Understanding Tax Settlements

What You Need To Know Before Settling Back Tax Debt

Sometimes, you need a little bit of help from your friends.

But what if when your tax bill is so high that you’ll need a little bit of help from the IRS to get a tax settlement?

That’s not the best position to be in, but when you’re in over your head with back tax debt, going to the IRS to get a tax settlement may be your only option. You shouldn’t try getting one alone. Work with a tax professional or tax attorney to have a plan and increase your odds of settlement.

The IRS has a few ways for taxpayers to get IRS tax settlements. For each program, you’ll need to be up to date on filing past tax returns so the IRS knows what position you’re in.

The biggest prize regarding IRS tax settlements is the Offer in Compromise. It’s the hardest IRS settlement to get, but gives the biggest reward as these settlements see the biggest reduction in the total tax bill.

The whole process can take months or even years, and an OIC is more suitable for taxpayers with $25,000 or more with back tax debt. There’s a mandatory five-year good behavior period that must be honored after the OIC is granted. So if back taxes pop up during that period, the offer is revoked and your original tax bill is due.

Getting an OIC also extends the 10-year statute of limitations for the IRS to recoup back taxes. The statute of limitations is tolled even if the IRS rejects your OIC.

The IRS also provided another option for getting a tax settlement with the Partial Payment Installment Agreement.

The PPIA enables the IRS to cut deals with back tax debtors and let them enter payment agreements to pay all or most of their back taxes. It used to be that these plans were only available for full payment of the total tax bill.

You’ll have to give the IRS comprehensive and detailed financial information for review. You’ll also have to talk with the IRS about your assets that have equity, to make sure there isn’t any asset that can be used to pay your back tax bill.

Another loop you’ll have to jump through if you want to get an IRS PPIA settlement payment plan is to have your finances reviewed by the IRS every two years. The reviews determine whether your minimum payments should be increased or whether the payment plan should end.

The IRS also provides tax settlements through the form of penalty abatement.

Not paying your tax bill only grows it with accompanying penalties and interest. The interest rate is the short-term rate plus three percent. The penalty for not filing your tax returns is half of one percent of the total tax bill, and gets added every month.

The good news is that you can file Form 843 to try and get a penalty settlement. It’s all up to the IRS, but it’s another option you have to try and lower your total tax bill.

Getting an IRS tax settlement isn’t impossible, but with the help of a tax professional or tax attorney you can make it happen. Check out our website to learn more.

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