Let’s agree on this. No matter how much money you owe, the IRS will eventually collect your tax debt. And the total unpaid taxes will keep increasing each month until you pay.
Of course, the best thing is to pay the debt on time, but taxpayers may be unable to pay their debts for many reasons. At this point, the IRS offers various ways to facilitate debt payments.
If you’re planning to find a middle ground with the IRS, you should thoroughly understand all your options and choose the right one based on your specific situation. Otherwise, you may miss your chance to make an agreement.
What is A Tax Settlement?
A tax settlement is a negotiation between a taxpayer and the IRS for a deal where you pay less than you owe. It gives you a fresh start to manage your financial life.
What Happens If I Don’t Settle My IRS Tax Debt?
If you don’t pay your tax debt or don’t try to pay it, do you think the IRS will stop at the end? No. Top it all; the IRS calculates the failure-to-penalty. This means your debt will gradually increase due to penalties and interest. If you refuse to pay on purpose, the IRS may even put a lien on your property and seize your income, and your passport renewal application may be denied, or your valid passport may even be revoked.
Who is Eligible for Tax Settlement?
The IRS will review your assets, income level, financial situation, ability to make payments, basic living expenses, and financial responsibilities to determine eligibility. Based on these figures, the IRS calculates how much you can pay off your monthly tax debt.
There are three situations given to taxpayers:
- “Doubt as to Collectibility” is given to you if you can’t pay your total tax debt.
- “Doubt as to Liability” is granted to you if you have a convincing argument that you shouldn’t owe as much as the IRS estimates.
- “Exceptional Circumstances are given to you if you can pay your tax debt, but you can prove that doing so would cause serious financial hardship.
Feeling Overwhelmed?
What Options Do I Have for IRS Settling?
The IRS offers the “offer in compromise” option, which allows you to pay less than you owe for a tax settlement. However, you have other options such as installment agreements, currently not collectible status, bankruptcy, and partial payment installment agreements. Check out our article, “Tax Relief Programs offered by the IRS,” to learn all the details. Additionally, you can also benefit from alternatives such as penalty abutment.
How to Calculate Your Settle: How Much Will the IRS Settle for?
By using an IRS formula, you can make your first offer accurately to the IRS. Use the Offer In Compromise Pre-Qualifier Tool for free on the IRS website to determine whether you qualify for tax liability relief. In this tool, you must answer questions about your financial information and tax return status to calculate the preliminary offer amount.
What is the process for evaluating an offer in compromise?
- All non-refundable payments and fees you make will be applied to the unpaid tax liability. You may also have the option to determine which tax year or tax liens non-refundable payments apply to.
- The IRS may issue a federal tax lien notice on your assets and suspend other collection activities to secure payment of your tax debt. While your offer is being evaluated, your legal evaluation and collection period will be extended.
You must make all required estimated tax payments specified in your offer. If the IRS doesn’t respond to your offer in compromise within two years of the IRS receipt date, your offer will automatically be accepted. However, this two-year period does not include an appeal period.
Moreover, the IRS doesn’t have statistics on this calculation. The results are different depending on everyone’s financial situation. The IRS will usually settle for what it thinks you can reasonably pay. It’s best to work with a tax expert to increase the likelihood of your application being approved.
Who is eligible for an Offer in Compromise?
According to the IRS, an offer in compromise is an agreement between a taxpayer and the Internal Revenue Service that settles a taxpayer’s tax liabilities for less than the full amount owed.
In this way, you agree to pay a more manageable amount instead of the total tax debt. However, to apply, you need to understand first whether you’re eligible. Please review our article titled “How to qualify for IRS offer in compromise,” in which we provide all the information about it.
Requirements for the Offer in Compromise
Not every taxpayer can apply for this option; you must first meet the necessary conditions.
- Have you received a back tax bill from the IRS?
- Do you have unfilled tax returns?
- Did you file all the tax returns due? And did you pay all estimated taxes required for the current year before offering to settle?
If the IRS determines that your minimum bid is the highest amount you can pay within a certain period of time, it’ll likely accept your settlement. Attention here: this is one of the most difficult programs to approve. Besides, if the IRS rejects your offer, the application fees will be refunded, and the proposed payments you included in your application will be applied to your due balance.
If you manage your process with a tax expert, you have a higher acceptance rate for your applications. Tax experts know what the IRS is looking for in an application and can guide you in the most appropriate way.
Get help from Precision Tax Relief and settle your IRS tax debt for less than you owe. Contact us for the first free initial consultation.
