IRS Tax Settlements
10th May 2012 by Tax Man No CommentsA tax settlement is a very broad term that refers to a tax payer and the IRS coming into agreement where their tax liabilities are settled through one of the IRS programs.
There are several options the IRS has to resolve tax liabilities. The IRS will look at the individual’s ability to pay the tax debt back as the main consideration. This would include the taxpayer’s income and expenses, assets and any extenuating circumstances.
Tax compliance is a must before consideration of an IRS tax settlement. Be sure to have all returns prepared and ready to send to the IRS.
Also, you want to consider if there is a current IRS levy in effect or is the IRS sending notices of “Intent to Levy”. Certain types of IRS tax settlements wont release and IRS levy automatically. It wont automatically remove an IRS levy that was set up before the IRS settlement, but it will stop collection attempts while it is under consideration.
Types of IRS Tax Settlements
IRS tax settlements fall into two general categories. One is where a taxpayer cannot pay the tax liability back in full and may qualify to pay back less than the tax debt owed. This would include the following:
Offer in Compromise
An Offer in Compromise is where the taxpayer offers the IRS less than the amount owed in a onetime settlement. An Offer in Compromise can be submitted on the basis of Doubt to Collectability, Doubt to liability and Effective Administration (hardship case). The IRS has stringent guidelines and typically will require financial disclosure of income/expenses and assets.
Partial Payment Plan
A partial payment plan is where the tax payer enters an agreement with the IRS to pay back less than the amount owed over a specified period of time.
Penalty Abatement
Penalty abatement allows the taxpayer to abate part or all of the penalties. Generally, it will not reduce the principle of the tax debt owed nor will it reduce or eliminate interest.
If a taxpayer does not qualify to set up an IRS tax settlement for less than the amount owed there are two other options:
Installment Agreement
An installment agreement is a type of IRS tax settlement where the taxpayer enters into an agreement with the IRS to pay the tax liability over a specified period of time. The interest will keep running while the installment is in place. A streamline installment, payable over 5 years, can be set up if the individual owes $25,000 or less. The IRS will require disclosure to financial information if the balance is over $25,000.
Uncollectible Status
Uncollectible is where the IRS suspends collection actions temporarily due to a hardship of the taxpayer. Typically due to unemployment or some other temporary financial hardship where the taxpayer cannot pay the tax liability back in an installment at this time. This will neither stop interest from accruing or reduce the tax debt.
