Depending on your financial situation, you may be eligible for a tax repayment plan through the IRS. The Internal Revenue Service (IRS) has expanded its “Fresh Start” initiative. Your main options include penalty relief, installment agreement, partial installment agreement, an offer in compromise (OIC) and a temporary delay of payment.
An installment agreement is essentially a payment plan where what you owe is divided by a number of months (installments) that IRS determines by evaluating your financial situation using FORM 9465.
Installment agreements that are completed within 4 months are able to avoid additional fees. Additional fees may apply to set up a long-term installment agreement. New IRS Fresh Start provisions have streamlined installment agreements and provide the taxpayer more time to catch up on their back taxes. IRS Fresh Start has increased the threshold for installment agreement requests from $25,000 to $50,000. The IRS has also extended the time of an installment agreement from the previous five year term to the new six year maximum.
Partial Payment installment agreements refer to installment agreement on a tax debt that is about to reach a legal limit for the IRS to collect. There is a 10 year statute of limitations for the collection of back taxes. The Partial Payment Installment Agreement will take your ability to pay and the time left before the tax law to collect back taxes expires.
Offer In Compromise
An offer in compromise is a part of the IRS Fresh Start Initiative that allow you to settle your tax debt for less than you owe. If the IRS recognizes that there is a financial hardship, the IRS may accept less money to settle a tax debt.
Generally, the IRS will not accept an offer if they believe a taxpayer has the ability to pay the tax debt. They will look at a taxpayer’s income and assets to determine whether the tax liability can be paid in a lump sum or through an installment agreement.
Penalty Relief / Temporary Delay of Payment
The IRS provides relief on failure-to-pay penalties that every taxpayer receives when taxes owed go unpaid. The relief includes 6 month grace periods and request for an extension of time to pay back taxes.
There are limits on income to qualify for this tax relief. A taxpayer’s income must not exceed $200,000 jointly or $100,000 single or head of household. There is also a restriction on the amount due to the IRS that could otherwise disqualify you from relief using Form 1127A. Check with a back tax professional to see what the current limits are. (Note: It is advised to consult a back tax professional before submitting any forms to the IRS.) ASK A PRO