CP44

If you have received the Notice CP44 from the IRS, it means that your federal tax refund is being held back by the IRS until it determines whether or not you owe other taxes. If it is concluded that you do, the refund will be applied to this outstanding tax balance.

How you should respond will be based on the outcome of the IRS investigation. If you don’t owe taxes, you don’t have to do anything but relax. You will receive your refund, along with any applicable interest, in the due time which is within six to eight weeks.

If the IRS concludes that a tax liability exists and applies your refund to the balance, the next thing you will do will depend on whether or not you agree that you owe the tax debt. If you don’t, a highly skilled tax attorney can advise you on your next steps, which could include amending an earlier submitted return. If you do, and you owe a balance you can’t afford to repay even after your refund has been applied, you should carry out the following to lessen the impact of the debt you owe the IRS.

Do Not Ignore the Problem

Even if you can’t afford to pay what you owe, file your return on time or, if that’s not possible, file for an extension. The penalty for late filing is 5 percent of the tax owed per month up to a maximum of 25 percent of the balance. There also exists an underpayment penalty of 0.5 percent to 1 percent per month of the outstanding balance, also up to 25 percent. If you don’t file your return or make any payment on your obligation, your tax debt will rapidly increase.

Be Realistic About Your Situation.

The IRS hardly ever forgives tax debts. Form 656 is the application for an “offer in compromise” to settle your tax liability for less than what you actually owe. Such deals are only offered to people encountering true financial hardship. If you or your family has had disastrous health-care expenses or you’ve lost your job and have almost no vision for generating income in the future, you may be eligible. It seldom happens.

You can handle it yourself if you owe Less Than $10,000

If the balance is actually less than $10,000, you’re most likely competent of taking care of the matter yourself rather than paying someone to assist you in dealing with the IRS. Form 9465, the IRS application for an installment payment plan, can actually be filed online. The service will automatically agree to such a plan for any taxpayer who owes less than $10,000. The plans typically give you an offer to pay off the balance owed plus penalties and interest over a period of 36-month.

Hire a Tax Attorney if You Owe $10,000-plus

If the amount you owe is more than $10,000, an option to consider is hiring a tax attorney to negotiate with the IRS on your behalf. Payment plans vary, and a skilled attorney can assist you in getting better terms. They can also help you prevent having a tax lien being assessed against you, which will cause damage to your credit.

Be cautious of whom you hire, however. State attorneys general warn consumers regularly about tax-debt resolution scams. If someone suggests they can help eliminate interest and penalties assessed by the IRS or settle your tax debt for a fraction of what you owe, they are probably phony and almost certainly not worth the fee they will charge.

Get Streamlined.

The best option for taxpayers with huge debts to the government is to plan a streamlined installment agreement. As part of the Fresh Start program started by the IRS in 2011, taxpayers with up to $100,000 in tax debt can now be eligible for such an agreement. In order to do so, you have to file all your past tax returns and not have entered into another installment agreement within the last five years. You also won’t be eligible if you’re filing for personal bankruptcy.

Request a Payment Arrangement

When you owe a tax debt, it is significant to address it as soon as possible, to prevent penalties and interest from accruing. If you believe that you can pay the amount in full but need a little more time past the due date in the letter, call the IRS and request an extension. If you are not buoyant enough to pay the full amount, the following options may be available to you:

IRS Payment Plan

An IRS payment plan, which is also known as an installment agreement, offers you the opportunity to repay your tax debt over time. To be eligible, you must have:

• Filed all of your returns
• Had adequate withholding from your wages (if employed)
• Been making estimated tax payments four times a year (if self-employed)

You will also have to pay a fee that ranges from $43 to $225, based on how much you make and what payment arrangement you suggest. Your options are:

• Guaranteed Installment Agreement: If you owe no more than $10,000 in personal (not business) taxes, you can apply for a guaranteed installment agreement, i that the plan repays the debt within three years.
• Streamlined Agreement:Individuals who owe $50,000 or less can apply for a streamlined agreement. You must be capable of paying what you owe within 72 months or before the collection statute of limitation expires, whichever is faster
• In-business Trust Fund Express Installment: You can apply for this installment agreement if your company owes less than $25,000 in business taxes and you capable of making the payment within 24 months. If your business tax debt is more, you will have to make a lump sum payment to lower the balance to $25,000.
• Negotiated IRS Installment Agreements:If you owe more than $100,000 or cannot pay within the given time frame for other agreements, you’ll need to discuss with the IRS. You will be asked to submit financial information and make corresponding documentation available.

If you owe less than $10,000, you automatically qualify for a guaranteed installment agreement, but the other plans can be more complex due to the amount of financial information required. A tax attorney can help you qualify for the option that best settles your tax liability.

Offer in Compromise 

An Offer in Compromise offers you the opportunity to settle your tax debt for less than the total amount owed. They are usually not easy to qualify for, as the IRS will only consider an OIC if:

• Your income and expenses make it not probable that they will be able to collect the tax before the collection statute expires OR
• There is justifiable doubt that you owe the calculated amount OR
• Collecting the tax would subject you to unjust economic hardship

If you wish to make an offer in compromise, you will most certainly want to work with a tax attorney who understands what the IRS is likely to expect from you and will assist you in presenting an OIC that meets their standards.