The Internal Revenue Service has created a variety of tax repayment options to settle federal tax debt. New Jersey residents who can not pay all of their federal tax debt may be able to settle their IRS tax debt for a fraction of the total amount owed. Tax professionals such as enrolled agents, tax attorneys or tax accounts can help you determine what tax settlement option may be right for you.
Offer in Compromise
New Jersey residents may be able to settle their federal tax debt for less than they owe by filing an Offer in Compromise. Offer in Compromise allows the New Jersey taxpayer to make an “offer” which the Internal Revenue Service can accept or deny. Not all Offer in Compromises are accepted. Currently the IRS accepts approximately 20-25% of the offers it initially receives, however, more Offer in Compromises are accepted after additional negotiations or an appeal is made.
The IRS has sole discretion to accept the offer and taxpayers do not have any legal recourse against the IRS if their offer is denied. In addition, if the Offer in Compromise is denied, the Internal Revenue Service will have detailed financial information about the taxpayer and can use this information to continue their tax collection efforts. New Jersey taxpayers considering an Offer in Compromise should contact a tax professional before an Offer in Compromise is made.
Qualifying for Offer in Compromise in New Jersey
For New Jersey Taxpayers to qualify for Offer in Compromise they must meet one of the requirements outlined below.
- Doubt as to Liability– New Jersey Residents who doubt the amount of tax debt they have been assessed may qualify for an OIC. This condition is not frequently met.
- Doubt as to Collectibility– Under certain conditions the Internal Revenue Service may question their ability to collect tax debt. This does not mean the amount of debt is in doubt, only the ability of the IRS to collect the debt.
- Effective Tax Administration– For many New Jersey taxpayers collection of the federal tax debt may cause “an economic hardship which is inequitable and unfair”. If the Internal Revenue Service agrees, they may grant an Offer in Compromise. This is most commonly used for the elderly and disabled.
Rejection of Offer in Compromise in New Jersey
Up to 80% of Offer in Compromise offers are rejected by the Internal Revenue Service. If the Internal Revenue Service denies the OIC, they will send a letter detailing the denial and a counter offer they would consider reasonable. The Internal Revenue Service is required to provide Offer in Compromise information under the Freedom of Information Act. Most Offer in Compromise offers are denied because the IRS believes the offers are too low.
Tax professionals can help with the OIC application and with all OIC appeal efforts. A new Form 656 will only have to be completed if a New Jersey taxpayer’s financial status has changed drastically or if the taxpayer failed to file the appeal with in the thirty day deadline.
Appealing an Offer in Compromise in New Jersey
New Jersey taxpayers who have been denied an Offer in Compromise can negotiate with the administrator who made the first denial. Many times the Internal Revenue Service will be willing to negotiate to settle back taxes and put the taxpayer in a position to pay future tax obligations.
The Internal Revenue Service does not have to consider an appeal and the taxpayer does not have the legal authority to sue the Internal Revenue Service for refusing to consider their Offer in Compromise or their OIC appeal.
Filing for an Offer in Compromise in New Jersey
New Jersey taxpayers who are considering Offer in Compromise must complete the following tasks:
- Provide detailed financial and tax information to the Internal Revenue Service
- File all past tax returns.
- File all tax estimates and tax payment quarterly if the taxpayer is self-employed
- Pay all tax debt owed which is not covered under the Offer in Compromise agreement.
New Jersey residents must complete the following Offer in Compromise Forms:
- IRS Form 656- Offer in Compromise. This OIC Form will provide information to the Internal Revenue Service detailing the amount of money the taxpayer believes they can pay to settle the debt.
- IRS Form 443 A- Collection Information Statement for Wage Earners and Self-Employed Individuals. This form provides more information to the Internal Revenue Service about a taxpayers current financial statues and will help the IRS make a determination of the taxpayers ability to pay the tax debt.
- IRS Form 443-B- Collection Information Statement for Businesses. This is the same as the Internal Revenue Service Form 433-A but it is for businesses. The taxpayer will need to file this form if business tax debt will be included in the Offer in Compromise.
- IRS Form 656-A- Income Certification for Offer in Compromise Application Fee and Payment. Taxpayers must file this form if they are not able to pay the fee for Offer in Compromise.
New Jersey Tax Professionals
All New Jersey taxpayers who have questions about their IRS tax debt or who are considering filing an Offer in Compromise should contact a tax professional. Tax professionals have extensive experience negotiating tax settlements with the IRS and can provide information to you about the best tax settlement option for your current financial situation.