the IRS. EAs can advocate on behalf of their clients during audits, appeals, and collections. They can also negotiate with the IRS to resolve issues such as back taxes or penalties.
Compliance
EAs help clients understand their tax obligations and ensure they comply with federal and state tax laws. This includes advising on record-keeping, reporting requirements, and other tax-related matters.
How Does One Become an Enrolled Agent?
Clearly, enrolled agents carry a lot of responsibility and authority. That said, it’s important to note that there are two primary paths to becoming an enrolled agent.
Pass the Special Enrollment Examination (SEE): This is a comprehensive three-part exam that covers individual and business tax laws, IRS practices and procedures, and various representation issues. The SEE is designed to test a candidate’s knowledge of the Internal Revenue Code and its application to various tax scenarios.
IRS Experience: Individuals who have worked for the IRS for at least five years in a position that regularly required the interpretation and application of the tax code can also become enrolled agents. Their IRS experience serves as evidence of their knowledge and expertise in the field.
After becoming an EA, individuals must complete continuing education courses to maintain their status. This requirement ensures that EAs stay up-to-date with the ever-changing tax laws and regulations.
How Do Enrolled Agents Differ from CPAs and Tax Attorneys?
While enrolled agents, Certified Public Accountants (CPAs), and tax attorneys can all represent taxpayers before the IRS, there are key differences in their training and areas of expertise. Enrolled agents specialize in taxation and have a deep understanding of the tax code. Their primary focus is on tax preparation, planning, and representation. CPAs are accountants who have passed a state licensing examination. They offer a broader range of services, including auditing, accounting, and financial planning, in addition to tax services. Not all CPAs specialize in taxation, but those who do often provide similar services to EAs. Tax attorneys are lawyers who specialize in tax law. They are well-versed in legal issues related to taxes, such as tax disputes, litigation, and estate planning. Tax attorneys are often sought for complex legal matters and can represent clients in tax court.
The Advantages of Hiring an Enrolled Agent
There are several benefits to working with an enrolled agent.
Tax Expertise: EAs have comprehensive knowledge of tax laws and are required to stay current with the latest changes, making them well-equipped to handle complex tax issues.
IRS Representation: EAs have the authority to represent taxpayers before the IRS, providing a layer of protection and advocacy during audits and disputes.
Nationwide Practice Rights: Unlike CPAs and attorneys who may be limited to practice in specific states, EAs are federally authorized and can practice in any state, providing flexibility for clients with multi-state or national tax concerns.
Tax Help for Those Dealing with the IRS
Enrolled agents are highly qualified tax professionals who specialize in taxation and have the unique authority to represent taxpayers before the IRS. Whether you need assistance with tax preparation, planning, or navigating an audit, an EA can provide expert guidance and representation tailored to your specific needs. Optima Tax Relief has a team of knowledgeable tax professionals, including enrolled agents and tax attorneys, with experience helping taxpayers with tough tax situations.
If you’ve been hit with an assessment from the IRS and you disagree with the results, you are entitled to present your case in Tax Court. However, an IRS administrative appeal may produce desirable results without the need to go to court. As a taxpayer, you are entitled to dispute the results of an IRS assessment through the administrative appeal process for any reason other than religious, moral or political, conscientious objections. The professionals at Optima Tax Relief can determine whether an administrative appeal is the right course for your situation. The IRS administrative appeals process can be an effective way to handle disagreements over tax assessments, penalties, or other IRS decisions, offering a less formal and often less costly alternative to litigation. Here’s an overview of IRS administrative appeals, including the types, how each works, and important things to note before requesting one.
IRS Administrative Appeal Categories
The IRS Appeals division operates as a separate entity from IRS offices that conduct investigations. The two types of administrative appeals available are Collections Appeal Process (CAP) or Collections Due Process (CDP) hearings. Administrative appeal hearings may be conducted by mail, telephone or in person. You may represent yourself or be represented by a CPA, attorney or enrolled agent authorized to practice before the IRS. If your tax return was prepared by a third party not enrolled with the IRS, they may be a witness but may not represent you.
Collection Appeals
Collection Appeals involve disputes over IRS collection actions. These actions can include levies, liens, seizures, and other methods the IRS uses to collect outstanding taxes. To break this down even further, there are two main programs under Collection Appeals: Collection Due Process (CDP) and the Collection Appeals Program (CAP).
Collection Due Process
The CDP program allows taxpayers to appeal collection actions before they occur, providing a forum to address issues related to the collection process. Taxpayers who receive certain IRS notices can request a CDP hearing. These include the Notice of Federal Tax Lien Filing, Final Notice of Intent to Levy, Notice of Jeopardy Levy, Notice of Levy on a State Tax Refund, or Post Levy Collection Due Process Notice
Taxpayers generally have 30 days from the date of the notice to request a CDP hearing. They can do so via Form 12153, Request for a Collection Due Process or Equivalent Hearing. If the taxpayer disagrees with the CDP determination, they have the right to seek judicial review in the U.S. Tax Court. After 30 days, you may request an Equivalent Hearing within one year. However, collection activities will not be suspended. In addition, you cannot appeal the results in Tax Court.
Collection Appeals Program
The CAP provides a faster and more streamlined process than CDP, but it does not offer the same judicial review rights. Taxpayers can request a CAP hearing at any time, even before or after a collection action has been taken. For example, a CAP filed to protest a wrongful levy may be filed either before or after property has been seized. However, it must be filed before the property is sold. A CAP can be used to address the following IRS actions:
Prior to or after the filing of a Notice of Federal Tax Lien
Prior to or after levy or seizure of property by the IRS
Rejection or modification of an installment agreement
Rejected taxpayer request to return to levied property
Seizure
It’s crucial to note that you will not be able to take your case to Tax Court if you disagree with the conclusions of the CAP. You must file Form 9423, Collection Appeal Request to initiate a CAP review.
Submitting Your Request for Administrative Review
If you’re audited and your auditor finds that you owe less than $2,500, you may approach them about an appeal directly or submit your request through the appeals system. If you owe between $2,500 and $25,000, you should submit a Small Case Request. Alternatively, you can use Form 12203, Request for Appeals Review, which can be found on the IRS website. Assessments of $25,000 or more require a Formal Written Protest using Form 12202, including the following items.
Your name, address, and a daytime telephone number.
A statement of intent to appeal the IRS findings to the Office of Appeals.
A copy of the letter showing the proposed assessment.
The tax period(s) or year(s) involved.
A detailed description of each item with which you disagree.
The reason(s) for your disagreement for each item.
Facts supporting your position for each item.
Any law or legal authority that supports your position on each item.
The following penalties of perjury statement stated exactly: “Under the penalties of perjury, I declare that the facts stated in this protest and any accompanying documents are true, correct, and complete to the best of my knowledge and belief.”
Your signature beneath the penalties of perjury statement.
If your request for appeal is prepared by your representative, he or she must substitute the declaration for penalties of perjury statement for individual taxpayers with a statement that includes each of the following elements:
An affirmation that he or she submitted the protest and any accompanying documents, AND
A statement of personal knowledge of stated facts in the protest and accompanying documents and a declaration that the facts are true and correct.
The Administrative Hearing Process
After submitting your request for administrative review, you generally have at least 60 days to prepare for the hearing. Draft a rough outline of the information you wish to include in your presentation. Categorize any other relevant information in spreadsheets or in visual displays, with separate folders for each item.
It’s wise to request a copy of the auditor’s file under the Freedom of Information Act (FOIA) immediately. FOIA requests can take at least a month to process. The letter should cover all relevant tax years and provide an offer to cover copying costs. Send the letter by certified mail or other traceable means.
The hearing itself will be fairly informal. You are entitled to take notes or record the hearing if you wish. Be prepared for requests for further information. If that happens, don’t hesitate to ask for more time.
If you reach a verbal settlement during the hearing, the settlement will be transcribed onto IRS Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment. Keep in mind, however, that this form can take months to arrive in the mail. Double check all the figures and do not sign the form unless you understand and agree with everything contained within it. Likewise, do not sign the form if you’ve found other mistakes from the auditor or appeals officer. Once you sign the form, you are barred from making further appeal to the Tax Court.
Tax Help for Those Who Owe
The IRS Administrative Appeal process is a valuable tool for taxpayers seeking to resolve disputes in a fair, impartial, and cost-effective manner. By understanding the steps involved and preparing adequately, taxpayers can go through the appeal process and potentially reach a resolution without the need for tax court. If you find yourself in disagreement with an IRS decision, considering an administrative appeal can be a prudent first step. If you’re unsure, consulting a tax professional can be helpful. Optima Tax Relief is the nation’s leading tax resolution firm with over $3 billion in resolved tax liabilities.
When you marry, you often share many aspects of your life with your spouse: your home, your finances, and perhaps even your dreams. However, what happens when it comes to tax liabilities? Specifically, are you responsible for your spouse’s back taxes? This question can cause significant stress and confusion. To navigate this issue, it is essential to understand the various scenarios and laws that come into play. Here, we’ll explore the factors that determine liability and the potential consequences for both parties involved.
Understanding Back Taxes
Back taxes are taxes that have been partially or completely unpaid in the year they were due. They can accrue interest and penalties over time, leading to a larger debt. The IRS and state tax authorities are vigilant about collecting these taxes, and failure to pay can result in serious consequences such as liens, levies, and wage garnishments.
Can the IRS Hold Me Liable for My Spouse’s Tax Debt?
The short answer to this question is yes. However, there are certain factors that may come into play to decide for sure, including when you filed and under which filing status. When you get married, you suddenly have two new filing status options to choose from. You can go with married filing jointly or married filing separately. In the married filing jointly scenario, both spouses report their combined income, deductions, and credits on a single tax return. When filing separately, each spouse files their tax return separately, reporting only their income, deductions, and credits. Which of these options you choose will greatly determine whether the IRS can hold you accountable for tax debt.
Liability Under Married Filing Jointly
If you file jointly, both spouses are generally jointly and severally liable for the tax debt. In this case, the IRS can pursue either spouse for the entire amount owed. This means that both spouses are individually and collectively responsible for any taxes, interest, and penalties owed on a joint tax return. Even if you yourself did not do anything wrong, or you were unaware of any wrongdoing by your spouse, you are still 100 percent legally responsible for your shared tax debt.
Liability Under Married Filing Separately
If you choose to file separately, you are only responsible for your own tax liabilities. This can protect you from being liable for your spouse’s back taxes. However, this filing status often results in higher tax rates and reduced eligibility for certain credits and deductions.
Community Property States
In community property states, spouses equally own all income and assets acquired during the marriage. This means if you live in a community property state, you might be responsible for your spouse’s tax debt, even if you file separately, because half of your community income is considered yours. However, income from property owned by one spouse before marriage, or acquired by gift or inheritance during the marriage, is typically considered separate property and not subject to community property rules.
How Does Timing Affect Whether I’m Liable for My Spouse’s Back Taxes?
Timing is the second factor that can determine your liability for your spouse’s tax debt. If your spouse had tax debt before you were married, only they are responsible for that debt. You can apply for Injured or Innocent Spouse Relief if the IRS attempts to collect from you. If your spouse incurs tax debt during your marriage, you will use the guidelines outlined above to determine your liability.
Remember, it all depends on which filing status you used during the year the tax debt appeared. If your spouse incurs tax debt after your marriage, you may be responsible for it if you filed jointly, even if you were legally separated. However, in this case, you might be able to apply for Separation of Liability relief. This will limit your liability if you and your spouse were no longer married or living together when they incurred their tax debt.
Tax Relief Options for Spouses
If your spouse incurs tax debt, you may qualify for some type of relief. Here are the most common options.
Innocent Spouse Relief
If your spouse did not report all income, claimed credits they weren’t eligible for, or took improper deductions on a joint return without your knowledge, you may qualify for Innocent Spouse Relief. This option is more common for taxpayers who are no longer married. To request relief, taxpayers should file Form 8857, Request for Innocent Spouse Relief. Innocent spouses must file within two years of receiving an IRS notice informing you of the tax debt.
Injured Spouse Relief
Injured spouse relief, on the other hand, is typically for individuals who are currently married, and your portion of your joint tax refund was used to pay pre-existing debt that belongs to your spouse. This can include overdue child support, other taxes due, etc. To request this relief option, taxpayers should file Form 8279, Injured Spouse Allocation. They should file within three years of the return being filed or two years from the date the tax was paid, whichever event happened later.
Separation of Liability Relief
Separation of Liability Relief applies in situations where a joint return was filed, and the innocent spouse can demonstrate that they are divorced or legally separated from the other spouse. Under this relief, the IRS divides tax liabilities between the spouses based on their respective shares of income, deductions, and credits. To request relief, taxpayers should file Form 8857, Request for Innocent Spouse Relief within two years of receiving an IRS notice informing you of the tax debt.
Equitable Relief
If you’re not eligible for innocent spouse relief or separation of liability relief, you might qualify for equitable relief. Equitable relief can save you from paying your spouse’s understated or underpaid taxes on your joint return. This relief option is typically only granted for taxes due on your spouse’s income and assets and not your own. To request relief, taxpayers should file Form 8857, Request for Innocent Spouse Relief within two years of receiving an IRS notice informing you of the tax debt.
Tax Help for Innocent Spouses
There are scenarios that would disqualify you from relief. These include knowledge of the errors your spouse made or signing an offer in compromise with the IRS. It’s also important to note that these relief options can take months for the IRS to review and process. Be sure to consult with a qualified tax professional to make sure you know your options. Luckily, the IRS recognizes the need to protect innocent parties and provides relief options for them. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
When most people first examine tax relief options, they might have their hopes set on an offer in compromise – or their tax debt settled for less than what they owe. Unfortunately, OICs are more often denied by the IRS than they are accepted. When tax debt becomes too much to manage, an IRS installment agreement might be your best option. Here’s an overview of how IRS installment agreements work, including eligibility criteria, application processes, types of agreements, and key considerations.
What Is an IRS Installment Agreement?
An installment agreement is basically an IRS payment plan to pay your tax bill over a set period of time. The installment agreement will bundle all taxes owed if you owe tax for more than a year. That said, you cannot have two installment agreements with the IRS. During this time, the IRS will generally stop levying. IRS collections are typically ceased or prolonged while the installment agreement is pending until it can be approved or rejected. However, the IRS will typically keep any tax refunds you receive and apply them to your tax bill. If the installment agreement request is rejected, collections will be suspended for 30 days. Every taxpayer has the right to appeal a rejection. In this case, collections will be suspended until a decision is made on the appeal.
Eligibility Criteria
To qualify for an IRS installment agreement, taxpayers generally must meet the following criteria:
File all required tax returns.
Have no other installment agreements in place.
Comply with current tax payment obligations.
However, there are also other eligibility requirements based on the type of installment agreement you apply for.
What IRS Installment Agreements Are Available?
The IRS offers four types of installment agreements, each catering to different situations. Let’s review the eligibility criteria, terms, and costs for both.
Guaranteed Installment Agreements
Guaranteed Installment Agreements are one of the simplest and most accessible types of IRS installment agreements, designed for taxpayers with relatively small tax debts of $10,000 or less, excluding penalties and interest. To qualify, you must have filed all required tax returns for the previous five years. You must not have had an installment agreement with the IRS in the past five years. You must prove they cannot pay the tax debt in full when it is due, or within 120 days. Finally, you must agree to comply with the tax laws and make timely payments for the duration of the installment agreement. To calculate your minimum monthly payment, you’d add your tax liability, interest, and penalties together and then divide it by 30.
Guaranteed installment agreements must be paid off within three years. If you miss a payment, the IRS may cancel your agreement and proceed with collections. To apply, you must submit IRS Form 9465, Installment Agreement Request, online, or by mail or phone.
Streamlined Installment Agreements
A Streamlined Installment Agreement (SIA) is a simplified payment plan offered by the IRS that allows taxpayers to pay off their tax debt in manageable monthly installments. To qualify, you must owe $50,000 or less in combined tax, penalties, and interest. If you’re a business, you cannot owe more than $25,000 in combined tax, penalties, and interest. To calculate your minimum monthly payment, you’d add your tax liability, interest, and penalties together and then divide it by 72. This type of installment agreement does come with a setup fee. This amount will depend on certain factors such as how you apply and how you plan to make your payments.
Streamlined installment agreements must be paid off within 72 months or before the Collection Statute Expiration Date (CSED), whichever is sooner. Again, if you miss a payment, the IRS may cancel your agreement and proceed with collections. To apply, you must submit IRS Form 9465, Installment Agreement Request, online, or by mail or phone.
Non-Streamlined Installment Agreements
A Non-Streamlined Installment Agreement is a type of payment plan offered by the IRS for taxpayers who owe more than the thresholds for streamlined agreements. To qualify, you must owe more than $50,000 in combined tax, penalties, and interest. For businesses, you must owe more than $25,000 in combined tax, penalties, and interest. This type of installment agreement also comes with a setup fee.
Your monthly payment is determined by the financial information you provide in IRS Form 433-F or 433-B, Collection Information Statement. The length of the agreement can vary based on your situation. Once the IRS reviews this form, they will either approve the proposed payment plan or suggest modifications based on their financial review. Once the agreement is in place, it’s crucial to inform the IRS of any significant changes in financial circumstances that may affect the ability to keep the agreement. Missed payments can result in the agreement being voided and other collection measures to resume.
Partial Payment Installment Agreement
A Partial Payment Installment Agreement (PPIA) is a type of IRS payment plan that allows taxpayers to settle their tax debt for less than the full amount owed. To qualify, you must demonstrate that you’re unable to pay the full tax liability, even over time. You must submit a detailed financial statement, Form 433-F or Form 433-B, to the IRS. Once you submit this form, the IRS will review the information provided and negotiate the monthly payment amount based on your ability to pay. They will also review your finances every two years. If your financial circumstances change, your payment may increase, or your agreement can be terminated altogether.
The agreement remains in effect until the tax debt is fully paid or the collection statute expires, whichever comes first. The CSED is typically 10 years from the date the tax was assessed. Remember to make all payments on time or you risk having your agreement voided.
Tax Help for Those Seeking an Installment Agreement
If you know you won’t qualify for tax debt settlement, an IRS installment agreement may be your best option to help manage your tax debt. An IRS installment agreement can truly be helpful to many taxpayers struggling with their tax debt. The most important thing to remember is to always make your installment agreement payment. If you default on your agreement, it may be terminated, and the IRS may begin enforcement actions. Be sure the installment agreement terms are viable for your own financial situation. Optima Tax Relief has over a decade of experience helping taxpayers get back on track with their tax debt.
