Will IRS Tax Settlements Affect My Credit?Posted on: March 24, 2010
If you are negotiating an Internal Revenue Service (IRS) tax settlement, you may be concerned about the affect on your credit rating. As with any debt settlement, tax settlements do not reflect well in your credit report but are far better than having unpaid, past due debt, in this case back taxes.
As part of its collection process, the IRS might place a federal tax lien on your personal property which could appear in your credit report and damage your credit rating. A tax lien is a claim against your home, business, income, automobiles or any other property you own that gives the IRS priority over all other creditors.
The faster you can reach an IRS tax settlement, the less damage your credit report may suffer. It's far better to be paying down back taxes in a payment plan than to have the IRS announce a tax lien or impose a levy and start selling off what your assets.
When you receive correspondence from the IRS about back taxes, reply promptly either yourself or working with a tax adviser. If you delay or don't respond, the IRS may believe you are trying to avoid paying and be less inclined to give you a better settlement or any settlement down the road.
If you know you can't pay your bill, you don't have to wait for the IRS to contact you, you can write to the IRS. Again, the fast correspondence can work in your favor when it comes to deciding the terms of any tax settlement.
Using a Loan
While care must be taken whenever you take on new debt, you and your tax adviser may find that you can get a loan and use the proceeds to pay off your taxes. This option can work if the loan's monthly payments and interest are less than what you would pay (or are currently paying) in penalties and interest to the IRS.
Every individual's tax and financial situation is different. You should consult with a qualified, professional tax adviser and financial adviser before making any decisions.