Top Business Debt Solutions for Regaining Control

If you owe the IRS, resolving your liability should be among your top priorities. Ignoring your tax debt can lead to substantial financial penalties (including the addition of interest to your outstanding balance), and it can potentially lead to jail time as well. Taxpayers can face criminal enforcement actions for tax fraud and tax evasion under a wide range of circumstances, and the IRS works diligently to enforce taxpayers' reporting and payment obligations.

If you can't pay what you owe, the IRS offers several debt relief options. But the IRS will not provide relief automatically. Many options (including penalty abatement) are only available upon a specific request for taxpayer assistance.

The options available to you depend on a variety of factors, and the tax debt solution that makes the most sense will be a product of your unique financial situation. Key factors that can affect eligibility include the taxpayer's ability to repay, eligibility for existing IRS debt relief programs, the age of the tax debt (when the debt first became past due), and whether the IRS is in the process of pursuing collection action. The eligibility criteria vary between the various debt relief options.

Streamlined Installment Agreement

A streamlined installment agreement is available to individual taxpayers and out-of-business taxpayers who owe up to $50,000 to the IRS. The taxpayer must be able to fully pay the tax owed, penalties, and interest within six years. Taxpayers who owe up to $25,000 can apply online, while those who owe more than $25,000 but less than $50,000 must apply by mail. Corporate taxpayers that have incurred debt in the course of operating their businesses are not eligible for this option.

The key benefit of a streamlined installment agreement is that taxpayers can negotiate repayment over an extended period without having to provide full financial disclosure to the IRS. The IRS will accept monthly payments, and the taxpayer will typically be able to avoid additional liability for interest and penalties (although interest will continue to accrue throughout the repayment period).

Taxpayers can deal directly with the IRS; however, negotiating through legal counsel is highly recommended. There are specific terms to include in a proposed installment agreement, and taxpayers must have a clear understanding of their financial wherewithal to effectively negotiate repayment.

Non-Streamlined Installment Agreement

The IRS refers to its standard installment plan as a non-streamlined installment agreement. If a taxpayer (individual or business) does not qualify for a streamlined installment agreement, or seeks more than six years to repay, then negotiating a non-streamlined installment agreement will be the taxpayer's primary option.

As the IRS explains, "[a] [non-streamlined installment agreement] is available to individuals and out of business sole proprietors that have more than $50,000 in combined tax, penalties and interest, and all other individuals and businesses who do not qualify for streamlined installment agreements." These agreements allow eligible taxpayers to spread repayment over a longer period, but negotiating them requires full disclosure of a taxpayer's finances to the IRS. For many taxpayers, this full financial disclosure is the biggest drawback.

Still, non-streamlined installment agreements will be the most advantageous option for many taxpayers. They help taxpayers get out of debt, and they halt collection actions. Even though it will be necessary to deal with an IRS representative in person and on the phone, it will be well worth the effort in many cases.

Partial Payment Installment Agreement

Taxpayers who cannot negotiate streamlined or non-streamlined installment agreements may still be able to negotiate partial payment installment agreements. These involve monthly payments that fall short of covering the entire outstanding liability, though they require full payment of tax debt, interest, and penalties within 10 years or before the applicable collection statute of limitations expires. As the IRS notes, the monthly payment amount must reflect a taxpayer's ability to pay "while allowing for payment of necessary living expenses."

The IRS regularly grants partial payment installment agreements to taxpayers who truly cannot afford to pay, but securing one is a complex and arduous process that typically requires dealing directly with IRS revenue officers. Because negotiating a partial payment installment agreement is such a long and drawn-out process, some taxpayers who are unable to fully repay what they owe may need to seek alternative tax relief options.

Installment Agreement Appeal

An installment agreement appeal is necessary when a taxpayer disagrees with the IRS' terms for resolving tax debts through one of these payment plans, or when the IRS files a federal tax lien as part of the approval process.

Depending on the taxpayer's situation, negotiating an installment agreement can take anywhere from a few days to several weeks (or longer). During this time the IRS can - and most likely will - continue to seek collection. Taxpayers may need to explore multiple installment agreement options; and, if the IRS pursues collection activity or files a federal tax lien, it will be necessary to take action promptly so that the taxpayer does not face additional adverse financial consequences unnecessarily.

The good news is that it is often possible to negotiate repayment on terms that are not overly onerous. There are also alternative options for those who can't pay (and don't anticipate being able to pay) in the foreseeable future.

Submitting an Offer in Compromise to the IRS

Negotiating an offer in compromise is another common way to resolve overwhelming tax debt. Individual taxpayers, self-employed individuals, and businesses that are struggling financially due to loss of revenue may be eligible. Only certain taxpayers qualify - as the IRS explains, eligibility is "based on your unique set of facts and circumstances," and the IRS considers "your income, expenses, and asset equity." Establishing eligibility involves submitting extensive documentation, including IRS Form 433-A, 433-B, or 433-F, with documentation supporting the taxpayer's current financial circumstances.

Once eligibility is confirmed, the taxpayer can request an offer in compromise by filing Form 656 with supporting documentation and a $205 application fee. Taxpayers who meet the low-income certification guidelines can request a waiver of the fee. In Form 656, taxpayers must propose an initial payment based on the amount they believe the IRS will ultimately accept - either a lump-sum payment or periodic payments over time. In deciding how much to propose, taxpayers should have a clear understanding of their ability to pay, as this will be a key consideration during the IRS's evaluation.

Unless the taxpayer qualifies for a low-income certification, they must make the proposed payment when submitting their Form 656 (alternatively, they can make a 20% down payment if proposing a lump sum settlement). This initial payment will not be refunded. As the IRS explains, "[i]f your offer is accepted, your initial payment(s) will be applied to reduce your outstanding tax debt. Your payments will not be refunded unless you pay more than the required payment."

The IRS states that its evaluation process typically takes between four and six months, though many factors can impact the timing of the decision. If the IRS does not accept an initial request, the taxpayer has the option of submitting a new request within 30 days. The IRS will retain the taxpayer's initial payment, but will consider the new payment as a new proposal - subject to the IRS's standard processes and procedures. Taxpayers can also seek reconsideration or appeal the IRS's decision, but at this stage it is generally advisable to reevaluate the taxpayer's tax relief options. Many options are still available after submitting an initial request; and, if the taxpayer is unable to secure relief at this stage, securing relief at a later date should remain a possibility.

Once a taxpayer receives an approved offer in compromise, the taxpayer must take all necessary steps to fully satisfy their liability to the IRS, including all outstanding penalties and interest. An offer in compromise is not a tax resolution plan-it is an option available to eligible taxpayers in very limited circumstances to help reduce their federal tax debts and make payment more manageable. If the taxpayer does not provide full payment as proposed in the Form 656, the IRS can resume collection activity and hold the taxpayer fully liable for any and all outstanding amounts. This can include filing federal tax liens and garnishing the taxpayer's wages (for individual taxpayers), as well as taking the steps necessary to bring criminal charges in federal district court if warranted.

The purpose of granting an offer in compromise is to bring the taxpayer current and clear the taxpayer's ledger, and the taxpayer must maintain compliance with all pertinent provisions of the Internal Revenue Code going forward. This applies whether the taxpayer is required to pay its entire outstanding balance in a lump sum or over time. If a taxpayer does fall behind again in the future, it may still be possible to negotiate a streamlined, non-streamlined, or partial payment installment agreement; however, entering into an offer in compromise should serve as the end point, and taxpayers should plan ahead so that they are able to fully pay their debts to the IRS as and when required.

Should You Handle Your Tax Debt on Your Own?

All taxpayers have the right to handle their federal tax debt on their own, but this is not the most advisable path forward in most cases. A tax attorney can help you determine your eligibility for streamlined installment agreements, non-streamlined installment agreements, partial payment installment agreements, and offers in compromise, and can then negotiate with the IRS on your behalf - including evaluating other tax debt relief options, alternatives to bankruptcy, and, when necessary, bankruptcy proceedings under Chapter 7 and Chapter 11.

A free contract review costs nothing and takes a day or two. Call (888) 837-7053, or send the agreements to Delancey Street for a straight read on your options.