An IRS tax settlement is an agreement between an individual and the IRS to settle a tax liability for less than the complete amount. It is a general term referring to one of the IRS’ settlement programs.
A number of options are obtainable for resolving IRS tax debts. The IRS will look at the individual’s ability to pay the tax debt back as the main consideration. This includes assets and an individual’s income and or expenses.
All tax returns must be filed before considering an IRS tax settlement. Be sure to have all returns prepared and ready to send to the IRS.
Another consideration would be if the IRS is sending notices of an impending levy or of there is a levy in effect currently. Submitting some kind of settlements will not automatically release a levy. It will stop collection actions while it is being considered but will not automatically release an IRS levy that was in place before the settlement was submitted.
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 complete 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 individual offers the IRS less than the amount owed in a onetime settlement. An Offer in Compromise can be submitted based on Doubt to Collectability – doubt exists based on the taxpayer’s financials as to whether the IRS could reasonably expect to collect the complete debt, Doubt to liability – doubt exists as to whether the taxpayer truly owes the debt, and Effective Administration – hardship case. Based on their very stiff guidelines, financial disclosure of assets and income will usually be required.
uncompletely Payment Plan
A uncompletely payment plan is when the taxpayer comes into an agreement with the IRS to pay back less than the amount due over a stated period of time.
Penalty abatement enables the individual to abate part or all of the penalties. Typically, it will not eliminate interest and it will not reduce the rule of the tax liability that is owed.
There are 2 additional options if the individual does not meet the financial qualifications to do an IRS tax settlement:
An installment agreement is a form of IRS tax settlement in which the individual enters into an agreement with the IRS to repay the tax liability over a stated period of time. While the installment is in place IRS levy action will stop, but interest will continue to accrue. 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 is where the IRS suspends collection actions temporarily a consequence of a hardship of the taxpayer. Typically due to unemployment or some other permanent 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.