How to use an escrow offer to settle your tax debt, Garland Texas

In the usual condition, when you collect a home loan, there are very high possibilities that your lender will require an escrow account from you. This term might not be strange to you. You might even know that in most cases, an escrow account is reserved or kept for money that your lender will make use of to pay your property taxes and homeowners insurance bills. Although you might not have a full understanding on how these accounts work, how money gets funneled into them or why lenders actually need them.

When your property taxes and homeowners insurance are due for payments, your lender will dip into this account and pay these bills on your behalf. This makes it certain that you will not ever pay these bills late, and that your insurance provider and local government will not place a lien against your house for missed monthly payments (that could lead to a policy lapse) or unpaid taxes.

It is not surprising in any way that home buyers often have questions about escrow accounts. After all, when you purchase a home you might have to establish two different accounts: one before you finalize the purchase of your new residence, and the other after your mortgage loan closes. An escrow account is a useful tool to make sure taxes and insurance payments are taken care of amidst the very busy schedules we go through every day of our lives. In order to help eliminate any confusion, here’s a look at how to use escrow accounts to settle your tax debts.

Almost two-thirds of Americans – about 65 percent, either saving none of their income or saving only a small amount, according to a 2018 survey by Bankrate.com. This can be regarded as almost catastrophic if they complete their tax returns only to realize that they owe a considerable  to the Internal Revenue Service.

The key word here is “almost”. The IRS is ready to cooperate with taxpayers who come up short on tax time. Making a commitment offer few options available (OIC) is one of the few options available to few taxpayers that things work with the IRS. This program gives you the opportunity to resolve your tax debt for less than you actually owe.

Unfortunately, the program is misused by many customers, and also abused by some unscrupulous tax preparers as well. The IRS made some adjustments as of July 16, 2006, to address these issues.

 

What has changed?

Some changes were made to the OIC process under the increased Tax Act Prevention and Reconciliation.

There are three payment options for a commitment offer: A lump sum, monthly payments spread over up to over 24 months, or monthly payment over the remainder of the prescription time for the tax debt.

All those who wish to apply must submit a 20 percent down payment if they choose a lump sum payment plan or they must immediately start making monthly payment if they choose one of the two monthly payment options.

As for abusive tax preparers who were submitting offers that do not meet the eligibility requirements, the IRS made it a little easier for you to avoid them. You can prepare an offer yourself. The instructions that come with the forms are usually easier to read and follow.

Get instructions and forms

You can get the entire offer in forms of appointment and instructions in a booklet on the IRS website. It’s known as “Form 656-B.” You can also call the IRS at 1-800-829-3676 and ask them to send the booklet to you, or you can pick it up from your local IRS taxpayer service center.

Other tax debt strategies

The IRS offers at least four other options to make your way out under tax debt. You can enter into an installment agreement, a monthly payment plan to pay the IRS.

A short term installment plan gives you an additional 120 days to come up with the money if you think you can erase your debt in that period of time. Otherwise, if it is going to take much longer, you can ask to enter into a long-term plan. Certain restrictions apply.

“Currently not collectible” is a program where the IRS voluntarily agrees not to collect the tax debt for a year or so, giving you some time to get back on your feet financially.

The partial installment agreement is relatively a new debt management program, where you receive a long-term payment plan to pay the IRS in a reduced dollar amount. You can also file for bankruptcy, but very strict rules apply to which tax debts are disposable and which cannot be “erased” in a Chapter 7 or Chapter 13 bankruptcy process.

 

A Guide on Deal Offers

The guarantee that the IRS will accept your commitment offers is not certain. There are several factors which are used as bases for IRS decision making.

The IRS can accept your offer if there is any question as to whether you rightfully owe the tax. This falls under the category of “doubt about responsibility” 

The IRS can also accept your application if, based on the documents submitted that documents your current financial situation, it seems highly unlikely that you will ever be able to pay the tax debt in full. When you match your income and the value of your assets, it goes out for less than what you owe. This is usually referred to as “doubt about the possibility of receiving”.

   Finally, you can be approved if “full payment would be or create an economic hardship or would be unfair and uneven due to exceptional circumstances”, according to the IRS. This applies even if there is no doubt or dispute that you owe the tax and if your income and assets exceed your debt.

You will not be approved, however, if you qualify for just one of the installment agreements. In that case, the IRS numbers you have ample resources to pay off your tax debts instead more completely.