When you go to file your yearly tax returns, you are probably aware of the amount of taxes owed to the Internal Revenue Service (IRS). But many taxpayers are completely unaware of FBAR penalties that the IRS can charge against them. Especially if those FBAR penalties are delinquent or omitted. If your omission is willful, you can also face criminal persecution charges.
It’s always a good idea to contact a tax lawyer for a consultation. When you need to pay the IRS and have concerns about whether you need to pay FBAR penalties. Your tax attorney can determine if you can get an Offer in Compromise in such a situation.
What is the IRS Offer in Compromise Program?
The IRS uses several methods to tackle taxpayers who cannot afford to pay tax. Versus those who actively ignore and avoid paying their taxes. In most cases, the IRS will want to resolve the issue. And work out a means through which the taxpayers can meet their debt. Starting a criminal investigation regarding evasion of payment is usually a last resort. As well as, other aggressive measures to collect taxes such as confiscating or selling assets.
If a taxpayer has not been paying taxes. Whether due to an insufficient net income. Or if he or she is living at or near the poverty line and is not able to maintain the very basic standards of living. The IRS’s Offer in Compromise program can work to the taxpayers’ benefit.
An Offer in Compromise (OIC) is an agreement between the IRS and the taxpayer, where the taxpayer pays less than the owed amount of tax, penalties, and interest as a settlement of all owed taxes.
The IRS determines whether the taxpayer might be eligible for the OIC based on certain factors. These factors include an assessment of total income earned by the taxpayer and the taxpayers’ allowable expenses. As well as, the taxpayer’s net worth or total assets owned.
If the taxpayer meets the requirements for an OIC, they can satisfy all their owed debt. Through either lump-sum payments or periodic payments.
In the lump-sum payment plan, the taxpayer has to pay 20% of the payment immediately. And they allow the remaining amount to get paid within five payments. Alternatively, the periodic plan does not include an initial payment before installments begin.
Is it Possible to Use Offer in Compromise for FBAR Penalties?
If an individual has control or interest in financial accounts abroad, US law requires that person to declare all taxable inflow of income from foreign income-generating assets or accounts. They also have to comply with different FBAR requirements and reporting foreign information.
Suppose taxpayers miss the deadline to declare reporting their offshore accounts. In that case, they can receive fines. Which can increase massively depending on if the violations were on purpose or accidental. A taxpayer can use the IRS OIC to minimize taxes pertaining to foreign accounts, but penalties imposed due to FBAR filing penalties do not qualify for an OIC.
If you request an Offer in Compromise that has an FBAR penalty included, you will have to revise your OIC and remove the inclusion of all FBAR liabilities. The taxpayer can do this by submitting Form 656, in which an in-process offer in compromise requests FBAR relief. If the taxpayer does not do this, the IRS can reject the OIC and will not process it.
Alternatives for an OIC
There are other alternative collection methods for taxpayers when dealing with assessing taxes, interest, and all due penalties.
Taxpayers can negotiate and arrange an installment plan with the IRS and pay their total tax payments over the course of seven years.
If the Internal Revenue service feels that based on your financial situation, the owned tax debt is “currently not collectible,” it can give you a duration of time to improve your finances before they collect payment.
Another method through which you can manage a crushing tax debt is to declare bankruptcy.
A very important point to remember is that the IRS and all its revenue officers will try their best to reach an alternative method of tax collection that facilitates taxpayers. The goal over here is to help taxpayers pay off their tax debt without resorting to aggressive tax collection alternatives or by seeking criminal tax prosecution. This can be done as long as an honest effort is being made by the taxpayer that is in compliance with the IRS’s efforts.