Tax Debt: Using an Offer in Compromise or Installment Agreement

The IRS Installment Agreement

In some cases, the IRS will allow you to pay your back taxes in installments or under the terms of a short extension. This may be a good option if you can pay within 10 days, need a short-term plan (11-120 days) or want to set up longer-term monthly installments. If you owe $25,000 or less, you can apply for a payment plan online via the OPA (Online Payment Agreement) system. Alternatively, you can download and mail Form 9465. If you owe more than $25,000 then you can’t apply online and may need to add Form 433F to the 9465.

You may be charged a fee to set up a payment plan, although this is waived if you agree to pay in full within 120 days. This is currently set at $105, $52 (for Direct Debit payments) or $45 for reinstatement or restructuring. Lower income earners may be given a reduced fee of $43. Keep in mind that the IRS still charges penalties and interest while you are paying in installments so you will effectively pay back more than you originally owed.


The Offer in Compromise

The IRS may write off some of your taxes in an offer in compromise (OIC) agreement. If there is a chance that you will never be able to pay all that you owe (Doubt as to Collectibility) or that your tax liability is not correct (Doubt as to Liability), then you may have a case. Exceptional circumstances such as hardship may also be considered (Effective Tax Administration). During this process, the IRS investigates your finances to estimate how much you can pay.

In order to qualify, this must meet its RCP (reasonable collection potential). In most cases, you will be turned down if the IRS feels that you can afford to pay either as a lump sum or through an installment agreement. The Offer in Compromise booklet (also contains the application form, 656) is worth reading as this can be a complex application to assess. OICs are paid as lump sum cash installments or in periodic payments.They usually have a fee of $150 and initial payments may be due during the application period.

A Temporary Delay in Collection or Undue Hardship Extension

The IRS also sometimes agrees a delay in collection or an extension due to hardship. Temporary delays are given when the IRS assesses that you are not able to pay any of your taxes. Your finances will be reviewed periodically to see if your situation has improved. Keep in mind that penalties and interest will still be added to your tax debt and you may have a Notice of Federal Tax Lien filed against you which could affect your credit rating.

If paying your taxes would cause you serious financial difficulty, then you could consider using Form 1127 to apply for an extension of payment time on undue hardship grounds. This could give you between 6-18 extra months to pay, depending on the taxes you owe, but interest may still be charged until you have settled your debt.

In all cases, talking to the IRS early and getting advice on the most appropriate solution to deal with your tax debt is recommended.

Housing Market Bottom: Mortgage Markets and the Speed of the Housing Recovery

The housing decline looks to be showing a bottom, but a better question is how long will it take for a full recovery? Housing, like many industries, is very cyclical. Unlike many industries; however, housing tends to have a rapid decline and a slow recovery. While this has a lot to do with the characteristics of purchasing a home, financing options and price perception play a role as well.

The Mortgage Market and Housing

Collectively the mortgage market has recognized its mistakes and is now going through revitalization. This can be seen in the new legislation and rules that are now in place to obtain a mortgage (minimum credit scores, minimum downpayments, etc.). Stated income and subprime mortgages have gone away (for now), destined to return with even higher interest rates and more regulation.

The momentary closing of the mortgage market did allow consumers to come to their senses as it relates to home prices. When credit was cheap and easy to qualify for, price was not an issue. Simply getting into the market represented access to “endless” capital via refinancing or an eventual sale at an even more outrageous price. The merry-go-round has now stopped, leaving many homeowners out in the cold. For better or worse, the bottom represents the final shake out of those who could not afford homes and those trying to pawn their home off at unreasonable (perhaps even reasonable) prices.

The correlation between the mortgage market and the housing market should not be understated. Regardless of how much interest rates decline, the increased scrutiny on applicants will continue to mute the housing market recovery. This will have an effect on how fast homeowners see a recovery. Prices will remain low with moderate to slow growth in the near future because there is no more free money to be had.

Bottom Feeding on Housing and Mortgages

The hardest part of buying low is simply the access to capital. While banks are very eager to get foreclosed houses off their books, they are not eager to give out unconventional loans. Investors thrive on no money down loans or high interest rate low payment loans because they do their best to minimize cash outflow. With credit markets close investors will have to accept lower returns or pay significantly higher interest rates to obtain creative financing.

Investors should consider bidding for REO bank properties contingent on bank financing. Keep in mind banks will not be willing to trade a foreclosed home for a bad loan. This strategy should garner investors better rates and terms because they are taking a liability off the bank’s books. Financing should be negotiated, but understand that banks have been burned once.