One of the big things tax experts see time and time again is the way that fear of the IRS can cause people to miss out on opportunities to properly handle tax problems before the situation becomes critical. If you owe back taxes, the situation may not be as bleak as you think. A tax settlement may be a viable option for getting your IRS debt settled. A settlement allows you to do the following:
- Pay less now.
- Avoid liens and garnishments.
- Permanently retire your debt.
A tax settlement is for someone who does not have the funds or means to pay off a tax debt in full even though they’d like to comply with the IRS. When working out a tax settlement with the IRS, you’ll typically qualify for one of two options. The first is a basic tax settlement where the taxpayer qualifies to pay back less than the full tax debt after it is established that the liability amount is too high to reasonably be paid back. The second is an installment agreement (IA) consisting of monthly payments that allow a taxpayer to pay back the full debt over time. Additionally, taxpayers can pursue options for declaring hardship or “uncollectable” status. However, these options focus more on “freezing” debt instead of creating a clear path to retiring debt to the satisfaction of the IRS. The first step to any type of settlement or relief is making sure that all tax returns up through the current year are filed. The IRS won’t work with any taxpayer on a relief solution if they have unfiled tax returns in their closet.
What Is a Standard IRS Tax Settlement?
A tax settlement is simply a mutual arrangement created by the IRS and a taxpayer that allows a taxpayer to settle an outstanding debt for less than the full, original amount owed. While there’s no guarantee that you’ll be granted a settlement, the IRS is often highly receptive in cases where it’s clear that a taxpayer is incapable of paying a full amount owed based on their finances. Both current tax laws and your specific financial details will help to shape the IRS’s decision in your case.
Why Would a Taxpayer Want a Settlement?
A tax settlement is often the fastest path out of legal and financial difficulties for delinquent taxpayers. Generally, tax settlements are approved quickly once a taxpayer files all unfiled taxes. That means that you’re able to begin making reasonable payments that will allow you to pay off your tax debt in a short amount of time. In addition, you can stop living in fear of late fees, wage garnishments, liens and other penalties that can be detrimental. The IRS won’t place liens or levies on your home, wages, business, property, or bank accounts as long as you have a settlement in place.
How Do Settlement Payments Work?
Once your tax debt is reduced, it may be possible to pay off the remaining balance in a lump sum. However, you may prefer to work out a settlement that allows you to pay off what you owe throughout a set, penalty-free window of time using scheduled payments. A tax professional should be able to guide you on the type of plan to request from the IRS.
What Happens After You Pay Off Your Tax Settlement?
Once your payment is complete, you’re considered to be in good standing with the IRS for all tax years covered in your settlement. This means that it’s essentially like your tax woes never happened! If you have a history of defaulting on tax payments, it’s important to get the help of a tax-preparation professional to ensure that you’re filing on time every year going forward. The IRS may not be as willing to provide you with a settlement again if you’re delinquent on future tax returns or payments.
How Does the IRS Determine If You Qualify for a Settlement?
When determining eligibility for a tax settlement, the IRS looks at a number of factors related to your income, expenses, assets and liabilities. In addition, circumstantial factors like job loss or severe financial hardships are explored to get a clear picture of how likely it is that you can actually pay off what you owe. If it’s determined that you are not capable of reasonably paying off your tax debt, the IRS may be willing to accept a reduced amount. It is simply better to get “something” instead of “nothing” from the IRS’s perspective.
Is There Any Downside to Accepting a Tax Settlement From the IRS?
Generally, it is to your advantage to accept a settlement from the IRS if you owe taxes you cannot pay. However, the IRS does claim the right to confiscate all of your future tax refunds to apply the totals to your debt until your debt is fully paid. You will also be back to where you started if you default on any of the terms of your settlement agreement before your debt is paid off.
How Hard Is It to Qualify for an IRS Settlement?
While it’s true that the IRS only grants settlements to a narrow spectrum of applicants each year, there’s room in the program for people who truly need relief. If you can reasonably pay off your debt using assets or borrowing power, you won’t qualify for a settlement. It’s important to get a payment in right away if you currently have enough money or borrowing power to cover your full tax debt because putting off payment will probably result in more needless fees and penalties.
Some Extra Tips for Getting a Tax Settlement From the IRS
There’s no need to “hide” from the IRS if you owe taxes because the IRS keeps close tabs on delinquent taxpayers. A better strategy is to contact the IRS before the situation escalates. If you’re unsure about how to handle the situation, bring in a tax professional to advocate for the best outcomes. The best way to help your odds of being granted a settlement from the IRS is to be as forthcoming and compliant as possible while working your way through the process. When vetting applicants for settlements, the IRS dives deeply into financial statements and records to assess your financial state. Trying to hide income or assets could nullify your application.
What to Do If You’ve Fallen Behind on Taxes
If you know you owe late taxes, don’t let another day pass by without seeking help from a tax expert who can steer you toward a solution. It’s a misconception that the IRS only wants to punish people with harsh penalties if they can’t pay their taxes. Tax Group Center can help you explore settlement options to get your IRS tax debt settled the right way. Our team of tax professionals and lawyers helps people work with the IRS to reduce or forgive back taxes every day using custom solutions. We speak the language of the IRS to the IRS on behalf of our clients. Fill out a Contact Form or call us at (800) 264-1869 if you need help from a Certified Tax Consultant today!