Offer In Compromise
An agreement between a taxpayer and the IRS. The IRS has the authority to settle, or compromise, federal tax liabilities by accepting less than full payment under certain circumstances. The IRS may compromise for one of the followings:
1-Doubt as to liability
2-Doubt exists that the assessed tax is correct
3-Doubt as to collectibility
4-Doubt exists that the taxpayer could ever pay the full amount of tax owed.
Can the IRS process my application?
IRS will only process your Offer in Compromise application if you have done all of the following:
You have filed all of the required tax returns. If you have no filing requirement, note it on the application.
You have fully completed the Offer in Compromise application, and provided all supporting documentation.
You agreed with the Franchise Tax Board on the amount of tax that you owe.
You authorized the Franchise Tax board to obtain your consumer credit report and to investigate and verify the information you provided on the application.
Will a collateral agreement be required?
Upon approval, the IRS may require you to enter into a collateral agreement for a term of five years. Generally, a collateral agreement will be required if you have significant potential for increased earnings. A collateral agreement requires you to:
Pay IRS a percentage of your future earnings that exceed an agreed upon threshold.
IRS Offer in Compromise
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Are collections suspended?
Collection activity is not automatically suspended. Certainly delaying collection activity jeopardizes IRS ability to collect the tax, IRS may continue with collection efforts. Interest will continue to accrue.
What does the Franchise Tax Board consider a fair offer in relation to the amount due?
Generally, an offer will be accepted when the amount offered is the most the Franchise Tax Board can expect to collect within a reasonable period of time.
How long will it take to get a decision on my Offer in Compromise?
Generally, IRS will have a decision within 90 days, once your account is assigned to a specialist. If your account is more complex, it may take longer than 90 days.
Can I apply for an Offer in Compromise if I have no funds to offer?
No. IRS will not accept a zero dollar offer. Your offer must represent the most the Franchise Tax Board can expect to collect over a reasonable period of time.
Can I apply prior payments to the offered amount?
The IRS cannot apply prior payments toward the offered amount. However, IRS will consider prior payments and the offered amount compared to the total liability when evaluating your offer.
My Internal Revenue Service Offer in Compromise has been accepted. Will the Franchise Tax Board automatically approve my offer?
No. IRS will evaluate your Franchise Tax Board offer separately from your Internal Revenue Service offer.
If the Franchise Tax Board determines that my offer is not acceptable, will I be contacted?
Yes. IRS or MTX Tax Advisory Institute will contact you to discuss your account and to determine the most appropriate resolution. For example, if it is determined that you will have the ability to make monthly payments that will exceed the amount offered, we will work with you to establish an installment agreement.
Will state tax liens be released if the Franchise Tax Board accepts my offer?
Generally, IRS release state tax liens upon final approval of your Offer in Compromise.
What is a collateral agreement?
A collateral agreement is a contractual agreement between you and the Franchise Tax Board. By signing the agreement, you agree to pledge to IRS a percentage of income that exceeds an agreed upon threshold. Generally, the collateral agreement period is five years.
If my offer is approved, will I have to sign a collateral agreement?
If you are on a fixed income or have limited potential for increased earnings, a collateral agreement will generally not be required.
Can I get relief from the tax liability by filing bankruptcy?
Part or all of your taxes may be dischargeable under the bankruptcy code. If this is a consideration, please let MTX Tas Advisory Institute know.
I am single now. If I marry while the collateral agreement is in effect, how will this affect me?
If you marry or enter into a Registered Domestic Partnership (RDP) while the collateral agreement is in effect, IRS will review any joint tax returns you are required to file. Generally, IRS consider your joint annual income in the collateral agreement. If you are married or a RDP filing separately, the evaluation will be based on your separate income.
Can I complete one application if I owe the Employment Development Department, the Board of Equalization, or the Franchise Tax Board?
Yes, to relieve some of the paperwork burden for taxpayers or their representatives, the State's three taxing agencies developed a single offer in compromise application.
What can I do to protect my Offer in Compromise from being revoked?
If your Offer in Compromise has been approved, you need to make sure the IRS does not revoke your Offer. At all costs, make sure that you:
File your taxes on-time for the next five years.
If you cannot file by April 15th, request an automatic extension. Definitely file your taxes by the extension deadline.
Pay your taxes on-time. If you owe, your taxes must be paid in full by April 15th. Make estimated payments or extension payments to make sure you don't have a balance due.
If the IRS revokes your Offer in Compromise, they will reinstate the full amount of your tax liability, add on penalties and interest, and begin aggressive collection
Can I pay "pennies on the dollar" to settle my tax debts?
The marketing slogan, "pay pennies on the dollar," can be misleading. In a successful offer in compromise, the taxpayer pays less than the full amount taxes, penalties and interest. However, the taxpayer must prove that the amount he or she is paying is equal or more than the reasonable collection potential as determined by the IRS. The reasonable collection potential, broadly speaking, is the IRS' best guess about how much money you could come up with in the next 24 months to pay off your tax debts.
Tax Levy Basics
A tax levy happens when tax collectors take possession of your assets. If you owe taxes and don’t do anything about it, they may just take what you owe from bank accounts or earnings. Learn how a tax levy works and what to expect.
Tax debts are among the most difficult debts to eliminate. Taxing authorities have more power over you than other creditors. An example of that power is the tax levy, where they can seize assets that you don’t even have possession of. The IRS can jump to the front of the line and get paid before other creditors.
With a tax levy, banks, employers, and others may be asked to pay the IRS instead of you. They’re legally obligated to do so, and they’ll end up in hot water if they don’t comply.
Other authorities, besides the IRS, may also use a tax levy.
The IRS may use a tax levy if you owe money and do not reach any agreement with them. Once you pay the debt or agree to some resolution they may release the tax levy. They are required to notify you before levying assets, so you should have some warning. Make sure they know where to find you if you want to avoid any surprises.
Once assets are levied, you have little control over what happens. You should communicate with the IRS and work toward alternative solutions if you receive information regarding a levy.
The IRS prefers to pursue bank levies and other investments when possible. They know it’s easy to collect liquid cash quickly; they don’t have to deal with a lien on your home or settle for a portion of your pay each month.
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IRS OFFER IN COMPROMISE
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What's the Difference Between Wage Garnishment and Bank Levy?
Wage garnishment happens when a creditor takes your earnings from your employer. The garnished amount is deducted from your paycheck and sent directly to the creditor. You never see the money.
Bank account levy is when the creditor takes the money from your bank account, rather than your employer. When a levy is issued, your bank account(s) are frozen and you can't access the money until the debt has been repaid.
Both wage garnishment and bank levies can’t be done without a court order, except for tax debts and child support. Certain types of funds, like Social Security benefits and received child support payments, cannot be garnished or levied, except to pay taxes or child support.
Only a court order, or full debt repayment, can stop wage garnishment or bank levy.
Wondering if you are elible for an Offer Incompromise?
Contact us today, If you’re struggling with paying your taxes, don’t know how to fill out an Offer in Compromise or don’t know which forms to file
We can help you take advantage of the Fresh Start Initiative, and deal with the IRS on your behalf