I. OFFERS IN COMPROMISE
An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles the taxpayer’s tax liabilities for less than the full amount owed. Absent special circumstances, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through payment agreement.
In most cases, the IRS will not accept an OIC unless the amount offered by the taxpayer is equal to or greater than the reasonable collection potential (RCP). The RCP is how the IRS measures the taxpayer’s ability to pay and includes the value that can be realized from the taxpayer’s assets, such as real property, automobiles, bank accounts, and other property. The RCP also includes anticipated future income, less certain amounts allowed for basic living expenses.
II. INSTALLMENT AGREEMENTS
If you cannot afford to pay your taxes in full, the IRS will often agree to consider your circumstances and allow you to set up an installment agreement whereby you pay off your taxes over time – on a workable time schedule and with a payment you can afford.
The Appeals mission is to settle tax disagreements without having to go to Court and a formal trial. Appeals is here to assist you if you don’t agree with a tax decision. The Office of Appeals is independent of any other IRS office and provides a venue where disagreements concerning the application of tax law can be resolved on a fair and impartial basis.
IV. PENALTY ABATEMENT
This type of tax relief either reduces (“abates”) or waives the tax penalty amount to a lesser amount due. When the IRS assesses tax penalties, those penalties are automatically added to the taxpayer’s account by a computer system. Sometimes tax penalties and interest can be inaccurate or even unwarranted. IRS penalties are most commonly added to a taxpayer’s tax debt without taking individual circumstances into account. These penalties can quickly turn a somewhat manageable tax debt into a heavy financial burden. IRS penalties assessed can be as high as 25% of the tax liability amount (at a rate of 5% per month if your IRS tax return is more than 60 days late). This tax penalty is called the Late Filing Penalty and it is clear why it will create rapid financial damage.
V. TRUST FUND PAYROLL TAXES
Trust fund tax is a portion of employee’s wages (income tax, social security, and Medicare taxes – generally know as payroll taxes) withheld by an employer and kept in trust until paid to the Treasury.
Congress enacted the Trust Fund Recovery Penalty Statute. The statute authorizes the IRS to assert a liability against responsible third parties thus encouraging prompt payment of withheld and other collected payroll taxes. Also, the statute imposes a penalty for failure to comply with its provisions. The amount of the penalty is measured by the payroll taxes required to be collected or collected and not paid over.
The penalty only attaches to collected or withheld payroll taxes imposed on persons other than the party who collects payroll taxes, accounts for payroll taxes, and pays over such payroll taxes.
In general, the IRS has the right to pursue any person who meets the two criteria, regardless of his not being an officer or employee of the corporation which originally collected the payroll taxes. The penalty can be assessed against several persons and the IRS rarely misses an opportunity to do so. The Internal Revenue Service is empowered to collect the entire liability from any of those persons.