Tax Tips: Taxpayers could settle federal tax debt with an Offer in Compromise
When a taxpayer can't pay their full tax debt or if paying would cause financial hardship, they should consider applying for an Offer in Compromise. For assistance filing for an OIC from a legitimate representative, taxpayers are encouraged to check for a licensed enrolled agent or a reputable accountant in their area.
How an Offer in Compromise works
This is an agreement between a taxpayer and the IRS that settles a tax debt for less than the full amount owed.
The goal is a compromise that's in the best interest of both the taxpayer and the agency. The Offer in Compromise application includes a fee of $205 and an initial payment. Low-income taxpayers don't have to pay either the fee or the initial payment. Taxpayers should review the instructions for Form 656-B, Offer in Compromise, to see if they meet the qualifications to have these initial costs waved.
Who’s eligible
Taxpayers can check their eligibility and prepare a preliminary proposal with the Offer in Compromise Pre-Qualifier Tool.
Review the Offer in Compromise booklet
Eligible taxpayers should download and review the latest version of the OIC booklet., to avoid processing delays. This booklet covers everything a taxpayer needs to know about submitting an Offer in Compromise including:
• Eligibility.
• Costs to apply.
• Application process.
• Forms.
Application evaluation
When reviewing applications, the IRS considers the taxpayer's unique set of facts and special circumstances affecting their ability to pay, including their:
• Income.
• Expenses.
• Asset equity.
Beware of Offer in Compromise mills
Offer in Compromise mills aggressively promote Offers in Compromise in misleading ways to people who clearly don't meet the qualifications, often costing taxpayers thousands of dollars.
An Offer in Compromise mill usually makes outlandish claims about how they can settle a person's tax debt for cheap. The promoter fees are often excessive, and eligible taxpayers pay the OIC mill to get the same deal they could have received on their own by working directly with the IRS. This takes unnecessary money out of the taxpayer's wallet.
In addition, not every taxpayer will qualify for an OIC. Some promoters knowingly advise indebted taxpayers to file an OIC application even though the promoters know the person will not qualify, costing honest taxpayers money and time.
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Tax Tip: Missed the April tax-filing deadline? File quickly to avoid penalties and interest; those owed a refund also shouldn’t forget to files:
WASHINGTON — The Internal Revenue Service today encouraged taxpayers who missed the April tax-filing deadline to file a tax return as soon as they can.
The IRS offers different resources to help those who may be unable to pay their tax bill in total. Those who missed the deadline to file but owe taxes should file quickly to minimize penalties and interest.
Taxpayers should keep in mind that payments are still due by the April 15 deadline, even if they requested an extension of time to file a tax return. An extension to file is not an extension to pay.
File and pay amount owed to reduce penalties and interest
Taxpayers who still owe taxes should file their tax return and pay any taxes owed quickly to reduce penalties and interest. Until the balance is paid in full, interest and penalties accrue on taxes owed.
Even if a taxpayer can't afford to immediately pay the full amount of taxes owed, they should still file a tax return and pay as much as possible. This reduces interest and penalties on the outstanding amount and may help avoid a possible late-filing penalty.
There are options for taxpayers who owe the IRS but cannot afford to pay. For more information see the penalties page on IRS.gov.
Taxpayers may qualify for penalty relief if they have filed and paid timely for the past three years and meet other important requirements, including paying or arranging to pay any tax due. For more information, see the first-time penalty abatement page on IRS.gov.
Electronically pay taxes owed
A quick, easy way for individuals to pay taxes owed securely is through IRS Direct Pay, debit or credit card or digital wallet, or their IRS Online Account. Taxpayers may also apply online for a payment plan (including an installment agreement).
Those who pay electronically get immediate confirmation after submitting payment. The Electronic Federal Tax Payment System (EFTPS) and Direct Pay allow taxpayers to receive payment email notifications. Find more payment options on IRS.gov/payments.
Some taxpayers automatically qualify for extra time to file and pay taxes due without penalties and interest, including:
• Taxpayers in certain disaster areas. There’s no need for these taxpayers to submit an extension; extra time is granted automatically due to the disaster. Information on the most recent tax relief for disaster situations is available on the IRS website.
• U.S. citizens and resident aliens who live and work outside of the United States and Puerto Rico get an automatic two-month extension to file their tax returns. This year they have until June 17 to file. However, tax payments are still due April 15 or interest will be charged.
• Members of the military on duty outside the United States and Puerto Rico. Details are available in Publication 3, Armed Forces’ Tax Guide.
• Those serving in combat zones have up to 180 days after they leave the combat zone to file returns and pay any taxes due.
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This #EarthDay we encourage you to save a tree (or 10) and sign up for an online account with IRS. If you're pine-ing for info like copies of your tax transcripts, payment history and more, branch out and sign up for an online account now. ow.ly/CHN250Rl8Iy
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