DFI Wealth Management
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Daniel F. Iuculano, AAMS
Owe IRS for Delinquent Taxes


Daniel F. Iuculano

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Tax return

Owe IRS for delinquent taxes is a topic of interest for many tax payers.  Common solutions to be considered would be IRS Installment Agreement, Partial Payment Installment Agreements, Offer in Compromise and  Collection Statute Expiration Date.


What to do if you owe back taxes!

March 14, 2011 Tax Lien and Offer in Compromise Update

Tax Liens and Offer in Compromise Update There have been recent changes to the Internal Revenue Service procedures regarding tax liens and Offer in Compromise, which are settlements with taxpayers who have no prospect of paying what they owe.

There are also new rules for small businesses with tax debts. The IRS has expanded and easing terms for its streamlined Offer in Compromise program, which allows taxpayers who have no prospect of being able to pay tax debts to settle for a lesser amount. Taxpayers with incomes up to $100,000 may now be eligible for the compromise program if their total tax liability is $50,000 or less.

 IRS generally won't file a tax lien unless unpaid taxes exceed $10,000 up from $5,000 previously. It also will be easier to obtain a lien withdrawal.  In addition, liens may now qualify for withdrawal if the amount is less than $25,000 and the taxpayer has or enters into a Direct Debit Installment Agreement.

 For further information on Offer in Compromise and other options available to taxpayers that owe back taxes please go to my previous posts on IRS Debt. There is a three part article on what to do if you owe back taxes.

IRS Installment Agreement - Also know as payment plan or payment agreement is basically an agreement to make equal installment payments for taxes owed whether it be current year taxes or past taxes owed.

Generally the installment agreement is for tax payers that owe $25,000 or less typically paid up to five years. Interest and penalties still apply to the outstanding balance owed.  The IRS form is Form 9465 which is fairly straight forward to fill out. The IRS form does come with a fee as low as $43 upward to $105 depending on several factors.

The approval from the IRS is automatic if amount owed is under $10,000 and you have filed all prior tax returns.

Find out how much you owe in unpaid taxes. Call the IRS or get out copies of your tax returns to verify the amount you owe. The amount you owe includes your original tax due, plus penalties and interest.

You can either fill out form 9465 or use an online payment agreement application.

Partial Payment Installment Agreements  - In a Partial Payment Installment Agreement, the taxpayer makes regular monthly payments to the IRS, but the payments do not pay off the tax debt in full. After the terms of the Installment Agreement are fulfilled, the remainder of the tax debt is forgiven.

This type of agreement requires full disclosure of your financial information including all income, assets and liabilities through the use of Form 433-A. It is an IRS settlement method that is easier to obtain than a Offer In Compromise (OIC) especially if the IRS has rejected a recent OIC of yours

Offer in Compromise (OIC) - if you owe much more than $25,000 and the likely hood is that you wouldn't be able to pay if off in any reasonable period of time then you might want to consider a IRS process called "Offer in Compromise (OIC)". An Offer in Compromise is an agreement between a taxpayer and the IRS that resolves the taxpayer's tax liability. IRS has been know to settle tax bills for much less than is owed. Be advised that over 80 % of OIC's are rejected due to improper planning and taxpayer's frequent misconception.

Tax Settlement firms - You see the advertisements in newspaper, on TV, and on the Internet. You might even get fliers in the mail. These firms charges start at $2,000 or much more and there are no guarantees that your offer would be accepted by the IRS. If you get rejected by the IRS, you will have virtually no recourse with these firms. Be very careful otherwise you could end up spending a lot of money and see no results.

Collection activities during the process

Generally, unless you have an agreement with the IRS regarding your tax liability, the IRS may attempt to collect the balance at any time.

However, the IRS will withhold collection activities while they consider the offer. The IRS will not act to collect the tax liability.

  • While the IRS investigates and evaluates the offer     ( average time is 10 months)
  • For 30 days after the IRS rejects the offer
  • While the offer rejection is being appealed.

The IRS will not withhold collection if the IRS finds any indication that the offer was submitted to delay collection or jeopardize their ability to collect the tax. In other words the action of submitting the the OIC had no merits.

The Collection Statute Expiration Date (CSED)

Also know as the “collection statue of limitations” a little know IRS rule.

Basically it means that the IRS can no longer collect and has to remove existing levy’s against property for outstanding tax debt older than 10 years from the assessment date which would be typically on or shortly thereafter April 15, the due date of the actual year in question assuming you filed that return in a timely fashion without an extension. So if you owed back taxes for the year 1999 and filed by April 2000, the expiration date would be April 15 2010.

However there is a provision called “tolls” which can extend the 10 years such as Bankruptcy, Offer in Compromise and several other situations.

In the case of Bankruptcy the CSED will be extended for the duration of the bankruptcy proceedings on non dischargeable tax liabilities, plus 6 month. Duration of the bankruptcy proceedings extends from the date you filed for bankruptcy to the date the bankruptcy is discharged or dismissed.