Frequently Asked Questions About Tax Debt And Unfiled Returns
Tax season is one of the least enjoyed parts of a year, but much of that lack of joy stems from a dearth of information. The truth is clients often have a ton of questions related to tax debt and unfiled returns but find answer these questions difficult to come by. To ensure you have all your doubts cleared and are armed with the most accurate information available, John P. Jones Inc. has answered five of the most frequently asked questions about tax debts and unfiled returns.
1. What is the most misunderstood aspect about settling tax debt?
The most common misconception taxpayers have about tax debt is that agreements to settle with the IRS are determined by the amount of taxes owed. The size of the payment is determined by the taxpayer's ability to pay. Allowable living expenses are subtracted from average monthly income to come up with the monthly disposal income, which is the amount the IRS wants. Moreover, that amount may be far less than the amount owed.
2. How long does the IRS try to collect tax debts from taxpayers?
The statute of limitations for collections is ten years. However, keep in mind that there are certain events, like filing for bankruptcy, that cause the statute to be suspended so the IRS may pursue collections for more than ten years.
3. Can taxes be discharged in a Chapter 7 bankruptcy filing?
Taxes that arise from returns filed on time and more than three years before filing are dischargeable. If you had to file a return more than three years ago, two years must pass by before those debts can be included in your filing. If you are audited, you must wait two-hundred-and-forty days before you can include assessments from that audit in your filing.
4. What is an Offer in Compromise?
An Offer in Compromise (OIC) is a contract with the IRS to settle your tax debt for far less than what is owed. Your offer would consist of twelve or twenty-four months of your monthly disposable income and an additional amount based on your equity in your personal assets. Under the twelve-month plan, you would pay twenty percent of the offer amount when you file the offer and must pay the rest in five monthly installments. You must also file and pay your taxes on time for the next five years.
5. What is better, an Offer in Compromise or an Installment Agreement?
This depends on the facts. If you are near the end of the ten-year collection statute, an installment agreement may be better. You can negotiate an affordable monthly payment and wait for the statute to run out. Installment agreements are easier to get than an OIC. An OIC is filed when the taxpayer owes a significant amount relative to income and net worth, and there is no reasonable expectation that the taxpayer will be able to pay it. IRS will turn down the offer if it determines that it is too low or the taxpayer can pay the debt. An OIC should be filed only if there is certainty that it will be accepted.
If you have any more questions about tax debt and unfiled returns, get in touch with the experts at John P. Jones Inc. As the best certified public accountant in Chicago, IL, we provide tax preparation and planning, business accounting, strategic planning, tax resolution services, and retirement planning. To learn more about how we can help you, please click here or contact us by clicking here.