The Internal Revenue Service (IRS) presents an opportunity for taxpayers struggling with debt to settle their obligations for a fraction of the cost. Tax debt settlement provides individuals and businesses alike with financial relief from these burdensome debts. It's one of the most popular options available to taxpayers unable to pay the IRS in full but looking to avoid costly collection efforts or legal proceedings. The IRS's tax debt settlement program offers several different types of settlements depending on your circumstances and your ability to pay.
In this article, we'll provide a brief overview of IRS tax debt settlement and discuss how you can take advantage of it to get back in good standing with the IRS.
The fresh start initiative process is designed to help taxpayers resolve their outstanding tax liabilities. In some cases, the IRS may offer a taxpayer a reduced tax liability in exchange for certain actions, such as making payments or complying with certain conditions. The process of reaching an agreement with the IRS is known as an Offer in Compromise (OIC).
Offer In Compromise
An Offer in Compromise (OIC) is an agreement between a taxpayer and the IRS to settle a tax debt for an amount that's lower than what's owed. To qualify for a financial settlement known as an Offer in Compromise, taxpayers must meet specific fiscal requirements and prove that they are not able to cover their entire tax debt. It is important to note that the IRS will only consider an OIC if it believes that acceptance of the offer would equate to full payment of taxes due.
In order to apply for an OIC, taxpayers must submit Form 656-B along with all necessary supporting documents. The form requires information about income, expenses, assets, and other financial information so that the IRS can evaluate a taxpayer’s ability to pay their taxes in total or through periodic payments.
After submitting Form 656-B and any additional required documentation, the IRS will review the application and assess whether it meets the requirements for an OIC. If approved, the taxpayer will receive notification from the IRS stating their new reduced balance and any conditions they must fulfill to stay compliant with their new arrangement.
The settlement process typically takes several months from start to finish as there are many steps involved in reviewing applications and negotiating settlements with taxpayers. It's important for taxpayers who choose this option to remain patient throughout this process since delays can sometimes occur due to administrative backlogs. Furthermore, rejecting or not responding promptly to communication from the IRS may result in further delays or denial of an OIC request.
By understanding how offers in compromise work and being aware of what is required when submitting an OIC application, taxpayers can successfully settle their outstanding tax liabilities without having to pay more than they are able to afford while still meeting their obligations.
Other options aside from Offer in Compromise to settle with the IRS include payment plans, installment agreements, and Currently Not Collectible. These payment plans are commonly used for individuals who do not have enough money to pay their entire tax debt at once.
An installment agreement is a great solution for those who owe back taxes but lack the financial means to pay them in one lump sum. If approved, the installment payment option allows taxpayers to spread out the amount due over many months. The IRS allows flexibility when creating a payment plan, and allows more time if necessary with reasonable terms that fit the taxpayer’s lifestyle and budget.
Payments can be made through stored account information or manual entry depending on what works best for the taxpayer. Everyone’s situation is different, so it’s important to keep in mind that consulting a tax professional may be beneficial in order to assess what type of payment arrangement is most suitable based on each individual’s circumstances.
Currently Not Collectible, also commonly referred to as CNC status, is an Internal Revenue Service (IRS) designation assigned to taxpayers who are unable to pay their outstanding tax debt. In this circumstance, the IRS can temporarily bypass collection efforts and accept a taxpayer's inability to pay as temporary in nature. This allows breathing room for individuals or companies with severe financial hardship, giving them time to improve their situation sans aggressive creditor collection tactics.
In the meantime, interest accrues on the outstanding balance until payment is made but penalties can be abated while under CNC status. Before a taxpayer can receive CNC protection, they must first demonstrate their current inability to pay their taxes in full which may require providing financial statements and other documentation to verify income and expenses.
These flexible payment options may be more suitable for taxpayers who do not qualify for an offer in compromise or simply cannot afford to make full payments on their tax debt. In order to avoid serious penalties, it is best to contact the IRS as soon as possible if you are unable to pay your taxes in full.
The Internal Revenue Service (IRS) is typically willing to settle for what it assesses you can feasibly pay. To determine the settlement amount, it will carefully examine your total assets, income, and monthly expenses, as well as the size of any savings, investments, and other resources that may be accessible. Additional considerations are made based on your current filing status and the tax debt owed.
IRS representatives take great care to ascertaining a fair amount, ensuring every individual has an opportunity to pay a manageable settlement that takes into account their circumstances.
Determining if and how you can settle your tax debt with the IRS depends on your financial situation. You may qualify to settle your tax debt through an Offer in Compromise (OIC), payment plan, or other comparable programs by the IRS. Before trying to take care of it yourself, though, it’s important that you are informed and don't make any mistakes in the process.
James Young, senior tax analyst at Ideal Tax says that mistakes can be time-consuming and expensive for taxpayers, so be sure to understand what's at stake by asking for help from a professional tax expert. With their assistance, there is a much higher probability that should you choose to use one of these programs, you'll have success working with the IRS to reach an agreement and take control of your financial situation.
All things considered, it’s important to remember that when it comes to settling IRS tax debt, there is no definitive answer as to what the exact percentage of your debt the IRS will settle for is. In fact, the actual terms of any agreement are going to be based on a number of different considerations, including one’s financial status and disposable income.
Furthermore, working with an experienced tax professional is almost always recommended for those who find themselves in a difficult situation with the IRS. You can create a tailored plan that minimizes your current and future tax liabilities with their assistance.
Therefore, if you suspect you owe money to the IRS or have other questions related to settling your tax debt responsibly and effectively, it pays to speak with an expert who understands your unique circumstances.