After exhausting all efforts to resolve your tax debt, you have come to the conclusion that the only thing that is available to you is to pay the darn thing off. If that is you, and this conclusion was helped met by talking with a licensed professional, there are some smart options for you to take moving forward. One of those options is to enter into a payment plan where it doesn’t matter how much money you may have left over after bills are paid and one in which liens are removed and new liens won’t be filed. This is called a Streamlined Payment Plan.
First, do you owe less than $50,000?
In order to enter a streamlined payment plan, you have to owe less than $50,000 to the IRS. Thankfully this amount was raised from the recently previous amount of $25,000. This amount is the assessed tax liability amount, not the actual amount that you owe including interest and penalties. Therefore, you could possibly really owe about $52,000 and still qualify. If you owe more than $50,000 in assessed tax liability, then this payment plan is not an option for you until you get to that threshold. The IRS will normally ask if it is possible for you to pay the debt down to get to that level, either in lump sum or in payments. If you owe more than $50,000 you have to negotiate a payment plan and go through finances with the IRS.
Your payment amounts are calculated on a 72 month payment plan. This is true unless the tax debt will expire before then. If that is the case, then the calculations are met by how many months are left on the statute period for the IRS to collect. If it comes to the point that they are higher because of this fact, you should talk with a licensed professional about your options in doing a partial payment plan or even a high offer in compromise. So for most, if you owe let’s say $10,000, your monthly payments would be about $140 a month, regardless of your amount of income, expenses, or equity in assets.
The beauty of this type of payment plan really lays with the lien protection. If no liens have yet been filed against you, by entering this type of plan, no liens will be filed as long as you remain in the plan. If a lien has already been filed, then you can petition to have the lien removed through a lien removal process. This falls into qualifying criteria as we discussed in a previous blog article.
Do I need to hire someone to do this?
Most simply, no. If you know you don’t qualify for relief of any kind, and have scheduled to hire someone down the road for penalty abatement, and don’t have any live liens filed against you, you don’t need to hire any company to setup a payment plan for you. It takes about an hour, most of which is because you’ll be on hold waiting for the IRS on the phone. Ask for a streamlined payment plan, and you’ll be set. If you want to talk with someone about penalty abatement, lien removal, or to make sure you don’t qualify for other relief types, then call 619-352-4188.
One of the worst things about owing the IRS money is that it continues to grow. Not only do you have the actual tax debt that you owe, but the IRS charges interest and it also can charge two different types of penalties. After many years, 25% of your total tax debt can be penalties. You may have entered into a payment plan and filed all missing returns, but the penalties and interest continue to grow. Let’s go through some common questions about this bad situation:
What stops interest and penalties from accruing?
The only thing that stops interest and penalties from accruing on your tax debt is to not have tax debt. That means it must be paid in full, either through a one-time payment, making multiple payments over years, or by having an offer in compromise settlement accepted and then paid in full. Beyond this, those interest and penalties will continue to enlarge your debt to the IRS.
Can you have the interest accrued waived?
Unfortunately, the answer is no. The IRS will not remove interest unless there is an extreme unique situation. However, if you have an offer in compromise accepted, it can indirectly remove the interest as that is part of the settlement. Beyond that, you will be paying back all interest accrued on the debt.
Can you have the penalties accrued waived?
Yes! Penalties accrued for failure to pay in full and penalties for failure to file can be removed. This can be done through what the IRS calls Penalty Abatement. Your penalties are there for two purposes, failure to file and/or failure to pay in full. In order to get these penalties removed, you have to show reasonable cause to the IRS of why you failed to file on time or why you failed to pay it in full.
My favorite answer to these questions is when people tell me “well…we just didn’t have the money.” Unfortunately, that is not reasonable to the IRS. The IRS is not friendly or kind, their job is to collect tax revenue for the country and if they cannot do that, they will penalize you for it. However, if there was a natural disaster, if there was a death in the family, if there was a period of sickness, then the IRS would say…”well…that’s reasonable, we’ll waive your penalties, but you’re still paying interest!”
If you are paying on your tax debt, and its been years of paying but the debt is staying solid, and you have a reason of why you owed, it may be worth your while to attempt a penalty abatement request. Give us a call at 619-352-4188 to see what our professionals think your options are.
Tax Debt Services
While an offer in compromise is the goldmine for those who owe tax debt, obtaining one with equity in assets is hard to come by. However, if you have a nest of equity, but are cash broke, there are other options at the IRS that may better suit your needs.
Why don’t I qualify for a settlement?
The Offer in Compromise is the settlement program that allows people to settle their tax debt for less than what they actually owe. To qualify for a settlement, there is a formula used that looks at disposable income and equity in assets. While you may not be able to afford a monthly payment to the IRS, because you have equity in assets, the value of those assets may be too high to make a settlement practical. Therefore, the taxpayer is stuck in a position between an inability to settle and an inability to enter a payment plan. Rather than suffer through garnishments, levies, and property seizures, the taxpayer has another option: Currently Not Collectible status.
What is a Currently Not Collectible Program?
The financial hardship status with the IRS known as Currently Not Collectible was established for the taxpayer that at this time could not enter into a payment plan. Under the 8th Amendment’s cruel and unusual punishment and excessive fees and fines clause, the government has come up with a status for taxpayers to enter in which the taxpayer’s constitutional rights are protected. In this status, no collection actions will occur and no payments to the IRS are necessary. Therefore, the taxpayer can protect their nest egg, and not have to enter a financial hardship of which they cannot afford. So whether it be a 401k account, equity in a home, tied up stocks and bonds, or vehicle values, the IRS will leave your property alone. The one caveat is that the IRS will place a lien against your overall property in order to secure its interest in obtaining any assets that you may later plan to liquidate.
How to Qualify
1. Taxpayer is compliant with tax returns for last six years.
2. Taxpayer is compliant with tax withholding and/or quarterly estimated tax deposit requirements.
3. Taxpayer fully discloses all financials
What happens to the debt?
The IRS will not collect nor require payments on the debt, so what happens to it? Federal tax debt expires 10 years from the date of assessment. By entering this program, the clock still ticks and potentially may expire while under this program. For example, a taxpayer that is on social security and no has ability to make monthly payments to the IRS, but has accessible equity in their home owes the IRS $20,000. This debt comes from a tax return filed in 2010. The tax debt is set to expire in 2020, so by entering this currently not collectible program, the taxpayer does not have to make payments, is not collected upon, and as long as there are no dramatic changes to their finances, the taxpayer remains in this status until the tax debt expires in 2020.
Do I qualify?
Some companies will charge you to see if you qualify, other companies will tell you that you qualify without actually gathering enough information to do the two part test. Contact us at Tax Debt Services at 619-887-4881 and we can determine if you qualify for free.