Last week, the Internal Revenue Service (IRS) announced that it’s suspending more than a dozen tax letters to provide additional help to taxpayers. With millions of original and amended returns still unprocessed due to pandemic challenges, the IRS is taking this step to help avoid confusion and alleviate stress. The suspended letters include balance due and unfiled tax return notices. Although these notices are temporarily suspended while the IRS works through its backlog of tax returns, payments are still required. Interest and penalties fees will also continue to accrue on any unpaid tax balances. If you owe the IRS, consider looking into these options to address your tax debt and avoid potential collection actions.
IRS Payment Plan
An IRS payment plan allows you to pay off your tax debt balance over several months and avoid certain collection actions, such as wage garnishment. To qualify, you must meet the following requirements:
- Be up to date on all tax filings (no unfiled returns), and;
- Owe $50,000 or less (long-term plan), or;
- Owe $100,000 or less (short-term plan).
You can apply for a payment plan online, by phone, or by mail. For short-term payment plans (180 days or less), there is no setup fee. If you go with a long-term payment plan, however, the setup fee is $31 for Direct Debit Installment Agreements or $130 if you choose to make payments by other means.
It’s important to note that the IRS will generally place a lien on your property if you owe more than $10,000 even if you have an agreement in place. Penalties and interest fees will also accrue until the balance is paid in full.
Currently Not Collectible
If you’re dealing with financial hardship, another option is Currently Not Collectible (CNC) status. Although temporary, CNC gives you a break from payments and suspends certain collections actions, which can keep the IRS off your back while you get on your feet. When applying for CNC status, the IRS may ask you to:
- Submit any unfiled tax returns
- Complete Form 433-A, 433-F, or 433-B (Collection Information Statement)
- Provide supporting documentation
- Continue to make estimated tax payments
Once approved, you must stay compliant with future tax filing requirements and may be required to update your financials to maintain your CNC status. Any tax refund you receive while under CNC status may also be offset to pay down your outstanding balance. Penalties and interest will also continue to accrue.
Offer in Compromise
If you don’t qualify for CNC status and feel a payment plan will cause undue financial strain, it may be possible to settle your tax debt for less than you owe through an Offer in Compromise (OIC). Before you can apply, you’ll need to make sure that all your tax returns are filed and you are current on any estimated tax payments. If you’re being audited or are currently in bankruptcy proceedings, you are ineligible for an OIC at this time.
Once you verify that you are eligible to apply, you’ll need to complete a Collection Information Statement and Form 656, Offer in Compromise. You’ll also be required to pay a non-refundable $205 application fee and submit your initial payment (also non-refundable). The amount of your payment will vary based on your offer and the payment option you choose.
The OIC application process is lengthy, so be prepared to wait a while before you receive an answer. During the review process, you must continue to file on time and pay any new taxes. Failure to do so will result in the IRS returning your offer. If you’re currently under a payment plan, you are not required to make payments while your offer is considered.
Although you can apply for a payment plan, CNC status, or an Offer in Compromise on your own, we highly recommend working with a tax professional. At Tax Defense Network, our tax experts can help you find the best solution for your tax problem. We’ll help you from start to finish, ensuring you complete the correct paperwork and file all required documentation. To apply for any of these programs or learn more about your tax relief options, call 833-803-4222 for a free consultation today!