If you're facing a tax payment hurdle, contact the IRS as soon as possible. "Don't waste time by thinking your tax problem will go away because it won't," warns Halt. If you ignore the problem, the IRS will begin sending you collection letters, and these can be intimidating, he adds.
The IRS also has the authority to take enforcement action against you. In addition to closing down your business, the agency can file a lien against your assets, seize bank accounts or sell your property.
To see if you qualify for an OIC, you will need to fill out Form 433-B, Collection Information Statement for Business, along with OIC Form 656. Individuals and sole proprietors need to complete Form 433-A, Collection Information Statement for Individuals, instead of Form 433-B. These forms provide the IRS with comprehensive financial information about your assets, liabilities and income. You can request the forms by calling (800) 829-1040.
The 656 form was recently revised to cut down on the number of OIC forms the IRS was unable to process due to incomplete information, according to an IRS official. The IRS discovered that taxpayers weren't supplying all the necessary financial information, and that the taxpayers' offers didn't reflect all their equity and assets, he says. The revised form specifically states that a revenue officer will review your offer package to be sure you accurately included information regarding all your assets and income. If you submit incomplete financial information, the entire package will be returned to you.
When submitting your offer package, you must also indicate the total amount of taxes you believe you can pay. The IRS will then determine whether you qualify for an OIC.
The IRS is giving OICs more serious consideration now because it has found that installment agreements don't always produce the desired results. In some cases, the amount of accruing interest and penalties on outstanding taxes is so great that regular payments don't begin to adequately chip away at the principal. In others, the taxpayer doesn't have much in the way of assets. Says Halt, "The taxpayer may have cashed in all retirement funds, borrowed all the equity in his home, and simply lacks the income stream to pay back the IRS."