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Payment Options and Conditions Attached to Offers in Compromise (cont.)
Those looking for a longer payment plan can go for short term periodic payment scheme. This involves payment of installments over a 24 month period. There is further option available of making payment over even longer period. This is called deferred periodic payment plan. The tax debt under this plan can be cleared in the full ten year period available as per law to the IRS for making collection of tax dues. Since the period of ten years starts from the time the tax demand is first raised, the period actually available may be much lower. However, it is possible for the tax payer to waive the ten year rule and thus gain more time for payment.
Apart from making payments as per agreed plan, the tax payer also forfeits his right to receipt of any refund which is already due. These are adjusted by the IRS against the outstanding dues. Any refund arising during the current year is also similarly adjusted and this has to be agreed to by the tax payer as part of the negotiated agreement.
There are some conditions attached to continuance of the agreement. The stipulated payments have to be made in time or the agreement will be cancelled by the IRS. Apart from this, the tax payer also has to file all his returns in time for the next five years. He also has to pay taxes on the returned income in time for the above period. In other words, he has to be in tax compliance for five years or lose the tax relief if a breach is made.
If the offer in compromise agreement is revoked by the IRS due to any violations, the entire unpaid tax demand becomes payable with immediate effect. The tax waiver given earlier is withdrawn. If the payment is not made immediately, the IRS may resort to forcible methods of collection such as levy of bank account, wages or accounts receivable by the tax payer.
Though periodic tax payment required to be paid as per agreement can be paid by any mode such as check or credit card, the tax payer can choose to make payments through direct debit of bank account or payroll deduction so as to ensure regularity of payment and avoid default. With respect to returns, if delay is unavoidable it is best to request for extension of time and file the return within the date thus extended. The continuance of offer in compromise agreement is a necessary safeguard against aggressive IRS actions. More information on this subject can be seen in Publication 594 of IRS at their website http://www.irs.gov/taxtopics/tc204.html or
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