Can you negotiate or lower the amount you owe the IRS? (Part 2 of 2)

April 8, 2014 21:33 by Consumer Ed

Dear Consumer Ed:

Can you negotiate or lower the amount of taxes that you owe the IRS, or are the companies that claim they can do this not legit?

Consumer Ed Says:

Yes, in certain, limited cases you can arrange to pay tax debts through a payment plan (called an installment agreement) or settle outstanding tax debts for less than what you actually owe (called an offer in compromise or OIC). However, in order to apply for these programs with the Internal Revenue Service (IRS) or the Georgia Department of Revenue (GDOR) you must first explore all other payment options. Even if you qualify, strict requirements and restrictions apply.  Last week's column delved into this subject as to the IRS and federal taxes.  This week, we're taking up the Georgia related aspects of this question.

Georgia Department of Revenue and State Tax Debts 

Georgians are taxed according to a graduated tax rate. You will be charged a set amount (based on your taxable income and filing status) plus a percentage of your taxable income above a given number. The percentage varies depending on your taxable income but the maximum tax rate is set at 6%. If you do not pay your state taxes, the State will begin its collection procedures. However, the GDOR also has installment agreement and offer-in-compromise programs if you owe back state taxes and can't pay in full. Although similar to the IRS programs, Georgia's requirements and application processes are separate, so you must apply for them separately.

Georgia Installment Agreements

According to the GDOR website, if you are legitimately unable to pay your taxes in full by the time they are due, you may request a payment agreement within guidelines set by the GDOR. You would do this by filing Form GA-9465 to request a monthly installment plan. However, according to the form's instructions, you don't qualify if you: (1) are currently in bankruptcy; (2) have unfiled state tax returns that are past due; (3) have a pending offer in compromise with the GDOR; or (4) your state tax liability has been assigned to a private collection agency. For more information, visit the GDOR Installment Payment Agreements webpage.

Georgia Offers in Compromise

Some Georgia taxpayers may qualify for a Georgia OIC, which lets you settle an outstanding state tax debt for less than the full amount that you owe. According to the GDOR Offer in Compromise Booklet, you can apply if: you are not able to pay the taxes you owe in full even by selling assets or through an installment agreement; a legitimate doubt exists that you owe part or all of your assessed tax debt; or special circumstances exist that would make full payment of the taxes owed an economic hardship. However, you can only apply if you have filed all required tax returns and reports; you have received a final notice of assessment for all Georgia state taxes that you owe; and you are not the subject of an open or active bankruptcy case. For more information, visit the GDOR Offer in Compromise webpage. If you need assistance in completing the application, you can contact the GDOR at (404) 417-6543.

Georgia Resources

If you owe taxes to the State of Georgia, below are resources that may be helpful in determining your payment options: 

 

 

The Taxpayer Advocacy Office is a unit within the GDOR that serves Georgia taxpayers. As stated on the GDOR website, this office may be able to assist you if you: filed a protest of a Notice of Proposed Assessment; were not given fair and equitable treatment as stated in the Georgia Taxpayer Bill of Rights; or the GDOR has not responded to your specific, written inquiry after 90 days. To learn more, visit the GDOR Taxpayer Advocacy Office webpage.

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Can you negotiate or lower the amount you owe the IRS?

April 2, 2014 21:14 by Consumer Ed

Dear Consumer Ed:

Can you negotiate or lower the amount of taxes that you owe the IRS, or are the companies that claim they can do this not legit?

Consumer Ed Says:

Yes, in certain, limited cases you can arrange to pay tax debts through a payment plan (called an installment agreement) or settle outstanding tax debts for less than what you actually owe (called an offer in compromise or OIC). However, in order to apply for these programs with the Internal Revenue Service (IRS) or the Georgia Department of Revenue (GDOR) you must first explore all other payment options. Even if you qualify, strict requirements and restrictions apply.  This week's column will delve into this subject as to the IRS and federal taxes; next week, we'll take up the Georgia aspects.  

First, please remember that firms that claim they can negotiate to lower your tax debt may or may not actually be able to do so, because depending on your particular circumstances, you may or may not qualify for the federal or state OIC program.  In fact, most taxpayers do not qualify. Of 59,000 taxpayers who applied for a federal OIC in 2011, only 20,000 were approved by the IRS-that's less than 34%! So you should investigate tax service companies and the services they claim to provide carefully before signing up. Taxpayers looking for a tax service to resolve their tax debt can easily be taken advantage of by fraudulent companies. 

If you owe taxes, the worst thing you can do is nothing. The problem will not go away! Interest and penalties on back taxes will continue to accrue and the IRS may begin its collection process. Instead, carefully consider your payment options and take action!

The Internal Revenue Service and Federal Tax Debts 

Your federal tax liability typically depends on how much income you earn as well as applicable adjustments, deductions, exemptions, and credits for which you may qualify. Taxes are assessed on taxable income based on a progressive tax rate, under which generally the more you earn, the higher your tax rate. If you don't pay your tax debt on time, the IRS begins collection action. IRS Publication 594 (Pub. 594) outlines the IRS collection process and options if you can't pay your tax debt in full, including applying for an installment agreement or an offer in compromise.  

Federal Installment Agreements 

If you can't pay your debt in full at one time, Pub. 594 indicates applying for an Installment Agreement may be an option. It's a payment plan that allows you to make smaller, periodic payments to pay off your tax debt over a period of time. According to the IRS Installment Agreements webpage, before you apply you must: (1) file all required tax returns; (2) consider other financial sources to pay your tax debt in full to save money (even under an installment agreement the IRS will continue to charge applicable interest and penalties until you pay the amount due in full); (3) determine the largest monthly payment you can make; and (4) know that your future refunds will be applied to your tax debt until it is paid in full. For more information and to learn how to apply, visit the IRS Installment Agreements webpage.

Federal Offers in Compromise

An Offer in Compromise is a request to settle your unpaid tax debt for less than the full amount owed. Pub. 594 says an OIC may be a legitimate option if the IRS agrees your assessed tax debt may not be accurate, if you have insufficient assets and income to pay your tax debt in full, or if paying the full tax debt would cause extreme financial hardship. The IRS will consider your ability to pay, income, expenses and assets to decide if you qualify. However, there are important restrictions and requirements. You aren't eligible if you can pay your tax debt in a lump sum or in installment payments or if you are in an open bankruptcy proceeding. Also, to be eligible you must (1) file all tax returns you are legally required to file, (2) make all required estimated tax payments for the current year, (3) and make all required federal tax deposits for the current quarter if you are a business owner with employees.

You can apply for an OIC directly with the IRS. The IRS provides an Offer in Compromise Pre-Qualifier on its website to help you determine your eligibility and to assist you in preparing a preliminary OIC proposal. For more information and for step by step instructions on how to apply, visit the IRS OIC webpage and refer to IRS Form 656B (Offer in Compromise Booklet)

Federal Resources 

If you owe federal taxes, below are resources that may be helpful as you assess your options:

 

 

If you need help with a tax problem and can't afford to hire a tax professional, you may qualify to receive help from the Taxpayer Advocate Service or a Low Income Taxpayer Clinic:  

 

  • Taxpayer Advocate Service (TAS) is an independent organization within the IRS offering free help if: you have a tax problem you haven't been able to resolve yourself, your problems are causing financial difficulties for you or your business, you face an immediate threat of an adverse collection action by the IRS, or you've tried repeatedly to contact the IRS but no one has responded. For more information, visit the TAS website.
  • Low Income Taxpayer Clinics (LITC) can often represent low income taxpayers in disputes with the IRS or in court on audits, tax collection disputes and other tax issues for free or for a small fee. You may qualify for help from an LITC if you are a low income taxpayer or if you speak English as a second language and need help understanding your taxpayer rights and responsibilities. To learn more, visit the LITC webpage.

 

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Can you explain the new car tax?

April 23, 2013 22:58 by Consumer Ed

Dear Consumer Ed:

I’m confused about the new car tax.  If I sell my car to my sister, will she have to pay tax?

Consumer Ed says:  

For the answer to this question, we went to the Georgia Department of Revenue, for whose assistance we are most grateful.

Let’s look at the specifics about the tax before exploring whether your sister will have to pay the new tax.  It is called the title ad valorem tax (“TAVT”) and was passed by the 2012 Georgia General Assembly with additional amendments made during the recent 2013 legislative session.  It became effective on March 1, 2013, and, until December 31, 2013, the current TAVT rate is 6.5% multiplied by the “Fair Market Value” of the vehicle.  To determine the Fair Market Value of a new motor vehicle, use the greater of the retail selling price or the value listed in the Department of Revenue motor vehicle assessment manual. Then reduce that number by any rebate or cash discounts you received from the dealer. For a used vehicle, the Fair Market Value is the usually the amount listed in the Department of Revenue motor vehicle assessment manual.  Whether the motor vehicle is new or used, there is a reduction for the trade-in value before the TAVT is imposed when the vehicle is purchased at a dealership. 

With the new tax, vehicles purchased on or after March 1, 2013 and titled in Georgia are exempt from sales and use tax and the annual ad valorem tax, i.e. the “birthday tax”.  Instead, the purchased vehicles are subject to the new, one-time TAVT.  Vehicles purchased through a private sale (non-dealer sale) that were previously exempt from sales tax are now subject to the TAVT.  If you purchased the car between January 1, 2012 and March 1, 2013 and had the car titled in Georgia, you are eligible to opt in to the new TAVT system, which will allow you to avoid the annual ad valorem tax after you opt in.  If you qualify to opt in, you will get credit for any sales tax and ad valorem tax previously paid up to the amount of TAVT due.  However, if the sales tax and ad valorem tax previously paid is less than the TAVT due, you will need to make up the difference when you opt in.  This option may only be exercised through February 28, 2014.

Your sister, as an immediate family member, may or may not have to pay the TAVT when she purchases the car from you.  An "immediate family member" is defined as your spouse, parent, child, sibling, grandparent or grandchild.  It is very important to remember that both you and your sister will have to complete an affidavit affirming that you are immediate family members. 

For immediate family members who buy or inherit a vehicle, their obligation to pay the TAVT depends on whether you, as the former owner of the vehicle, have already paid the TAVT.  If you have not paid the TAVT and are paying annual ad valorem tax on the vehicle, your sister has two options: (1) continue to pay annual ad valorem tax on the vehicle, and therefore not be subject to the TAVT; or (2) your sister may elect, at the time she purchases your vehicle, to pay the TAVT based on the current Fair Market Value of the vehicle at the applicable rate for the current year (i.e. 6.5% of the Fair Market Value for 2013) On the other hand, if you were eligible to opt in to the new system and did opt in, or if you otherwise paid the TAVT when you first acquired the vehicle, then her TAVT rate will be 0.50% of the value of the car when she purchases it from you.

Don’t forget that vehicles subject to the TAVT are still subject to the $18 title application fee at the time the vehicle is titled.  Vehicle owners must also annually register their vehicles in their home county and pay the associated $20 renewal fee. 

For more information about the TAVT, visit the Motor Vehicle section of the Georgia Department of Revenue website at http://motor.etax.dor.ga.gov/motor/MVDOnline.aspx.

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