Wednesday, January 2nd, 2008
The IRS Offer in Compromise program provides taxpayers that owe the IRS more than they could ever afford to pay, the opportunity to pay a small amount as a full and final settlement.
- This program also allows taxpayers that do not agree that they owe the tax or feel that the tax has been incorrectly calculated, a chance to file an Offer in Compromise and have their tax liabilities reconsidered.
- The Offer in Compromise program allows taxpayers to get a fresh start.
- All back tax liabilities are settled with the amount of the Offer In Compromise.
- All federal tax liens are released upon IRS acceptance of an Offer In Compromise and payment of the amount offered.
An Offer in Compromise filed based on the taxpayers inability to pay the IRS looks at the taxpayer’s current financial position and considers the taxpayers ability to pay as well as the taxpayers equity in assets. Based on these factors, an Offer amount is determined.
- Taxpayers can compromise all types of IRS taxes, penalties and interest.
- Even payroll taxes can be compromised.
If you qualify for the Offer In Compromise program you can save thousands of dollars in taxes, penalties and interest.
Why the Taxpayer Needs An Expert In Their Corner
- On October 31, 2004 , the Los Angeles Times reported that the IRS National Acceptance rate for Offers In Compromise was less than 20%.
- One month earlier, a letter from the U.S. Senate Committee on Finance authored by Senators Grassley and Baucus to the Secretary of the Treasury raised concerns about the IRS’s continued failure to efficiently and effectively administer the Offer In Compromise program…
- …we have heard from many practitioners and interested parties that the IRS is more interested in managing Offer In Compromise inventory rather than getting to a resolution of tax debt and giving the taxpayer a fresh start.
- …we are also troubled by the apparent failure of the Treasury and the IRS to fully utilize the flexibilities provided in the effective tax administration provision.
- …the Chief of Appeals had indicated that 86% of all Offers In Compromise are appealed.
- …it is our understanding that the IRS first processes the DATC (Doubt as to Collectability) component before determining whether the taxpayer actually owes the tax, in whole or in part…please explain the IRS rationale for this processing approach.
- …the IRS calculates the ability to pay, in part by computing the monthly installment payment the taxpayer can pay for the remainder of the statutory collection period…please explain the IRS’s basis for decision , particularly in light of the IRS’s policy…that an Offer In Compromise is a viable collection alternative to a protracted Installment Agreement.
- Bottom line is that even though the Mission Statement of the IRS has been amplified to refocus the organizations efforts on service to the taxpayer, it is still the mission of the IRS to collect tax.
The Importance of the Firm’s Track Record
- Due to the complexities of negotiating an Offer In Compromise, The Tax Consulting Firm’s track record is your best indicator of how that firm will manage your case.
Tax Resolution Services’ Track Record is arguably the best in the nation!
For more information, check out our Offers in Compromise Frequently Asked Questions and IRS Guidelines.
What is an Offer in Compromise?
- An offer in compromise is an agreement between a taxpayer and the Internal Revenue Service that resolves the taxpayer’s tax liability.
- The IRS has the authority to settle, or compromise, federal tax liabilities by accepting less than full payment under certain circumstances.
- The IRS may legally compromise for one of the following reasons:
- Doubt as to Liability
- Doubt exists that the assessed tax is correct.
- Doubt as to Collectibility
- Doubt exists that the taxpayer could ever pay the full amount of tax owed.
- The minimum offer amount must generally be equal to (or greater than) the taxpayer’s reasonable collection potential (RCP).
- The RCP is defined as the total of the taxpayer’s realizable value in real and personal assets, plus his/her future income.
- Unless the taxpayer files an Offer In Compromise claiming special circumstances, the offered amount must equal or exceed the reasonable collection potential.
- Realizable value is the asset’s quick sale value (amount which could be reasonably expected through the sale of the asset) minus what the taxpayer owes to a secured creditor.
- Effective Tax Administration
- There is no doubt that the tax is correct and no doubt that the amount owed could be collected in full, but exceptional circumstances exist such that collection of the full amount would create economic hardship or where compelling public policy or equity considerations provide sufficient basis for compromise.
- The taxpayer bears the burden of proof to show their Offer In Compromise qualifies for public policy or equity considerations.
- They must show that their circumstances are compelling enough to justify acceptance of their Offer In Compromise compared to other taxpayers in similar circumstances.
What do you have to do to be eligible for an Offer In Compromise?
- To be eligible for an Offer In Compromise, all returns that are due must first be filed.
When does a Collection Information Statement need to be completed?
- Collection Information Statement(s) are required for doubt as to collectibility and effective tax administration Offer In Compromise, and doubt as to liability involving Trust Fund Recovery Penalty assessments.
If I qualify for an installment agreement, can I still submit an Offer In Compromise?
- If a tax liability can be paid in a lump sum or through an installment agreement, taxpayers will not be considered for an Offer In Compromise.
- If an Offer In Compromise is received, it will be rejected with appeal rights. The only exception is if a taxpayer requests an Offer In Compromise under the effective tax administration provision.
The IRS recently levied my bank account. Will the levy proceeds be returned if I file an Offer In Compromise?
- The IRS will keep all payments and credits made, received or applied to the total original tax liability before the Offer In Compromise was submitted.
- The IRS may also keep any proceeds from a levy that was served prior to the submission of an Offer In Compromise, but which were not received at the time the Offer In Compromise was submitted.
Can taxes be settled by offering pennies on the dollar?
- The Offer In Compromise must include an amount equal to or greater than the total value of all assets, plus future income.
- That total is generally the reasonable collection potential amount, and not simply an offer of ten cents on the dollar, or a percentage of the debt.
- The Offer In Comprise program is not designated to be a program for everyone with financial problems, and it should not be viewed as an invitation to avoid paying taxes.
Can I file an Offer In Compromise to delay collection action?
- Once it is determined an Offer In Compromise was filed solely to hinder and/or delay collection actions, the IRS will return the Offer In Compromise without any further consideration.
- Taxpayers will not be afforded the right to appeal this decision.
Application Fee
What is an Offer In Compromise user or application fee?
- Federal agencies are authorized to establish charges for services provided by the agency, called “user fees”.
- The U.S. Office of Management and Budget encourages agencies to implement these fees to recover the cost of providing special services to some recipients that others do not use.
- The IRS has established a user fee that will recover part of the cost of processing and reviewing Offer In Compromise requests.
- The IRS has chosen to call it an “application fee” because the fee is required when an Offer In Compromise application is submitted for consideration.
How much is the application fee and when does it begin?
- The application fee for submitting an Offer In Compromise is $150 and will be required on all offers that are postmarked November 1, 2003, and thereafter.
Who has to pay the application fee?
All taxpayers who submit a Offer in Compromise postmarked November 1, 2003, and thereafter, must pay the $150 fee, except in two instances:
- The Offer In Compromise is submitted based solely on “doubt as to liability”.
- The taxpayer’s total monthly income falls at or below income levels based on the Department of Health and Human Services (DHSS) poverty guidelines.
What method of payment does the IRS accept?
- A check or money order made payable to the United States Treasury.
Can I send cash as payment for the application fee?
- No. Taxpayers must send a check or money order for $150 made payable to the United States Treasury.
Can I send one check to cover both the application fee and Offer In Compromise amount?
- No. Taxpayers must initially pay the application fee.
- After the IRS accepts the Offer In Compromise, the IRS will notify the taxpayer to promptly pay any unpaid amounts that become due under the terms of the Offer In Compromise agreement.
Can a tax practitioner who represents a number of clients and files multiple Offer In Compromise combine several application fees into one check?
- No. Checks that combine application fees for several offers will not be accepted, and the offers will be returned. Each Offer In Compromise must have a separate check attached.
What happens if I submit an application fee and find that I have insufficient funds in my account to cover the check?
- If the IRS receives notification of insufficient funds, the IRS will immediately stop processing the Offer In Compromise, and the Offer in Compromise will be returned to the taxpayer without any further consideration.
Will payment of the application fee reduce the Offer In Compromise amount?
- The application fee is in addition to the amount listed on the Offer In Compromise.
- However, when the IRS determines the acceptable amount of an Offer In Compromise based on doubt as to collectibility, it considers the value of all of the taxpayer’s assets.
- Because some of the taxpayer’s assets were used to pay the Offer In Compromise application fee, payment of the fee will reduce the acceptable amount of the Offer In Compromise.
- The taxpayer therefore pays no more for an Offer In Compromise with the fee than the taxpayer would have paid without the fee.
Will the application fee create an additional financial hardship on taxpayers who are already having payment problems?
- Because payment of the fee reduces the acceptable Offer In Compromise amount, most taxpayers will not experience any additional financial hardship as a result of the fee.
- However, for some taxpayers the $150 fee may exceed their ability to pay.
- In most cases, the IRS exempts taxpayers whose income is at or below the poverty level from paying this fee.
What happens to my fee if the Offer In Compromise is not considered processible?
- The application fee will be returned to the taxpayer if the Offer In Compromise is determined not to be processible.
How do I know if I qualify for the income exception?
- The IRS has developed a worksheet to assist taxpayers in determining whether they qualify for the income exception.
- If they determine that they qualify, taxpayers must complete the “Income Certification for Offer in Compromise Application Fee,” and attach it along with the worksheet at the time of submission.
What do I need to do if the Offer In Compromise Application Fee Worksheet shows that I qualify for the income exception?
- Taxpayers must sign and date “Income Certification for Offer in Compromise Application Fee.”
- If a taxpayer is submitting a joint Offer In Compromise with a spouse, the spouse must also sign the certification.
- The Income Certification must be attached to the Offer In Compromise.
What happens if I submit the Offer In Compromise and the IRS later says I made an error and do not qualify for the poverty guideline exception?
- The IRS will return the Offer In Compromise to the taxpayer without any further processing.
Does the poverty guideline exception apply to businesses?
- No. The exception for taxpayers with total monthly incomes falling at or below income levels based on DHSS poverty guidelines only applies to individuals.
- It does not apply to other entities, such as corporations or partnerships.
What happens if I do not submit the Offer In Compromise application fee with the Offer In Compromise?
- Unless the taxpayer has submitted an Offer In Compromise under the doubt as to liability provision showing a poverty guideline certification, the IRS will return the Offer In Compromise as not processible.
How is the application fee collected?
- The application fee is collected when a taxpayer submits an Offer In Compromise.
- The general rule is that the IRS needs as many Offer In Compromises as there are entities seeking to compromise.
- A check or money order in the amount of $150 must be attached to each Offer In Compromise.
This assumes that the taxpayer does not meet one of the exceptions for paying the application fee:
- The Offer In Compromise is filed solely under doubt as to liability.
- The Taxpayer’s total monthly income falls at or below income levels based on the DHSS poverty guideline levels.
How many Offers In Compromise must I complete if my spouse and I are submitting one offer to compromise the same joint liability? How many application fees must be attached?
- A married couple owing the same joint income tax liability may file only one Offer In Compromise listing the joint liability. One fee of $150 should be attached to the Offer In Compromise.
- A married couple opting to file separate Offers In Compromise for the same joint liability may do so, but two $150 fees will be required.
This assumes that the taxpayer does not meet one of the exceptions for paying the application fee:
- The Offer In Compromise is filed solely under doubt as to liability.
- The Taxpayer’s total monthly income falls at or below income levels based on the DHSS poverty guideline levels.
When a married couple owes a joint liability and one spouse also owes an individual (non-joint) liability, how many Offers In Compromise are required?
- Two Offers In Compromise are needed- One for the joint liability and another one for the individual (non-joint) liability. A check or money order for $150 should accompany each Offer In Compromise.
This assumes that the taxpayer does not meet one of the exceptions for paying the application fee:
- The Offer In Compromise is filed solely under doubt as to liability.
- The Taxpayer’s total monthly income falls at or below income levels based on the DHSS poverty guideline levels.
How many Offers In Compromise are required from a married couple who owe joint income tax, plus the husband owes an individual year before he was married and a business liability, and the wife owes an individual year with her prior spouse? How many application fees will be required?
In keeping with the “one fee per entity” rule:
- The husband should file one Offer In Compromise listing the joint income tax, the individual year he owes before the marriage and his business liability, and attach a $150 application fee to the Offer In Compromise.
- The wife should file an Offer In Compromise listing the joint income tax and the individual year that she owes with her prior spouse, and attach a $150 application fee to the Offer In Compromise.
- It does not matter that the joint liability will appear on both offers.
This assumes that the taxpayer does not meet one of the exceptions for paying the application fee:
- The Offer In Compromise is filed solely under doubt as to liability.
- The Taxpayer’s total monthly income falls at or below income levels based on the DHSS poverty guideline levels.
How many Offers In Compromise are required if you have an individual who owes tax and who also owes a partnership debt as a general partner or corporate debt from a closely held corporation? How much would the application fee be?
- In this situation, two Offers In Compromise will be required.
- One for the individual liability, and the other for the partnership or corporate liability.
- A check or money order for $150 must be attached to each Offer In Compromise, for a total of $300.
- The IRS cannot combine individual tax on an Offer In Compromise application with taxes owed by a partnership or corporation.
This assumes that the taxpayer does not meet one of the exceptions for paying the application fee:
- The Offer In Compromise is filed solely under doubt as to liability.
- The Taxpayer’s total monthly income falls at or below income levels based on the DHSS poverty guideline levels.
What will happen if the IRS accepts an Offer In Compromise for processing, along with the $150 application fee, but then requests additional Offers In Compromise be submitted with additional $150 fees, and the taxpayer fails to respond?
- Taxpayers are required to submit one fee for each Offer In Compromise submitted for processing.
- Failure to submit additional Offers In Compromise with the corresponding $150 application fee when requested, will cause the IRS to return the offer without any further consideration.
- The $150 application fee will be retained.
What happens to the Offer In Compromise and the application fee after I send it to the IRS?
- The $150 is retained until the IRS determines whether the Offer In Compromise is processible.
Are there any instances when the application fee will be applied against the amount of the Offer In Compromise or refunded to me after the Offer In Compromise has been accepted for processing?
Yes. The fee will be applied against the amount of the offer or, if the taxpayer requests, returned to the taxpayer if:
- If the IRS accepts an Offer In Compromise based on effective tax administration (ETA).
- If the IRS accepts an Offer In Compromise based on a determination of doubt as to collectability with special circumstances.
What if my Offer In Compromise is not accepted, will the application fee be refunded to me?
No. The IRS will retain the fee when:
- The taxpayer’s initial Offer In Compromise amount is too low – based on the IRS evaluation of the taxpayer’s financial condition – and the taxpayer is given the opportunity to increase it.
- If the taxpayer does not increase the Offer In Compromise amount, or show special circumstances, the IRS will reject the Offer In Compromise.
- The taxpayer fails to submit additional financial documents to assist in the IRS review.
- If the taxpayer fails to respond, and/or submit the requested information, the Offer In Compromise will be returned without further consideration.
- The taxpayer chooses to withdraw the Offer in Compromise.
Processing Your Offer In Compromise
What happens if an Offer In Compromise is submitted using the wrong forms?
- The Offer In Compromise forms and “Collection Information Statements” are necessary to conduct an Offer In Compromise investigation.
- Failure to submit these documents will cause considerable delay in the process.
- Taxpayers wanting to pursue the Offer In Compromise as a way to satisfy their tax liability will have to submit the forms in order to have the Offer In Compromise reconsidered.
Will the submission of an inaccurate Offer In Compromise affect the timely disposition of my case?
- Yes. The IRS’ procedures require that a taxpayer be contacted in writing and provided a one-time opportunity to correct the error(s), and/or update the financial statement.
- Failure to correct the error(s) and/or respond results in the Offer In Compromise being returned to the taxpayer without any further actions on the part of the IRS.
What happens if I miscalculate my Offer In Compromise or do not offer an amount equal to my reasonable collection potential?
- This will result in processing delays and could be grounds for the IRS ultimate decision to reject an Offer In Compromise.
- The IRS is observing a large upsurge of receipts in which the offered amount is clearly much lower than the reasonable collection potential illustrated on the taxpayer’s financial statement.
- In a significant number of cases, the taxpayer’s financial statements show that the taxpayer has a clear ability to satisfy the liability in full, or via an installment agreement during the course of the collection statute, and the taxpayer cites no special circumstances.
- The IRS reviews Offers In Compromise for fraudulent intent.
- Submitting an Offer In Compromise with false information, or making a false statement to an IRS employee, is considered an indicator of fraud and may subject the taxpayer to civil or criminal penalties.
What are the National and Local Standards and how are they considered in evaluating an Offer In Compromise?
- Collection Financial Standards are used to help determine a taxpayer’s ability to pay a delinquent tax liability.
- Allowances for food, clothing and other items, known as the National Standards, apply nationwide, except for Alaska and Hawaii , which have their own tables.
- Taxpayers are allowed the total National Standards amount for their family size and income level, without having to supply supporting documentation.
- Maximum allowances for housing and utilities and transportation, known as the Local Standards, vary by location.
Unlike the National Standards, the taxpayer is allowed the lesser of the amount actually spent or the standard.
Offer In Compromise Determinations
What happens if the IRS accepts an Offer In Compromise?
If an Offer In Compromise is accepted, the following guidelines apply:
- The taxpayer must pay the Offer In Compromise amount in accordance with the acceptance agreement.
- The IRS will keep any tax refund, including interest due, as the result of an overpayment of any tax or other liability for the tax period extending through the calendar year the IRS accepts the Offer In Compromise.
- A taxpayer may not designate a refund and/or overpayment to be applied to estimated tax payments for the following year. This condition does not apply if the Offer In Compromise is based on Doubt as to Liability only.
- The taxpayer will waive their right to contest in court or otherwise, the amount of the tax liability.
- If a Notice of Federal Tax Lien has been filed against a taxpayer, the IRS will release the lien once all payment terms of the Offer In Compromise are satisfied.
- The taxpayer must remain in compliance with filing and payment of all tax returns for a period of five years from the date the Offer In Compromise is accepted or until the Offer In Compromise is paid in full, whichever is longer.
- Failure to pay the Offer In Compromise on time, and/or to remain in compliance during the five-year period or until the Offer In Compromise is paid in full, whichever is longer, will result in the Offer In Compromise being declared in default..
What happens if the IRS does not accept an Offer In Compromise?
- Once the IRS determines it cannot accept an Offer In Compromise, the taxpayer will be advised of the reasons behind the decision.
- The taxpayer will be afforded another opportunity to submit additional information that might cause the IRS to reconsider its preliminary decision to reject the offer.
- The exception to this is when the taxpayer has an ability to satisfy the liability in full and has not pointed to special circumstances.
How much interest am I going to pay if my Offer In Compromise is accepted?
- Interest will not accrue on the taxpayer’s accepted Offer In Compromise amount from the date of acceptance until the Offer In Compromise is paid.
- Interest and penalties will continue to accrue on the unpaid tax liability while the Offer In Compromise is under consideration.
Will I be entitled to receive tax refunds if my Offer In Compromise is accepted?
- The IRS will keep any refund, including interest due, because of an overpayment of any tax or other liability, for tax periods extending through the calendar year the IRS accepts an Offer In Compromise.
Can I designate any payments once my Offer In Compromise is accepted?
- No. Refunds and overpayments may not be designated as estimated tax payments for the following year.
- This condition does not apply if the Offer In Compromise was accepted under doubt as to liability only.
Is a tax lien released when an Offer In Compromise is accepted?
- The IRS releases a Notice of Federal Tax Lien when all of the Offer In Compromise payment terms are satisfied.
- For an immediate release of a lien, a taxpayer can submit payment using a certified check and include a request letter.
What happens if I do not meet all the terms of my accepted Offer In Compromise?
- The IRS may default the Offer In Compromise and reinstate the entire tax liability, less all payments and credits received.
What happens if I default my Offer In Compromise?
The IRS may take the following actions:
- Immediately file suit to collect the entire unpaid balance of the Offer In Compromise
- Immediately file suit to collect an amount equal to the original amount of the tax liability as liquidating damages, minus any payment already received under the terms of the Offer In Compromise
- Disregard the amount of the Offer In Compromise and apply all amounts already paid under the Offer In Compromise against the original amount of the tax liability
- File suit or levy to collect the original amount of the tax liability, without further notice
The IRS will not default an agreement when taxpayers have filed a joint Offer In Compromise with your spouse or ex-spouse, as long as you have kept, or are keeping, all the terms of the agreement, even if your spouse or ex-spouse violates the future compliance provision.
What happens if I do not file my tax return or pay my taxes next year?
The Offer In Compromise will be defaulted.
- An Offer In Compromise requires future compliance for a period of five (5) years from the date of acceptance of the Offer In Compromise, or until the offered amount is paid in full, whichever is longer.
- Compliance is the timely filing and paying of all required returns and taxes.
Tags: doubt as to collectibility, doubt as to liability, IRS National Acceptance Rate, Offer in Compromise, release tax liens, tax definitions, tax expert, tax penalties, tax resolution, tax settlement
Posted in Mission Statement of the IRS, Offers in Compromise, Seeking Professional Tax Help, Tax Help Definitions, Tax Problem FAQs, Tax Resolution Options and Alternatives, Working with the IRS | 1 Comment »
Thursday, December 27th, 2007
Q: You have received a notice (CP-504) from the IRS?
Q: You owe the IRS. What if you cannot pay it all right now?
Q: What Is “Currently Not Collectible” ?
Q: What is Installment Agreements (Ias)?
Q: What is the Taxpayer Advocate Service?
Q: Who can file an Offer In Compromise?
Q: What are the requirements for an OIC?
Q: What is the most common reason for the large tax liabilities that force taxpayers to file Offers in Compromise?
Q: Can penalties and interest be compromised under an OIC?
Q: How likely is it that the IRS will accept an Offer in Compromise?
Q: How long does it take for an Offer in Compromise to be approved by the IRS?
Q: Will an Offer in Compromise show up on my Credit Report?
Q: How difficult is it to get the IRS to classify me as “temporarily uncollectible?’
Q: Can property and wages of a spouse without a tax liability be factored in by the IRS to determine the “ability to pay” of the tax-liable spouse in an Offer in Compromise?
Q: Are there any other solutions to tax problems other than an Offer in Compromise?
Q: I filed my tax return late and was shocked when I saw my tax bill. How does the IRS compute penalties?
Q: What should a business owner do who owes delinquent payroll taxes?
Q: Can the IRS go after me personally if I owe payroll taxes?
Q: Can I settle state taxes as I do federal taxes?
Q: Are offers in compromise open to public inspection?
Q: What taxes are dischargeable in bankruptcy ?
Q: What property can the irs get after bankruptcy?
Q: Can you file an OIC if your bankruptcy does not discharge your taxes?
Q: What types of payment plans can you offer the IRS in a Chapter 13 bankruptcy?
Q: What should I do if I discover an error in the supporting information I provided the IRS as part of my OIC?
Q: What can do if a tax lien was erroneously filed against you?
Q: Can the IRS seize or levy a taxpayer’s property without advance notice?
Q: What property is exempt from IRS seizure?
Q: When will the IRS release a levy?
Q: How do I know if I am legally obliged to give information to the IRS?
Q: Can politicians influence the IRS?
Q: What is the difference between a revenue officer and a special agent?
Q: What will happen if I fail to file a delinquent tax return after repeated demands to do so by the IRS?
Q: What if my tax return is due but I don’t have the money to pay the tax?
Q: Does the IRS share tax information with state taxing agencies?
Q: Is conversation with my accountant privileged?
Q: What is meant by an “innocent spouse”?
Q: When a bank account is levied by the IRS, when must the bank turn over the money to the IRS?
Q: Will I get a warning before the IRS seizes my property?
Q: Can the IRS seize and sell my home or car? What about my bank accounts? What about social security?
Q: Does the IRS offer free forms and publications?
Q: What is an “Automated Collection System”?
Q: Will I receive a refund if I currently owe federal taxes?
Q: How can taxpayers claim a tax refund?
Q: Can a taxpayer demand to see his or her tax files?
Q: How does the IRS keep track of each taxpayer?
Q: How does the IRS determine the “minimum bid price,” or what the IRS will sell seized property for at public auction or private bid?
Q: What can the IRS do if I fraudulently transfer my assets?
Q: What can a business owner do to protect business assets from IRS seizure?
Q: Do incorporated businesses commonly file Offers in Compromise?
Q: How does the IRS value property held between husband and wife as tenants by the entirety?
Q: How does the IRS compute the value of a taxpayer’s ownership in a family business?
Q: Can a taxpayer compromise some taxes and not others?
Q: Can you delete or modify preprinted provisions on Form 656 Offer In Compromise?
Q: Will the IRS accept an OIC from a taxpayer with recent criminal record?
Q: How does the IRS determine whether a “collateral” to share in the taxpayer’s future income is needed as a part of the OIC?
Q: What is the statute of limitation on IRS collections?
Q: When can a taxpayer sue the IRS for damages and what can a taxpayer receive in damages?
Q: What rights do I have a taxpayer?
Q: You have received a notice (CP-504) from the IRS?
A: If you have received this notice, it means you have ignored previous notices. The IRS intends to levy on certain assets. If you owe for more than one tax period, you will receive one of these notices for each year. This is one of the statutory notices. You may receive this notice even if you have made arrangements to make installment payments or you have been placed in a “hardship” status. If this is the case, call the number on the notice immediately and advise them. Be sure to write down the name and badge number of the person you speak to as well as the date and time of the call. CP-523 (Notice of Intent to Levy) means that you have defaulted on your installment agreement. This can occur because you failed to make a scheduled payment, filed your most recent tax return late, filed a return and did not pay the balance due or failed to make estimated tax payments as required. If you owe for more than one tax period, you will receive one of these notices for each year.
Q: You owe the IRS. What if you cannot pay it all right now?
A: If you owe more than you can pay right now, there are three options, short of bankruptcy, available to you. If you can’t pay anything on a monthly basis, then the account needs to be declared “currently not collectible”. If you cannot pay all of it now, but you can pay some each month, then you are a candidate for an installment agreement. If the amount you can pay each month is not enough to pay off the amount owed over the next five years, then you are a possible candidate for an Offer In Compromise (OIC).
Q: What Is “Currently Not Collectible” ?
A: If you are unable to pay anything monthly on your tax liability, one option is to have the account declared “currently not collectible”. The IRS often refers to this as a “hardship” status or Status Code 530 or “53” for short. Note that your definition of inability to pay may be different than the IRS’s definition. Therefore, it will be necessary to provide income and expense information to the IRS. This may be done over the phone to Automated Collections or Customer Service or you may be required to submit a Form 433-A.
Q: What is Installment Agreements (Ias)?
A: Installment agreements (IA’s) are a widely used tool for tax collection. They are generally used when you are unable to pay the tax but you can pay enough each month to pay off the tax in a reasonable amount of time ─ generally no more than five years. Frequently, the amount paid monthly does not even cover the accruing interest. If this is true in your case, you should consider an Offer In Compromise. If you do not meet the requirements for an automatic installment agreement , the IRS will likely require you to provide some information regarding your monthly income and expenses. In most cases they will require you to complete Form 433-A (and Form 433-B if you are self-employed).
Q: What is the Taxpayer Advocate Service?
A: The Taxpayer Advocate Service is an IRS program that provides an independent system to assure hat the tax problems that have not been resolved through normal channels are promptly and fairly handled. Each state an service center has at least one local taxpayer advocate who is independent of the local IRS office and reports directly to the National Taxpayer Advocate.
Use Form 911, Application for Taxpayer Assistance Order, which you can get from the IRS. A Taxpayer Advocate will review your application and may issue a Taxpayers Assistance Order (TA)) directing the IRS-involved employees to correct their actions. IRS employees are available to help you complete the application. Filing Form 911 will extend the statute of limitations by the amount of time the IRS spends considering the taxpayer’s application.
Q: Who can file an Offer In Compromise?
A: Any “taxpayer” may file: individuals, married couples, trusts corporations, limited partnerships, limited liability companies, foundations, associations and other non-profit organizations and estates. In each instance, a duly authorized individual must sign the OIC.
Q: What are the requirements for an OIC?
In order to be considered for an OIC, a taxpayer must meet all of the following requirements:
Used the most current version of Form 656, “Offer in Compromise,” dated July 2004 and Forms 433-A and 433-B, “Collection Information Statements, “ dated May 2001;
Submitted the $150 application fee, or Form 656-A, “Income Certification for Offer in Compromise Application Fee,” with the Form 656;
Filed all required federal tax returns;
Filed and paid any required employment tax returns on time for the two quarters prior to filing the OIC, and is current with deposits for the quarter in which the offer in compromise was submitted; and
Is not a debtor in a bankruptcy case.
Taxpayers must comply with all federal tax filing and paying requirements for a period of five years following acceptance of their OIC, or until the OIC is paid in full, whichever is longer. This also includes making required estimated tax payments and federal tax deposits.
Q: What is the most common reason for the large tax liabilities that force taxpayers to file Offers in Compromise?
A: Large tax liabilities are generally caused by unpaid withholding taxes. Owners and other responsible parties within a business are personally assessed the unpaid trust portion, or taxes actually deducted from the employees. This is called the 100 percent penalty assessment.
If business owners cannot pay the full withholding tax, they should at least pay the trust portion-that amount withheld from employees-and designate that the payment be applied only to the trust portion liability. The business will owe its share of the payroll taxes due, but its officers and other responsible parties will have no personal liability. Other common reasons for filing an Offer In Compromise include extensive audits, not fling for a number of years or tax shelter investments that are disallowed.
Q: Can penalties and interest be compromised under an OIC?
A: Yes. Penalties and interest can both be compromised in the same way as the underlying tax liability. In fact, in submitting an offer, you must include all owed taxes, plus penalties and interest, for your offer to be considered. However, if penalties are your major concern, then consider an abatement, particularly if you have reasonable grounds for the IRS to waive the penalty. The abatement process is far simpler than an OIC, and it is your proper remedy when you can pay the tax, but believe you have justification for being excused from the penalties.
Q: How likely is it that the IRS will accept an Offer in Compromise?
A: In the past, the chances of acceptance were poor-only about one in four. The odds of settling with the IRS are now far better because the IRS has liberalized its OIC policies. Taxpayers and their advisors, in turn, have also become more realistic in their offers to the IRS. A realistic OIC now stands an excellent chance of acceptance. If you closely follow the instructions in this product, you should have no trouble reaching a fair and workable settlement with the IRS.
Q: How long does it take for an Offer in Compromise to be approved by the IRS?
A: Generally, you must allow 6-12 months. If you case gets rejected and we take it to Appeals, it could take longer. But, no matter how long it takes, we can often suspend all collection activities.
Q: Will an Offer in Compromise show up on my Credit Report?
A: No. Unlike a bankruptcy or credit card charge off, an Offer in Compromise does not get reported to the credit reporting agencies. An offer in compromise will not negatively affect your credit score. However, ignoring the problem will cause the IRS to file a notice of federal Tax Lien, with your county recorder, which WILL show up on your credit report.
Q: How difficult is it to get the IRS to classify me as “temporarily uncollectible?’
A: The IRS must determine that you have no assets worth chasing and your present and foreseeable income does not exceed what you need to sustain a basic lifestyle. If the IRS decides, however, that you have even $50 in surplus income each month, it will expect that $50 to be applied to your tax liability. There are many more “temporarily uncollectible” determinations made each year than there are approved OICs. Keep in mind that “uncollectible” is only temporary. The IRS can always resume collection.
Q: Can property and wages of an innocent spouse without a tax liability be factored in by the IRS to determine the “ability to pay” of the tax-liable spouse in an Offer in Compromise?
A: Yes. Although the IRS cannot legally claim a nonliable spouse’s assets or income, the IRS, when negotiating settlements, nevertheless considers spousal assets and will make every effort to have you borrow from your spouse so you can increase your offer. Most spouses cooperate, whether from misunderstanding their rights of hoping their cooperation will facilitate settlement with the IRS.
Q: Are there any other solutions to tax problems other than an Offer in Compromise?
A: There are numerous other solutions. For example, Installment Agreements, Bankruptcy, Innocent Spouse Relief, Penalty Abatement, Currently Uncollectible Status, and Statute of Limitations review. Although some changes in lifestyle may be appropriate, there is always a way to resolve a tax problem.
Q: I filed my tax return late and was shocked when I saw my tax bill. How does the IRS compute penalties?
A: If you do not file your taxes and pay on time, the IRS will charge you a combined penalty. The monthly penalty is 4.5% for filing late and 0.5% for paying late. The combined penalty, therefore, is 5% of your unpaid tax for each month or part of a month your return is late, but not for more than five months, totaling 25% (22.5% late filing and 2.5% late paying).
In addition to the 22.5% late filing penalty, the IRS will continue to charge the 0.5% late paying penalty for each month or part of a month as long as the tax is unpaid, but not to exceed 25%. Therefore, the maximum penalty the IRS will charge for late filing and paying is 47.5% (22.5% late filing and 25% late paying).
If you did not file your return within 60 days of the due date, the minimum penalty is $100 or 100% of the balance of the tax due on the return, whichever is smaller.
If you do not pay your taxes when they are due, the IRS will charge you a failure-to-pay penalty. Initially, the penalty is 0.5% of the unpaid tax for each month or part of a month you didn’t pay your tax. If you file your return on time, this penalty will be reduced to 0.25% for any month beginning after 1999 in which you have an Installment Agreement in effect with the IRS.
If the IRS issues you a Notice of Intent to Levy and you do not pay the balance due within 10 days from the date of the Notice, the penalty will increase to 1% a month.
But, again, the late paying penalty cannot be more than 25% of the tax paid late.
If you think the IRS should remove or reduce the above penalties, consider requesting from the IRS an abatement of penalties.
Q: What should a business owner do who owes delinquent payroll taxes?
A: The first step is to stay current from this point forward. The IRS will close your business immediately rather than let you fall further behind.
If you are still in business, the IRS officer’s actions will depend on:
whether you pay your current taxes
your prospects for paying the tax in arrears
the difficulty and time involved in liquidating your business
the money the IRS would get from a liquidation. That’s why a heavily encumbered business can more confidently deal with the IRS than can a business with a large equity exposed to the IRS.
As a business owner, you have the same rights as an individual taxpayer to negotiate an Installment Agreement. Twelve-month agreements are routine, and longer installment plans are possible. Finally, you can submit an OIC to settle the back taxes. Business OICs are far less common than personal OICs, but when your business has fewer assets than tax liabilities, it can be a viable alternative.
Q: Can the IRS go after me personally if I owe payroll taxes?
A: Yes. To encourage the prompt payment of withheld income and employment taxes, Congress passed a law that provides for the Trust Fund Recovery Penalty. The IRS may assess this penalty against anymore who is responsible for collecting or paying withheld income and employment taxes, or for paying collected excise taxes, and who willfully fails to collect or pay them. For willfulness to exist, the responsible person must have known about the unpaid taxes and have used the funds to keep the business going or allowed available funds to be paid to other creditors. This penalty may be applied whether or not the business is out of business. Once this penalty is assessed against the individual responsible person or persons, the IRS will proceed with collection efforts against the individual.
Q: Can I settle state taxes as I do federal taxes?
A: Possibly. Taxpayers commonly owe both IRS and state taxes and do negotiate simultaneous settlements. Most states have tax compromise programs similar to the IRS program. Other states compromise with delinquent taxpayers as a matter of practice if not official policy.
You should prorate your offers to the IRS and the state, paying each their proportionate share. Parity is important. Payment dates and other terms of your offer should also coincide, as should your financial disclosures. Finally, make certain each agency knows you owe the other and that settlements with each is conditional upon settlement with both.
Q: Are offers in compromise open to public inspection?
A: Yes, accepted OICs are public record for one year. And you can inspect OICs that have been approved in your district within the past year for an idea of what the IRS may accept in your case.
Q: What taxes are dischargeable in bankruptcy ?
A: Only personal income taxes are dischargeable in bankruptcy. Payroll and federal excise taxes are not dischargeable. In order to be dischargeable, personal income taxes must be:
(1) More than 3 years old. This is based on the due date of the return, including extensions.
(2) If the returns were filed late, they must have been filed for 2 years.
(3) Assessed for more than 240 days. The assessment date is the date the return is due or filed, whichever is later. If you have not filed a return, the taxes are not dischargeable even though the IRS may have assessed tax based on a “substitute for return”, which is a return they filed for you based on W-2 and 1099 data.
Q: What property can the IRS get after bankruptcy?
A: Generally, any property you have that is either exempt property during the bankruptcy or property abandoned by the trustee will be available to the IRS, if they filed a notice of federal tax lien “prior” to the filing of bankruptcy. A notice of federal tax lien puts the IRS in a position of a secured creditor, so although your home will be safe during bankruptcy, afterward it will be vulnerable to IRS seizure. If, you have little to no equity, this will not be a problem. However, if you do have equity in your home, bankruptcy may only forestall the inevitable.
Q: Can you file an OIC if your bankruptcy does not discharge your taxes?
A: Yes. Bankruptcy does not always discharge your taxes. Payroll taxes and income taxes not meeting certain rules (see above Q & A) are not dischargeable in bankruptcy. You can file an OIC to compromise these or any other taxes not dischargeable in bankruptcy.
Taxpayers emerging from bankruptcy with undischarged taxes can also try to be classified “temporarily uncollectible” because the bankruptcy should convince the IRS that the taxpayer presently has no assets.
The time you were in bankruptcy plus six months is added to the IRS statute of limitations to collect from you.
Q: What types of payment plans can you offer the IRS in a Chapter 13 bankruptcy?
A: There are four possible plans that usually extend payments over three to five years:
A standard or uniform installment plan that calls for constant payments over the term of the plan;
A step-up plan that increases your payments as your income increases;
Variable or seasonal plans that allow your payments to vary to coincide with cash flow or cyclical income; or
Balloon plans that obligate you to pay any remaining tax balance with your final payment and may be used with any of the others plans.
Q: What should I do if I discover an error in the supporting information I provided the IRS as part of my OIC?
A: For material errors, amend your incorrect information on the proper form (i.e., Form 433-A or 433-B) or explain the error in a letter to the IRS. Always put it in writing. Ignore small, immaterial inaccuracies. Notifying the IRS will needlessly delay the process and prompt the IRS to reconsider your application. If you are uncertain whether the error is significant, then correct the information.
Q: What can do if a tax lien was erroneously filed against you?
A: You may appeal an erroneous tax lien by filing an administrative appeal with the IRS Office of Appeals, although you cannot use an administrative appeal to decide the underlying tax liability.
Erroneous tax liens commonly occur when:
a tax lien filed after the tax liability was paid,
the taxpayer was in bankruptcy,
an examination assessment was improperly made
the statute of limitations for IRS collections has expired
Q: Can the IRS seize or levy a taxpayer’s property without advance notice?
A: Yes, but it unusual. For it to occur, the IRS must believe it would be in jeopardy if it did not act quickly and without notice. Jeopardy assessment taxpayers automatically have the right to IRS administrative review and judicial appeal. However, the lien or levy will remain in force pending its income.
A jeopardy assessment would occur, for instance, if the IRS suspects you of transferring assets or of planning to take your money out of the country.
Q: What property is exempt from IRS seizure?
A: By law, some property cannot be levied or seized. The IRS may not seize taxpayer property when the expense of selling the property would be more than the tax debt. Also, the IRS may not seize or levy property on the day a taxpayer is attending a collection interview because of a summons. The IRS also may not levy school books and certain clothing; fuel, provisions, furniture, and personal effects for a household, totaling $6,560; books and tools a taxpayer uses in his or her trade, business, or profession, totaling $3,280; unemployment benefits; undelivered mail; certain annuity and pension benefits; certain service connected disability payments; worker’s compensation; salary, wages, or income included in a judgment for court-ordered child support payments; certain public assistance payments; and a minimum weekly exemption for wages, salary and other income.
Q: When will the IRS release a levy?
A: 1) when the tax, penalties, and interest are fully paid
2) when the statute of limitations has expired
3) when you reach an installment agreement or OIC with the IRS
4) when the release will facilitate collection
5) when the levy is causing extreme hardship
6) when the taxpayer has other assets to satisfy the tax
Q: How do I know if I am legally obliged to give information to the IRS?
A: The Privacy Act of 1974 and Paperwork Reduction Act of 1980 require that the IRS tell you when you are asked a question whether your response is voluntary, required to obtain a benefit, or mandatory. As a strict legal matter, you can always refuse to answer IRS questions or refuse to turn over documents, unless court ordered.
Under these laws, the IRS must also tell you:
why it wants the information
its legal authority in asking for it
what could happen if the IRS does not receive it
Of course, without full disclosure of information and an attitude of complete cooperation, you have virtually no chance of having your OIC accepted. However, if you believe the IRS is asking improper questions, then decline to answer until you seek professional advice.
Q: Can politicians influence the IRS?
A: Many politicians intercede on behalf of their taxpayer constituents, particularly when they believe their constituents have been unfairly treated by the IRS. Contact your congressman only after you have tried and failed to get satisfaction through normal IRS channels.
Your congressman will need your complete file, a letter stating your grievance and how you tried to resolve it, and the results you want. Your congressman will also need a signed Power of Attorney (Form 2848) or Tax Information Authorization and Declaration of Representative (Form 2848D), both available at your local IRS office.
Q: What is the difference between a revenue officer and a special agent?
A: A revenue officer is a regular IRS employee responsible for the collection of taxes through standard procedures. A special agent investigates possible criminal violations of the IRS code. If you are contacted by a special agent (who must disclose his or her status), then immediately terminate the interview and hire a lawyer.
Q: What will happen if I fail to file a delinquent tax return after repeated demands to do so by the IRS?
A: One possibility is that you will receive a federal summons compelling you to bring either the completed tax return or your books and record to the IRS office. This summons is backed by the power of the federal courts which can hold you in contempt if you fail to do so.
The IRS can prepare your delinquent tax return for you. This is guaranteed to result in a much greater tax than had you prepared your own return.
Q: What if my tax return is due but I don’t have the money to pay the tax?
A: Submit your tax return by the date due (or extension date), even if you can’t pay the tax. You will be charged interest and penalty on your late payment but avoid a hefty late-filing penalty. Whether or not you expect to eventually pay the tax, do file on time.
It is also important to file one time because the IRS has only 10 years from the date of assessment to collect your delinquent taxes, and taxes are not assessed until after you file or after the IRS files for you. If you have not filed a tax return, you have not started the statute of limitations for that particular tax year. This means that there is no limit to the amount of time that the IRS can pursue you. In addition, if you have any delinquent tax returns, the IRS will not negotiate with you. You must be current with your filing for the IRS to consider n Offer In Compromise or even an Installment Agreement.
Q: Does the IRS share tax information with state taxing agencies?
A: Yes. In fact, this is standard practice but it must follow strict guidelines. The IRS also shares information with the Department of Justice, other federal agencies and even certain foreign jurisdictions.
Q: Is conversation with my accountant privileged?
A: No. The IRS, the courts and others can compel your accountant to testify about your conversations and turn over letters and other correspondence between you. A solution is to have your attorney hire your accountant to handle your tax matters. Your accountant, working for your lawyer, would then come under the attorney-client privilege. Since confidential documents with your accountant can be subpoenaed, you should have these copies and all copies immediately returned to you.
Only communication with your lawyer is privileged and protected. That’s one advantage to having a lawyer represent you rather than an accountant.
Q: What is meant by an “innocent spouse”?
A: When you and your spouse file a joint tax return, both you and your spouse are “jointly and severally” liable for any taxes due. Many married taxpayers do this because of certain benefits this filing status allows. If you did so, you may be held responsible for monies due, even if your spouse earned all of the income. And this is true even if a divorce decree states that your spouse will be responsible for any amounts due on previously filed joint returns.
However, if you qualify for Innocent Spouse Relief, you may not have to pay the tax, interest, and penalties related to your spouse (or former spouse).
For example, if it is later shown that one spouse had unreported income, the other spouse may try to escape civil and/or criminal liability for the tax on that unreported income under the “innocent spouse” rule. To claim this protection, the innocent spouse must neither have known about the understated income (or other tax) nor could have reasonably known about it.
The “innocent” souse not only avoids tax liability but also provides a safe harbor for the family assets.
Q: When a bank account is levied by the IRS, when must the bank turn over the money to the IRS?
A: Since June 30, 1989, banks have 21 days from date of levy to turn over funds to the IRS. This gives the taxpayer time to resolve the tax problem or settle disputes concerning ownership funds in these accounts. The “21 day rule” applies only to banks. Their parties holding your funds must turn them over within the time provided for in the levy. Accounts receivable are paid to the IRS in accordance with their original credit terms.
Q: Will I get a warning before the IRS seizes my property?
A: Yes. The IRS will usually levy (seize) only after the following three requirements are met:
The IRS assessed the tax and sent you a Notice and Demand for Payment;
You neglected or refused to pay the tax; and
The IRS sent you a Final Notice of Intent to Levy and a Notice of Right to Hearing (levy notice) at least 30 days before the levy.
Q: Can the IRS seize and sell my home or car? What about my bank accounts? What about social security?
A: Yes. Through a levy, the IRS can seize and sell property such as your home or car. They could also seize your bank accounts and social security. Other items the IRS could seize include wages, retirement accounts, dividends, licenses, rental income, accounts receivable, the cash value of your life insurance, or commissions-almost anything of value.
Q: Does the IRS offer free forms and publications?
A: Yes. And most of their publications are worth reading. Forms and publications are available from the IRS at (800) 829-FORM [3676], or from the newly updated IRS web site at www.irs.gov.
Q: What is an “Automated Collection System”?
A: Several years ago, the IRS set up an automated collection system (ACS) to improve efficiency. This systematized process helps IRS collectors contact delinquent taxpayers by mail and phone. It has enormously increased IRS productivity.
Q: Will I receive a refund if I currently owe federal taxes?
A: No. You may not get all of your refund if you owe certain past-due amounts, such as federal tax, state tax, a student loan, or child support. The IS will automatically apply the refund to the taxes owed.
Q: How can taxpayers claim a tax refund?
A: Taxpayers who believe they overpaid their taxes may file a claim for refund directly with the IRS. If the claim is denied, the taxpayer can file a lawsuit for the refund in either the U.S. Court of Claims or Federal District Court.
Q: Can a taxpayer demand to see his or her tax files?
A: Yes. In most instances the IRS will show you your own file. If it refuses, the taxpayer can demand access to his or her files under the Freedom of Information Act.
Q: How does the IRS keep track of each taxpayer?
A: The IRS maintains a taxpayer account for each taxpayer. This IRS computer record contains your tax history, tax assessments, penalties, interest and credits for payment.
To help manage the system, the IRS also issues to each taxpayer a taxpayer identification number (TIN). This is usually the taxpayer’s social security number, but for corporations and trusts, it is a separate 13-digit number.
Q: How does the IRS determine the “minimum bid price,” or what the IRS will sell seized property for at public auction or private bid?
A: The IRS starts with an estimated fair market value. This is then reduced by 25 percent. The minimum bid price is 80 percent of that amount. Of course, the IRS must pay all prior encumbrances and expenses of the sale from the sale proceeds received.
Taxpayers can object to the minimum price bid on their property and request the IR obtain a new professional appraisal.
Q: What can the IRS do if I fraudulently transfer my assets?
A: The IRS may:
sue in Federal District Court to set aside the transfer
sue the transferee for the value of the transferred property
file an administrative claim against the transferee for the value of the transferred asset
Q: What can a business owner do to protect business assets from IRS seizure?
A: The business, to the extent practical, should be divided into separate corporations so if one corporation has a tax problem, the IRS has no recourse to the remaining corporations. The business should also be heavily mortgaged or encumbered, leaving little or no equity for the IRS to seize.
Q: Do incorporated businesses commonly file Offers in Compromise?
A: Few businesses file OICs. Most OICs are filed by individuals. Businesses with severe tax troubles usually also owe other creditors and file Chapter 11 so they can compromise all their liabilities under one comprehensive reorganization plan.
Q: How does the IRS value property held between husband and wife as tenants by the entirety?
A: This type of tenancy presents complex legal problems to the IRS, so it evaluates the interest of each spouse to be less than half the total value of the property. Twenty percent of the total value is generally considered each spouse’s net worth in the property.
Property held as tenants in common or joint tenancy are fully valued based upon the taxpayer’s percentage of interest.
Q: How does the IRS compute the value of a taxpayer’s ownership in a family business?
A: It is always difficult to appraise a small business. However, the IRS will attempt to value it as a “going concern” rather than as assets to liquidated. If the IRS and the taxpayer cannot agree on this value, the IRS and taxpayer each can have the business professionally appraised.
Q: Can a taxpayer compromise some taxes and not others?
A: No. Your Offer In Compromise must include all owed taxes, plus penalties and interest.
Q: Can you delete or modify preprinted provisions on Form 656 Offer In Compromise?
A: No. Deletions or revisions on the preprinted sections of Form 656 are not allowed. You may, however, attach items that modify or clarify your offer.
Q: Will the IRS accept an OIC from a taxpayer with recent criminal record?
A: That depends on the crime, its notoriety, the taxpayer’s reputation in the community and the taxpayer’s compliance with the tax laws before and since the crime. If the IRS suspects that the crimes are ongoing, it will obviously deny the OIC for public policy reasons.
Q: How does the IRS determine whether a “collateral” to share in the taxpayer’s future income is needed as a part of the OIC?
A: The IRS considers the taxpayer’s age, earning capacity, education, health, profession and experience. Taxpayers should underplay these factors when presenting an offer. However, these agreements are rarely requested by the IRS as newer provisions in the Internal Revenue Manual seem to discourage collateral agreements.
Q: What is the statute of limitation on IRS collections?
A: The IRS only has 10 years from the date of assessment to collect your delinquent taxes. Once the statute of limitations expires, your liability expires. However, this 10-year statute of limitations for collection can be extended by waiver, an Offer In Compromise, bankruptcy, application for taxpayer assistance order, collection due process hearing, absence from the country, or an IS lawsuit to enforce collection.
Q: When can a taxpayer sue the IRS for damages and what can a taxpayer receive in damages?
A: It’s difficult, but not impossible to sue the IRS. The taxpayer must show the IRS action to have been frivolous, malicious or wantonly groundless. This means something more than that the IRS “guessed wrong” in determining the correct action.
However, now that the Taxpayer Bill of Rights 2 has been enacted into law, the IRS may be more willing to settle cases for the following reasons:
the cap on damages for “reckless” collections has been raised from $100,000 to $1 million;
to collect legal fees from the IRS, the taxpayer no longer needs to show that the IRS position wasn’t “substantially justified,” but now the burden is on the IRS to show that it’s position was substantially justified; and
the hourly rate for fee awards for recoverable actions has been increased from $75 to $110. The law also contains many other provisions benefiting the taxpayer.
Q: What rights do I have a taxpayer?
A: As a taxpayer, you have the right to be treated fairly, the right to privacy and confidentiality, the right to professional and courteous service, the right to be represented by someone when dealing with the IRS, the right to disagree with your tax bill, the right to meet with an IRS manager if you disagree with the IRS employee who handles your tax case, the right to appeals and judicial reviews of most IRS collection actions, the right to transfer your case to a different IRS office, and the right to receive a receipt for any payment you make.
IRS attitudes toward OICs have improved significantly since the program started and have become more widely used and encouraged by top IRS officials.
Tags: CP-504, currently not collectible, deliquent taxes, Innocent Spouse, installment agreements, Offer in Compromise, Penalty Abatement, tax help, Taxpayer Advocate, temporarily uncollectible
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