New Procedure for Settling Tax Debts with the IRS
Below is a MRR and PLR article in category Finance -> subcategory Taxes.
New Procedure for Settling Tax Debts with the IRS
Overview
The Tax Increase Prevention and Reconciliation Act of 2005 has introduced new procedures for settling tax debts with the IRS. Here's a closer look at the changes in compromise procedures.
Key Points
If you owe back taxes to the federal government, you have two main options for resolution:
1. Installment Agreement: This involves agreeing to pay off your debt through monthly payments.
2. Offer in Compromise: This allows you to settle your tax bill with a one-time payment, typically less than the full amount owed, by demonstrating financial hardship.
New Changes
With the enactment of the Tax Increase Prevention and Reconciliation Act of 2005, significant changes were made to the offer in compromise process:
- Effective Date: The new rules took effect on July 16, 2006.
- Mandatory Deposit: You must now pay 20% of your proposed settlement upfront for the offer to be considered.
How It Works
To submit an offer in compromise, follow these steps:
1. Form 656: Prepare and file this form, detailing your assets, income, debt amount, and proposed settlement based on your financial situation.
2. Fees: Pay a $150 filing fee in addition to the 20% of your offer amount. Note that neither is refundable.
- IRS Review: The IRS may take up to two years to make a decision. If accepted, they will send an acknowledgment detailing the terms. If rejected, they'll retain your deposit and pursue the full amount.
Exceptions
Two exceptions exist to the 20% deposit requirement:
1. Low Income Taxpayers: If you qualify as a low income taxpayer under IRS guidelines, you’re exempt from the deposit.
2. Disputed Taxes: If you believe there's an error and you're not liable for the taxes, you may also be exempt, provided the reason is legitimate.
Conclusion
Despite the 20% deposit requirement, offer in compromise remains a viable method for resolving tax debts effectively. It’s essential to ensure your claim is well-founded and correctly filed to increase your chances of acceptance.
You can find the original non-AI version of this article here: New Procedure for Settling Tax Debts with the IRS.
You can browse and read all the articles for free. If you want to use them and get PLR and MRR rights, you need to buy the pack. Learn more about this pack of over 100 000 MRR and PLR articles.