When a taxpayer owes taxes, the IRS typically postpones enforcement actions, such as placing a tax lien or seizing property, until the taxpayer has been given an opportunity to voluntarily pay the tax or establish payment arrangements. This approach allows taxpayers to address their outstanding tax liabilities without immediate legal consequences. Tax resolution services can help you deal with and overcome your tax challenges.

When a taxpayer is facing enforcement action, they typically receive four computerized notices from the IRS. These notices are as follows:

1. CP14: This notice informs the taxpayer about the amount of tax owed and provides instructions on how to address the issue.
2. CP501: The CP501 notice serves as a reminder of the outstanding tax liability and emphasizes the importance of timely payment.
3. CP503: If the taxpayer still hasn’t resolved the issue, the CP503 notice is sent, indicating that immediate action is necessary.
4. CP504: The CP504 notice is a final warning before enforcement actions such as liens or property seizures are initiated.

Reading these notices thoroughly is crucial to protect the taxpayer’s rights. Additionally, arrangements can be made with the IRS to help the taxpayer come into compliance and address their tax obligations. 📜💼

These arrangements include:

• Installment Agreements
  • Full or partial payment
• Offers in compromises and delaying collection until the taxpayer’s financial condition improves
  • Placing the account in currently not collectible (CNC) status

It’s crucial to focus on two key aspects, especially in the case of a serious delinquency (meaning the amount owed exceeds $250,000):

1. Collection Status Expiration Date (CSED): The CSED represents the deadline by which the IRS can legally collect the outstanding tax debt. It’s essential to be aware of this date, as it determines when the IRS’s collection efforts expire.
2. Lien Determinations: In such cases, the IRS may directly assign the case to an IRS Revenue Officer rather than handling it through the Automated Collection System (ACS). This personalized approach ensures that the taxpayer’s situation is thoroughly evaluated.

Additionally, keep in mind that there are other unique situations that may require special attention. 📅💼

Short-term Extension of Time to Pay

The IRS will grant up to 180 days to pay liability in full.

To request an extension, individuals have two options:

1. Online Payment Agreement Tool: Taxpayers can use this online tool to set up an extension. It’s a convenient way to arrange for additional time to pay taxes. Unlike installment agreements, there is no setup fee associated with this type of extension.
2. Phone Call to the IRS: Alternatively, taxpayers can call the IRS to request an extension. Speaking directly with an IRS representative allows for personalized assistance.

Benefits of this extension:

• Reduced Penalties and Interest: Taxpayers who opt for this extension typically pay lower penalties and interest compared to other methods.
• Qualification Criteria: To qualify, a taxpayer must owe less than $100,000 in combined tax, penalties, and interest.

Remember, timely communication with the IRS can help taxpayers manage their obligations effectively. 📞💰

Hardship Extension of Time to Pay

Under the IRS Fresh Start Initiative, individuals who find themselves in a situation where they would need to sell property at a reduced price if they paid the tax on time (or face similar undue hardship) can request an extended time to pay. As part of this initiative, late-payment penalties may be waived for those who qualify. It’s a helpful option for those facing financial challenges. 🌟🏦

File Form 1127, Application for Extension of Time for Payment of Tax Due to Undue Hardship. The conditions under which extensions may be granted under Sec. 6161 are printed on the back of the application. Interest still accrues.

Offer In Compromise (OIC)

An Offer in Compromise (OIC) is an arrangement that permits a taxpayer to settle their debt for an amount less than what they owe. The Internal Revenue Service (IRS) grants this relief only if the offer represents the maximum amount they can reasonably expect to collect from the taxpayer within a specific period. To learn more about the necessary forms, user fees, and other terms, refer to Form 656-B Booklet, Offer in Compromise. Keep in mind that OICs can extend the statutes of limitations, and a federal tax lien may be filed as part of this process.

To be eligible for an Offer in Compromise (OIC), the taxpayer must meet the following criteria:

1. Filed Tax Returns: The taxpayer must have filed all their tax returns.
2. Received a Bill: They should have received a bill for at least one tax debt included in the offer.
3. Estimated Tax Payments: All required estimated tax payments for the current year must be made.
4. Business Owners with Employees: If the taxpayer is a business owner with employees, they must have made all required federal tax deposits for the current quarter and the two preceding quarters.

Payment Options for OICs include:

• Lump Sum Cash Offers: Paying a reduced amount in a single payment.
• Periodic Payment Offers: Spreading payments over a period of time.

Remember that participating in an OIC can extend the statutes of limitations, and there’s also the possibility of a federal tax lien being filed as part of the process.

If the IRS rejects an Offer in Compromise (OIC), the taxpayer will receive a notification by mail. The letter will outline the reasons for the rejection and provide detailed instructions on how the taxpayer can appeal the decision to the IRS Independent Office of Appeals. It’s crucial to note that the appeal must be submitted within 30 days from the date of receiving the letter.

Currently Not Collectible (CNC) Status

When a taxpayer faces financial hardship and cannot afford to pay both their owed taxes and basic living expenses, the IRS may place their account in Currently Not Collectible (CNC) status. Here are the key points:

1. CNC Status: The IRS agrees that the taxpayer’s financial situation prevents them from making payments. While in CNC status, the IRS will cease collection activity.
2. Tax Lien: If the taxpayer owes more than $10,000, the IRS will still file a federal tax lien, even during CNC status.
3. Temporary Status: CNC status is temporary, and the IRS will periodically evaluate (usually annually) whether the taxpayer’s financial circumstances have changed.
4. Penalties and Interest: Despite being in CNC status, penalties and interest will continue to accrue.

For more detailed information, you can refer to the National Taxpayer Advocate (NTA)’s blog on Currently Not Collectible from December 10, 2021.

Installment Agreements

According to Section 6159, the IRS is authorized to establish written agreements with taxpayers. These agreements allow taxpayers to make installment payments toward their tax liabilities. The IRS makes this determination based on whether such an agreement will facilitate full or partial collection of the liability.

Taxpayers have several options for installment agreements:

1. Guaranteed Installment Agreement: Qualifying taxpayers can set up a guaranteed installment plan.
2. Discretionary Installment Agreements: These are further categorized into:
   • Streamlined Installment Agreement: For straightforward cases.
   • In-Business Trust Fund Express Installment Agreement: Designed for businesses.
   • Regular Installment Agreement: A more flexible option.

Remember that these agreements help manage tax payments over time, but it’s essential to understand the terms and conditions associated with each type.

To set up an installment agreement with the IRS, you have several options:

1. Online Payment Agreement Tool: Utilize the Online Payment Agreement Tool available on the IRS website.
2. Form 9465: File Form 9465, which is the Installment Agreement Request for individuals.
3. Form 433-D: Alternatively, you can use Form 433-D, which is specifically for installment agreements.
4. Contact the IRS: Give them a call to discuss your situation and explore payment options.
5. Written Communication: You can also write to the IRS.

Keep in mind that there is a setup fee, and in some cases, you may need to submit a financial statement. Make sure to follow the appropriate steps based on your circumstances.