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Who Qualifies for Tax Debt Reduction

November 14, 2013

Many taxpayers in tax debt cannot afford to pay the entire amount of their debt due to financial limitations. The most appropriate way for them to resolve their tax debt is to qualify for a tax debt reduction program or seek postponement in payment of tax debt. For tax debt reduction, taxpayers can use IRS debt payment plans, including Offer in Compromise and Partial Payment Installment Agreement.

Qualifying Factors for Offer in Compromise
Offer in Compromise (OIC) is an IRS tax debt reduction program that allows taxpayers to get a reduction in tax debt according to their present financial condition. Only those taxpayers that cannot afford to pay the entire tax debt amount should apply for this program. Taxpayers need to consider taking credit or mortgaging to pay the tax debt before applying for an Offer in Compromise because the IRS considers these factors when reviewing an application for the program.

To qualify a taxpayer for tax debt reduction under Offer in Compromise, the IRS considers the taxpayer’s expenses, asset equity, income and their ability to pay the tax debt. The IRS will try to recover the entire tax debt amount and will only settle for tax debt reduction if they have little choice left.

Only taxpayers that are current with all their filing requirements can apply for Offer in Compromise. In addition, those in an open bankruptcy proceeding cannot apply for the program until the proceeding is complete. Taxpayers have the option to appeal if their Offer in Compromise application is rejected.

Qualifying Factors for Partial Payment Installment Agreement
Partial Payment Installment Agreement (PPIA) is a type of an Installment Agreement Plan that involves tax debt reduction. The pre-requisite for this payment plan is that the taxpayer is financially incapable of paying the entire tax debt amount.

Taxpayers that wish to pay a reduced tax debt amount in monthly installments can use this payment plan to resolve their tax debt. PPIA is relatively easier to qualify for than Offer in Compromise.

Similar to OIC, PPIA also requires the disclosure of financial information. The IRS considers any equity in assets to see if it can be utilized to pay the maximum or full tax debt. Therefore, taxpayers should only apply for PPIA if they are confident that they will achieve reduction in tax debt.

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