Delinquent Taxpayers: Offers in Compromise and Installment Agreements, Obtaining the Best Arrangement

Description

Completing a return with the lowest legitimate tax liability is often just half the battle. Taxpayers often walk away with significant balances due to taxing agencies including the IRS and the New York State Department of Taxation and Finance. Helping individuals manage their tax liabilities to prevent potential liens, levies and revocations of your passport has become an integral piece of many tax practices.

There are both short-term (120 days or less) and long-term installment arrangements. Defaulting on either can have severe consequences. Understanding what payment amounts and payment terms the relevant taxing agency will accept beforehand is key. Taxpayers often need to modify an existing agreement to lower payment amounts or include an additional year.

Tax agencies also allow taxpayers to settle their tax liabilities for less than the tax, penalty and interest owed using the offer in compromise (“OIC”) program. An OIC is detailed in a booklet provided by the IRS, Form 656. It explains steps for completing both Forms 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and Form 433-B, Collection Information Statement for Businesses. Certain taxpayers will need to complete both.

Both installment plans and OICs require setup fees. OIC application fees may be waived for eligible taxpayers. Both have online options to assist applicants. The OIC has an online pre-qualifier, and certain installment agreements can be set up online. Tax practitioners must grasp the nuances of these applications and the likelihood of acceptance when working with taxpayers who have outstanding IRS debt.

Listen as our panel of tax experts provides insights into payment arrangements with the Internal Revenue Service and New York State, including tips for having the most favorable arrangement accepted.