For most small business owners, cash flows are often tight, and there may come a time when you find yourself unable to pay vendors or suppliers, let alone your taxes. You may have been making timely payments but then an unexpected event has put you in a situation where you are now unable to continue making your payments on time.
If you have been contacted by a collection agency or tax professional, and they advise that your accounts will not be collectible because of the amount due or other factors, then you may want to consider one of three options: an Offer-In-Compromise (OIC), Installment Agreement (IA), or Uncollectible Status.
Each of these options has its own set of pros and cons, and the best option for you will depend on your specific situation. Weighing the risks and benefits of each option is important in order to make an informed decision. In this post, we provide a brief overview of each option. We'll dive right into them.
1. Offer-In-Compromise (OIC)
What's an Offer-In-Compromise (OIC)?
An Offer-In-Compromise is an agreement between you and the IRS in which you agree to pay a certain amount of money for the tax debt that is less than the total amount of taxes you owe. The OIC process can be lengthy, and there is no guarantee that your offer will be accepted.
Why might I want an Offer-In-Compromise?
The main benefit of an OIC is that you can potentially reduce the amount of taxes you owe.
What are the risks?
There are a few risks to consider when submitting an offer. First, there is no guarantee that your offer will be accepted, so you could end up paying more in taxes than you initially owed. Additionally, the process can be lengthy and complex, so it's important to work with a qualified tax professional to help you through the process.
How do I submit an Offer-In-Compromise?
You can submit an offer online or by mail. You will need to complete Form 433-A (OIC) and include detailed financial information about your assets and liabilities. You will also need to provide a payment plan for the agreed-upon amount.
If you are considering an Offer-In-Compromise, it's important to work witha qualified tax professional who can help you navigate the process and increase your chances of having your offer accepted.
2. Installment Agreement (IA)
What is an Installment Agreement?
An installment agreement is an agreement between you and the IRS in which you agree to make monthly payments towards your tax debt.
Why might I want an Installment Agreement?
The main benefit of an IA is that it allows you to spread out your payments over time, making them more manageable.
What are the risks?
There are a few risks to consider when entering into an installment agreement. First, if you miss a payment, the IRS can terminate your agreement and assess penalties and interest. Additionally, the total amount of interest and penalties you will pay will likely be more than if you had paid your taxes in full.
3. Uncollectible Status
What is Uncollectible Status?
Uncollectible status is a designation the IRS gives to taxpayers who are unable to pay their taxes due to financial hardship. This status allows you to stop making payments on your taxes, and the IRS will not pursue collection action against you.
Why might I want Uncollectible Status?
The main benefit of Uncollectible Status is that it prevents the IRS from pursuing collection action against you. This can be helpful if you are unable to make payments or if the amount you owe is more than you can afford.
What are the risks?
There are a few risks to consider when applying for Uncollectible Status. First, if your financial situation improves and you are able to start making payments again, the IRS could pursue collection action against you. Additionally, interest and penalties will continue to accrue on your tax bill, and you will be responsible for paying off that balance.
How do I apply for Uncollectible Status?
You can submit an application online or by mail to the IRS Service Center where your tax account is currently being managed. You must include detailed financial information about your assets and liabilities as well as other information requested on Form 9465 (Application for Uncollectible Status).
It's important to work with a qualifiedtax professional who can help you decide if applying for Uncollectible Status is the best option for your situation. The process of submitting an application and providing financial information about yourself requires strict privacy, so it's essential that you work with someone trustworthy.
If you are not making payments on your tax bill or have already been issued a Notice of Federal Tax Lien, the IRS may pursue collection action against you. If this happens, there are three main options that could potentially reduce the amount of taxes you owe: Offer-In-Compromise (OIC), Installment Agreement (IA), or Uncollectible Status.
Each of these options has its own benefits and risks, so it's important to work with a qualified tax professional to figure out which option is best for you. The IRS offers detailed information about each of these options on their website, so be sure to do your research before making any decisions.