Debt Consolidation

Tax Settlement Services, Tax Debt Settlement, Tax Debt Relief, Tax Debt Settlement Help

Posted on: June 25, 2008
Written by:

I owe back taxes to the IRS. Wow, those are scary words! But, do not worry because there are steps you can take to gain tax debt relief. First, you want to approach the IRS before they approach you. If the IRS tries to contact you, do not procrastinate; take them seriously. The worst thing you can do is ignore them.

There are tax settlement steps you can take that will get you on the road to recovery.

  1. If you you do not dispute the tax bill, and you can afford to do so, pay it in full. By paying the full amount as quickly as possible, you can avoid future interest payments and penalties. The IRS does accept credit cards.
  2. If you cannot afford to fully pay your back taxes, you can sign up for an installment agreement, which you will pay over time. This payment plan will include increased interest and penalties; however, it allows for smaller more manageable payments. The IRS will stop all other collection actions; however, you must remain current with your payment schedule and compliant with future tax obligations. If you owe less than $25,000, you can use the On line Payment Agreement (OPA) application. You can see if you qualify, apply for an installment agreement, and receive immediate notification of approval.
  3. Quick Tips

    • If you are able, pay the tax debt in full
    • If needed, look into installment agreements
    • Look into performing an Offer in Compromise
    • Declaring your status as Currently Not Collectible can defer your taxes
  4. An Offer in Compromise (OIC) is an agreement between qualified people and the IRS that allows a taxpayer to settle their tax debt for less than full payment. How do you qualify for an Offer in Compromise? When it is the best interests of the IRS to do so. If you have proven to the IRS that you are unable to pay your liability in full, or through other payment arrangements such as installments, the IRS will accept a Offer in Compromise. Be mindful that the IRS will be very tough negotiators, and you have to be extremely upfront with them.

    In order to be considered for an Offer in Compromise, you cannot be in an open bankruptcy proceeding. You must pay the $150 application fee or submit a signed Form 656-A, which will waive this fee based on family unit size and income. You also have to submit either a lump-sum offer, a completed Form 656-A, or a periodic payment offer with the first installment or a signed Form 656-A.

    An offer will be considered if one of the following conditions are present:

    (1) Doubt as to Liability. Doubt that the assessed tax is correct. To submit a Doubt as to Liability OIC, use Form 656-L, which can be obtained by calling 1-800-829-1040, visiting your local IRS office, or the IRS website.

    (2) Doubt as to Collectivity. The taxpayer is not able to pay the full amount by liquidating assets, or through current installment guidelines within the statutory period for collection. The taxpayer must submit the appropriate collection information statement with all supporting documents.

    (3) Effective Tax Administration (ETA) The taxpayer acknowledges that the tax is correct, however an exceptional circumstance exists. To be eligible, the taxpayer would need to establish that paying the tax in full would create an economic hardship or payment would be unfair and inequitable. To submit an ETA offer, you must submit a collection information statement with all appropriate attachments and explain in writing why paying your tax debt would create an economic hardship, or how it would be unfair and inequitable.

    In cases of the latter two, your offer must exceed the value of your assets in addition to what can reasonably be expected to be collected from over a four year period. A tax settlement professional will be able to guide you on what a reasonable offer will be. The number of offers accepted over the past several years is declining, so be prepared for a tough fight.

  5. If you are unable to pay your back taxes, the IRS can declare your status as "Currently not Collectible" (CNC). This means that the IRS stops any collection efforts and sends a yearly statement with the amount of tax owed. If you are unable to pay within the ten (10) year statute of limitations, your tax debt will expire. However, if your financial situation improves, you will be taken off the CNC status, and the IRS will renew their efforts for payment.

It is not advisable to try these methods on your own. There are many reputable tax attorneys and other tax professionals who specialize in tax debts. They have experience negotiating with the IRS, know the various IRS forms and can explain all of your options in detail.