Essential steps for getting an IRS tax settlement
In recent years, U.S. taxpayers have had much more success in negotiating with the IRS. This is due to the fact that since 2011, the IRS has taken a much more amenable approach to helping late taxpayers pay their taxes. Granted, the best IRS tax relief usually comes in form of installment plans, but they sometimes accept offers in compromise. Getting an IRS tax settlement may not be the easiest thing in the world but it is definitely possible. In this article, we will show you how you can increase your chances of settling your debt with the IRS in the most positive way.
How to go about getting an IRS tax settlement
There are several options for taxpayers that are late on their payments. Here’s what you can do to increase your chances of getting a favorable outcome:
- Try the “Fresh Start” program
- Always file your returns
- Explore the options for late payers
- Consider an installment agreement
- Stick to the payments
- Seek professional assistance
Another thing to note is that you need to be proactive in your negotiations. The longer you keep Uncle Sam waiting for his money, the harder it is going to be to settle matters amicably. The first thing that you need to try is to see if you are eligible for the Fresh Start program.
The IRS Fresh Start program
In 2011, the IRS created its Fresh Start program, in an effort to provide late taxpayers with an easier path to pay off their tax debt. The IRS Commissioner Doug Shulman said: “We are making fundamental changes to our lien system and other collection tools that will help taxpayers and give them a fresh start!“. Furthermore, he went on to say that these steps are ideal for people that are facing tough times and that they reflect the tax system’s responsible approach.
But what does all of that mean for the average taxpayer that is in debt? First, this approach has the effect of significantly increasing the dollar threshold at the time liens are issued. This, in turn, results in fewer tax liens overall. The Fresh Start program also makes it easier for taxpayers to obtain lien withdrawals after they pay their tax bills. When withdrawing these liens, the taxpayer enters into a Direct Debit Installment Agreement with the IRS. This has the effect of creating easier installment agreement access for small businesses that are struggling.
Lastly, the Fresh Start program expanded and streamlined offers in compromise, making them accessible to more taxpayers. Getting an IRS tax settlement has become much easier for most. However, you should not “stick” to the idea of these offers, as they are few and far between. Unless you are the ideal candidate for the offer, it is much better to explore other options first. Either way, getting the IRS to accept any offer is much easier if you file your returns on time.
The importance of always filing your returns
Despite the fact that you owe IRS money, you cannot afford to neglect your filing. Even if you can’t pay the amount due by the time the tax filing deadline arrives, it is very important to file the return anyway. This will have the effect of reducing some of the penalties that you might accrue. In some cases, these penalties can be quite significant, and they might make it even harder for you to pay off your tax debt. And, of course, not filing your returns on time will make getting an IRS tax settlement much harder.
An important thing to understand is that the IRS will not immediately pursue you when you’re late on your taxes. In fact, many months can pass before the IRS starts its collection efforts. But there is one thing that you can be certain of, the collection efforts will begin. At the very start, you may receive automated letters, telling you that you need to make your payments. As time goes on, the IRS becomes more and more aggressive. They may place a wage levy on your salary by contacting your employer directly. This will have an effect on your employer, making them pay a portion of your monthly salary to the IRS directly.
It is much better not to get into this situation in the first place. Once the IRS begins its aggressive collection procedures, you will lose both your reputation and credibility. And you will, in most cases, suffer crippling financial effects.
The options that late payers have
The best way to get current on your taxes is to respond immediately as soon as you get your first tax notice. There are three main options for late taxpayers:
- An installment agreement
- Offer in compromise
- Request for delayed collection
We will talk about installment agreements in more detail shortly, but it is important to mention them now. An installment agreement will have you paying the amount due over a prolonged period of time, instead of one lump sum. As you will soon see, this is usually the best course of action.
An offer in compromise means that the taxpayer can pay less than the sum that they owe. Needless to say, the IRS is really “stingy” when it comes to these offers. Most people do not qualify for offers in compromise, for one reason or another. You may consider this option only in extreme circumstances.
Lastly, you can request a temporary delay of collection until your financial situation improves. The IRS is usually amenable to this, as you are promising to pay them back when you can. However, this is not as good as it might sound, as the delay will still have you accrue penalties and interest until you pay the full amount, even if you are getting an IRS tax settlement.
Do note that your current financial situation heavily influences which options you have at your disposal. But regardless of which option you go for, expect that you will need to file many forms. Lastly, if you happen to have the means to pay the tax bill, the IRS will most likely not accept any of the above.
An installment agreement is usually the way to go
The path with the least cost and detriment to you is usually getting an installment agreement. There are a few steps you will want to take to get the most of the agreement, however, including:
- Letting the IRS know that your debt will be paid in full within at least six years, with three years being the ideal timeframe.
- Offering a monthly payment offer that is equal to or higher than the IRS’s own initiated negotiated agreement. While this may sound counter-productive, you will have a much greater chance to get a favorable result by doing so.
- Making a monthly payment that is tied to the IRS criteria (e.g. subtracting household expenses from the total income).
Regardless of whether the IRS accepts your installment agreement or not, you are still expected to pay any penalties and interests that you accrued until then. And these penalties and interests will continue to accrue during the installment plan duration. If you have the means to pay the tax debt in full, it is always better to do so.
The amount of money you will need to set up an installment plan varies between $0 and $149, depending on how long it will take you to repay the debt.
Try not to miss your payments, or be late on them
Once you get an installment plan, you will want to stick to it. Failure to meet the payments will make it possible for the IRS to seize any property that you own, and they can even put a tax lien on your home. While this may sound really scary (and it is), the IRS is amenable to helping you through problematic times. The main thing here is, to be honest and upfront when getting an IRS tax settlement and when going through with it. If you can’t make a payment, let the IRS know immediately. The IRS does not like surprises, after all, and by informing them about your current situation, you are more likely to get a favorable reply.
Consider seeking professional advice
Taxes can be very complex and complicated. That is why, in some cases, you might want to consult a professional tax representative. These individuals have the ability to help you get the most favorable compromise from the IRS. That being said, you need to be very careful about whom you talk to. Numerous firms that advertise on late-night TV, or have a 1-800 number, will simply take your money and perform almost no services at all. These firms will usually be prosecuted in their state of origin. It is vitally important that you do extensive research before hiring any tax relief company.
And that is where Consumer Opinion Guide can be of immense help. Browse our knowledge database and find all of the reputable tax relief companies in one place, as well as any information concerning taxes and tax relief! Getting an IRS tax settlement can be much easier if you have the knowledge and professionals that you can trust beside you.