When a taxpayer decides to resolve and pay back the owed amount using any one of the IRS payment programs/filings/settlements, it is called a tax settlement. Internal Revenue Service or IRS offers a tax settlement if the concerned taxpayer is struggling to pay back the tax debts or if there is a valid reason to nullify the penalties. In fact, the IRS offers more than one way for taxpayers to settle their tax debts. While the debate about whether you will get a settlement or not depends upon your financial situation, the type of settlement you will be allowed to opt for is dependent on the severity of your monetary and financial situation / troubles. Even though the IRS prefers that every individual or business pays his/her taxes completely, they can make some exceptions if the situation arises.
How does an IRS settlement work?
IRS settlement works in a way that allows taxpayers to either negotiate a settlement for less than the amount they owe or to come up with some new way for the IRS to collect taxes from you over time. However, for every tax settlement type, IRS has set up some eligibility conditions that need to be met before opting to take up the plan. It is necessary for the taxpayer to look for the type of settlement that they would benefit from and submit the correct form to the Internal Revenue Service for review. You can fill out the form and submit the application yourself, or hire a tax professional to do that for you. Once both the parties reach a settlement and the taxpayer agrees to hold up on the terms of the agreement, it would be considered a resolution with the IRS for the year(s) that the settlement covers.
How can I settle my taxes for less?
- Offer in compromise – OIC: Apart from being the most common settlement method that comes to a tax payer’s mind, this is one the hardest settlements to qualify for. With offer in compromise, you will need to make an offer to the IRS for a partial amount of taxes owed and you can afford to pay back. In return, the IRS must agree to wipe out all your liabilities and accept the payment you offer. This can only be done by convincing the IRS that the amount of money you’re offering is greater than or equal to the amount that they would be able to levy from you without forcing any financial hardships.
- Penalty abatement: Penalty abatement allows you to get rid of all or part of the penalties owed by you, and the interest on the penalty portion. It does not reduce or eliminate any part of the tax/base amount, just the penalties.
- Partial payment installment agreement – PPIA : This method allows you to get into an agreement with the IRS to pay back the taxes over a certain period of time but this amount will be less than what you owe. The lowest is $25 per month.
How can I settle the taxes I owe?
To settle the taxes you owe, make sure that you are in full compliance with your filings. It is also better to ensure that you have filed any un-filed tax returns as well. You can also take the advice of a tax professional in case the IRS has filed for you. After knowing how much you owe, reviewing the tax settlement options will be a good step to move towards settlement.
About Mike Habib, EA NTPI Fellow®:
Mike Habib is an IRS licensed Enrolled Agent who owns and operates a specialized tax services boutique firm. His firm is A+ rated by the better business bureau, and an ELP endorsed local provider by Dave Ramsey (2012-2019). We serve clients in various metro areas such as Los Angeles, Whittier, Pasadena, Glendale, Burbank, Orange County, Riverside, Palm Springs, San Bernardino, Palmdale, Bakersfield, New York, New Jersey, Chicago, Houston, Phoenix, Philadelphia, San Antonio, San Diego, Dallas, San Jose, Detroit, Jacksonville, Indianapolis, San Francisco, Columbus, Austin, Memphis, Fort Worth, Baltimore, Charlotte, El Paso, Boston, Seattle, Washington DC, Milwaukee, Denver, Louisville, Jefferson, Las Vegas, Reno, Hempstead, Tucson, Nashville, Davidson, Portland, Tucson, Albuquerque, Santa Fe, Anchorage, Atlanta, Long Beach, Fresno, Sacramento, Mesa, Kansas City, Cleveland, Virginia Beach, Omaha, Miami, Oakland, Tulsa, Honolulu, Minneapolis, Pittsburgh, Colorado Springs, Arlington, Wichita, Birmingham, Montgomery, Tampa, Orlando.