A tax settlement is a broad term describing the process of a taxpayer and the IRS coming into agreement to settle a tax liability through one of the IRS programs.
There are several options the IRS has to resolve tax liabilities. The main consideration the IRS takes into account is the taxpayer’s financial ability to pay the tax debt back. This would include the taxpayer’s income and expenses, assets and any extenuating circumstances.
Types of Settlements
Basically tax settlements are in 2 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 a tax settlement where the IRS agrees to take a specified amount of money as a onetime offer to settle the taxpayer’s tax debt. 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. Typically, it will not eliminate interest and it will not reduce the principle of the tax liability that is owed.
Other Settlement Options
If a taxpayer does not qualify for a tax settlement that is less than the amount owed there are two other options:
Installment Agreement
An installment agreement is an agreement with the IRS and taxpayer to pay the tax liability over a specified period of time. The interest will continue to accrue while the installment is in place. An installment agreement can be a streamline if the taxpayer qualifies, if not the installment agreement will be based on the financial ability of the taxpayer to pay the tax debt back and the amount of the tax liability owed.
Uncollectible Status
“Uncollectible” refers to the IRS placing the taxpayers account in a temporary hardship. Typically it is due to the taxpayer becoming unemployed or some other temporary financial hardship where the taxpayer cannot pay the tax liability back in an installment at this time. The IRS will suspend collections until the taxpayer’s financial situation changes. This does not reduce the tax liability nor stop interest from accruing.
Before considering a tax settlement you must be compliant with all tax filings.
For over 20 years, CKTax we has successfully represented thousands of tax payers and businesses in obtaining tax settlement with the IRS.
For a free consultation, where we will thoroughly discuss your unique tax situation and the best possible tax resolution, please call 888-894-2005 or fill out the Free Evaluation form below.