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When taxpayers have fallen behind on their obligations to the IRS, securing an installment agreement can provide a structured path to coming back into compliance. Securing an installment agreement is very similar to the process for securing an offer in compromise.
The IRS has two different processes for taxpayers seeking to avail themselves of an IRS installment agreement. For those who owe less than $25,000, there is a fairly streamlined process. For those owing more than $25,000, the process is much more individualized and involves much closer scrutiny of the taxpayer's financial resources. A new program for taxpayers owing up to $50,000 has recently been implemented. Potentially the most beneficial payment agreement — which is not frequently acknowledged but is definitely available — is the "Partial Payment Installment Agreement." Such an agreement can be sought where the taxpayer's total resources over the permissible collection period are insufficient to finance a full payment. In many circumstances, the Partial Payment Installment Agreement will be preferable to an Offer in Compromise because the process is more straightforward and avoids the period of uncertainty that accompanies the processing of an offer in compromise.
The more individualized process evaluates monthly income against monthly expenses and ascertains an available balance that will be allocated toward paying down tax obligations. One difficulty of this system is that most common consumer debt, such as credit cards, is not considered.
When an individual has insufficient funds to meet his or her tax obligations, or has a viable dispute as to the amount of tax legally due, one of the tools that can be used to help that taxpayer is the offer in compromise. In an offer in compromise the IRS accepts a portion of what a taxpayer owes to cover the entire obligation. The size of that portion is determined by what the individual can pay or the likelihood that the taxpayer would prevail if the dispute over the amount due were litigated.
The reality of an offer in compromise based on "collectability" is that, contrary to what the name suggests, there is no actual offer and there is no compromise. The portion of the outstanding tax liability that must be paid is determined using very strict formulas prescribed by the IRS, which evaluates how much could realistically be collected by a wholesale seizure of the taxpayer's assets and income stream. On the other hand, an offer in compromise based on doubt as to liability more closely resembles a negotiated settlement.
A skilled offer in compromise attorney who is experienced in securing all types of offers in compromise can help you work the process to your advantage as much as possible. The variables that are entered into those formulas allow for a degree of latitude that a skilled attorney can use to help you decrease the amount owed in an offer in compromise.
If you believe an installment agreement or an offer in compromise may be the solution to your federal tax problems, find out for sure and go about it the right way by contacting Philadelphia tax attorney Joseph R. Violafor a personal face-to-face consultation. Joe Viola has handled thousands of installment agreements and offers in compromise over the years and can get you into the right program for you based on your unique tax and financial situation.