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How to Settle Your Taxes With a One-Time Payment

For those struggling to pay their back taxes, both the IRS and Franchise Tax Board (FTB) have an Offer in Compromise (OIC) program which offers taxpayers a way to settle their tax debt for less than the amount owed. The OIC program with each taxing authority is designed to assist taxpayers facing financial hardship or exceptional circumstances that makes full payment of their tax liability unrealistic. Rather than grappling with the burden of repaying the entire debt, qualified individuals can negotiate with the IRS and/or FTB to settle their debt for a reduced amount. Although, some radio ads and tv commercials make the process sound extremely easy, as mentioned in this blog, there is a detailed process.

How do I Qualify?

To initiate the OIC process with the IRS, individual taxpayers must first complete Form 656 Booklet Offer in Compromise and accompanying Form 433-A(OIC). Form 656 calculates your settlement offer amount and repayment schedule while Form 433-A is used to report your assets, liabilities, monthly income, and monthly expenses to show that you meet the financial hardship requirement.

Similarly, for those wishing to settle their debt with the FTB, completing FTB Form 4905-PIT provides a streamlined application process. The IRS and FTB carefully review these forms in order to determine whether the taxpayer is genuinely unable to repay their tax obligation in full, and determine the correct settlement amount. If approved, taxpayers can begin repaying their debt on a scheduled basis.

Any Tips Before Applying?

  1. Provide accurate documentation: Whether or not an OIC is approved often hinges on providing complete and accurate documentation of your finances to show that you meet the financial hardship threshold. Many OICs have been rejected merely because the applicant failed to present complete and accurate financial records.
  2. Check the IRS/FTB Website for expense limitations: When completing your application, be sure to check with the IRS and FTB to ensure that your monthly expenses do not exceed the allowable standards. These will also be known by a tax professional.
  3. Remain current on all tax filings and payments: Show the IRS and FTB that you can remain current on all of your tax filings and can stay on top of any tax payments going forward.
  4. Seek the Assistance of a Tax Attorney: Seeking the assistance of a tax attorney to guide you through the process and to negotiate with the IRS and/or FTB on your behalf not only increases your chances of being approved but may also reduce the settlement payment amount. Experience professionals know what the IRS and FTB will accept, consider, and what information is viewed more favorably.

The OIC programs are a great avenue for taxpayers seeking to get out from under their tax debt. By diligently completing the required forms, providing accurate information, and using the assistance of a tax professional you can alleviate the stress and burden faced when dealing with the IRS and FTB. If you are overwhelmed by your tax debt and believe you may qualify for the OIC program, the experienced tax attorneys at Hone Maxwell LLP are here to help you through the process.

Disclaimer: Hone Maxwell LLP articles and blogs are not intended as legal advice. Additional facts, facts specific to your situation or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information herein.

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