No one wants to accumulate debt. Still, taking on some debt—like a mortgage or student loan—can benefit you. On the other hand, owing money to the IRS will only create intense stress for you and your loved ones.
Luckily, the IRS will sometimes work with you to negotiate a deal, especially if you can prove that financial difficulties resulted in your debt. That said, you will need to meet specific requirements as well as navigate the complicated tax resolution process before you settle.
In this article, our staff at Levy & Associates Tax Consultants will explore the ins and outs of settling tax debt so that you can restore your financial freedom.
How to Settle Your IRS Tax Debt
If you want to settle your tax debt but cannot repay the amount in full, you may be eligible for one of the IRS’s repayment options. Potential tax resolution opportunities include the following.
1. Installment Plans
IRS installment plans work like a monthly home mortgage or student debt payment schedule. Instead of paying the total amount up front, you’ll pay the IRS each month until you’ve satisfied your debt.
To qualify for a tax installment plan with the IRS, you need to meet the following requirements:
1.Your tax returns must be up-to-date.
2.You must have paid most of your state income taxes and late fees.
3.You must be able to afford to pay the IRS’s monthly minimum payments.
That said, the IRS will not enter into a tax installment plan with you if you owe more than $50,000 in debt. Further, if the agency believes that you will not or cannot make the monthly installments, they will likely deny your request for a payment plan.
If the IRS approves your request for a payment plan, you can typically choose between one of three options:
1.Partial Payment Installment Agreements: Partial payment agreements allow you to pay off a reduced balance over a predetermined period.
2.Long-Term Installment Plans: With a long-term installment plan, you have up to six years to pay off your back taxes, plus processing fees based on your payment method.
3.Short-Term Installment Plans: Short-term installment plans offer you a window of 120 days to repay your debt without any additional processing fees.
2. Offer in Compromise (OIC)
Likely, you’ve seen or heard advertisements claiming to help you settle your tax debt for “pennies on the dollar.” These settlements, known as “offers in compromise,” can reduce the amount you owe the government agency.
Am I Eligible for an Offer in Compromise?
The IRS does not approve every OIC request. When you apply for an OIC with Form 656, the IRS will perform an analysis of your income, expenses, assets, and ability to pay your debt. If the agency determines that you cannot repay your tax debt or that doing so will result in significant financial duress, they may agree to an OIC.
However, the IRS may deny your request if:
● You have assets that you could use to pay off your taxes in full
● You have the financial means to enter into an installment plan
How to Make an Offer
Before filing your request for an OIC, you should ensure that you’ve filed all of your tax returns for the year. You should also make any estimated payments required. Finally, if you own a business, be sure to pay all of your federal tax deposits before submitting the request.
After doing so, work with your tax representative to determine an offer that the IRS will consider reasonable. The agency may then use its formula to determine the final payment based on your income, expenses, assets, and initial offer.
Your payment options will depend on both the initial offer that you make and the payment plan that you choose. Once you’ve submitted your OIC request, you can choose between two different payment plans:
1.Lump-Sum Payment: If you prefer a lump sum schedule, you can submit 20% of your OIC offer amount with your application. If the IRS accepts your offer, they will send a written approval. You can then split your payments into as many as five installments.
2.Monthly Payments: You may choose to pay off your debt through monthly installments over 24 months. If your debt’s Statute of Limitations occurs before the 24 months have passed, your payments will extend only to that point.
3. Other Tax Relief Options
As a tax collection agency, the IRS prefers taxpayers to pay off at least a reduced balance rather than allowing the Statute of Limitations to pass. With this in mind, you may qualify for alternative tax resolution methods, including the following.
Currently Not Collectible
If you can prove to the IRS that you can’t pay your taxes at the moment due to financial difficulty, they may put a temporary “not collectible” hold on your balance for a predetermined time. The hold will also stall wage garnishments, liens, and tax levies until it expires.
Innocent Spouse Programs
Finally, if your current or former spouse hid tax debt from you, the IRS may offer some relief plans. To qualify for innocent spouse relief programs, you must prove that your partner hid the tax liability from you. Further, you’ll need to show that you were unaware of the unreported income or the use of unpermitted tax credits.
Work with Our Experienced Tax Problem Solvers to Settle Tax Debt
More than likely, you’ve never negotiated IRS tax debt settlements before. Luckily, you don’t have to do it alone.
At Levy & Associates Tax Consultants, our team of experienced accountants, consultants, lawyers, and former IRS agents is committed to providing individuals just like you with reliable tax resolution services. We can help guide you through the process, assist with filing forms, and even negotiate with the IRS to come to a reasonable settlement.
For more information on our services, and to determine if we can support you on your journey to tax debt resolution, please contact us today.