If you have an outstanding delinquent income tax balance due, the IRS offers the following programs that fall under what is known as ‘tax resolution’. There are certain requirements for each.
Installment Arrangement. You can pay your delinquent tax bill (including penalties and interest) in installments. Form 9465 (Installment Agreement Request) needs to be filled out by you and attached to your income tax return. The same procedure as that with your non-delinquent taxes applies. (See section tax tip section on Installment Agreements).
Offer in compromise. This method has the IRS and you settling your income tax debt at less than the original amount. It is known as a mutually beneficial payment agreement. Here, the IRS figures that it is better to get something than nothing. You can usually pay in a lump sum or installments. This method, however, takes awhile in order for the IRS to complete the process. And, it can be time-consuming for you. You cannot simply call the IRS and ask for this arrangement. You need to request this arrangement by:
Using Form 656 (Offer in Compromise)
Using Form 433-A or B (Collection Information Statements)
Writing a cover letter explaining why the IRS should accept your offer
Making a good faith deposit (included in your written request package)
Uncollectible accounts. These are also known as ‘undue hardship’ cases. You would have to have very little, if any, assets to use qualify for this tax resolution method. Also, your income would just barely be able to cover your living expenses in order to qualify. By applying for this category, you will need to complete a Form 433A (Financial Statement). When you ask for this method, your IRS reviewer would prepare Form 53 causing any collection activities to be temporarily inactivated. You will, however, continue to owe taxes and interest as they grow. Only the collection process is temporarily put on hold. You need to know that when you receive the ‘uncollectible’ status, your account will be reviewed annually by the IRS.
Abatement. This IRS tax resolution method has taxpayers arranging with the IRS to repay their delinquent tax liability, but not the involved penalties and interest. Here, also you must have a good reason for not being able to pay the entire amount. A good reason would be: death in the family, loss of income, illness, or incarceration – for instance. You can request an abatement by using Form 843 (Claim for Refund and Request for Abatement).
Bankruptcy. If you have more creditors than you can handle, and the IRS is just one of them, you can apply for bankruptcy. When you do this, the IRS must stop all further collection efforts. Seeing your attorney is the best bet for this method.
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