New Procedure for Settling Tax Debts with the IRS

By: Richard Chapo
Submitted: 2007-01-17 16:16:43
Print this article | Tell a friend | For publisher | Social Bookmarking
Rating:
 

The Tax Increase Prevention and Reconciliation Act of 2005 has ushered in new rules for settling tax debts with the IRS. Here is the scoop on the compromise procedures.

New Procedure for Settling Tax Debts with the IRS

If you owe the federal government back taxes, there are two approaches you can take to resolve the issue. The first is to file an installment agreement wherein you agree to pay off the debt by making monthly payments. The second is to try to settle the bill with a one time payment, which is often relatively low given your position you will not reasonably have the money to pay back the total bill. This rules and procedures related to this second approach have changed dramatically.

The settlement process, often called an offer in compromise, underwent a massive change with the passage of the Tax Increase Prevention and Reconciliation Act of 2005. Starting July 16, 2006, the new rules go into affect and they are a bear. The biggest issue is you now must pay 20 percent of your offer amount to even have the settlement offer considered!

The procedure now works as follows. To file an offer in compromise, you must prepare and file Form 656. This form essentially lays out your assets, income, debt amount and the offer you are making given these figures. You must pay $150 when submitting the bill. You must also now pay 20 percent of your offer amount. Neither of these amounts is refundable.

It may take the IRS up to two years to get around to making a decision. If the agency accepts your offer, it will send you acknowledgement and the terms thereof. If the agency does not accept the offer, it keeps your deposit and comes after you. Welcome to the wonderful world of taxes!

There are two exceptions to the 20 percent deposit rule. If you are a low income taxpayer under IRS rules, you need not make the deposit. Further, if you are contesting the taxes due because you believe there has been an error and you are not reasonably responsible for them, you need not file the deposit. Keep in mind the reason must be reasonable, not one of the arguments that nobody has to ever pay taxes.

The new procedures for filing for tax debt settlement are odd given the new 20 percent deposit amount. However, this still represents the best way for dealing with tax debts.

Richard A. Chapo is with BusinessTaxRecovery.com - providing information on taxes.

Article source: Expert Articles

Most Recent Articles in Taxes category

  • Hong Kong Tax - Explained - By: Melissa Glotzer
    Hong Kong is a popular location for business ventures and offshore activities given key attractive factors in its government, its jurisdiction and its policies on trade and investment. Tax is also a decisive point in Hong Kong company incorporation and offshore business ventures. Hong Kong's corporate tax rate is reputably low and Hong Kong boasts a tax system that is intricately designed to benefit its companies while being simple and straightforward to understand. This article summarizes the main elements of Hong Kong corporate tax.
  • Enjoy Ten Days of Non-Stop Gaming Action Using Gamefly Coupons - By: Jhoana Cooper
    Mail-based online video and games rental services have become so popular nowadays. The system of renting out videos or games and waiting for them to be delivered in your mail is very convenient and cheaper too. Gamefly offers such service for its rich catalog of video games. So whether you are an Xbox fanatic, a PlayStation gamer or a Wii enthusiast, Gamefly has the right game for you. In fact, you can enjoy 10 days of non-stop gaming action if you get a gamefly coupon. Gamefly coupons will give you 10-day trial period to test the services of Gamefly.
  • Cyprus Financial Services, Taxation and Trusts - By: Jenny Andrew
    International trusts are governed by the International Trusts Law of Cyprus. International trusts are not taxed in Cyprus.
  • "Don't Panic" and other top tips for Filing your Tax Return on Time - By: Ed Molyneux
    Here's how you can beat the tax return rush and have a relaxing end of January.
  • Use the Appraisal District's Information to Reduce Your Property Taxes - By: Patrick C O Connor
    Homeowners are amazed to learn they can obtain a copy of the appraisal district's evidence at a nominal cost. This is referred to as a House Bill 201 package, and is the only information many homeowners use to successfully reduce their property taxes.
  • Tax Return Outsourcing - Cost and Time Effective Services - By: Michelle Barkley
    Tax return outsourcing has simplified the cumbersome task of maintaining tax returns files and data in an efficient manner.
  • Optimise Savings with an Offshore Account - By: Isla Campbell
    Offshore accounts, based in the Channel Islands, the Isle of Man and Ireland, offer many benefits to those wishing to set up a savings account. But what are the advantages of cash conservation offshore.
  • Texas Business Personal Property Rendition and Taxation - By: Patrick C O Connor
    The Texas Property Tax Code for many years had required owners of business personal property (BPP) to annually render those assets used in a business. Rendering is summarizing to the central appraisal district the ownership and value of the assets. Historically, however, over half of all owners of business personal property have not rendered.
  • How to sustain current economic slump? - By: Mark Waltzer
    Small businesses need professional accountants but their services are too expensive so it's better to hire an outsourcing vendor providing cost-effective accounting services and allow them to take your business to next level.
  • Texas Property Tax Appeals - By: Patrick C O Connor
    Texas Property Tax Appeals Steps to Protesting and Reducing Your Property Value Annually