Abatement

One method available to repay your taxes to the IRS is known as abatement. An abatement occurs when the IRS cancels all or part of your accrued penalties and/or interest, but not the underlying tax liability. In other words, you will not owe on your penalties, and maybe not interest, but you will still owe on your present tax bill.

Most abatements are known to apply to the penalties, but not to the interest. Rarely, is the interest due affected by an abatement. Do not consider an abatement if you cannot pay the abated amount (which usually is around 75% of the unabated tax bill). When you request an abatement, you must have a good reason for doing so. You must be able to explain to the IRS you had a good reason for having your tax problems.

Good reasons include: family problems such as divorce or death of a close family member; receiving improper IRS tax advice; illness; destruction of records; and your incarceration.

You need to file a request for abatement on Form 843 (Claim for Refund and Request for Abatement). Include documents that support your case along with the request form. The IRS should reply within 60 days. If the IRS rejects your abatement request, you can appeal within writing within 30 days of the rejection. Contact the IRS for information on how to appeal.

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How to Calculate Your Offer in Compromise

Offer in Compromise (OIC) represents the taxpayer's maximum capacity to pay. This is calculated by the IRS totaling the taxpayer's equity in all assets. (Current Market Value less any current amount owed). Current Market Value is defined as the amount one could reasonably expect to receive upon selling the asset. In order to request an Offer in Compromise agreement, you first must know how much to request as your offer to repay your tax bill. This is where calculating your offer comes in.

1. Get all your financial information together. Assemble your deeds, titles, bank statements, mortgages, insurance policies, wage and income statements, and appraisals, plus any financial statements all in one place to make the review go easier.
2. Calculate your Net Worth. Use a worksheet to simply list all your assets at current market value. Deduct any liquidation expenses (auction, insurance, advertising, brokerage, etc.) to arrive at your net worth.
3. Determine your disposable income. Use a worksheet involving income/expense items. Disposable income is your gross income less any monthly living expenses. Monthly expenses can be broken down into categories: (housing and utilities, National standard expenses: new clothing/groceries, housekeeping supplies, miscellaneous; transportation; health care; taxes; court ordered payments; child/dependent care; life insurance; secured debts; and other: employee business expenses.
4. Add your Net Worth and Disposal Income. Your total offer should at least equal: Your net worth plus any monthly net disposable income projected ahead five years (60 months).
5. Calculate how you will pay the amount. Pay as soon as possible.

How to lower net worth: 1) obtain 3 appraisals and give IRS the lowest. 2) Use photos to show defects in asset (if any). 3) Deduct selling expenses from CMV.

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Installment Agreement

Another IRS payment resolution available is known as the installment agreement does not eliminate neither the penalties nor interest on your account.

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Offer in Compromise: Pennies on the Dollar

The most complex of the IRS tax resolutions methods, the OIC, is also known as “pennies on the dollar“ total offer. The OIC is a popular program recently since so many taxpayers are overburdened with taxes.

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Uncollectible/Undue Hardship

An “uncollectible” tax resolution is also known as an ‘undue hardship’ case. The account (tax payer) has negligible assets subject to levy and no income beyond covering living expenses. In this situation, the IRS reviewer prepares a Form 53 which temporarily inactivates the collection activities. Affected taxpayers will continue to owe taxes and interest, though. The collection process is temporarily put on hold. The IRS will periodically re-exam your financial status about once a year. You will be required to complete a new Financial Statement (Form 433A). Be truthful on this statement - the IRS will catch you if you lie.  

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