Partial Payment Installment Agreements

The new Offer in Compromise

The Internal Revenue Service has announced new policies designed to help struggling taxpayers meet their tax obligations, pay back taxes, and avoid tax liens.

When a taxpayer, whether they are an individual or a small business, falls behind on paying their taxes, the IRS will issue a lien against the taxpayer's property. The IRS explains that "a lien informs the public that the U.S. government has a claim against all property, and any rights to property, of the taxpayer." A lien not only makes it difficult for the taxpayer to go about their daily business, but it also can have a devastating effect on their credit rating, and it stays on their credit reports for years if not resolved.

New IRS policies' features include increased tax lien thresholds and an opportunity for taxpayers to secure a Withdraw of the Notice of Federal Tax Lien. Once issued, the taxpayer may submit the Withdraw to credit bureaus and other interested parties.

IRS also announced that it has broadened its Offer in Compromise program, which allows taxpayers to negotiate a reduction in the amount of taxes they owe. IRS Commissioner Shulman said taxpayers with annual incomes of up to $100,000 can participate in the program, up from the previous cut-off of $50,000.

Only a small percentage of Offers in Compromise filed with the IRS are accepted. To obtain a permanent reduction in their tax debts, applicants must demonstrate that they have exhausted all resources available to pay the tax and have little hope of raising the funds.

Late Filer?

Many taxpayers would like to “catch up”, file outstanding returns, and get back into the system, but fear the imposition of substantial penalties.

Your situation may not be as bad as you believe. According to IRS Policy Statement P-5-133, when it is determined that required returns have not been filed, the extent to which compliance for prior years will be enforced is normally for not more than six (6) years.

Further, the penalty for failure to file, and or pay a tax when it is due does not apply if the taxpayer shows that the failure to pay is due to reasonable cause and not to willful neglect. IRC § 6651(a)(1) and (2)

Congress has emphasized . . . that exemptions must be made where a taxpayer demonstrates reasonable cause.  Accordingly, the IRS already allows dispensations where, for example, a taxpayer or a member of his family has been seriously ill, the taxpayer has been unavoidably absent, or the taxpayer's records have been destroyed.

A convincing argument should be made proactively that the draconian penalty provision should not apply where a taxpayer convincingly demonstrates that, for whatever reason, he reasonably was unable to exercise ordinary care.

File NOW, and request that the IRS not assess penalties and utilize the PPIA.

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