The Internal Revenue Service will send notices to taxpayers in many situations after filing a tax return or when they did not file. Unfortunately, many taxpayers ignore the notices to their detriment. There are millions of taxpayers who have received math errors notices that informed them that their returns have been adjusted, including adjustment for the child tax credit, the amount of recovery rebate credit, or other items on their returns.
The IRS had issued 9.4 million math errors notices as of April 7, 2022. Of these notices, 8.3 million are related to recovery rebate credit and child tax credit. Those math errors could bring some consequences that could be significant if taxpayers do not act quickly. Taxpayers should not delay. They should immediately consult with a licensed tax professional to assess their options.
The Internal Revenue Service Commissioner estimates that taxpayers owe $1 trillion per year. The IRS has several means available to enforce tax filing compliance and payments of taxes due.
When taxpayers did not request an extension to file their tax return, the penalty for late filing and interest on any tax due continue to accumulate. It should be noted that the extension to file does not stop interest from accumulating on tax due. The penalty for late filing is much higher for business tax returns. Pay as much as you could, as soon as possible, to lower the penalty and interest. The IRS could be lenient in certain cases.
Taxpayers must answer to correspondence from the Internal Revenue Service when an action is required. Do not dismiss any letter. Generally, taxpayers have 30 days to answer to an IRS correspondence.
There are many ways to resolve a tax debt. However, a taxpayer needs to be in compliance for the past 6 years to obtain an abatement, an installment agreement, and an offer in compromise.
- Some taxpayers could be qualified for an abatement (FTA) of the penalty.
- Some taxpayers could use the reasonable cause exception to get relief from tax debt.
- Taxpayers could also request for Currently Not Collectible (CNC) status when the payment of the tax due would cause a significant financial hardship on the family.
- Taxpayers could request an installment agreement (IA). An installment agreement is easily approved and could be modified based on changing financial circumstances.
- There are cases where taxpayers could apply for an Offer in Compromise (OIC).
This week, we focus our attention on Offer in Compromise (OIC).
An Offer in Compromise is an agreement between a taxpayer and the Internal Revenue Service that settles a taxpayer’s tax liabilities for less than the full amount owed. Often times, some taxpayers would say “I owe the IRS. I want an offer in compromise.” An Offer in Compromise is not suitable to every taxpayer. It is a long process. There are 7 steps in the Offer in Compromise life cycle: 1) Offer Received, 2) Processability, 3) Case Building, 4) Offer in COIC, 5) Offer in FOIC, 6) OIC Investigation, and 7) OIC Closure.
Taxpayers could apply for one of the 3 types of offer: 1) Doubt as to Collectability, 2) Doubt as to liability, and 3) Effective Tax Administration. There is a pre-qualifier tool available at irs.gov. Taxpayers must pay the $205 non-refundable application fee and the initial offer payment, if applicable. A taxpayer’s unique facts and circumstances are taken into account to qualify for an offer in compromise. The Internal Revenue Service will look at the taxpayer’s ability to pay, income, expenses, and asset equity.
Fiscal Year 2021 OIC Program Results Dispositions Presented by the Office of Stakeholder Liaison
- Total Dispositions – 46,485 cases
- Not Processable (22%) – 10,089
- Acceptances (32%) – 14,944
- Rejections (17%) – 7,740
- Returns (19%) – 8,747
- Withdrawal/Termination (11%) – 4,965
Under current law, enacted in 2015, a taxpayer might not be able to obtain a passport or travel when he or she owes over $50,000 to the IRS because this is information could be reported to the Department of State.
NEVER ignore a tax due notice, regardless of your financial situation. Seek the guidance of a tax professional who is qualified to represent you before the IRS.
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