While an offer in compromise is the goldmine for those who owe tax debt, obtaining one with equity in assets is hard to come by. However, if you have a nest of equity, but are cash broke, there are other options at the IRS that may better suit your needs.
Why don’t I qualify for a settlement?
The Offer in Compromise is the settlement program that allows people to settle their tax debt for less than what they actually owe. To qualify for a settlement, there is a formula used that looks at disposable income and equity in assets. While you may not be able to afford a monthly payment to the IRS, because you have equity in assets, the value of those assets may be too high to make a settlement practical. Therefore, the taxpayer is stuck in a position between an inability to settle and an inability to enter a payment plan. Rather than suffer through garnishments, levies, and property seizures, the taxpayer has another option: Currently Not Collectible status.
What is a Currently Not Collectible Program?
The financial hardship status with the IRS known as Currently Not Collectible was established for the taxpayer that at this time could not enter into a payment plan. Under the 8th Amendment’s cruel and unusual punishment and excessive fees and fines clause, the government has come up with a status for taxpayers to enter in which the taxpayer’s constitutional rights are protected. In this status, no collection actions will occur and no payments to the IRS are necessary. Therefore, the taxpayer can protect their nest egg, and not have to enter a financial hardship of which they cannot afford. So whether it be a 401k account, equity in a home, tied up stocks and bonds, or vehicle values, the IRS will leave your property alone. The one caveat is that the IRS will place a lien against your overall property in order to secure its interest in obtaining any assets that you may later plan to liquidate.
How to Qualify
- Taxpayer is compliant with tax returns for last six years.
- Taxpayer is compliant with tax withholding and/or quarterly estimated tax deposit requirements.
- Taxpayer fully discloses all financials
What happens to the debt?
The IRS will not collect nor require payments on the debt, so what happens to it? Federal tax debt expires 10 years from the date of assessment. By entering this program, the clock still ticks and potentially may expire while under this program. For example, a taxpayer that is on social security and no has ability to make monthly payments to the IRS, but has accessible equity in their home owes the IRS $20,000. This debt comes from a tax return filed in 2010. The tax debt is set to expire in 2020, so by entering this currently not collectible program, the taxpayer does not have to make payments, is not collected upon, and as long as there are no dramatic changes to their finances, the taxpayer remains in this status until the tax debt expires in 2020.
Do I qualify?
Some companies will charge you to see if you qualify, other companies will tell you that you qualify without actually gathering enough information to do the two part test. Contact us at Tax Debt Services at 619-352-4188 and we can determine if you qualify for free.