Tax Debt Settlement – How To Settle With the IRS
The IRS realizes that there are special circumstances where taxpayers should not be held liable for all of their tax debt. As a result, there are several ways to settle for less than you owe. Here are some tax debt settlement options.
An offer in compromise is when you settle tax debt for less than you owe. It’s not for everyone. The process is difficult, and there are strict qualification requirements. The IRS will only accept an offer in compromise if your offer is equal to or greater than the amount the agency would be able to collect using forced collection mechanisms (seizing assets, garnishing wages, etc.).
Penalty abatement is when the IRS forgives penalties. This is a very common method for settling taxes for less than you owe. In fact, about a third of all IRS penalties are removed at a later date.
A Partial Payment Installment Agreement is when you make payments based on what you can afford rather than the monthly amount required to satisfy the tax debt in full before the CSEDs expire. The balance gets reduced as the statute of collections comes into effect. Under that statute, tax debt expires after a certain period of time (generally 10 years from the date it is assessed). As the expiration date hits, that tax debt is erased, and you are no longer responsible for it.
Why pay the debt if it is just going to expire? Because setting up a payment plan stops the IRS from taking enforced collection actions like the seizure of assets, garnishing your wages, or taking your passport.
Innocent spouse relief is only available to taxpayers who have filed jointly with their spouse. Normally, both spouses are liable for all tax, penalties, and interest, but there are some rare situations where it’s unfair to hold both spouses liable. If you qualify, the IRS still holds the spouse liable, but you aren’t responsible.
Bankruptcy can sometimes eliminate tax debt. You can eliminate certain tax debt through Chapter 7, but it depends on the age of the tax debt and several other factors. Bankruptcy is not always the best option if you solely looking at it to discharge tax debt. Consequently, it generally negatively impacts your credit and forces you to liquidate assets.
If you are looking for tax debt settlement either for IRS or state taxes, call to have a tax professional analyze your financial situation. They can help you figure out which option is best for your situation. There are many different types of tax settlements. It helps to consult with a licensed tax professional.